Court Opinion

ID: 9905118
Source: CourtListenerOpinion
Date Created: 2023-11-28 20:00:15.23014+00
Date Added: 2024-06-11T09:22:03.562917
License: Public Domain

DOCUMENT FOR PUBLIC RELEASE.
The decision issued on the date below is subject to an ASBCA Protective Order.
               This version has been approved for public release.

               ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of -                             )
                                         )
Supreme Foodservice GmbH                 )   ASBCA Nos. 58958, 58959, 58982
                                         )              59038, 59164, 59165
                                         )              59391, 59392, 59393
                                         )              59418, 59419, 59420
                                         )              59481, 59615, 59618
                                         )              59619, 59653, 59675
                                         )              59676, 59681, 59682
                                         )              59683, 59830, 59863
                                         )              59867, 59872, 59879
                                         )              60017, 60024, 60250
                                         )              60309, 60365, 60724
                                         )              60832, 61069, 61123
                                         )              61293, 61294, 61319
                                         )              61370, 61837
                                         )
Under Contract No. SPM300-05-D-3130      )

APPEARANCES FOR THE APPELLANT:               John R. Prairie, Esq.
                                             J. Ryan Frazee, Esq.
                                             Sarah B. Hansen, Esq.
                                             Jennifer Eve Retener, Esq.
                                              Wiley Rein LLP
                                              Washington, DC

                                             Bryan T. Bunting, Esq.
                                              Cohen Mohr LLP
                                              Washington, DC

APPEARANCES FOR THE GOVERNMENT:              Daniel K. Poling, Esq.
                                              DLA Chief Trial Attorney
                                             Steven C. Herrera, Esq.
                                             Lindsay A. Salamon, Esq.
                                             Anne P. Steel, Esq.
                                             Ryan P. Hallisey, Esq.
                                             Stacey E. Hirsch, Esq.
                                              Trial Attorneys
                                              DLA Troop Support
                                              Philadelphia, PA
                    DOCUMENT FOR PUBLIC RELEASE.
 The decision issued on the date below is subject to an ASBCA Protective Order.
                This version has been approved for public release.
 OPINION BY ADMINISTRATIVE JUDGE O’CONNELL ON RESPONDENT’S
 MOTION FOR SUMMARY JUDGMENT, MOTION TO STRIKE, AND MOTION
    TO DISMISS, AND APPELLANT’S CROSS-MOTION FOR SUMMARY
  JUDGMENT AND TO DISMISS DLA’S CLAIMS AND MOTION TO AMEND
                         ITS PLEADINGS

       ASBCA Nos. 60250, 60309 and 61370 are affirmative claims by the Defense
Logistics Agency (DLA) on the above-captioned subsistence prime vendor (SPV)
contract. The remaining 38 appeals are claims of the appellant, Supreme Foodservice
GmbH (Supreme). DLA moves for summary judgment on those 38 appeals based on
the doctrine of prior material breach. Supreme opposes that motion but, if the Board
should disagree, Supreme contends that there is no basis for dismissal of appeals if the
claim arose during the last year of performance under a bridge contract. Supreme
further contends that even if the prior material breach doctrine applies it should be able
to seek recovery based on quantum meruit and seeks leave to amend its pleadings in
26 appeals to add a quantum meruit count. Finally, Supreme contends that if the
Board dismisses its claims due to prior material breach, DLA’s claims must be
dismissed as well.

        The Board grants DLA’s motion except as to costs incurred during the bridge
contract and the Panama contract. The Board denies Supreme’s motion to amend its
pleadings to add a quantum meruit theory and dismisses quantum meruit counts that
are already pending. The Board denies Supreme’s motion to dismiss DLA’s claims.

           STATEMENT OF FACTS FOR PURPOSES OF THE MOTION

       These appeals arise from a commercial items contract to furnish and deliver food
and related items in Afghanistan. The Board conducted a hearing from January 15 to
February 14, 2019, concerning the rates per pound Supreme was entitled to be paid for
transporting the goods to forward operating bases (FOBs) by truck, airplane, and
helicopter. The parties refer to the FOB deliveries as premium outbound transportation
(POT). Supreme Foodservice GmbH, ASBCA No. 57884, et al.,
20-1 BCA ¶ 37,618 (Supreme I), reh’g denied,20-1 BCA ¶ 37,716 (Supreme II).

        One of the major issues in those appeals was DLA’s assertion of a prior
material breach defense to Supreme’s claims based on Supreme’s guilty plea to an
information filed in the District Court for the Eastern District of Pennsylvania charging
it with major fraud against the United States, 18 U.S.C. § 1031, and other crimes
arising from its work on the SPV contract. Supreme agreed to a forfeiture, fines, and
restitution totaling $250 million, plus a reconciliation, or true-up, of $38,362,198.71
related to the amounts Supreme had charged DLA for water, which was one of the two

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                       DOCUMENT FOR PUBLIC RELEASE.
    The decision issued on the date below is subject to an ASBCA Protective Order.
                   This version has been approved for public release.
principal subjects of the information. Supreme I, 20-1 BCA ¶ 37,618 at 182,620-21
(findings 203, 210-13).

