Court Opinion

ID: 4414821
Source: CourtListenerOpinion
Date Created: 2019-07-09 15:00:50.360238+00
Date Added: 2024-06-11T14:23:22.424198
License: Public Domain

NOTE: This disposition is nonprecedential.

  United States Court of Appeals
      for the Federal Circuit
                ______________________

            SECRETARY OF THE ARMY,
                   Appellant

                           v.

   KELLOGG BROWN & ROOT SERVICES, INC.,
                   Appellee
            ______________________

                      2018-1022
                ______________________

    Appeal from the Armed Services Board of Contract Ap-
peals in Nos. 56358, 57151, 57327, 58583, Administrative
Judge Lynda T. O’Sullivan, Administrative Judge Owen C.
Wilson, Administrative Judge Richard Shackleford.
                 ______________________

                 Decided: July 9, 2019
                ______________________

     WILLIAM JAMES GRIMALDI, Commercial Litigation
Branch, Civil Division, United States Department of Jus-
tice, Washington, DC, argued for appellant. Also repre-
sented by ROBERT EDWARD KIRSCHMAN, JR., PATRICIA M.
MCCARTHY, JOSEPH H. HUNT; CHRISTINALYNN E. MCCOY,
RAYMOND M. SAUNDERS, United States Army, Fort Belvoir,
VA.

   JASON NICHOLAS WORKMASTER, Miller & Chevalier
2                     SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                            ROOT SERVS., INC.

Chartered, Washington, DC, argued for appellee. Also rep-
resented by RAYMOND B. BIAGINI, HERBERT L. FENSTER,
ALEJANDRO LUIS SARRIA, Covington & Burling LLP, Wash-
ington, DC.
               ______________________

    Before PROST, Chief Judge, LOURIE and STOLL, Circuit
                          Judges.
STOLL, Circuit Judge.
    The Secretary of the Army appeals the decision of the
Armed Services Board of Contract Appeals granting Kel-
logg Brown & Root Services Inc. (KBR) summary judgment
of breach of contract and an award of $44,059,024.49 plus
interest. We affirm.
                        BACKGROUND
    In December 2001, the Army awarded Contract 0007 in
the U.S. Army’s Logistics Civil Augmentation Program
(“LOGCAP III contract”) to KBR. The LOGCAP III con-
tract called for KBR to provide various logistical non-com-
bat services in support of the Army. It also stated that the
Army would provide protection for KBR and its subcontrac-
tors while performing these services:
     H-16 Force Protection
     While performing duties [in accordance with] the
     terms and conditions of the contract, the Service
     Theatre Commander will provide force protection
     to contractor employees commensurate with that
     given to Service/Agency (e.g. Army, Navy, Air
     Force, Marine, DLA) civilians in the operations
     area unless otherwise stated in each task order.
J.A. 868 (alteration in original). Clause H-21 of the con-
tract also forbade the use of “personally owned firearms”
by “[c]ontractor personnel.” J.A. 869.
SEC’Y OF THE ARMY v. KELLOGG BROWN &                        3
ROOT SERVS., INC.

    Following the invasion and occupation of Iraq in March
2003, the Army directed KBR to perform several duties un-
der the LOGCAP III contract, including establishing and
operating dining facilities in the region to feed the troops.
Shortly after the occupation began, Iraqi insurgents began
conducting attacks on KBR convoys throughout the coun-
try. Initially, the Army did not have sufficient resources to
provide military escorts for its contractors and several KBR
employees and subcontractors were killed in the attacks.
The attacks and insufficient force protection resulted in
substantial delays in the delivery of food and supplies. Rec-
ognizing the need for additional security forces, the Army
entered into discussions with KBR to allow KBR to hire
private security contractors (PSCs) for defense. An agree-
ment was never reached, however, as KBR sought to have
an indemnity provision included in the contract and the
Army refused. KBR nonetheless hired PSCs to protect its
employees and subcontractors so that it could continue to
carry out its duties in providing food services to the troops.
Several commanding officers in the Army supported KBR’s
use of PSCs, and the Army initially paid those costs with-
out objection.
    The Army changed course regarding its payment of
PSC costs in early 2007. Following a congressional inquiry,
the Army decided that KBR’s PSC costs were not allowable
under the LOGCAP III contract. By that time, the Army
had already paid KBR over $44 million in costs for PSCs,
and between 2007 and 2010, the Army recaptured this
amount by withholding three payments to KBR from then-
outstanding invoices. KBR submitted certified claims in
2007, 2009, and 2010 to the Army’s contracting officer un-
der the Contract Disputes Act of 1978 (CDA) for each of the
withheld payments. KBR asserted in these claims that
PSC costs were allowable under the LOGCAP III contract.
The Army contracting officer failed to respond within sixty
days of receiving the respective claims, so the claims were
deemed denied. KBR challenged the denial of its three
4                    SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                           ROOT SERVS., INC.

