Court Opinion

ID: 4168154
Source: CourtListenerOpinion
Date Created: 2017-05-12 17:00:05.405561+00
Date Added: 2024-06-11T14:12:50.058198
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                               )
                                            )
Supreme Foodservice GmbH                    )      ASBCA Nos. 57884, 58666, 58958
                                            )                 58959, 58982, 59038
                                            )                 59164, 59165 , 59391
                                            )                 59392, 59393 , 59418
                                            )                 59419, 59420, 59481
                                            )                 59615 , 59618, 59619
                                            )                 59636, 59653 , 59675
                                            )                 59676, 59681 , 59682
                                            )                 59683 , 59811 , 59830
                                            )                 59863 , 59867, 59872
                                            )                 59879, 60017, 60024
                                            )                 60250, 60309, 60365
Under Contract No. SPM300-05-D-3130         )

APPEARANCES FOR THE APPELLANT:                     Philip J. Davis, Esq.
                                                   Rand L. Allen, Esq.
                                                   Nicole J. Owren-Wiest, Esq.
                                                   John R. Prairie, Esq.
                                                   Tara L. Ward, Esq.
                                                   J. Ryan Frazee, Esq.
                                                     Wiley Rein LLP
                                                     Washington, DC

APPEARANCE S FOR THE GOVERNMENT:                   Daniel K. Poling, Esq.
                                                    DLA Chief Trial Attorney
                                                   John F. Basiak Jr. , Esq.
                                                   Keith J. Feigenbaum, Esq. 1
                                                   Kari L. Scheck, Esq .
                                                   Theodore E. Lorenz, Esq.
                                                    Trial Attorneys
                                                    DLA Troop Support
                                                    Philadelphia, PA

1   Mr. Feigenbaum appeared on behalf of the government when the motion was filed
         but has since withdrawn his appearance.
    OPINION BY ADMINISTRATIVE JUDGE SCOTT ON THE GOVERNMENT'S
                MOTION FOR RECONSIDERATION IN PART

                                    BACKGROUND

        The captioned appeals involve approximately $8.3 billion in claims by the
Defense Logistics Agency (DLA) concerning the subject contract for the delivery of
food, water and other products to the United States military and DLA customers in
Afghanistan. DLA 's major claim is that the contract is void ab initio due to fraud by
appellant Supreme Foodservice GmbH (Supreme) at contract inception and that DLA
is entitled to the return of all monies it paid Supreme during contract performance.
The appeals also involve various claims by Supreme, totaling about $3 billion. 2

         Before discovery was complete, DLA moved for summary judgment on three of
its affirmative defenses, including that Supreme committed the first material contract
breach. One aspect of that defense was based upon a guilty plea by Supreme in a
criminal proceeding with regard to certain fraud issues, including the pricing of food
and water to be delivered under the contract. As relevant to the instant motion,
Supreme moved to strike DLA's first material breach defense due to waiver, based
upon contract Modification No. 00092 (Mod. 92), which extended the contract for two
years after DLA was allegedly aware of Supreme's conduct cited in its guilty plea or
alternatively for summary judgment on the waiver defense. In Supreme Foodservice
GmbH, ASBCA No. 57884 et al., 16-1 BCA ~ 36,387 (Supreme decision), the Board
denied DLA ' s motion for summary judgment due to material facts in dispute. Also
due to material facts in dispute and an insufficiently developed record, the Board
denied Supreme ' s motion to strike DLA ' s first material breach defense, or
alternatively for summary judgment.

       DLA moves for partial reconsideration of our decision on the sole ground that it
was entitled to summary judgment on the portion of its first material breach defense
that was based upon the Board ' s decision in Laguna Construction Co ., ASBCA
No. 58324, 14-1BCA~35 , 748 (Laguna I) . DLA described this as its "Laguna
defense - that is, first material breach based exclusively on Supreme ' s guilty plea"
(gov't recon. mot. at 4). Thereafter, the U.S. Court of Appeals for the Federal Circuit
affirmed Laguna I in Laguna Construction Co. v. Carter, 828 F.3d 1364 (Fed. Cir.
2016) (Laguna JI), and the parties submitted supplemental briefs on DLA's
reconsideration motion. At DLA' s request, the Board, sitting in a panel, heard oral
argument on the motion.

