Free Reply to Response to Motion - District Court of Federal Claims - federal

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No. 03-288C (Chief Judge Damich) IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CHEVRON, U.S.A., INC, TEXACO, INC, and TEXACO DOWNSTREAM LLC, Plaintiffs, v. THE UNITED STATES, Defendant. DEFENDANT'S REPLY TO PLAINTIFFS' OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT AND SUPPLEMENTAL APPENDIX

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: DONALD S. TRACY Trial Attorney Defense Supply Center Richmond Richmond, VA 23297 STEVEN J. GILLINGHAM Assistant Director Commercial Litigation Branch Civil Division Attn: Classification Unit 1100 L Street, N.W., 8th Floor Department of Justice Washington, D.C. 20530 Tele: (202) 616-2311 Fax: (202) 353-7988

HOWARD M. KAUFER Assistant Counsel Office of Counsel Defense Energy Support Center Ft. Belvoir, VA

Attorneys for Defendant June 19, 2006

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TABLE OF CONTENTS FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 I. DESC's EPA Clauses Are Authorized by FAR 16.203-1 . . . . . . . . . . . . . . . . . . 11 A. B. C. II. EPA Clauses Need Not Be Based Upon Plaintiffs' Own Prices . . . . . . . 11 DESC's PMM-Based EPA Clause Is Legal . . . . . . . . . . . . . . . . . . . . . . . 12 Chevron's FAR 15.802(b) Allegation Does Not State A Cause of Action16

Chevron's Alternative Illegality Theories In Counts II-VI Must Be Dismissed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 A. B. Count II (Misrepresentation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Count III ("Breach of Contract") and Count IV ("Implied-In-Fact Contract") . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Count V ("Failure of Consideration and Frustration of Purpose") . . . . . 20 Count VI (Mistake) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

C. D. III. IV.

Chevron's Takings Claim Should Be Dismissed . . . . . . . . . . . . . . . . . . . . . . . . . 21 Chevron's Small Business Program Complaints Must Be Dismissed . . . . . . . . . 23 A. The Court Lacks Jurisdiction To Entertain The Fifth Amendment Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 DESC's Small Business Program Is Not Improper . . . . . . . . . . . . . . . . . 25

B. V.

Waiver and Estoppel Bar Chevron's Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 A. B. C. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Chevron Has Waived Its Claims As A Matter Of Fact . . . . . . . . . . . . . . 31 Chevron Has Waived Its Claims As A Matter Of Law . . . . . . . . . . . . . . 35

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

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SUPPLEMENTAL APPENDIX Barrett trial testimony of John Cook, dated July 29, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Excerpt from deposition of Jacob Bournazian, dated December 3, 2003 . . . . . . . . . . . . . . . . . . . 7 Form EIA-782A ("Refiners'/Gas Plant Operators' Monthly Petroleum Product Sales Report . . 9 A Comparison of Selected EIA-782 Data with Data From Other Sources, by Jacob Bournazian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Declaration of John Walker with attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Contract DLA-600-81-D-0354 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Contract DLA-600-81-D-0445 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Contract DLA-600-81-D-3037 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Letter from ConocoPhillips to DESC, Re: Method Used to Determine Bid Award for JP-4, dated December 18, 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

TABLE OF AUTHORITIES CASES American Telephone and Telegraph Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim American Telephone & Telegraph Co. v. United States, 177 F.3d 1368 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 43 Armstrong v. United States, 364 U.S. 40 (1960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Barrett Refining v. United States, 242 F.3d. 1055 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Barrett v. United States, 50 Fed. Cl. 567 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Barrett Ref. Corp. v. United States, 45 Fed. Cl. 166, 169-70 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128, 129 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Beta Systems, Inc. v. United States, 838 F. 2d 1179 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Brooklyn Sav. Bank v. O'Neill, 324 U.S. 697 (1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Cessna Aircraft v. Dalton, 126 F.3d 1442 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Chris Berg, Inc. v. United States, 426 F. 2d 314 (Ct. Cl. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Clark v. United States, 95 U.S. 539 (1877) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Coflexip & Servs., Inc. v. United States, 961 F. 2d 951, 952-953 (Fed. Cir. 1992) . . . . . . . . . . 24 Costanza Coal Min. Co. v. Weirton Steel Co., 150 F.2d 929 (4th Cir. 1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Dairyland Power Cooperative v. United States, 16 F.3d 1197 (Fed. Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 DGS Contract Services, Inc. v. United States, 43 Fed. Cl. 227, 239 (1999) . . . . . . . . . . . . . 25, 27 E. Walters & Co., Inc. v. United States, 217 Ct. Cl. 576 F.2d 362 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Federal Crop Ins. v. Merrill, 332 U.S. 380 (1947) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Federal Elec. Corp. v. United States, 486 F.2d 1377 (Ct. Cl. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 General Eng'g. & Mach. Works v. O'Keefe, 991 F. 2d 775 (Fed. Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Gold Line Refining v. United States, 54 Fed. Cl. 285 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Gould v. United States, 67 F.3d 925 (Fed. Cir. 930 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . 23

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Hartford Accident & Indem. Co. v. United States, 127 F. Supp. 565 (Ct. Cl. 1955) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Hermes v. United States, 58 Fed. Cl. 409 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Integrated Logistics Support Systems, Int'l v. United States, 42 Fed. Cl. 30 (1998) . . . . . . . . . 22 La Gloria v. United States, 56 Fed. Cl. 211 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 29 La Van v. United States, 382 F.3d 1340, 1352 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . 21 LaBarge Prods., Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Ling-Temco-Vought, Inc. v. United States, 201 Ct. Cl. 135, 475 F.2d 630 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Louisville and Nashville R.R. Co. v. Cent. Iron and Coal Co., 265 U.S. 59 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 44 MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Millmaster Intl. Inc. v. United States, 427 F. 2d 811 (Cust. Ct. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Nautilus Shipping Corp. v. United States, 141 Ct. Cl. 391 (1958) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Navajo v. United States, 58 Fed. Cl. 200, 213 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Northern Helex Co. v. United States, 197 Ct. Cl. 118, 125-26 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Osprey Pacific Corp. V. United States, 41 Fed. Cl. 250 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . 22 PCL Construction Services, Inc. v. United States, 41 Fed. Cl. 242, 252 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Pi Electronics Corp. V. United States, 55 Fed. Cl. 279 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . 22 -iv-