        After the hearing, the Board considered whether it was necessary to address
DLA’s prior material breach defense because it appeared that the Board could establish
POT rates simply by addressing DLA’s claim that the initial rates were too high and that
it had overpaid Supreme. Supreme I, 20-1 BCA ¶ 37,618 at 182,626-27. But Supreme
joined DLA in requesting that the Board address DLA’s defenses. In its post-hearing
reply brief, Supreme stated that resolving the appeals based simply on the initial DLA
claim was “somewhat problematic” (ASBCA No. 57884, app. reply br. at 37). Supreme
contended that “avoiding the defenses may introduce uncertainty on appeal and delay a
full resolution of this long-running dispute” (id.). Supreme further contended:

               [T]he evidence relating to [DLA’s affirmative defenses] is
               fresh in the minds of the Board and the parties. DLA’s
               defenses can be readily disposed of on jurisdictional
               grounds and/or because they are deficient legally and
               factually. Resolution of these defenses, will also aid the
               parties’ assessment of the many other pending non-POT
               claims to which DLA has asserted many of the same
               defenses, avoiding the risk that the parties must re-litigate
               them years from now. 1

(Id.)

       The Board agreed with the parties that it was appropriate to address DLA’s
prior material breach defense. Even if DLA was the primary claimant, Supreme had a
claim for interest on excess amounts withheld by DLA. In the merits decision, the
Board agreed with Supreme on some of the elements of the disputed costs, which
meant that DLA had withheld too much. Supreme I, 20-1 BCA ¶ 37,618 at 182,627.

       The Board rejected Supreme’s contention that DLA had waived the prior
material breach defense because it continued to allow Supreme to perform after
learning of some aspects of Supreme’s fraud. The Board based its decision, in part, on
the decision of the Court of Appeals for the Federal Circuit in Laguna Construction
Company, Inc. v. Carter, 828 F.3d 1364 (Fed. Cir. 2016). In Laguna, the Federal
Circuit held that it was reasonable for the agency to wait to assert the prior material
breach defense until after an executive of the company entered a guilty plea, more than
two and a half years after completion of the physical work on the contract. Supreme I,
20-1 BCA ¶ 37,618 at 182,628 (citing Laguna, 828 F.3d at 1372).

1
    The non-POT claims are those captioned above and which are the subject of the
         pending cross motions. They were stayed during the POT litigation.
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                       DOCUMENT FOR PUBLIC RELEASE.
    The decision issued on the date below is subject to an ASBCA Protective Order.
                   This version has been approved for public release.
         Based on the Board’s findings, the parties stipulated that DLA had overpaid
POT costs to Supreme by $397,854,788.45 and that DLA had withheld
$540,832,442.70. The Board issued a decision finding that Supreme was entitled to
the difference: $142,977,654.25. Supreme Foodservice GmbH, ASBCA No. 57884,
et al., 2021 WL 1086603, at *2 (Mar. 2, 2021). 2

         Supreme filed an appeal with the Federal Circuit on May 12, 2021.

      Two days later, on May 14, 2021, DLA filed the present motion seeking,
among other things, summary judgment on Supreme’s 38 affirmative claims based on
the Board’s determination that Supreme had committed a prior material breach.

        Supreme filed an opposition, informing the Board that it intended to challenge
the following three rulings at the Federal Circuit: 1) that DLA did not waive its prior
material breach defense; 2) that CDA interest on amounts over-withheld by the
government was a contractor claim subject to the government’s affirmative defenses;
and 3) that Supreme’s breach of “the original SPV Contract” was also a breach of what
Supreme called “the two subsequently-awarded bridge contracts” (app. opp’n. at 2). 3
Supreme requested that the Board defer ruling on DLA’s motion until after the Federal
Circuit issued a decision.

       The Board deferred ruling on DLA’s summary judgment motion as Supreme
requested.

       The Federal Circuit affirmed the Board’s decision. Supreme Foodservice
GmbH v. Dir. of Def. Logistics Agency, 54 F.4th 1362 (Fed. Cir. 2022) (Supreme III).
The Court held that DLA did not have a known right until Supreme entered its guilty
plea in December 2014 and could not have waived its prior material breach defense
before that plea, even if DLA knew about some aspects of the fraud in 2009. Id.
at 1368. The Court held that Supreme’s demand for interest on the amounts withheld
by DLA was a contractor claim that was subject to DLA’s prior material breach
defense. Id. at 1368-70. The Court rejected Supreme’s contention that the extension
of the contract from December 2010 to December 2012 was a bridge contract that
should be treated as a separate contract for purposes of DLA’s prior material breach

2
  In the joint stipulation, DLA informed the Board that its claims against Supreme in
        ASBCA Nos. 60250, 60309, and 61370 totaled $88,494,087.78 and that it
        anticipated that the Defense Finance and Accounting Service would continue to
        withhold payment of this amount to Supreme, as well as any applicable interest
        or fees on the $397,854,788.45 overpayment. 2021 WL 1086603, at *2 n.4.
3
  Supreme’s original opposition to the government’s motion for summary judgment is
        referred to herein as “app. opp’n at ___.”
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                       DOCUMENT FOR PUBLIC RELEASE.
    The decision issued on the date below is subject to an ASBCA Protective Order.
                   This version has been approved for public release.
defense. Id. at 1370. Finally, the Court affirmed the Board’s ruling that the final
extension from December 2012 to December 2013 was a bridge contract but that
Supreme should not be allowed to treat the bridge contract “as separate only when it
attempts to evade the government’s affirmative defenses.” Id.