2
    Supreme filed additional appeals, Nos. 60724, 60832, and 61069, after the Board
         issued the decision at issue in Supreme's reconsideration motion.

                                            2
                            THE PARTIES' CONTENTIONS 3

      DLA asks the Board to grant its motion for reconsideration and to deny all of
Supreme ' s claims. In its original reconsideration motion DLA stressed that its Laguna
defense was based upon Supreme ' s guilty plea. In its motion and/or at oral argument,
DLA contended that:

       ( 1) The Board erred in holding that further discovery of facts underlying
Supreme ' s guilty plea was necessary. The plea itself was DLA' s affirmative defense.
Under the doctrine of collateral estoppel, the Board is bound by the same factual
findings and legal conclusions made by the U.S. district court in the criminal
proceeding (a new contention not made in DLA' s summary judgment motion).

        (2) Mod. 92 did not create material fact issues concerning waiver or accord and
satisfaction; it was neither. It reserved DLA ' s rights against Supreme, as did
Supreme ' s settlement agreement with the U.S. Department of Justice (DOJ).

        (3) Consistent with Board precedent concerning parallel civil and criminal
proceedings, DLA properly waited for ongoing criminal investigations to end before
pursuing its first material breach claim. Supreme ' s guilty plea was the strongest
evidence of its breach. Prior thereto, DLA could not ascertain at what point it could
assert its rights.

      (4) Mod. 92 ' s extension of the contract's performance period was not an
abandonment of DLA' s right to assert its first material breach defense because
Supreme was the only source available to satisfy the agency's needs and the
modification reserved the parties ' rights and required Supreme to cooperate in any
government investigation. Thus, Supreme cannot argue reliance or prejudice.

       (5) The Board erred in analyzing DLA ' s first material breach defense together
with other of its affirmative defenses, rather than as a stand-alone defense.

       (6) Supreme violated FED. R. Clv. P. 56(d) and Board Rule 7(c)(2) concerning
oppositions to summary judgment motions by speculating that material facts are in
dispute without citing to record evidence or submitting any affidavits in support.

       In supplemental briefing concerning Laguna 11, and/or at oral argument, DLA
alleged the following:

3
    We have considered all of the parties ' arguments whether or not listed or discussed in
        this decision.

                                              3
        (1) Laguna II is dispositive that Mod. 92 cannot constitute a waiver of DLA' s
first material breach affirmative defense. Supreme ' s guilty plea proved that defense .
DLA did not have the " known right" required in a waiver analysis until that plea.
Mod. 92 could not constitute specific evidence of waiver because it preserved the
status quo between the parties, and it could not prov ide contractual remedies for
Supreme's breach because a CO does not have authority to resolve fraud matters .
Moreover, Supreme continued to overcharge for bottled water after Mod. 92 's
execution, so the modification could not have resolved matters (tr. 5). 4 DLA
acknowledged, however, that " bottled water fraud" ceased in 2007 and Supreme's
additional reimbursement for the water from 2007 until the end of the contract was not
an admission of criminal fraud (tr. 69).

        (2) During oral argument, DLA apparently abandoned its formerly key
contention that Supreme ' s first material breach occurred upon its guilty plea. Instead,
it now claims that " Supreme breached the contract in 2005, when it first established
[its affiliated entity known as] JAFCO, in order to artificially inflate product prices for
fresh fruits and vegetables" (tr. 19).