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Pittsburgh C.C. & St. L. Ry. Co. v. Fink, 250 U.S. 577 (1919) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 44 Rough Diamond Co. v. United States, 351 F.2d 636 (Ct. Cl. 1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Safeco Credit v. United States, 44 Fed. Cl. 406 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Short Bros., PLC v. United States, 65 Fed. Cl. 695 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Shutte v. Thompson, 82 U.S. 151 (1872) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Sprague Steamship Co. v. United States, 172 F. Supp 674 (Ct. Cl. 1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Tesoro v. United States, 58 Fed. Cl. 65 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Thomas v. United States, 125 Ct .Cl. 76, 80 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Trauma Service Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Union Pacific Railroad Co. v. United States, 847 F.2d 1567 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 United States v. Mezzanatto, 513 U.S. 196 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 United States v. Wurts, 303 U.S. 414, 415 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim -v-

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Whittaker Electronic Systems v. Dalton, 124 F.3d 1443 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim STATUTES AND REGULATIONS 15 U.S.C. § 772 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 41 U.S.C. § 423 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 26 DAR § 1-1502(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 FAR § 15.402(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR 15.404-1(b)(2)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 FAR § 15.802(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR § 15.804-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR § 16.203-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR § 16.203-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 FAR § 16.203-4(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 52.219-7(b)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 MISCELLANEOUS Restatement (Second) of Contracts § 178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Nash and Cibinic, Formation of Government Contracts (3rd Ed. 1998) . . . . . . . . . . . . . . . . . . . 18

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CHEVRON, U.S.A., INC, TEXACO, INC, and TEXACO DOWNSTREAM LLC, Plaintiffs, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) ) )

No. 03-288C (Chief Judge Damich)

REPLY TO PLAINTIFFS' OPPOSITION TO MOTION TO DISMISS THE COMPLAINT In our moving brief, we demonstrated that Plaintiffs' ("Chevron") Second Amended Complaint ("Compl.") attempted to clone the cause of action at issue in MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992), which held that DESC's jet-fuel contract price escalation Clause B19.33 was inconsistent with the Federal Acquisition Regulation ("FAR"). In Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005), reh'g en banc denied, No. 04-5064 (Fed. Cir. Aug. 22, 2005) ("Tesoro"), the court of appeals abrogated MAPCO, holding that B19.33 had been legal all along. The court explicitly rejected the contractors' contention, repeated here, that B19.33 was illegal because it was based upon "indexes rather than on Plaintiffs' own established fuel prices;" and because it used the Department of Energy's Petroleum Marketing Monthly ("PMM") as a price reference. As our moving brief explains, the standard Tesoro established for economic price adjustment ("EPA") clauses also effectively disposes of Chevron's miscellaneous complaints concerning the legality of its contracts' EPA clauses, because it makes clear that the various tests Chevron would have these clauses pass simply do not exist. In fact, the court held, in order to pass muster under FAR 16.203-1, EPA clauses need only rely upon "industry-based prices," which "may be established

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by reference to either a catalog or market sources independent of the manufacturer or vendor." Id. at 1347. In response, Chevron amended its complaint to assert that the contracting officer had an obligation to assure Chevron was paid "fair and reasonable prices, pursuant to FAR 15.802(b) (currently codified at FAR § 15.402(a))" (see Compl. ¶ 45); yet, still clung to allegations squarely rejected by Tesoro (that the escalation clause must be based upon Chevron's own prices) or those that invoke requirements found nowhere in the law (that EPA clauses must be "designed or intended" to set prices and "reflect at least the fair market value of military fuel"). As our motion explains, these allegations do not invoke a proper legal test for EPA clauses and, therefore, fail to state a claim upon which relief can be granted. Chevron also clung to its common-law allegations which, although allegedly grounded in the parties' understandings and commitments, lack a factual basis -- one that might establish the essential unrequited promise or understanding that typically undergirds such allegations. Their deficiency is unsurprising, because, as our motion explains, they are but thinly-disguised restatements of the Count I complaints, which, in turn depend upon MAPCO for their vitality. Accordingly, with regard to these allegations as well, there simply is no relevant fact that Chevron possessed or envisioned that can transform these counts into authentic common law claims. We also explained that, regardless of the above, Chevron abandoned any rights the FAR might have conferred upon it, and Chevron forfeited any right it might have had to test those rights in litigation when it waited as many years as it did to file the necessary claims. In doing so, we relied upon this Court's decision in Hermes v. United States, 58 Fed. Cl. 409 (2003) ("Hermes II"), which held that the contractor that brought a suit identical to this one no longer -2-

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could pursue its illegality-based claims. As we demonstrated, Chevron's rights with respect to its derivative claims are indistinguishable and also should be dismissed. Chevron responds with a broadside attack upon the PMM itself, based upon incomplete quotations, innuendo, and a report from its consultants quibbling with the use of the escalation clause that the parties agreed to use. Absent from the report's theoretical discussion is a report of actual harm to Chevron and an acknowledgment that the court of appeals has determined that the clause is legal, even if not to the liking of Chevron's pricing advisors. Chevron's efforts to resuscitate the complaint via common law complaints of mistake, misrepresentation, breach, frustration of purpose -- premised on the very same lack of "fair market value" argument -- and absent traditional allegations of agreement-based, unrequited expectations ­ fare no better. That is so, because a cause of action that has, at its root, the existence of a right that does not exist (the right to an EPA clause based upon a contractor's own prices, or one based upon "fair market value") does not become stronger by adding further elements of proof. The other basis of Chevron's response is that it requires discovery (Pl. Br. 19). However, the items Chevron intends to discover concern its own case and other matters that are untethered to legal causes of action and, as we have explained in our RCFC 56(f) response, are not properly supported. Accordingly, Chevron is not entitled to discovery and cannot plead lack of discovery to prevent the termination of this litigation. FACTS Chevron continues to rely upon the same partial quotations and quaint charges of Government scheming pedaled in its Second Amended Complaint. To this, Chevron adds a consultants' opinion concerning the performance of the PMM, also built-upon unfounded premises, and a conclusory statement from two of Chevron's officials declaring that Chevron -3-