      The Federal Circuit issued its mandate on March 15, 2023. On March 31, 2023,
Supreme filed a supplemental opposition 4 to DLA’s motion and a cross-motion for
summary judgment and to dismiss DLA’s claims. Supreme also filed a motion to
amend its pleadings in 26 of the appeals to add a count for quantum meruit.

       Supreme alleges that the 38 appeals containing its affirmative claims
collectively are worth more than $384 million (app. opp’n at 6-7). The Board does not
believe that it is necessary to describe the contentions in each appeal, although we
believe it is helpful to place them into categories.

       For purposes of the pending motions, the Board will classify the appeals as
follows: 1) appeals where Supreme’s costs were incurred from the time of award in
June 2005 until the original contract (including the two-year extension) expired on
December 12, 2012; 2) appeals where Supreme incurred costs during both the original
contract term and during the bridge contract; 3) appeals where Supreme incurred the
costs solely during the bridge contract (December 13, 2012 to December 12, 2013);
4) Supreme’s claim for unpaid costs on a separate SPV contract in Panama; and 5) the
three appeals that are affirmative DLA claims. The Board will provide short
descriptions of appeals that illustrate the five categories.

         Category 1

         ASBCA No. 58959 – Tri-walls - $21,396,073

        Supreme alleges that in Modification No. P00010, the contracting officer (CO)
definitized the price for heavy-duty cardboard boxes (tri-walls) used to ship food to the
FOBs at $241 for chilled tri-walls and $302 for frozen tri-walls. DLA made some
payments to Supreme but did not pay for the tri-walls used in the deliveries from
December 20, 2010 to December 12, 2012. (Appellant’s statement of genuine issues
of material fact (ASGIMF) at 33-37).

         ASBCA No. 59653 – DBA Insurance - $24,172,488.62

       Supreme alleges that through an October 2008 contract modification, DLA
required Supreme to provide Defense Base Act insurance to covered personnel.

4
    Supreme’s supplemental opposition to the government’s motion for summary
         judgment will be referred to herein as “app. supp. opp’n at ___.”
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                    DOCUMENT FOR PUBLIC RELEASE.
 The decision issued on the date below is subject to an ASBCA Protective Order.
                This version has been approved for public release.
Supreme provided the insurance but DLA failed to pay for the costs of the insurance
incurred between 2009 and 2012. (ASGIMF at 74-78).

      Category 2

      ASBCA No. 59615 – Water Transport - $74,300,020

       Supreme alleges that in late 2009 DLA directed Supreme to purchase its water
supply from local Afghan sources. Despite extensive negotiations from late 2009 to
October 2012, the parties failed to agree on a price. DLA failed to pay Supreme for
water transported from local sources to Supreme’s Helmand Regional Distribution
Center (HRDC) from October 2009 to October 2013. (ASGIMF at pp. 70-74).

      Category 3

      ASBCA No. 59676 – Tri-walls - $6,508,842

        Same facts as ASBCA No. 58959 described in Category 1 above but the period
at issue is the bridge contract: December 13, 2012 to December 12, 2013 (ASIGMF
at pp. 33-37).

      ASBCA No. 59867 – DBA Insurance - $8,353,765.76

       Same facts as ASBCA No. 59653 described above, but the Defense Base Act
insurance was provided during the bridge contract (ASGIMF at pp. 74-78).

      Category 4

      ASBCA No. 61123 – SPV Panama - $5,415,718.79

       Supreme alleges that on June 1, 2012, DLA awarded Supreme a separate SPV
contract to be performed in Panama. Supreme delivered food and other items as
requested by DLA. DLA approved Supreme’s invoices and paid some of them but did
not pay the amount listed above. (ASIGMF at 116-18). In response to an inquiry by
Supreme, on May 24, 2016, the CO explained the non-payment by stating that it was
“due to a debt that Supreme owes the Government,” which, as Supreme states,
presumably related to the Afghanistan SPV contract (ASIGMF at 118). In its answer,
DLA discusses its affirmative defenses on the Afghanistan contract at great length and
seems to contend that they are applicable to the Panama contract (answer at 6-25).

      Category 5

      ASBCA No. 61370 – Performance based distribution fees - $49,322,986

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                    DOCUMENT FOR PUBLIC RELEASE.
 The decision issued on the date below is subject to an ASBCA Protective Order.
                This version has been approved for public release.

        DLA alleges in its complaint that the contract provided for performance-based
distribution fees (PBDF). If during a six-month period the CO rated Supreme’s
performance as good, Supreme would be entitled to the standard PBDF provided for
by the contract. If the CO rated Supreme as excellent, Supreme would be entitled to a
5% increase in the fee. On the other hand, if the CO rated Supreme’s performance as
fair, the fee would be decreased by 5%. From December 2005 until December 2010,
the CO rated Supreme’s performance as either good or excellent. In an October 11,
2017 final decision, she stated that, if she had known about Supreme’s fraud and other
misconduct on the contract, she would have rated Supreme’s performance as “fair.”
She reduced the fees based on revised assessments of fair and demanded the return of
$49,322,986. (Compl. ¶¶ 2-6, 21).