        Overall , Supreme claims that DLA is rearguing and reframing the first material
breach affirmative defense set forth in its summary judgment motion. Supreme asserts
that the Board fully considered DLA ' s Laguna defense and rejected it; DLA is relying
upon matters that it raised, or could have raised , in its summary judgment motion; it
has not identified any newly discovered evidence, errors in the Board' s fact findings ,
or errors of law; and reconsideration is not warranted.

      In its original opposition to DLA's motion for reconsideration and/or at oral
argument, Supreme asserted that:

        (I) DLA did not stress Laguna I in its summary judgment motion. Moreover,
it both misconstrued the Board ' s holding there and did not acknowledge the key
distinctions between the instant case and Laguna I, where waiver was not raised as a
defense to the government's first material breach claim.

        (2) The Laguna defense DLA presented in its reconsideration motion- that
Supreme's guilty plea itself constituted the first material breach- was a new argument
that it did not make in its summary judgment motion, where it alleged that Supreme
engaged in fraud through JAFCO, and the underlying JAFCO fraud was the breach.

4
    All transcript references are to the transcript of the oral argument on DLA ' s motion
          for reconsideration.

                                              4
      (3) Mod. 92 did not maintain the status quo. It required various disclosures by
Supreme and extracted a contractual remedy for the JAFCO arrangement.

       (4) The fact that the civil settlement agreement reserved DLA's right to assert
affirmative defenses against Supreme did not mean that DLA's material breach
defense was not waived or barred by the doctrine of accord and satisfaction.
Moreover, the settlement agreement expressly reserved Supreme's right to oppose or
challenge any affirmative defenses alleged by DLA.

         (5) The Board separately evaluated what DLA now characterizes as its Laguna
defense and properly concluded that there are material facts in dispute regarding Mod.
92, waiver, and accord and satisfaction that preclude summary judgment. For
example, discovery will demonstrate that DLA elected to continue Supreme's
substantive contract performance with full knowledge of the JAFCO conduct to which
it later pleaded guilty.

       In supplemental briefing and/or at oral argument, Supreme alleged:

       (1) If Supreme' s guilty plea were the measuring point of its alleged breach, it
would not be a "prior" material breach because the government had committed various
breaches by that time. Thus, none of Supreme ' s claims concerning those breaches
should be dismissed.

        (2) Supreme does not dispute the guilty plea or the negotiated statement of
facts accompanying it, rendering the doctrine of collateral estoppel irrelevant. The
doctrine does not apply in any event because the issues currently before the Board
differ from those before the district court in the criminal proceedings and relate solely
to the parties' contractual rights, which were expressly excluded from Supreme's
settlement agreement with DOJ.

        (3) Laguna II supports the Board's denial of DLA's summary judgment motion
because it makes clear that the government can waive a defense of first material breach
and that waiver is a highly fact-specific inquiry. Notably, the court stated in Laguna II
that its holding on the issue of waiver was based upon the particular facts of that case.

        (4) The record already contains significant and speci fie evidence demonstrating
that DLA learned of the JAFCO conduct underlying Supreme' s guilty plea prior
thereto and elected to resolve the issue contractually and to continue with
performance. Mod. 92 and exhibits Supreme submitted in opposition to DLA' s
summary judgment motion, such as those pertaining to communications between the
parties concerning JAFCO's affiliation with Supreme and discussions between them
regarding pricing prior to Mod. 92's execution, are evidence of DLA's prior

                                            5
knowledge of the underlying misconduct. Moreover, discovery is ongoing and
depositions of key witnesses with knowledge about Mod. 92, including the contracting
officer and other DLA and Supreme officials, had not yet occurred (or had not
occurred as of the completion of briefing and oral argument on the reconsideration
motion). Additionally, as DLA acknowledges , Supreme denies that there was any
fraud concerning bottled water after 2007 and it contends that there is still discovery to
be done on the bottled water reconciliation issue.