certified claims in a consolidated appeal before the Board,
which ruled in KBR’s favor and ordered the Army to pay
the withheld $44 million. See Kellogg Brown & Root
Servs., Inc., ASBCA Nos. 56358, 57151, 57327, and 58559,
14-1 B.C.A. ¶ 35,639, 2014 WL 2931488 (June 17, 2014)
(“KBR I”); see also J.A. 864–904.
     In September 2011, while KBR’s appeal before the
Board was pending, KBR submitted a fourth certified claim
to the contracting officer seeking the same $44 million in
withheld payments plus interest under the CDA. Accord-
ing to KBR, this claim was filed as a “protective” claim to
ensure that the District Court for the District of Columbia
had jurisdiction to rule on a False Claims Act lawsuit not
at issue here. J.A. 414. This 2011 claim alleged for the
first time that the Army breached its obligation under the
LOGCAP III contract to provide force protection to KBR
and its subcontractors.
    The Army appealed the Board’s decision in KBR I to
this court, asking us to decide whether the Board erred in
deciding that the LOGCAP III contract did not prohibit the
use of PSCs. We reversed the Board in part, holding that
the LOGCAP III contract prohibited the use of PSCs and
that such costs were thus not allowable. McHugh v. Kel-
logg Brown & Root Servs., Inc., 626 F. App’x 974, 977
(Fed. Cir. 2015) (“KBR II”). At the same time, however, we
recognized that “[t]his narrow contract interpretation
based on the weapons prohibition . . . may not fully resolve
the dispute,” and we remanded to the Board to decide in
the first instance whether KBR properly raised its breach
of contract allegation. Id. at 978.
    The Board consolidated the remanded KBR claims
with KBR’s 2011 claim. Appeals of Kellogg Brown & Root
Servs., Inc., ASBCA Nos. 56358, 57151, 57327, 58583, 17-1
B.C.A. (CCH) ¶ 36,779, 2017 WL 2676674 (June 8, 2017)
(“Decision”); J.A. 1–2. KBR then filed an amended com-
plaint alleging twelve counts against the Army. Count II
SEC’Y OF THE ARMY v. KELLOGG BROWN &                        5
ROOT SERVS., INC.

of KBR’s amended complaint alleged that KBR “is entitled
to judgment because the Army breached its contractual ob-
ligation to provide adequate force protection and the use of
PSCs was a permissible remedy.” J.A. 2. The Army moved
to dismiss Count II for lack of jurisdiction because KBR did
not submit a claim to the contracting officer alleging this
ground of relief. KBR opposed and also moved for sum-
mary judgment on Count II.
    The Board ruled in favor of KBR. It explained that the
Army’s withholding of payment for PSC costs previously
paid constituted a government claim. The Board deter-
mined that it had jurisdiction because, under this court’s
decision in Laguna Construction Co. v. Carter, Count II is
an affirmative defense that did not have to be presented to
the contracting officer as a certified CDA claim. 828 F.3d
1364 (Fed. Cir. 2016). It further found that the Army’s fail-
ure to provide adequate protection constituted a prior ma-
terial breach of the LOGCAP III contract:
    Indeed, it would be unconscionable to take the po-
    sition that the contract prohibited KBR[] and its
    subcontractors from providing for their own protec-
    tion, while performing in a war zone, without oth-
    erwise providing for their security. Yet, despite the
    many and continuing failures of the government to
    provide the promised level of force protection to
    KBR[] and its subcontractors summarized above,
    the government seeks to disallow the PSC costs in-
    curred by KBR[] and its subcontractors in order to
    accomplish their mission under the LOGCAP con-
    tract despite the government’s breach, and argues
    that its breach was not material. It is hard to im-
    agine a contract breach more material than this
    one, which eviscerated the promise at the heart of
    the justification for the government’s claim. The
    government’s breach was material.
6                     SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                            ROOT SERVS., INC.