                                       DECISION

  I.   Supreme is Bound by the Board’s Ruling of Prior Material Breach for Work
          Performed on the SPV Contract Through December 12, 2012

         A. From Award to Expiration of the Original Contract on December 12, 2012

        Having received what it asked for – a ruling on prior material breach – Supreme
is dissatisfied and does not wish to abide by the rulings of the Board and Federal
Circuit. In Supreme’s opposition to DLA’s motion for summary judgment, Supreme
contended that “[e]ach of the 38 appeals [of Supreme’s affirmative claims] involves its
own unique set of facts, circumstances and events that occurred at various times
throughout Supreme’s eight years of performance, and are unrelated to transactional
facts germane to the POT appeal” (app. opp’n at 19). Given these differences,
Supreme contended that “the Board may well find that DLA’s conduct in connection
with Supreme’s other claims constituted a waiver of Supreme’s first material breach
for purposes of one or more of those appeals” (id. at 20). Supreme spent the next
23 pages of its brief discussing the discrete appeals and suggesting reasons why the
Board might rule that DLA had waived its prior material breach defense in those
appeals. Typically, the contention was that DLA ordered the work after knowing
about some aspects of Supreme’s fraud (e.g., id. at 22-25), which is the same argument
Supreme made in the POT appeals.

       In its supplemental brief filed after the Federal Circuit’s decision, Supreme
recognizes that this argument is no longer viable. Supreme acknowledges that “one
could read the Federal Circuit decision as holding that DLA’s knowledge of
Supreme’s conduct prior to the plea is effectively irrelevant to the waiver inquiry . . . .”
(app. supp. opp’n at 2). Indeed, that is exactly how we read the Federal Circuit’s
decision.

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                       DOCUMENT FOR PUBLIC RELEASE.
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                   This version has been approved for public release.
       Supreme continues to make a second argument that it contends is not affected
by the Federal Circuit’s ruling (app. supp. opp’n at 26). Supreme contends that it is
“well-settled” that different aspects of the work under a contract can be divisible or
severable such that a material breach of one portion does not necessarily “taint” other
parts of the contract (app. opp’n at 44). Supreme cites, for example, Bulova Tech.
Ordn. Sys. LLC, ASBCA No. 57406, 14-1 BCA ¶ 35,521 at 174,098-99, a default
termination of a foreign military sales contract in which the Board held that sales of
various weapons to a foreign country could be treated as severable because the
weapons were purchased from vendors in different countries and were otherwise
unrelated.

       Supreme correctly states that the SPV contract did not require Supreme to
deliver to the FOBs when it was awarded (app. opp’n at 45). Rather, it required
Supreme to deliver only to four large bases. Supreme I, 20-1 BCA ¶ 37,618 at 182,600
(finding 23). In Supreme’s view, because the FOB deliveries were a discrete add-on to
the contract, and because the fraud related to that work, the Board should sever this
work from the rest of the contract and allow Supreme to pursue its claims for work not
tainted by fraud (app. opp’n at 45-46).

        While the Board will not rule on Supreme’s factual contentions, we observe
that if Supreme is contending that the fraud occurred only on the FOB deliveries, there
is no support for this in the agreed statement of facts attached to the guilty plea
agreement (ASBCA No. 57884, R4, tab 633 at 14-16). Supreme did not start FOB
deliveries until November 2005 at the earliest but the agreed statement of facts states
that the bottled water fraud started in July 2005 (id. at 16; Supreme I, 20-1 BCA
¶ 37,618 at 182,601 (finding 33). 5

        In any event, the Board does not find any support for treating fraud as severable
from contract work not tainted by fraud. See, e.g., Joseph Morton Co., Inc. v. United
States, 757 F.2d 1273, 1277-78 (Fed. Cir. 1985) (rejecting contractor’s proposed test
that would balance a single change order tainted by fraud against hundreds of changes
performed without fraud). In fact, it is possible for the breach of contract action and
the fraud to involve completely different aspects of the contract work.

5
    The fraudulent water price listed in the guilty plea agreement was $6.45 per case
         (ASBCA No. 57884, R4, tab 633 at 16). DLA traces that price back to a
         different contract, and a September 26, 2004 quote from Supreme as
         subcontractor to Public Warehousing Company (PWC), a prime contractor
         (ASBCA No. 57884, R4, tab 715 at 2). On November 30, 2004, DLA
         incorporated the $6.45 price into its contract with PWC (ASBCA No. 57884,
         R4, tab 434 at 2). This was more than six months before the award of the SPV
         contract to Supreme and roughly one year before Supreme began making FOB
         deliveries. Supreme I, 20-1 BCA ¶ 37,618 at 182,600-01 (findings 22, 33).
                                               8
                    DOCUMENT FOR PUBLIC RELEASE.
 The decision issued on the date below is subject to an ASBCA Protective Order.
                This version has been approved for public release.

       For example, in Laguna, the contract claim arose from 14 unpaid vouchers on
11 task orders. While it was clear that the contractor had accepted kickbacks on
several of the task orders, the government could not show that the contractor had
accepted kickbacks on all 11 task orders. The Board held that this was not necessary
because any degree of fraud in the submission of vouchers is a material breach of the
contract. By accepting kickbacks, the contractor had committed a prior material
breach that excused the government’s obligation to pay, even though some of the
vouchers at issue were on task orders that were not tainted by the kickbacks. Laguna
Constr. Co., ASBCA No. 58324, 14-1 BCA ¶ 35,748 at 174,948-49; Laguna, 828 F.3d
at 1367, 1372.