                        STANDARDS FOR RECONSIDERATION

        In deciding a motion for reconsideration, we look to whether the movant has
presented newly discovered evidence, mistakes in findings of fact, or errors of law.
Kellogg Brown & Root Services, Inc. , ASBCA Nos. 57530, 58161 , 16-1 BCA if 36,554
at 178,039. A reconsideration motion is not an opportunity to reargue issues previously
raised and decided, or to advance arguments that should have been presented in an
earlier proceeding. Precision Standard, Inc., ASBCA No. 59116, 15-1BCAi!36, 155 at
176,445 ; Avant Assessment, LLC, ASBCA No. 58867, 15-1BCAif36, 137 at 176,384.
A party moving for reconsideration "must show a compelling reason" why the Board
should alter its decision. Precision Standard, 15-1 BCA if 36, 155 at 176,445.

       In this case, although DLA has not otherwise satisfied the criteria for
reconsideration, due to the Federal Circuit's issuance of Laguna II shortly after we
issued our Supreme decision, which had addressed Laguna I, we will reconsider our
decision solely as it relates to DLA ' s affirmative defense of first material breach based
upon the Laguna decisions. In that context we discuss Supreme's waiver defense. 5

                               PRELIMINARY MATTERS

       Preliminarily, we correct a few of DLA ' s misapprehensions. First, the Board
never "held" that further discovery was necessary concerning Supreme's settlement
agreement and guilty plea. We noted that the record to date does not full y explicate
the underlying facts. We are not aware of what other facts the parties might know or
seek. Regarding DLA ' s claim that the Board is bound by the doctrine of collateral
estoppel, the Board is focused upon facts bearing upon the parties' contractual rights.
We have no intention of attempting to relitigate the criminal proceedings or to make
factual determinations of fraud , which we lack jurisdiction to do nor have we been
asked to do so.

5
    The contractor did not raise waiver as a defense in Laguna I but the court addressed
         it in Laguna II.

                                             6
        Second, one aspect of DLA's contention that Supreme's opposition to its
summary judgment motion did not satisfy FED. R. CIY. P. 56(d) or Board Rule 7(c)(2)
is that Supreme did not submit affidavits. While, as with Rule 7( c)(2), the Board looks
to FED. R. C1v. P. 56 for guidance, we are not bound by the Federal Rules. Thai Hai,
ASBCA No. 53375. 02-2 BCA ~ 31.971 at 15 7.920, aff"d. Thai Hai v. Brownlee. 82
F. App'x 226 (Fed. Cir. 2003) (unpublished). Regardless. the di scovery period in
these appeal s has not ended. Supreme represe nts that the parties had not conducted
discovery on the issue of first material breach or any of the other issues raised in
DLA 's summary judgment motion before DLA filed the motion (app. resp. to gov't
recon. mot. at 13). Although Supreme desires that discovery continue, it never asked
the Board to defer ruling upon DLA's summary judgment motion or claimed that,
without further discovery, it could not present facts essential to its opposition to the
motion, unlike the circumstances concerning affidavits addressed in FED. R. C1v. P.
56(d) and Dongbuk R& U Engineering Co., ASBCA No. 58300, 13 BCA ii 35,389 at
173.638, cited by DLA .

        Moreover, Supreme complied w ith Board Rul e 7(c)(2) by citing to the current
record in its opposition (see, e.g., app. Laguna //reply br. at 7; tr. 42-44). Supreme , 16-1
BCA ii 36,387 at 177,377, Statement of Fact (SOF) ii 39 (referring to Supreme's exhibits
about a meeting with the contracting officer in September 2008, when JAFCO charges
aHegedly were raised, and to an alleged 15 June 2009 presentation by Supreme to DLA,
DOJ, the Defense Criminal Investigative Service, and the Army Criminal Investigation
Command concerning JAFCO). Supreme also submitted materials obtained in discovery
after DLA filed its summary judgment motion (see app. Laguna II reply br. at 8;
tr. 44-45). These materials include minutes of an 11 March 2009 meeting between DLA
and Supreme involving alleged overcharging through JAFCO. All of the referenced
meetings took place prior to Mod. 92, which was effective on 20 December 2010
(Suprem e, 16-1 BCA ii 36,3 87 at 177,378, SOF ii 44), and prior to Supreme 's guilty plea,
which occurred on 8 December 20 14. Id. at 177,381, SOF ii 53 .