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intended to receive legal prices and fair market value.1 See Compl. ¶¶ 17-22; Pl. Br. 4-8. In addition to being untrue, these allegations concern the relative merits of various price references -- a discussion best left to economists and fuel-industry analysts -- not the parties to a contract years after their contracts have been fully performed. In general, Chevron's logic-bending story is that: DESC knew that its use of the PMM was corrupt; DESC had concluded that the price of fuel would, in the future, move in one direction; the PMM and all of the references DESC used would report movement in the opposite direction; that movement always would favor DESC; and, somehow, the fuel industry never would detect this or, upon learning it, would bid eagerly nonetheless. Chevron's story begins with the Energy Information Administration ("EIA"), the author of the PMM. Among Chevron's favorite allegations and a pillar of its complaint is that the EIA has acknowledged that the PMM was not "intended to be an index that is used for setting prices." Pl. PFF 16. The implication is that the PMM is unsuitable or illegal for use as a price reference. What Chevron avoids quoting is the testimony of the EIA's Dr. Cook on that point, which was: We're not opposed to [the PMM] being used for that purpose. We don't, per se, collect the data and justify its collection with OMB Notably, Chevron declines to address contracts containing other than PMM price references. Pl. Br. 3, n. 5. It also declines to address our PFFs concerning those references, citing RCFC 56(f). Chevron cannot seriously assert that the other references are not market-based price sources or that it requires discovery to learn that fact. In fact, while disagreeing that a DESC study supported the use of PMM, Chevron's brief acknowledges that the study "supported using the commercial price references Platts and OPIS to make price adjustments." Pl. Br. 6. Indeed, Chevron's consultants use Platts to assess the market. Pl. App. 624 ¶ 53. Platts' description of its publication (not to mention Chevron's failure ever to protest its use) also suggests that there can be no disagreement over this matter. See Defendant's Supplemental Appendix ("SA") 122, which is attached to this brief. Indeed, Chevron used Platts to value the fuel in pricing its claims. Defendants' Appendix ("App." ) 80 (filed with our moving brief). Accordingly, there is no basis for further proceedings concerning paragraph 28 of the Second Amended Complaint, which alleges that "[o]n information and belief, DESC also knew that some of the other indexes it used to set or adjust prices were not appropriate for these purposes." -41

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for that specific use. We justify its collection on the basis of its general value in measuring actual average prices, wholesale and retail, for everything from crude oil from the wellhead to the pump for state energy offices or various federal agencies, and most especially for Congressional committees for analysis purposes, forecasting, market tracking, all those uses. It's, it's, it happens to be useful, according to oil companies and DFSC for indexing, as well, but we didn't specifically design it for that. SA 5-6 (Tr. 632, l. 14).2 Chevron also suggests that EIA and DESC cooperated surreptitiously to tilt the PMM in DESC's favor, and that DESC breached an obligation to disclose that it worked with EIA "to see that our needs are satisfied." Pl. Br. at 40, n.46; see also Pl. Br. at 5, n.8. However, the document upon which the assertion relies, Pl. App. 100, is taken out of context. As Chevron's next document explains, DESC asked that EIA employ a "phased-in" approach to a new PMM format EIA was developing. DESC suggested that this could take the form of a dual reporting scheme in which EIA proceeded with its new method, but also included the old method until existing DESC contracts relying on the old method expired. Pl. App. 101-02. This hardly affected the contracts at issue or implicated a legal duty owed to Government fuel suppliers. Lacking EIA's condemnation, Chevron relies upon a litigation consultants' generalized assessment of the PMM, to argue that the PMM is illegal because it does not "reflect fair market value" (Pl. Br. 9), suffers from an "index number problem" (Pl. Br. 13), and does not measure "military jet fuel." Id. at 14. As we explain in our response to Chevron's proposed findings, the difficulty with the fair market value allegation (in addition to its lack of relevance to the parties' actual price agreement) is the fact that it depends upon the assumption that the "market" is represented only by data published in Platts. Platts publishes spot market price assessments.

2

"SA" refers to the Supplemental Appendix filed with this brief. -5-

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App. 80. The PMM reports all sales. SA 12 (item III) and 19 (item 23). A "spot" market is "a market where goods are traded for immediate delivery." App. 124 (Platts Glossary); see also App. 126 (NYMEX Glossary (spot is a "[t]erm which describes a one-time open market cash transaction, where a commodity is purchased `on the spot' at current market rates. Spot transactions are in contrast to term sales, which specify a steady supply of product over a period of time")). Chevron's "index number problem" allegation also is untethered from the parties' contracts, and is not supported by the evidence. The index number problem refers to an "index" that contains two or more products whose relative prices or quantities are changing. The basis for this argument is Chevron's consultants' assertion that the PMM "uses current-period volume weights; that is, the reported sales prices are weighted by the actual sales volumes of different products and in different locations in each period." Pl. App. 615. The consultants also assert that "the price data reported in the PMM often represent an aggregate of multiple different fuels sold across many locations." Id. at 616. (Apparently, the consultants mean the product mix changes). However, as EIA's Mr. Bournazian explained to Chevron's counsel, during a deposition in La Gloria v. United States, No. 02-465 (Fed. Cl.), the price data at issue is not an index, which is "a ratio of two numbers." SA 8. Moreover, the PMM does not mix fuel products. As the contracting officer has explained, "PMM price averages are based on petroleum product sales information reported to DOE and grouped by product, type of sale, states, and by geographic regions." App. 4 (Walker Decl. ¶ 10). The EIA Form 782A, which collects that information, confirms as much. SA 9-20. It provides strict requirements that require the segregation of product sales reports. Thus, kerosene-based jet fuel is reported on one line of the form, while different types of gasoline and -6-