       Similarly, in Long Island Sav. Bank, FSB v. United States, 503 F.3d 1234, 1241
(Fed. Cir. 2007) the litigation at the Court of Federal Claims arose from the enactment
of the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), which restricted the ability of banks to count supervisory goodwill and
capital credit toward compliance with their tangible capital requirements. Generally,
these “Winstar” cases involved an allegation by a bank that the government had
promised the supervisory goodwill to the buyers of the bank when they entered into
merger transactions. The prior material breach ruling (which nullified a $435 million
judgment in the bank’s favor) arose from undisclosed compensation that the bank
president received from a law firm that represented the bank. The undisclosed
compensation had no relationship whatsoever to the congressional enactment of
FIRREA. Id. at 1239-41, 1243, 1251-52.

        Accordingly, the Board agrees with DLA that Supreme’s fraud is not severable
from the remainder of its work on the SPV contract, even if some of that work was not
directly tainted by the fraud. The Board holds that Supreme’s prior material breach
through its fraud relieves DLA of its obligation to pay any of Supreme’s claims for
work performed on the Afghanistan SPV contract during the original contract term,
that is, until December 12, 2012.

                                           9
                    DOCUMENT FOR PUBLIC RELEASE.
 The decision issued on the date below is subject to an ASBCA Protective Order.
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      B. The Panama SPV Contract

        DLA has had the opportunity to justify its withholding on the Panama contract
in the three briefs it has submitted in connection with the pending cross motions. DLA
has not done so. The Board gathers from the CO’s reference to a debt on another
contract that DLA withheld the $5,415,718.79 in case the amounts it had withheld on
the Afghanistan SPV contract were not enough to cover Supreme’s debt to the
government. The government has a right to offset debts on one contract against
amounts owed on another contract. Agility Public Warehousing Co., K.S.C.P. v.
United States, 969 F.3d 1355, 1365-66 (Fed. Cir. 2020). However, based on the
stipulated judgment in which the parties agreed that DLA had over-withheld by
$142,977,654.25, there is no longer any reason for a withholding on a separate
contract.

        The Board also recognizes that DLA’s answer could be read as contending that
DLA’s breach of the Afghanistan SPV contract somehow carries over to other
contracts Supreme had with the government and allows the government to decline to
pay on the Panama contract even if the contractor did not breach that contract. DLA
has not cited any precedent in support of such a contention. The general rule is that
when a party breaches a contract, only the exchange of performances on that contract
is affected by the breach; duties under separate contracts are not affected. Nat’l
Farmers Org. v. Bartlett & Co., Grain, 560 F.2d 1350, 1357 (8th Cir. 1977) (citing 3A
CORBIN ON CONTRACTS § 696 (1960) for the proposition that “[i]t is well established
that the breach of one contract does not justify the aggrieved party in refusing to
perform another separate and distinct contract.”); RESTATEMENT (SECOND) OF
CONTRACTS § 237 cmt. E (1981); 13 WILLISTON ON CONTRACTS § 39:2 (4th ed.)
(“A party to a contract is not excused for nonperformance because the other party to
the contract has breached a separate contract between them . . . .”)

    Accordingly, Supreme is entitled to summary judgment on the Panama contract,
ASBCA No. 61123.

      C. The Bridge Contract

        The rule discussed above in the Panama section could be summarized as the
“separate contracts are separate contracts” rule. However, in Supreme I, under unique
facts, the Board made an exception to this rule.

       In Supreme I, the Board found that the contract in place from December 13,
2012, to December 12, 2013, was a bridge contract, not an extension of the original
contract. The Board described the close association between the original contract and
the bridge contract, finding among other things, that the bridge contract had the same

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                       DOCUMENT FOR PUBLIC RELEASE.
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                   This version has been approved for public release.

parties, used the same contract number, required Supreme to do the same work, and
incorporated all terms, conditions, and modifications of the original contract.
Supreme I, 20-1 BCA ¶ 37,618 at 182,629-30. On appeal, the government did not
dispute that Supreme performed the final year under a bridge contract. Supreme III,
54 F.4th at 1370.

       One of the shortcomings of Supreme’s presentation was that it did not present
any proof of its POT costs for the period from September 2010 to December 2013.
Supreme I, 20-1 BCA ¶ 37,618 at 182,618 (finding 190). Thus, in addition to the close
connections between the two contracts described in the previous paragraph, Supreme
treated the contracts as so closely connected or intertwined for POT purposes that it
needed not present any proof of the costs for which it was seeking to be paid. The
Board held that, under these unique circumstances, DLA could apply its prior material
breach defense to the bridge contract. Id. at 182,629-30. The Federal Circuit
affirmed, holding that “[w]e agree that we should not allow Supreme to treat the
bridge contract as separate only when it attempts to evade the government’s
affirmative defenses.” Supreme III, 54 F.4th at 1370.

        The Board made the above ruling after a month-long hearing and after the
record had closed. Thus, it was a finding based on the Board’s examination of the
entire record. By contrast, litigation of the non-POT appeals is still in the discovery
stage. Supreme may still be in a position to prove its costs during the bridge contract.
Accordingly, Supreme may be able to avoid “treat[ing] the bridge contract as separate
only when it attempts to evade the government’s affirmative defense.” Supreme III,
54 F.4th at 1370.