        Lastly, regardless of its acknowledgement that " [t]here is no dispute that DLA
repeatedly asserted that the Board should not evaluate Supreme's misconduct in
isolation" (gov't recon. mot. at 17 ; see, e.g., gov't summ. j . mot. at 59), DLA now
alleges that the Board erred in not treating what it now calls its "Laguna defense"
separately. However, the Board considered it both separately and together with DLA' s
other first material breach defenses. Supreme, 16-1BCAii36,3 87 at 177,398-99.

                        SUMMARY JUDGMENT DOCTRINE

       We evaluate DLA 's reconsideration motion in light of the established standard
that summary judgment is appropriate only when there are no genuine issues of
material fact and the movant is entitled to judgment as a matter of law . Mingus

                                            7
Constructors, Inc. v. United States, 812 F.2d 1387, 13 90-91 (Fed. Cir. 1987). There is
a genuine issue of material fact if a reasonabl e fact finder could find in favor of the
nonmovant. We resol ve any sign ificant doubt over fact issues, and draw all reasonable
in fere nces, in favor of the party opposing summary judgment. MICICCS, Joint
Venture, ASBCA No. 58023 , 14-1 BCA ~ 35,678 at 174,635.

                      FIRST MATERIAL BREACH DOCTRINE

       The Federal Circuit has described the doctrine of first material breach as
follows:

              [W]hen a party to a contract is sued for breach, it may
              defend on the ground that there existed a legal excuse for
              its nonperformance at the time of the alleged breach.
              Faced with two parties to a contract, each of whom claims
              breach by the other, courts will "often .. .impose liability on
              the party that committed the first material breach."

Barron Bancshares, Inc. v. United States , 366 F.3d 1360, 1380 (Fed. Cir. 2004)
(citations omitted); see also Supreme , 16-1 BCA ~ 36,387 at 177,398-99.

                                 WAIYER DOCTRINE

       As the Board set forth in the Supreme deci sion, a contracting party can waive a
breach as follows:

                      Waiver is a "voluntary and intentional
              relinquishment of a known right. A party to a contract
              may waive the other party 's breach by continuing to accept
              the breaching party's performance without reservation of
              rights. The breaching party bears the burden to prove
              waiver. Conduct or actions that mislead the breaching
              party into reasonably believing that the rights to a claim
              arising from the breach were waived can result in an
              implied waiver.

                     A right to cancel a contract for breach must be
              exercised with reasonable promptness after discovery of
              the breach . However, continuing with a contract is not
              necessarily conclusive of waiver. Whether waiver has
              occurred involves a more complex inquiry than merely
              ascertaining whether performance continued. An

                                             8
              examination must be made of whether, in the
              circumstances of the particular case, the contracting party
              whose obligation to perform had been discharged by
              breach exercised reasonable commercial judgment in
              continuing to perform. An .election to continue with a
              contract might be an indispensable course of action which
              was the only practicable one .

16-1BCAii36,387 at 177,395 (citations omitted) ; see also Laguna 11, 828 F.3d at
1372 . Waiver of a first material breach defense can occur through continued contract
performance even if material misrepresentation is allegedly involved. Barron
Bancshares, 366 F.3d at 1382.

                             LAGUNA I AND LAGUNA II

       In Laguna!, the Board granted summary judgment to the government that the
contractor had committed the first material breach through subcontractor kickbacks
taken by its agents and its submission to the government of payment vouchers inflated
by the kickbacks. The contractor' s project manager had plead guilty in 2010 to
conspiring in a kickback scheme and its vice president of operations plead guilty in
2013 to soliciting and receiving kickbacks and to· conspiracy. The government
rejected the contractor's payment vouchers in 2012, before the second guilty plea.