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diesel fuels are reported on others.3 Even the article relied upon by Chevron's consultants does not indicate fuel products were mixed. In fact, it studies the different types of fuel separately, including "U.S. Kerosene-Type Jet Fuel." SA 22-7. Chevron's quarrel with the type of fuel references goes well beyond the test of a "market based" EPA clause announced in Tesoro, and also is unwarranted. The contracts at issue were for the sale of a variety of fuels, including JP-4, JP-5, JP-8, Jet A-1 jet fuels, MUM and MUR gasolines, and DFM, F-76 and DFA diesel fuels. Def. Exh. 1 ¶ 2. The PMM explicitly requires the report of JP-5 and JP-8 sales on line 15 of the PMM report form (SA 10 (Line 15) and 19 (Item 13)), and that is the item to which the JP-5 and JP-8 contracts referred. See, e.g., Pl. App. 733, 952 ("Reference Price Tabulation"). The PMM did not report the sale of JP-4, which is a blend of naphtha and kerosene. Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128, 129 (1998); Barrett Ref. Corp. v. United States, 45 Fed. Cl. 166, 169-70 (1999). Accordingly, Chevron's contracts designated the reference price as a combination of PMM-reported prices relating to naphtha and kerosene. E.g., Pl. App. 745. Naphtha sales are not reported in PMM. However, naphtha is an intermediate product in the manufacture of gasoline and, therefore, changes in its value are related to changes in the price of gasoline. App. 31; Pl. App. 620, ¶ 35. Accordingly, Chevron's contracts used the report of wholesale gasoline to reflect changes in the value of the naphtha component of JP-4. E.g., Pl. App. 745. Chevron's consultants argue the use of this kerosene/gasoline blend was "simplistic" and Thus, this reporting is different than that which might be encountered with a true "index," such as the Consumer Price Index, which is based upon a "market basket" of different items. See, generally, http://www.bls.gov/lpc/lprdho95.pdf (Bureau of Labor Statistics paper on the index number problem); http://www.imf.org/external/np/sta/tegppi/ch15.pdf (International Monetary Fund paper addressing the question of "How exactly should the microeconomic information involving possibly millions of prices and quantities be aggregated into a smaller number of price and quantity variables? This is the basic index number problem"). -73

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"inappropriate." Pl. App 620 ¶ 38. However, in 1986, before the onset of this litigation, at least one of the plaintiffs in this litigation admitted otherwise. Writing to DESC about its JP-4 contracts, Conoco stated that it "has no complaint with the way the PMM is calculated and used but with the timing of its availability." SA 70. Prior to DESC's decision to use a common economic price adjustment (EPA) clause, DESC allowed suppliers to propose their own EPA clause. In many cases, suppliers of JP-4 proposed an EPA clause based, in part, on gasoline prices. Our supplemental appendix contains three examples of suppliers proposing to use gasoline prices as a component of an EPA clause. SA 35-36. For example, Ashland Petroleum Company, Contract DLA600-81-D-0354, proposed the use of its own sales prices for gasoline and kerosene in a 60 percent - 40 percent ratio. In another example, Gulf Oil Co., Contract DLA600-81-D-0445, proposed the use of its own sales prices for gasoline and jet fuel in a 50 percent - 50 percent ratio. In a third example, Phillips Petroleum proposed the use of its posted price for house brand gasoline, unleaded gasoline, and dual-purpose fuel oil in equal proportions to adjust JP-4 prices. SA 36. Lacking any proof of the PMM's inherent illegality, Chevron asserts it was misled, because DESC knew that the PMM moved as much as two cents per gallon out of step with other market references, would not protect suppliers, and failed to disclose that. Compl. ¶¶ 19-20; Pl. Br. 5-7. For example, the complaint alleges that a 1987 DESC study concluded that "PMM did not protect against market fluctuations and did not ensure that the prices DESC paid for military fuel under the long-term contracts reflected at least fair market value." Compl. ¶ 21. See also Pl. Br. 6 (the "study supported using the commercial price references Platts and OPIS to make price adjustments -- not the PMM"). In fact, although the study found features to recommend both the PMM and trade publications (Def. PFF 18-24), it concluded that DESC should continue -8-

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using PMM prices, but change the reference month, in order to use a reference price that had been published and was available at the time bidders were submitting their offers. PFF 24.4 Avoiding the 1987 study's actual conclusions, Chevron relies upon out of context quotations taken from the study. For example, Chevron cites a supplier's statement that "we never know if we have made or lost money when you (D[E]SC) lift a cargo." Pl. Br. 7. Chevron fails to explain that the comment concerned the interim-final price adjustment issue, not the use of PMM per se. See App. 31, Background. But, the disparity between interim payments and final payments was well known by both parties, i.e., that various interim references (those used to provide a price adjustment while final PMM numbers for the month were being compiled by EIA) yielded different figures than the PMM and could over or under-predict the final price adjustment due. For that very reason, the contracts with PMM EPA clauses provided for final price adjustments, to be made when the applicable PMM prices were published. Such a two-step payment procedure would have been unnecessary if the references were identical. Thus, Chevron knew from its many interim and final payments that reference prices differed.5 See PFF

4

Chevron's allegation that "DESC did not disclose this study to its suppliers" is undercut by the very evidence it offers on that point. See Pl. App. 596 (handwritten note on cover memorandum to "proposed final draft" shows that some suppliers were canvassed on the proposal to continue using PMM prices with an earlier base reference price. ("Option II industry survey-Barrett, Pride, Chevron, Dia. Sh.-great idea! Calcasieu-indifferent Sun, West. Pet, Gladieux, Peerless, AIRI-won't hurt-might help")). Chevron attempts to infuse some significance to the difference between the PMM and other price references by asserting that DESC required its suppliers to submit bids to the one tenthousandth of a cent. DESC did not "require" that offerors ". . . submit bids to sell military fuel to the one-ten-thousandth of a cent ($.000001)." Compl. ¶ 19; Pl. Br. 5. DESC only evaluated offers to that decimal place. Bidders were free to, and often did, submit bids to fewer decimal places. See, e.g., Pl. App. 950 (one place), 903, 936, 962 (two places), 678, 688, 694, 709, 729, 739, 796, 808, 891, 978, 1002 (three places), 760, 770, 782, 831, 834, 876, 910, 924, 935 (four places). -95