       The Board denies DLA’s motion for summary judgment for work performed
during the bridge contract.

II.      Supreme’s Quantum Meruit Theory

       Supreme has pled a quantum meruit theory in six appeals 6 . It has also filed a
motion seeking leave to amend its complaints to add a quantum meruit theory in a
further 26 appeals. 7

6
  ASBCA Nos. 59615, 59681, 59683, 60365, 61293, and 61294 (app. opp’n at 52
     (citing ASGIMF ¶¶ 103, 118, 128, 152, and 183)).
7
  ASBCA Nos. 58958, 58959, 58982, 59083, 59164, 59165, 59391, 59392, 59419,
     59420, 59618, 59619, 59653, 59675, 59676, 59682, 59830, 59863, 59867,
     59872, 59879, 60832, 61069, 61123, 61319 and 61837 (app. mot. to amend
     at 1, n.1).
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                    DOCUMENT FOR PUBLIC RELEASE.
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       Supreme’s theory is straightforward: it contends that it did the work and,
therefore, it should be paid. Under this argument, the prior material breach doctrine is
just a minor nuisance that can be overcome by adding a few paragraphs to its
complaints. Supreme cites the Federal Circuit’s decision in United States v. Amdahl
Corp., 786 F.2d 387, 392-93 (Fed. Cir. 1986). In Amdahl, after an agency exceeded its
authority in awarding a contract, the Court held that the contract was void but the
contractor, who was not the cause of the violation of law, could recover under a
quantum meruit theory.

       The Board rejects Supreme’s quantum meruit argument. First, the “Board
generally does not have jurisdiction to grant relief to a party who sues to recover
compensation on a quantum meruit basis, which is an action on a contract implied in
law.” Protec GmbH, ASBCA No. 61161, et al., 18-1 BCA ¶ 37,064 at 180,420
(quoting Cousins Contracting, Inc., ASBCA No. 50382, 97-1 BCA ¶ 28,906
at 144,111 and citing Int’l Data Prods. Corp. v. United States, 492 F.3d 1317, 1325-26
(Fed. Cir. 2007)). There is an exception to that general rule when the government
seeks to avoid payment on the grounds that a contract is illegal or void ab initio. Id.

        The Board has already ruled in Supreme I , 20-1 BCA ¶ 37,618 at 182,636-37,
that the contract was not void ab initio. Further, DLA is not trying to avoid payment
based on an assertion that the contract was illegal.

        Second, the Federal Circuit has rejected a quantum meruit claim in a case with
comparable facts. In Veridyne Corp. v. United States, 758 F.3d 1371 (2014), a
contractor fraudulently obtained a contract extension by deliberately understating the
value of the work to be performed. Id. at 1374-75. After the agency learned of the
fraud and issued a stop work order, the contractor submitted a claim for eight unpaid
invoices. Id. at 1375. The Court of Federal Claims ruled that the contractor had
forfeited its direct contract claims under the Special Plea in Fraud statute, 28 U.S.C.
§ 2514, but held that the contractor could recover on a quantum meruit basis for more
than $1 million of work performed before the agency issued the stop work order. Id.
at 1376.

        The Federal Circuit reversed the trial court’s quantum meruit ruling. The Court
held that when a cause of action based on the express contract has been forfeited due to
fraud, an alternative theory based on quantum meruit is also unenforceable. Veridyne,
758 F.3d at 1377 (citing Mervin Cont. Corp. v. United States, 94 Ct. Cl. 81, 86-87
(1941)). The Federal Circuit rejected the contractor’s reliance on Amdahl, explaining
that Amdahl protects the “innocent contractor,” not those who have committed fraud.
Id. at 1378 (citing Amdahl, 786 F.2d at 392-93, 395)). The Board and courts have
reached comparable results in several other cases. Rankin v. United States, 98 Ct. Cl.
357, 364-67 (1943) (although government was charged a market rate for leased space,
the conflict of interest of a government employee involved in the award meant that

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plaintiff could not recover on either an express or an implied contract theory);
Dongbuk R&U Eng’g Co. , ASBCA No. 58300, 13 BCA ¶ 35,389 at 173,639 (“The
fact that the government received some benefit does not relieve Dongbuk from the
consequences of its fraud. When one has been guilty of fraud, one cannot recover in
any form of action.”) (citing Atlantic Contracting Co. v. United States, 57 Ct. Cl. 185,
197 (1922)); Atlantic Contracting, 57 Ct. Cl. At 196 (calling it a “preposterous
proposition” that the plaintiff should recover under quantum meruit after convictions
for defrauding and embezzling from the government.).

        The Board sees no logical or just reason why the Veridyne contractor’s quantum
meruit claim should fail but Supreme’s should survive. While the Special Plea in Fraud
statute is not applicable at the Board, the Board holds that the Federal Circuit’s ruling in
Veridyne provides compelling authority for these appeals. Both Veridyne and Supreme
involve fraud. While the former involved the Court of Federal Claims’ own determination
of fraud, in Supreme the government obtained a guilty plea in a district where it would
have had to prove its case beyond a reasonable doubt, a higher standard than required by
the Special Plea in Fraud, which is clear and convincing evidence. Kellogg Brown & Root
Servs., Inc. v. United States, 728 F.3d 1348, 1365 (Fed. Cir. 2013). The district court
guilty plea, therefore, is at least as meaningful as a finding of civil fraud at the Court of
Federal Claims.