       The Board set forth facts contained in the plea agreements and determined that
the contractor had breached both its duty of good faith and fair dealing and the
contract's Allowable Cost and Payment clause. Referring to the kickbacks and
inflated billings, the Board described "these criminal acts" as constituting the first
material breach that subsequently excused the government from paying the
contractor' s invoices. Laguna!, 14-1BCAii35 ,748 at 174,949.

       In Laguna II the Federal Circuit affirmed Laguna I on the basis that the
contractor committed the first material breach by violating the Allowable Cost and
Payment clause. The court described the admissions by the contractor' s project
manager and vice president in their plea agreements and concluded that the Board had
properly determined that "these criminal acts constituted material breach" that could
be imputed to the contractor. Laguna II, 828 F .3d at 13 72 .' The court continued that
''[b]ased on the facts of this case, Laguna' s employees' criminal acts constitute a first
material breach of its contract with the government." Id. (emphasis added).

       Before the Federal Circuit, the contractor contended that the government knew
of the kickback scheme as early as January 2008 but continued to perform the contract
until 2015 and thereby waived its prior material breach defense. The court noted that

                                             9
the alleged continued performance included only the government's payment of certain
incurred costs and its audit of the contractor's cost statements. The court stated that
"[i]n light of the facts of this case, we do not find these arguments persuasive."
Laguna II, 828 F.3d at 1372 (emphasis added). The court concluded that it was
reasonable for the government to have invoked the prior material breach rule after the
vice president' s guilty plea in 2013 and that "[t]herefore," prior to this date, the
government did not have a "known right" that would have invoked the prior material
breach rule. Id. (emphasis added). Thus, in evaluating when a known right accrued to
the government, the court considered what was reasonable under the particular facts
and circumstances involved.

        Further, as part of its waiver analysis, in response to the contractor' s claim that
the government had waived its prior material breach defense by its continued contract
performance, the court stated that, "[i]n addition," after the contractor completed its
physical work in 2010, the government's sole acts were to conduct audits and make
cost reimbursements. Laguna 11, 828 F.3d at 1372. The court did not accept the
contractor's contention that it relied upon these acts to its detriment by performing
final accounting and audit tasks, stating that the contractor would have performed
them even if the government had terminated the contract.

       The court held that, because the first material breach rule applied, the
government's non-performance was excused by the contractor' s earlier violation of the
Allowable Cost and Payment clause . Unlike the Board, the court did not discuss the
implied duty of good faith and fair dealing.

        In oral argument on its reconsideration motion, DLA abandoned its prior stance
that Supreme's guilty plea itself was the first material breach. DLA now advocates
that the breach occurred in 2005, when Supreme first established JAFCO.
Nonetheless, DLA continues to assert that it did not have a "known right" to claim
breach until the guilty plea occurred. In the end, however, DLA does not deny all
prospect of a government waiver even when a guilty plea is involved. It stated at oral
argument that:

              [W]e have never asserted, and I don't think the Federal
              Circuit holds that, there can never [be] a waiver.

                      On the contrary, after the accrual of the known right
              the - in addition is, what other performance was completed
              and what did the government do?

(Tr. 63)

                                             10
        DLA relies, inter alia, upon Laguna II, C&D Construction, Inc. , ASBCA
No. 38661 , 90-3 BCA ~ 23 ,256, and United States v. The Public Warehousing
Company, 2017 WL 1021745 (N.D. Ga. 16 March 2017) (PWC) , a decision DLA
submitted to the Board on 27 March 2017, decided after briefing and oral argument
were complete on DLA ' s reconsideration motion. DLA claims that Laguna II and
PWC establish a "bright line" standard that the government cannot have a "known
right" for purposes of waiver until there is a guilty plea (DLA supp. Laguna reply br.
at 5; Bd . corr., DLA' s 22 March 2017 ltr. at 1).