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16.6 Chevron also cites a DESC statement that the use of trade journals "would cost DESC money" and that there would be "market risk" if adjustments were based on trade journal prices for "jet kerosene." Pl. Br. 6. But, the quotations were based upon potential flaws with the trade journals, not advantageous flaws in the PMM. The "market risk" stemmed from DESC's analysis that trade journals reported unrealistically high prices ("price stickiness") during periods of declining prices. PFF 22; App. 33. Another "market risk" noted was the fact that only a single trade journal reported "jet kerosene" prices, and that it might discontinue publication. App. 33. To round out its conspiracy tale, Chevron alleges that "seven years later, in 1994, senior officials at DLA learned of DESC's 1987 study, and, upon review of the study, directed DESC to stop using PMM to set military fuel prices." Compl. ¶ 23. However, as we explained in our response to Chevron's PFF 10, it was DESC, not DLA, which, in 1994, first sought a FAR deviation to begin using trade publication prices for price adjustments. PFF 25, 26. DESC did so, not because it had concluded that refiners were not receiving "fair market value," but for some of the same reasons that had been set out in the 1987 study, including the elimination of the need for interim price adjustments, the wide acceptance of trade publication prices by industry, and the relative simplicity of the use of trade publication prices. PFF 26. The apparent basis for Chevron's theory is the deposition testimony of Lawrence Ervin that the change from PMM prices to trade journal prices "was made in response to some pressure from headquarters

Chevron's "Response to Defendant's Proposed Findings of Uncontroverted Fact" denies PFF 26, "pursuant to Rule 56(f)." Chevron cannot seriously claim a need for discovery regarding whether its contracts contained interim and final price adjustments. In fact, its own Appendix contains contracts specifying them, precisely as set forth in PFF 16. See, e.g., Pl. App. 761-62. - 10 -

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to do things differently." App. 46. However, as he explained, the "pressure" was to "produce substantial savings to the taxpayer." Id; see also Def. Response to PFF 11. Chevron cannot explain how DLA would expect to produce "substantial savings to the taxpayer" while at the same time eliminating the use of PMM, which, according to Chevron, underpaid suppliers. ARGUMENT I. DESC's EPA Clauses Are Authorized by FAR 16.203-1 In Count I, Chevron asserts: (1) that the clauses were illegal because they were not based upon "Plaintiffs' own established fuel prices" (Compl. ¶ 43); (2) that the clauses were illegal because they were "not market-based, were not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel" (Compl. ¶ 44); and (3) that the contracts were awarded in violation of FAR § 15.802(b) (now codified at FAR 15.402(a)) (contracting officer's duty to review price reasonableness) (Compl. ¶ 45). A. EPA Clauses Need Not Be Based Upon Chevron's Own Prices

As explained in our moving brief, Tesoro explicitly rejected Chevron's first argument, holding that the theory that "FAR 16.203-3 requires that adjustments be based only on changes in the prices charged by individual contractors eviscerates the regulatory meaning of the term `established prices' and the policy reasons for using it." Id. Summarizing, the court explained that: "According to the interplay of all four sections of FAR § 16.203, a `contractor's established price' may be established by reference to either a catalog or market sources independent of the manufacturer or vendor." Id. at 1347 (emphasis added). Chevron's only rebuttal to this point is its assertion that Tesoro was wrongly decided, and that Barrett Refining v. United States, 242 F.3d. 1055, 1060 (2001), provides the proper rule of decision. Pl. Br. 21, n. 27. However, that argument was examined in Tesoro and rejected. - 11 -

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Tesoro, 405 F. 3d 1345 (noting that the Barrett court was not presented with the issue of legality). Accordingly, that argument appears to have reached an end ­ at least in this Court. B. DESC's PMM-Based EPA Clause Is Legal

In Tesoro, the court did not stop with the question of whether, in general, an EPA clause not based upon the contractor's own price would be illegal, because the argument presented to it (especially given reliance upon MAPCO) concerned the nature of the PMM. Accordingly, the court of appeals explicitly considered whether DESC's PMM-based EPA clause was an "established prices" clause and held that it was. Our moving brief quoted at length from Tesoro. It demonstrated that the court stated that it was considering the legality of the PMM (e.g., the certified question for interlocutory review was "Did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses indexed to PMM?" (id. at 1342 (emphasis added)), and considered various of the factors cited by MAPCO, as the basis for its holding the PMM was not an "established prices" clause (e.g., that the PMM was an "amalgamation of the previous month's sales data" and, as such, did not comport with the dictionary definition of "established"). Summarizing the sweep of its review, the court of appeals concluded: Because we conclude that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR, we do not reach the other issues raised in the certified questions . . . . Our holding that the use of the PMM-based EPA clause was authorized under the statute moots the issue [of waiver]. . . . . For the foregoing reasons, we hold that the Court of Federal Claims erred in holding that DESC's use of a PMM-based EPA clause was not authorized under the FAR.

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Id. at 1348-9 (emphasis added).7 In the trial-level decisions that led to Tesoro, the plaintiffs disagreed concerning whether the PMM could be considered an "established prices" clause, arguing that the PMM was only an amalgamation of prices, was not based upon actual sales of jet fuel, and so forth. See, e.g., MAPCO, 27 Fed. Cl. 405. Neither the various trial courts nor the court of appeals found a genuine issue that might have precluded a judgment in our favor. Nor did these courts posit that there was a further test of what it means to be "market-based." The plaintiffs in Tesoro certainly never suggested that the PMM or any of the various references were not market-based. Nor does the purpose of the EPA clauses themselves suggest that conclusion. As we have explained in earlier briefings, the FAR's bias is for competition. Nothing provides a less-assailable ground for competition than firm-fixed prices. To permit an exception ­ one that allows the winning bidder of a single, price-based competition to escape that price for subsequent sales, yet be the sole supplier for those subsequent lots ­ potentially eviscerates a competition-based system. Accordingly, to assure that prices remain tethered to the competition, the FAR requires that escalators be independent of the contractor's prices and be permitted only when the nature of the sale requires it (such as the sale of as volatile a commodity as fuel). As the court explained it, "the policy behind requiring use of `established prices' is to avoid contracts subject to the operational whims of individual contractors." Tesoro, 405 F.3d at 1347.