J.A. 39. The Board then granted summary judgment on
Count II in favor of KBR, explaining that:
    [t]he basis for the government’s claim of unallowa-
    bility is that the costs were incurred in violation of
    the contract’s prohibition against the use of PSCs.
    Because the record in these appeals establishes
    that the claimed PSC costs were reasonable in
    amount and were incurred only when necessitated
    by the government’s failure to provide the contrac-
    tually promised level of force protection to KBR[]
    and its subcontractors, the government’s prior ma-
    terial breach operates to excuse any subsequent
    noncompliance with the contract’s PSC prohibition.
J.A. 40. The Board awarded KBR $44,059,024.49 plus
CDA interest, with interest calculated from the dates KBR
submitted its three initial certified claims. The Army ap-
peals. We have jurisdiction under 28 U.S.C. § 1295(a)(10)
and 41 U.S.C. § 7107(a)(1).
                        DISCUSSION
    The Army raises three issues on appeal. First, it ar-
gues that the Board did not have jurisdiction because KBR
did not submit its breach of contract claim (Count II) as a
timely, certified CDA claim. Second, the Army argues that
the Board erred by allowing KBR to re-argue three non-
breach counts on remand that, according to the Army, this
court had already found unpersuasive in KBR II. And
third, the Army alleges that the Board erred in calculating
CDA interest by starting the interest clock on the dates
that KBR submitted its three initial certified claims. We
address each issue in turn.
                       I. Jurisdiction
     In accordance with the CDA, we review the Board’s de-
cisions on questions of law de novo. Sharp Elecs. Corp. v.
McHugh, 707 F.3d 1367, 1371 (Fed. Cir. 2013). “Whether
or not the Board has jurisdiction is a question of law.” Id.
SEC’Y OF THE ARMY v. KELLOGG BROWN &                        7
ROOT SERVS., INC.

(quoting Arnold M. Diamond, Inc. v. Dalton, 25 F.3d 1006,
1010 (Fed. Cir. 1994)).
    We hold that the Board had jurisdiction to consider
Count II of KBR’s amended complaint. Count II alleges
that the Army breached the LOGCAP III contract by fail-
ing to provide adequate force protection and that KBR’s use
of PSCs was a permissible remedy. The Board properly
characterized Count II as an affirmative defense of prior
material breach, which was asserted against the Army’s
claim to recover over $44 million in PSC costs previously
paid. Under our precedent, KBR did not have to present
this affirmative defense as a certified CDA claim to a con-
tracting officer in order for the Board to exercise jurisdic-
tion.
    The CDA requires that “[e]ach claim by a contractor
against the Federal Government relating to a contract
shall be submitted to the contracting officer for a decision.”
41 U.S.C. § 7103(a)(1). “Under the CDA, a final decision by
a [contracting officer] on a ‘claim’ is a prerequisite for
Board jurisdiction.” Reflectone, Inc. v. Dalton, 60 F.3d
1572, 1575 (Fed. Cir. 1995) (en banc).
    The CDA’s jurisdictional requirement also applies to
claims asserted as affirmative defenses that seek an ad-
justment of contract terms. In M. Maropakis Carpentry,
Inc. v. United States, the government sought liquidated
damages against a contractor for project delays. 609 F.3d
1323, 1326 (Fed. Cir. 2010). Contractor Maropakis as-
serted an affirmative defense of excusable delay, arguing
that certain contract deadlines should have been extended.
Id. at 1330. It never presented its claim for a deadline ex-
tension to a contracting officer. We held that the Court of
Federal Claims did not have jurisdiction over this CDA
claim even though it was presented as an affirmative de-
fense. Id. at 1331–32. Specifically, we held that “a contrac-
tor seeking an adjustment of contract terms must meet the
jurisdictional requirements and procedural prerequisites
8                     SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                            ROOT SERVS., INC.

of the CDA, whether asserting the claim against the gov-
ernment as an affirmative claim or as a defense to a gov-
ernment action.” Id. at 1331. Similarly, in Raytheon Co. v.
United States, the government claimed an equitable ad-
justment to the contract terms as an affirmative defense to
a contractor’s monetary claim. 747 F.3d 1341, 1353–55
(Fed. Cir. 2014). We reiterated that the CDA’s “jurisdic-
tional prerequisite applies even when a claim is asserted
as a defense.” Id. at 1354. Because the government’s eq-
uitable adjustment defense was never the subject of a con-
tracting officer’s final decision, we held that the Court of
Federal Claims did not have jurisdiction. Id. at 1355.
    But we have treated affirmative defenses asserted un-
der the contract as written differently. For example, we
have held that common law defenses of prior material
breach or fraud do not require a contracting officer’s final
decision for the trial court to exercise jurisdiction. In La-
guna, contractor Laguna filed a claim against the govern-
ment for costs that the government refused to pay.
828 F.3d at 1366. While Laguna’s claim was pending, the
government discovered that Laguna’s employees were in-
volved in a kickback scheme with subcontractors. Id.
at 1366–67. The government then amended its answer to
include the affirmative defense of fraud, and on cross-mo-
tions for summary judgment, argued that Laguna’s claim
should be denied because Laguna committed the first ma-
terial breach of the contract by the fraud of its employees.
Id. at 1367. We held that the Board had jurisdiction even
though the government’s defense was never presented to a
contracting officer.     Id. at 1369.     We distinguished
Maropakis and Raytheon, explaining that “the govern-
ment’s defense plainly does not seek the payment of money
or the adjustment or interpretation of contract terms.” Id.
at 1368.
    We reached a similar result in Securiforce Interna-
tional America, LLC v. United States. 879 F.3d 1354
(Fed. Cir. 2018). There, the government terminated part
SEC’Y OF THE ARMY v. KELLOGG BROWN &                           9
ROOT SERVS., INC.