       Supreme claims that Laguna JI illustrates that the conduct underlying the guilty
plea, not the plea itself, forms the basis for a first material breach defense. It contends
that DLA elected to extend the contract for years and continue with substantive
performance with full knowledge of the JAFCO conduct, thereby waiving that
defense. Supreme asserts that Laguna JJ's waiver language is fact-based ; waiver
requires a factual inquiry ; the court did not mention collateral estoppel ; Laguna II did
not establish the "bright-line" standard alleged by DLA as to when the government has
a known right in the waiver context ; and material facts remain in dispute as to when
DLA learned of the conduct underlying Supreme ' s plea.

        Supreme also alleges, in effect, that Mod. 92 is ambiguous, such that the Board
must examine extrinsic evidence, including testimony by those involved in negotiating
the modification . Factual issues remain concerning the parties ' intent in entering into
Mod. 92, its meaning, and why DLA elected to continue with contract performance
after learning of the JAFCO conduct.

                                      DISCUSSION

        DLA expands the Laguna II decision unreasonably. It did not establish the
"bright line" standard alleged by DLA, i.e. , that the government cannot have a "known
right" for purposes of waiver until a guilty plea occurs. DLA contends that its
interpretation is supported by the fact that, consistent with Board precedent, such as
C&D Construction , the natural progression of parallel criminal and civil proceedings
is for the parties and the Board to wait upon the resolution of the former before
continuing with the latter. Laguna II did not mention this rationale and the Board has
held that nothing in Laguna II mandates such a suspension. Kellogg Brown & Root
Services, Inc. , 16-1 BCA ~ 36,554 at 178,040. When the Board is confronted with
allegations of potential interference with criminal proceedings, its discretion to stay its
own proceedings calls for a factual inquiry and for it to weigh the parties ' competing
interests. See Public Warehousing Co., K.S.C. , ASBCA No. 56116, 08-1 BCA
~ 33 ,787 at 167,226.

                                            11
       The court in Laguna II determined that it was reasonable under the
circumstances for the government to assert first material breach after a contractor' s
employee's conviction, but this does not lead to DLA ' s conclusion that, in a case
which involves criminal proceedings at some point, the government cannot ever have a
"known right" until the proceedings conclude. The court in Laguna II stated that its
conclusion that the criminal acts of the contractor' s employees constituted a first
material breach was based upon the facts of the case. It also reached its additional
conclusion that the government's administrative acts in winding up the contract did not
waive its first material breach claim, in light of the facts of the case.

       C&D Construction , upon which DLA places considerable weight, was not a
first material breach case. There, the contractor contended that the government had
waived its right to void the contract because it was aware of an investigation into the
contractor' s alleged pre-award misrepresentation of its small business status but had
allowed it to perform, in lieu of suspending it, to the contractor's detrimental reliance.
After a hearing, the Board held that the contract was void. It stated that:

              [T]he strongest evidence of appellant's misrepresentation
              came with the guilty plea ... , which followed the
              completion of contract performance. We are in no position
              to ascertain at what point, if any, a suspension might have
              been appropriate.

90-3 BCA iJ 23 ,256 at 116,684. As Supreme suggests, the Board's statement about its
inability to ascertain the correct timing of any potential suspension could refer to a
lack of evidence on point (tr. 58). In any event, the Board made fact findings and did
not purport to establish a bright line rule about any conclusive effect of a guilty plea in
all cases when analyzing a waiver defense.

        Further, the recent district court Public Warehousing decision upon which DLA
relies is not binding precedent upon the Board. Regardless, it involved a qui tam
action under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. In part, the
defendants moved to dismiss the complaint pursuant to FED. R. CIV . P. 9(b), for failure
to plead fraud with particularity, and 12(b)(6), for failure to state a claim. In part they
alleged that the government had full knowledge of alleged misrepresentations but
continued to pay under the contracts involved. Thus, the misrepresentations could not
have been material, a prerequisite for an FCA action under the circumstances.