7

Chevron reads too much into the comment in our appellate brief that we did not consider the appellate court's review to be a "beauty contest" of individual price references. Indeed, we did not and do not here, because it is not for the courts to determine whether one EPA clause is better than another from a business, pricing or economic standpoint. That choice is the agency's and can be voided only upon a finding that it is illegal. In any event, our argument does not dictate how the court itself actually decided the appeal. - 13 -

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Even if the court intended to effect a sub silentio remand on the question of whether a PMM-based clause was a market-based clause, the FAR itself requires nothing more than the clause be "market-based" ­ not that it move with Platts or that it meet any particular standard of precision. Indeed, Chevron offers no new legal standard. Rather, it simply seeks to remove the unambiguous standard the parties agreed upon years ago.8 And, rooted as it is in the post hoc arguments of economists and industry-watchers, Chevron's approach relegates the parties to observers, not makers, of their agreements. Nonetheless, the complaint asserts that the PMM clauses could not be legal, because they were "not market-based, were not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel" (Compl. ¶ 43). As we noted in our moving brief, these standards cannot be found in the regulation or in Tesoro. Rather than defend the sufficiency of these proffered legal tests, Chevron relies upon the opinion offered by its consultants concerning an appropriate price reference. The difficulty with relying upon opinions, even if taken as fact, is that, absent a legally-cognizable cause of action, the facts are immaterial to a court of law. In sum, the materiality of the opinions rests upon the degree to which they can plumb the simple regulatory requirement that an EPA clause be "market-based." But, there is little room for doing so. Indeed, in Tesoro, the court was able to decide the legality of the DESC clause with little more than the legal description of the PMM. Following the appellate court's lead, our

Chevron's reference to Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988), does not supply that standard either. At issue there was a Defense Department FAR supplement not applicable here, which supplied specific criteria for cost index-type clauses. Indeed, the existence of such a detailed provision suggests that, if the agencies had wished to further regulate EPA clauses to the degree Chevron suggests, they would have done so. Where the regulating authorities having stayed their hand, the courts should not regulate. - 14 -

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moving brief established that the PMM was "market-based" upon the same basis. Thus, we noted that a statute requires refiners and sellers of petroleum products to report actual sales data to DOE. 15 U.S.C. § 772. It is this data upon which the PMM is based. See Def. PFF 15. Because the prices are established in sales between fuel sellers and buyers, it surely can be said that the EPA clause was based upon market prices, and satisfies the FAR 15.804-3 requirement that market prices be established in the ordinary course of business between buyers and sellers free to bargain. While apparently acknowledging that DESC was within its rights to use a "proxy" for JP4, Chevron's consultants assume that the reference must reflect the same "composition" as JP-4. But, even assuming the consultants' chemistry is correct, that level of precision is not required by Tesoro or the FAR. FAR 16.203-1(a)(1) requires only that adjustments based upon established prices be "based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items." (Emphasis added). Thus, the prices of the precise end items need not be used. To the same effect, FAR 16.203-4(b) ("Adjustment based on established prices -- semistandard supplies") acknowledges that EPA clauses are appropriate for "semistandard" supplies, defined as those for which "the prices can be reasonably related to the prices of nearly equivalent standard supplies that have an established catalog or market price." (Emphasis added). Here, for example, because sales of JP4 jet fuel were not reported by the PMM, the contract provided that the price of compositionallyrelated fuels would provide the benchmark for price adjustments. As we have explained, JP-4 is a kerosene and naphtha-based fuel. Naphtha can be blended into JP-4 and is an intermediate product in the manufacture of gasoline. Accordingly, gasoline and kerosene became the agreedupon supplies whose price changes would provide the reference for JP-4. Chevron's insistence - 15 -

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that the parties may not agree to adjust the price of a particular blend of fuel based upon a reference that does not specifically report the sale of that blend simply is not correct. 9 C. Chevron's FAR 15.802(b) Allegation Does Not State A Cause of Action

In our moving brief, we demonstrated that Chevron's effort to root its core complaint in a violation of FAR § 15.802(b) (currently codified at FAR 15.402(a)), does not state a claim upon which relief can be granted, because it does not create an enforceable right for contractors.10 See Short Bros., PLC v. United States, 65 Fed. Cl. 695, 764-65 (2005) ("The FAR provisions cited by Chevron purport to do no more than to provide internal government direction. For example, FAR § 15.802 (1993), entitled "Policy," only requires that the contracting officer "[p]urchase supplies and services from responsible sources at fair and reasonable prices [.]" FAR § 15.802(b) . . . It does not afford a judicial remedy").11 We further explained that that provision was found

Chevron's consultants' report also is flawed because its key conclusion (that PMM does not track "fair market value") is based solely upon the fact that PMM and Platts do not necessarily track each other. Yet, there is no requirement that they do. The report also is marred by statements for which there is no evidence, including the premise of its "index number" theory (as noted in our fact discussion) that the PMM mixes types of fuel. The report's assertion that the reference formula for JP-4 includes "sales of supplies destined to serve individual consumers at retail outlets" (Pl. App. 619) is similarly misleading. In fact, the formula included 70 percent gasoline of "Unleaded Regular Gasoline All Refiners Sales for Resale" (Pl. App. 745 (emphasis added)), which is tracked separately in the PMM from retail sales. SA 10, 19, 25-6. The report's assertion that the PMM also does not report "military" jet fuel is of the same caliber. In fact, EIA captures data for "kerosene-type jet fuel," including military jet fuels JP-5 and JP-8. SA 2 at 19 (item 13). FAR 15.402(a) provides that the contracting officer "must- (a) Purchase supplies and services from responsible sources at fair and reasonable prices." Chevron's effort to distinguish Short Bros. is limited to noting that it was not limited to the proposition for which we cite it, and that plaintiff sought a different contract type. Nonetheless, the holding we cited is correct, and the plaintiff in Short Brothers also sought money, as Chevron does here. Chevron seeks to distinguish All Phase Environmental, on the ground that the GAO did not, among other things, discuss the purpose of FAR 15.402. To the contrary, the GAO noted that the agency's concern was in not paying more than warranted. - 16 11 10