       Moreover, while the Veridyne analysis was based in large part on the Special
Plea statute, the Veridyne Court observed that Amdahl did not extend quantum meruit
recovery to cases involving “fraud and the like,” see 758 F.3d at 1377 (quoting
Amdahl, 786 F.2d at 395 n.8)). It is impossible to read Veridyne and Amdahl and
conclude that the policy and equity concerns that drove those decisions would support
compensation of Supreme as if it were an “innocent contractor.” It is also difficult to
read Laguna and conclude that the contractor could have recovered if it had merely
added a quantum meruit count to its complaint.

       Accordingly, the Board declines to decimate the prior material breach doctrine
by permitting recovery under quantum meruit. The Board adopts the Federal Circuit’s
reasoning in Veridyne and holds that Supreme may not recover under quantum meruit.

       Under Board Rule 6(d), the Board may grant leave to amend a pleading “upon
conditions fair to both parties.” For guidance, the Board looks to decisions
interpreting Fed. R. Civ. Proc. 15, and one basis for denying an amendment under that
Rule is if the amendment would be futile. Public Warehousing Co. K.S.C., ASBCA
No. 57510, 17-1 BCA ¶ 36,700 at 178,720; Cultor Corp. v. A.E. Staley Mfg. Co.,
224 F.3d 1328, 1333 (Fed. Cir. 2000). The Board holds that because Supreme cannot
recover under its quantum meruit theory, the proposed amendments would be futile.
See also Relyant, LLC, ASBCA No. 59809, 18-1 BCA ¶ 37,085 at 180,534 (denying
request to amend complaint to include a contract implied in law).

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      Accordingly, the Board denies Supreme leave to amend its complaints to add a
quantum meruit theory.

III.   DLA’s AFFIRMATIVE CLAIMS SURVIVE

       Supreme contends that if its claims are dismissed, DLA’s claims must be
dismissed as well. Supreme contends that DLA has elected “to treat the contracts as
void,” which means that “the contracts are unenforceable for both parties.” (App.
supp. opp’n at 34 (emphasis omitted)). However, in making these contentions,
Supreme is mistaken about the prior rulings of the Board and the Federal Circuit, and
the application of the prior material breach doctrine.

        In Supreme I, the Board analyzed DLA’s prior material breach contentions in
light of the Federal Circuit’s decision in Laguna, as described above. However, the
Board also analyzed a second line of cases advanced by Supreme in which the prior
material breach occurred during performance and the non-breaching party had to elect
whether it would continue to perform, in which case it risked waiving the right to
assert the prior material breach. Supreme I, 20-1 BCA ¶ 37,618 at 182,627-28 (citing,
inter alia, Barron Bancshares, Inc. v. United States, 366 F.3d 1360, 1383 (Fed. Cir.
2004) and Long Island, 503 F.3d at 1252). The Board rejected Supreme’s contentions,
holding that DLA did not expressly or impliedly waive its right to assert the breach.
Id. at 182,628.

       The Board also rejected Supreme’s arguments based on another case, Northern
Helex Co. v. United States, 455 F.2d 546, 551-52 (Ct. Cl. 1972) in which the Court of
Claims discussed a variation on the waiver rule that examines whether it was
commercially reasonable for the non-breaching party to continue performance. The
Board rejected this argument as well because continuing with Supreme was DLA’s
only practicable choice at the time. Supreme I, 20-1 BCA ¶ 37,618 at 182,629.

       At the Federal Circuit, Supreme again contended that DLA had waived its prior
material breach defense when it continued to perform after it learned of the fraud
allegations in 2009 and it again cited the Barron Bancshares line of cases and
Northern Helex (corrected brief of appellant at 34-60, Supreme III, 54 F.4th 1362
(2021-1965)). As already described, the Federal Circuit rejected all of Supreme’s
arguments, holding that DLA did not have a known right to invoke the prior material
breach doctrine until after Supreme pled guilty, which was after contract performance
concluded. Supreme III, 54 F.4th at 1368.

       Based on the rulings in Supreme I and Supreme III, the cases requiring the non-
breaching party to elect its remedy during performance have little relevance here
because DLA did not have a known right to assert prior material breach until after the
contract work had ended and Supreme pled guilty. Nevertheless, in its cross motion,

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Supreme continues to press a version of the arguments already rejected by the Board
and Federal Circuit and continues to rely on the same or similar cases. For example,
Supreme repeatedly cites from a section of Northern Helex in which the Court of
Claims discussed the general rule that when a party breaches during performance the
non-breaching party must elect whether to claim total breach, or to continue
performing and risk waiving that right. Northern Helex, 455 F.2d at 551-54. Not only
did the Court of Claims reject application of that rule in Northern Helex, id. at 553-54,
but both we and the Federal Circuit have rejected it with respect to Supreme, as
already stated.

       One of the flaws in Supreme’s argument, is that it keeps describing the contract
as “void.” It goes as far as stating in its motion to amend that the Federal Circuit held
that DLA “can treat the contracts as void for Premium Outbound Transportation
purposes” (app. mot. to amend at 1). But the Federal Circuit never used the word
“void.” The Board did consider DLA’s contention that the contract was void ab initio
due to Supreme’s fraud, but we rejected this contention as Supreme urged us to.
Supreme I, 20-1 BCA ¶ 37,618 at 182,636-37. Neither party appealed that
determination, and it is now final and binding.