       The court opined that, unless the government knew about the defendants '
alleged deception, it cou ld not have knowledge that would undermine a materiality
finding. By "government," the court referred to those personnel actually involved in
the contractual relationships. The court noted that the U.S. Attorney's Office and

                                            12
DLA (then the Defense Supply Center), had little contact with one another. It stated
that a mere suspicion of wrongdoing was not enough and the appropriate time to
impute knowledge was at the end of an investigation, not at the beginning. The court
also opined that, even if DLA were aware of the fraud , there were instances when a
government agency might choose to continue to fund a contract, especially if it were
essential to an important government interest. The court granted one of the
defendants' dispositive motions and denied others, stating that it required more
evidence on some of them.

        Here, Supreme alleges, w ith reference to the evidence cited above, that the
current record shows, and further discovery will reveal, that the government had the
known right required for waiver before Supreme ' s guilty plea. It does not allege that
DOJ's knowledge should be imputed to DLA but rather that DLA itself knew of all
material facts underlying its Laguna first material breach defense and chose to
continue with substantive contract performance. It is evident that there are material
facts in dispute concerning these issues.

        Also, the parties dispute the meaning and intent of Mod. 92. If it is ambiguous,
the Board may consider extrinsic evidence of intent. See Teg-Paradigm
Environmental, Inc. v. United States , 465 F.3d 1329, 1338 (Fed. Cir. 2006). Supreme
contends that, via Mod. 92, DLA extracted a contractual remedy for the conduct
underlying Supreme's eventual guilty plea. DLA counters that Mod. 92 merely
maintained the status quo. " When the meaning of a contract and the parties' intentions
are both relevant and in dispute, there are mixed questions of fact and law that pose
triable issues precluding summary judgment." AshBritt, Inc., ASBCA Nos. 56145 ,
56250, 09-2 BCA ii 34,300 at 169,434 ; see also International Source and Supply Inc.,
ASBCA Nos. 52318, 52446, 00-1 BCA ii 30,875 at 152,434 (The Board does not
interpret contractual terms in a vacuum; its goal is to arrive at an interpretation that
accurately reflects the parties ' intentions; when it is necessary to consider extrinsic
evidence of intent, summary judgment is inappropriate.). The parties ' intentions in not
only continuing with, but extending substantive contract performance, and what
options were available to DLA at the time it learned of Supreme ' s alleged breach, and
at the time it entered into Mod. 92 , are material facts in dispute.

       In sum, there is no bright line standard that the government cannot have a
known right, as pertinent to its alleged waiver of a material breach claim, prior to the
entry of a guilty plea. The Board must examine the particular facts involved. Here,
material facts in dispute preclude summary judgment for DLA, which has not shown
any compelling reason why the Board should alter its Supreme decision.

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                                      DECISION

      Having reconsidered our decision in Supreme Foodservice GmbH, ASBCA
No. 57884 et al. , 16-1 BCA iJ 36,387, we reaffirm it.

       Dated: 27 April 2017

                                                     ministrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

 I concur                                         I concur

 ~~ ~
 Administrative Judge
                                            -
                                                  RICHARD SHACKLEFORD
                                                  Administrative Judge
 Acting Chairman                                  Vice Chairman
 Armed Services Board                             Armed Services Board
 of Contract Appeals                              of Contract Appeals

       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. 57884, 58666, 58958,
58959,58982, 59038, 59164, 59165 , 59391 , 59392 , 59393 , 59418, 59419, 59420,
59481 , 59615 , 59618, 59619, 59636, 59653 , 59675 , 59676, 59681 , 59682, 59683 ,
59811 , 59830, 59863 , 59867, 59872 , 59879, 60017, 60024, 60250, 60309, 60365 ,
Appeals of Supreme Foodservice GmbH, rendered in conformance with the Board's
Charter.

       Dated:

                                                  JEFFREY D. GARDIN
                                                  Recorder, Armed Services
                                                  Board of Contract Appeals

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