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in that part of the regulation that was concerned with obtaining adequate price competition, so that the Government was assured of paying a reasonable price. To address our analysis, Chevron relies upon the regulation, the dictionary (definition of "fair"), and guidance to contracting officers and auditors found in the Armed Services Pricing Manual ("ASPM"), which suggests that a price should be fair to both sides. However, even if Chevron were entitled to bring a FAR 15.402-based claim to this Court, the complaint still fails to state a claim, because FAR 15.402 concerns bid and award prices ­ not adjusted prices, which are calculated during contract performance, based upon the movement of the EPA clause. Accordingly, the ASPM refers to "price" in the singular and to "current market conditions," not subsequent adjusted prices. As we have explained, the contractors set their offer prices and no contractor has suggested that its offer prices were unreasonable. In any event, the ASPM guidance, the dictionary's definition of fairness, and Chevron's other secondary references amount to nothing more than good advice for contracting officers interested in working with contented, motivated contractors, who are not looking to file claims.12 However, they do not establish the existence of an enforceable interest. Moreover, to suggest that the FAR, which was issued against a backdrop of longestablished principles of commercial law (including the principle of unilateral mistake, which the FAR addresses), intended to add a cause of action not rooted in mistake is as preposterous as it is

Indeed, the declarations in the record submitted by the contracting officer, John Walker (App. 3 ¶ 8) and the DESC Price Analysis and Pre-negotiation Briefing Memoranda (Pl. App. 144-70, 206-78) explain how prices were determined fair and reasonable. The undisputed facts show that prices were determined fair and reasonable based upon competition and, in many cases, comparison with market prices. See FAR 15.404-1(b)(2)(i) ("normally, adequate price competition establishes price reasonableness"). - 17 -

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illogical.13 Indeed, if, as Chevron argues, the contracting officer's obligation to assess price reasonableness were actionable, contract pricing never would be binding, because contractors who failed to realize the post hoc demands of their owners or investors could occasion this Court's intervention with no more substantial an allegation than "our price was unfair!" Chevron suggests that is not true, because courts routinely adjust prices. But, they do so upon discernible standards ­ not generalized claims of "unfairness," unrooted in recognized causes of action.14 II. Chevron's Alternative Illegality Theories In Counts II-VI Must Be Dismissed A. Count II (Misrepresentation)

In our moving brief, we established that the misrepresentation count (DESC "misrepresented and otherwise failed to disclose that PMM and other indexes were not designed or intended to be used to set or adjust prices and did not reflect at least fair market value" (Compl. ¶ 60)) should be dismissed, because there is no such applicable rule for EPA clauses. Chevron's brief does not suggest one or that the Government actually misrepresented anything. Instead, Chevron asserts that, because the complaint alleged a "misrepresentation," for the purposes of our motion, it is an established fact. Pl. Br. 35. However, misrepresentation is an See Nash & Cibinic, Formation of Government Contracts (3rd Ed. 1998) at 1279 ("The primary focus of these requirements is to ensure that the Government does not pay unreasonably high prices," although they caution that "prices that are unreasonably low must also be dealt with before an award is made, because they could be evidence of mistake, non-responsibility, lack of understanding of the work, or a buy-in"). Chevron's own argument makes this connection, asserting that it is grounded in a misrepresentation. Pl. Br. 33.
14 13

Chevron acknowledges that its claim cannot stand on FAR 15.402 alone, when it argues that "the determination of price reasonableness was, in essence a sham: that DESC knew that the PMM did not reflect the marketplace, [and] misrepresented what it knew for its own benefit." Pl. Br. 33 (emphasis added). In other words, as Chevron's misrepresentation count goes, so goes its FAR 15.402 count. As we have explained, Chevron has yet to put a fact in evidence that amounts to a misrepresentation or establishes its fanciful conspiracy theory. - 18 -

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allegation of law, which we need not accept. In fact, the entire point of our motion is to challenge it. Accordingly, absent any material fact pertaining to an actual misrepresentation, that count now must be dismissed. B. Count III ("Breach of Contract") and Count IV ("Implied-In-Fact Contract")

In our moving brief, we established that Chevron's breach of contract count and impliedin-fact contract counts should be dismissed, because there is no ground for striking the parties' own unambiguous agreement. We also established that an "implied-in-fact contract cannot exist if an express contract already covers the same subject matter." Trauma Service Group v. United States, 104 F.3d 1321, 1326 (Fed. Cir. 1997). Other than asserting that the contract "expressly" requires the payment of "fair market value," Chevron cites no language to contradict the unambiguous language of the contract's pricing clause. Instead, Chevron attempts to oust that clause obliquely, reasoning that the Spearin doctrine (Government warrants that design specifications will yield satisfactory result) and principles of contract reformation somehow trump a contract's unambiguous language.15 But, the plain language of the contract's pricing clause does not permit such machinations. We do not necessarily disagree that if, as a matter of law, the pricing clause were stricken, that reformation could be available. Nor do we necessarily disagree that the remedy would include

Chevron alludes to the "implied" promise to pay fair market value found in Barrett, 242 F.3d 1060. Pl. Br. 40. However, in that case, the contract was assumed to be invalid, and the court was looking for evidence of an implied in fact contract. Here, should we reach such a remedy phase, we would expect the parties to adduce evidence concerning the fact of any such implied agreement. Absent agreement upon what "fair market value" means, it is unlikely the parties are in any position to agree upon what, specifically, that might be. Notably, the denouement of Barrett was the trial court's finding that, based upon the presumed implied-in-fact agreement, the Government overpaid for three of the four contracts at issue. Barrett v. United States, 50 Fed. Cl. 567, 569-70 (2001). We understand that Chevron would dispute the existence of such an implied-in-fact agreement. - 19 -

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reviewing the parties' dealings to search for an implied arrangement; but, until this contract is voided through some other cause of action, these counts unnecessarily bloat the complaint. C. Count V ("Failure of Consideration and Frustration of Purpose")