        Even if we had not made that ruling , Supreme would be mistaken when it
describes the contract as “void.” In Long Island, the Federal Circuit first considered
whether the contract was void ab initio due to false certifications, concluding that it
was. 503 F.3d at 1251. But, in considering the government’s alternate argument of
prior material breach, the Court made it clear from the beginning of this section of the
opinion that the prior material breach doctrine applied “[e]ven if the contract were not
void . . . .” Id.

       In both Long Island, 503 F.3d at 1251, and another prior material breach case,
Christopher Village, L.P. v. United States, 360 F.3d 1319, 1334 (Fed. Cir. 2004), the
Federal Circuit relied upon Restatement (Second) of Contracts § 237. This section
speaks of the contract not as being void, but rather states that a material breach by one
party “discharges” the other party’s duty to perform. Id. at § 237 cmt. a.; accord Long
Island, 503 F.3d at 1252 (applying Restatement § 242 for determining when an
uncured material breach discharges the other party’s duty to perform).

        The Restatement illustrates how the doctrine functions at its most basic level.
An owner contracts with a builder to construct a building. The contract provides for
monthly payments. During performance, the owner stops making payments without
justification. Unless the owner quickly resumes making payments, the duties of the
builder to continue performance are discharged and it has a cause of action against the
owner for total breach. RESTATEMENT (SECOND) OF CONTRACTS § 237, cmt. a,
illustrations 1 and 2.

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        Now we add one fact. At the time the owner stopped making payments, the
builder already had a claim against the owner for $1 million due to extra work
performed earlier in the project. According to Supreme’s logic, when the builder stops
work due to the owner’s material breach through nonpayment, the contract is void,
which means that neither party can enforce the contract. This, in turn, would mean
that the builder must relinquish its pending $1 million claim. The Board sees no
support for this contention.

        Even the inapplicable cases cited by Supreme that require the non-breaching
party to make an election of remedies during performance make it clear that the
election doctrine is concerned with damages moving forward, not those already
incurred. In Northern Helex, the Court of Claims stated that as “a general proposition,
one side cannot continue after a material breach by the other (such as failure to pay),
act as if the contract remains fully in force (although stopping performance would be
fair and convenient), run up damages, and then go suddenly to court.” 455 F.2d
at 551. Northern Helex, at first blush, seemed to be a textbook example of these
concerns, because the contractor continued to deliver helium to the government even
after the government’s failure to pay over an extended period of time, which
seemingly ran up the contractor’s damages. Id. at 549-50. The Court of Claims
rejected the government’s waiver argument, however, because the unique nature of the
plaintiff’s business required it to continue producing helium. Id. at 551; see Old Stone
Corp. v. United States, 450 F.3d 1360, 1373 (Fed. Cir. 2006) (explaining that the
“election doctrine is designed to avoid the very kind of moral hazard that would result
here if the thrift could postpone repudiation of the contract for several years, bet that it
could make the thrift profitable, but secure restitution if the thrift failed.”).

      Accordingly, the Board holds that when DLA acquired a known right in
December 2014 upon Supreme’s guilty plea, DLA’s assertion of the prior material
breach defense did not result in the waiver or forfeiture of DLA claims that arose prior
to December 2014.

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                                     CONCLUSION

        The Board grants DLA’s motion for summary judgment with respect to
 Supreme’s appeals that seek costs incurred prior to December 13, 2012, except for
 ASBCA No. 61123, the Panama contract, for which the Board grants Supreme
 summary judgment and except for No. 59420 for which the Board defers its ruling. 8
 Supreme’s motion to amend is denied. Supreme’s cross-motion for summary
 judgment and motion to dismiss are denied other than with respect to the Panama
 contract.

           Dated: November 8, 2023

                                               MICHAEL N. O’CONNELL
                                               Administrative Judge
                                               Vice Chairman
                                               Armed Services Board
                                               of Contract Appeals

I concur                                        I concur

RICHARD SHACKELFORD                             J. REID PROUTY
Administrative Judge                            Administrative Judge
Acting Chairman                                 Vice Chairman
Armed Services Board                            Armed Services Board
of Contract Appeals                             of Contract Appeals

 8
     The Board grants DLA summary judgment on ASBCA Nos. 58958, 58959, 58982,
          59038, 59164, 59165, 59391, 59392, 59393, 59418, 59481, 59653, 59681,
          59682, 60017, 60724, 61293, and 61837. The Board grants DLA partial
          summary judgment for costs incurred up to December 12, 2012 on ASBCA
          Nos. 59615, 59675, 60365, 60832, and 61294.

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      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 58958, 58959, 58982,
59038, 59164, 59165, 59391, 59392, 59393, 59418, 59419, 59420, 59481, 59615, 59618,
59619, 59653, 59675, 59676, 59681, 59682, 59683, 59830, 59863, 59867, 59872, 59879,
60017, 60024, 60250, 60309, 60365, 60724, 60832, 61069, 61123, 61293, 61294, 61319,
61370, 61837, Appeals of Supreme Foodservice GmbH, rendered in conformance with
the Board’s Charter.

      Dated: November 9, 2023

                                              PAULLA K. GATES-LEWIS
                                              Recorder, Armed Services
                                              Board of Contract Appeals

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