of a fuel delivery contract for convenience. Id. at 1358.
Contractor Securiforce then failed to perform and the gov-
ernment terminated the remainder of the contract by de-
fault. Id. It sued the government in the Court of Federal
Claims, alleging that the termination by default was im-
proper. Id. at 1358–59. Securiforce argued that the gov-
ernment’s earlier termination for convenience was a prior
material breach that excused its later failure to perform.
Id. at 1362. We held that the Court of Federal Claims had
jurisdiction even though the defense of prior material
breach was never presented to a contracting officer:
    Securiforce asserts a common-law affirmative de-
    fense of prior material breach under the contract as
    written. It neither seeks the payment of money,
    nor is a decision by the [contracting officer] a nec-
    essary prerequisite. Securiforce need not, there-
    fore, have presented that defense to the
    [contracting officer] in order to later assert it in the
    Claims Court.
Id. at 1363.
     The Board correctly characterized the current dispute
as involving the Army’s claim to over $44 million in PSC
costs previously paid. See J.A. 8–9. KBR’s breach of con-
tract allegation is an affirmative defense to that claim. The
Army does not challenge this characterization on appeal.
Rather, it argues that, under Maropakis, KBR was re-
quired to present its affirmative defense to the contracting
officer as a timely CDA claim in order to meet the jurisdic-
tional prerequisites of the CDA. See Appellant Br. 19–26.
We disagree and hold that the Board did not err in conclud-
ing that it had jurisdiction over KBR’s affirmative defense
of prior material breach.
    Like the contractor in Securiforce and the government
in Laguna, KBR asserts the affirmative defense of prior
material breach under the contract as written. KBR hired
PSCs only because the Army first breached its force
10                    SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                            ROOT SERVS., INC.

protection obligations. So while the LOGCAP III contract
prohibits the use of PSCs, the Army’s prior material breach
excused KBR’s noncompliance with that prohibition.
KBR’s options were to either cease operations or to hire
PSCs; it chose the latter so that it could continue support-
ing the military. In Laguna, we held that the Board had
jurisdiction over the government’s prior material breach
defense under the contract as written, which the govern-
ment asserted to defeat Laguna’s monetary claim.
828 F.3d at 1369. And more recently in Securiforce, we re-
iterated that such a defense “is not a claim for money” and
need not first be presented to a contracting officer.
879 F.3d at 1362–63. KBR asserts the same defense here.
KBR’s prior material breach defense seeks denial of the
Army’s monetary claim to over $44 million, and the Board
properly exercised jurisdiction.
     We recognize that the posture of this case differs from
Laguna. The government in Laguna asserted its defense
to withhold payment whereas KBR asserted its defense to
recover payment. We nonetheless conclude that Laguna’s
teachings apply here. The government pays the contractor
for services performed, so monies at issue are necessarily
in the hands of the government first. Whether prior mate-
rial breach is asserted to eliminate debt as in Laguna, or to
recover withheld payments as here, the effect is the same—
the defense is asserted to defeat a wrongful monetary
claim.
    Contrary to what the Army argues, this case is not like
Maropakis or Raytheon because KBR does not seek to ad-
just the terms of the contract. See Appellant Br. 25–26.
The contractor in Maropakis asserted excusable delay as
an affirmative defense and sought a time extension for per-
formance under the contract. 609 F.3d at 1330. Our con-
clusion that the Court of Federal Claims lacked jurisdiction
turned on the fact that the contractor was seeking “an ad-
justment of contract terms.” Id. at 1331. Similarly, the
government in Raytheon sought an equitable adjustment
SEC’Y OF THE ARMY v. KELLOGG BROWN &                        11
ROOT SERVS., INC.