Count V presents a further unnecessary multiplication of the charges. Chevron seeks to avoid the dismissal of Count V, by asserting that the matter is not "ripe for decision," because "DESC offers no evidence" concerning the degree of frustration. Pl. Br. 44. However, it is Chevron that bears the burden of proof in advancing evidence of its purported frustration. Moreover, Chevron's reply acknowledges that the count is grounded "on the voiding of DESC's pricing clause on the grounds of illegality." Pl. Br. 44. Accordingly, the dismissal of Chevron's remaining illegality counts would result in the dismissal of this count (conversely, were it not to be dismissed, the frustration count would be superfluous) and, therefore, serves no purpose. D. Count VI (Mistake)

In our moving brief, we demonstrated that Count VI must be dismissed for the same reason as the other alternative causes of action, and that Chevron failed to meet the basic elements of proof of a mistake claim, including that, at the time of their agreement, the parties shared a mistaken belief "regarding a fact" concerning a "basic assumption underlying the contract." See Dairyland Power Coop. v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994). The reply asserts that the complaint's focus in this Count is the purpose of the PMM and what it is intended to measure. Pl. Br. 45. But, Chevron's reply fails to identify any belief that it held concerning the PMM ­ let alone one held by DESC. As we have explained, the PMM reports on actual sales data required to be reported by statute. Chevron itself was required to supply the information that was the basic ingredient of the PMM. Chevron has failed to show why the purpose of the PMM or why EIA collects PMM data is material to an unambiguous - 20 -

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contract provision that was never alleged to operate or be administered or interpreted improperly.16 In sum, Chevron's mistake pleading lacks a factual premise. III. Chevron's Takings Claim Should Be Dismissed Chevron's extended response to our demonstration that it fails to state a Fifth Amendment takings claim, Pl. Br. 46-53, confirms our central point: that Chevron cannot cite a single judicial decision holding that a compensable "taking" can occur when the Government acquires property from a willing seller, pursuant to a contract that is later (for purposes of argument) held to be "illegal" or void. This is hardly surprising, as such a rule would convert every "illegal contract" claim involving real or personal property into a takings claim. "Chevron alleges that the contracts were unlawful, and thus DESC physically possessed fuel to which it had no right." Id. at 50. This conclusion concerning the Government's "rights," however, does not follow from the premise of illegality. Indeed, under Chevron's logic, Chevron could be liable to a suit by the Government for funds paid to Chevron (e.g., United States v. Wurts, 303 U.S. 414, 415 (1937)), because it would likewise be true that "Chevron possessed Government money [paid under the contract] to which it had no right." In truth, of course, both parties rightfully took ownership of the consideration freely exchanged under the fuel supply contracts; both parties received exactly that for which they contracted; and these voluntary transactions had none of the aspects of a physical or regulatory taking. In fact, a contract constitutes a right to payment of damages in the event of a failure of performance. As long as the right to such damages remains intact, as it does here, no taking has occurred. See, e.g., La Van v. United States, 382 F.3d 1340, 1352 (Fed. Cir. 2004). Chevron's reliance upon Beta Systems does not supply its missing factual ingredient. Not only are the facts of that case not suggested here by any evidence, that case involved a DFAR supplement and specific EPA clause criteria not applicable here. - 21 16

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Chevron's argument that its constitutional claim is "substantially identical" to that in Osprey Pacific Corp. v. United States, 41 Fed. Cl. 250 (1998), also cannot bear scrutiny. Pl. Br. 48. Among other important distinctions, plaintiff in Osprey was a third party to the contract under which the Government asserted ownership of the boat, and plaintiff did not willingly deliver its property to the Government for remuneration, as did Chevron. Nor is it true that "courts have consistently permitted [a] contractor to pursue takings claims in addition to breach of contract claims" when the contractor is dissatisfied with the price it received. Id. at 51. In the first case cited by Chevron to support the latter assertion, Pi Electronics Corp. v United States, 55 Fed. Cl. 279 (2003), the property right allegedly "taken," through disclosure, was a trade secret, which plaintiff did not agree to convey to the Government. Id. at 281-83. Chevron, by contrast, freely passed title to its fuel for consumption by the military. In Armstrong v. United States, 364 U.S. 40 (1960), also cited by Chevron, the plaintiffs were not Government "contractors," but subcontractors who asserted liens in the subject of the contract. Those plaintiffs were not attempting to convert contract claims into takings claims. In ScanTech Security v. United States, 46 Fed. Cl. 326 (2000), the Court held sensibly that "[i]f the express writings of the parties encompass[ed] the [Government's] right to possession" ­ as DESC's fuel contracts undeniably did ­ plaintiffs' "takings claim should be dismissed" and replaced with contract claims. Id. at 332. Similarly, in Integrated Logistics Support Systems, Int'l v. United States, 42 Fed. Cl. 30 (1998), the Court could not "conclude that the contract conferred expressly upon defendant rights of possession, use, ownership, and alienation in the materials . . . ." Id. at 35. No such ambiguity exists in the contracts at issue. Chevron was not coerced to bid for or perform these contracts, and the assertion that DESC "abrogated Chevron's rights" by awarding lucrative contracts in a proprietary capacity - 22 -

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refutes itself. Pl. Br. 47 n. 51. No authority supports the argument that such free exchanges of a commodity for money in a competitive market can be recharacterized, years after the fact, as a compensable Fifth Amendment taking if the private seller can find some way to undo what both parties understood to be the contracts. Further, even if Chevron were to prevail, as the Federal Circuit held in Barrett, only the pricing mechanism would be stricken. The remainder of the agreements, including the Government's right to receive the fuel, would stand, or would, at a minimum, be "implied in fact" from the parties' conduct. Accordingly, there is no basis upon which to allege the fuel was "taken" for use by the sovereign within the meaning of the Constitution. IV. Chevron's Small Business Program Complaints Must Be Dismissed A. The Court Lacks Jurisdiction To Entertain The Fifth Amendment Complaint

In our moving brief, we demonstrated that this Court possesses no jurisdiction to entertain claims based upon the Fifth Amendment's equal protection clause. Chevron claims to skirt that rule, because it has "express contracts" tainted by the award. Pl. Br. 53-54. But, here, Chevron has no award based upon any purported equal protection violation