to the contract that was less than the dollar amount de-
manded by the contractor. 747 F.3d at 1353. Maropakis
and Raytheon are thus distinguishable because the parties
in those cases sought to change the terms of the contract
and did not assert prior material breach as an affirmative
defense. As mentioned above, KBR seeks only a denial of
the government’s monetary claim, not a change to the
terms of the contract.
    We conclude that the Board had jurisdiction over
KBR’s affirmative defense of prior material breach. Be-
cause jurisdiction over this defense was proper, we do not
reach the alternative issue of whether the Board erred by
allowing KBR to re-raise its non-breach counts on remand.
See Appellant Br. 36–43.
                      II. CDA Interest
    KBR submitted certified CDA claims to the Army con-
tracting officer for $19,652,815 on October 22, 2007,
$21,131,743 on October 20, 2009, and $3,274,466.49 on
June 16, 2010—totaling the $44,059,024.49 at issue in this
case. J.A. 352, 362, 383. The Board awarded CDA interest
on these amounts with the interest clock running on the
dates KBR submitted the claims. We hold that the Board
did not err in its award of CDA interest.
     The CDA provides that “[i]nterest on an amount found
due a contractor on a claim shall be paid to the contractor
for the period beginning with the date the contracting of-
ficer receives the contractor’s claim, pursuant to section
7103(a) of this title, until the date of payment of the claim.”
41 U.S.C. § 7109(a)(1) (emphasis added). “[I]nterest is due
a contractor on an underlying quantum claim starting from
the time that the contractor first submitted a proper quan-
tum claim to the contracting officer until the Government
has paid the quantum claim.” J.M.T. Mach. Co. v. United
States, 826 F.2d 1042, 1045 n.1 (Fed. Cir. 1987). In Fidelity
Construction Co. v. United States, we explained that the
CDA interest provision “was designed to serve as a catalyst
12                    SEC’Y OF THE ARMY v. KELLOGG BROWN &
                                            ROOT SERVS., INC.

and a monetary incentive to the contracting officer to expe-
dite consideration of contract claims.” 700 F.2d 1379, 1384
(Fed. Cir. 1983). The provision also provides “additional
inducement for the settlement of claims short of litigation.”
Id. (citing Brookfield Constr. Co. v. United States, 661 F.2d
159, 164 (Ct. Cl. 1981)).
    The Board did not err in determining that the interest
period began with the filing of KBR’s 2007, 2009, and 2010
claims because those claims were all certified CDA claims
received by the Army’s contracting officer. Under the
CDA’s interest provision, that is all that is required for the
interest clock to begin. See 41 U.S.C. § 7109(a)(1).
    The Army argues that the interest period should not
have started with the filing of KBR’s three initial claims
because those claims relied solely on the theory that PSC
costs were allowable under the contract—a theory we re-
jected in KBR II. Appellant Br. 34–35. It notes that KBR
did not raise its breach of contract defense until Septem-
ber 2011. Id. at 35. Because breach of contract is what
KBR ultimately prevailed on, the Army argues that Sep-
tember 2011 is the earliest point at which interest could
have commenced. Id. The Army also cites to several cases
from the Board and the Court of Federal Claims holding
that contractors are not entitled to CDA interest on suc-
cessful defenses against government claims. See id. at 33–
34.
    We disagree with the Army. We are aware of no au-
thority instructing that a contractor must state in a claim
the legal theory upon which it ultimately recovers to start
the running of interest. Indeed, the Army recognizes as
much. See Reply Br. 22. The statute requires only that the
contracting officer receive a certified CDA claim, which is
what occurred here. And while the Court of Federal Claims
cases cited by the Army do stand for the proposition that
defenses to government claims alone are not entitled to
CDA interest, see Appellant Br. 33–34, those cases are at a
SEC’Y OF THE ARMY v. KELLOGG BROWN &                     13
ROOT SERVS., INC.

minimum distinguishable because, in each, the contractor
did not file any CDA claim. See e.g., K-Con Bldg. Sys., Inc.
v. United States, 107 Fed. Cl. 571 (2012); Ruhnau-Evans-
Ruhnau Assocs. v. United States, 3 Cl. Ct. 217 (1983); Mag-
nus Pac. Corp. v. United States, 133 Fed. Cl. 640 (2017). 1
We conclude that the Board did not err in its award of CDA
interest.
                       CONCLUSION
     We have considered the Army’s remaining arguments
and find them unpersuasive. The Board properly exercised
jurisdiction over KBR’s affirmative defense of prior mate-
rial breach and did not err in awarding CDA interest. We
affirm the Board’s judgment.
                       AFFIRMED

   1    Because these cases are distinguishable on the
facts, we do not address the propriety of the Court of Fed-
eral Claims’ analysis in these cases.