Free Motion for Summary Judgment - District Court of Federal Claims - federal

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No. 08-17C (Judge Bruggink) IN THE UNITED STATES COURT OF FEDERAL CLAIMS Distribution Postal Consultants, Inc., Plaintiff, v. The United States, Defendant. DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND, IN THE ALTERNATIVE, DEFENDANT'S MOTION TO DISMISS

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JEANNE E. DAVIDSON Director

REGINALD T. BLADES, JR. Assistant Director

MATTHEW H. SOLOMSON Trial Attorney Commercial Litigation Branch Civil Division, U.S. Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 305-3274 March 31, 2008 Counsel for Defendant

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TABLE OF CONTENTS TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND, IN THE ALTERNATIVE, DEFENDANT'S MOTION TO DISMISS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 DEFENDANT'S BRIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 I. The United States Is Entitled To Summary Judgment Because Mr. Dunbebin Had Apparent Authority To Act For DPC When He Terminated Its Original ICM Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 A. Summary Judgment Is Appropriate On The Issue Of Mr. Dunbebin's Apparent Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 As A Matter Of Law, Mr. Dunbebin Had Apparent Authority To Act On Behalf of DPC And To Request That USPS Terminate The Original ICM Agreement . . . . . . . . . . . . . . . . . . . 8

B.

II.

Count II Of DPC's Complaint In This Case, Alleging Breach Of The Implied Covenant Of Good Faith And Fair Dealing, Should Be Dismissed . . . . . . . . . . 12 A. The Doctrine Of Res Judicata Bars Count II Of DPC's Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 In The Alternative, Count II Should Be Dismissed Because This Court Lacks Jurisdiction Over Tort Claims . . . . . . . . . . . 14 Even If Res Judicata Does Not Preclude Count II, And Assuming Count II Is Within This Court's Jurisdiction, This Court Nevertheless Should Dismiss That Count Because It Fails To State A Claim Upon Which Relief Can Be Granted . . . 16

B.

C.

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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TABLE OF AUTHORITIES CASES Adams v. United States, 20 Cl. Ct. 132 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 Bell Atlantic Corp. v. Twombly, -- U.S. --, 127 S. Ct. 1955 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 17 Brunner v. United States, 70 Fed. Cl. 623 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10 Burnett v. United States, 40 Fed. Cl. 806 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Conley v. Gibson, 355 U.S. 41 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 DPC v. Dunedin and AMS, Case No. 4C-04-007557 (Cir. Ct. Balt. City 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 7 DPC v. USPS, No. RDB-07-200 (D. Md. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Dachman v. United States, 73 Fed. Cl. 508 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 15, 16 Detroit Housing Corp., v. United States, 55 Fed. Cl. 410 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 19 Edelmann v. United States, 76 Fed. Cl. 376 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 F.D.I.C. v. Meyer, 510 U.S. 471 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Franklin Savings Corp., v. United States, 56 Fed. Cl. 720 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Gibbs v. Buck, ii

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307 U.S. 66 (1939) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Gilbert v. DaGrosa, 756 F.2d 1455 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Henke v. United States, 60 F.3d 795 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Jentoft v. United States, 450 F.3d 1342 (Fed. Cir.2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Keene Corp. v. United States, 508 U.S. 200 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Lyons v. United States, 45 Fed. Cl. 399 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13 Magnus Electr., Inc. v. La Republica Argentina, 830 F.2d 1396 (7th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 McAfee v. United States, 46 Fed. Cl. 428 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 McCauley v. United States, 38 Fed. Cl. 250 (1997), aff'd, 152 F.3d 948 (Fed. Cir. 1998) . . . . . . . . . . . . . . . . . . . . 15 McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Mingus Constructors, Inc. v. United States, 812 F.2d 1387 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Montego Bay Imports, Ltd. v. United States, 25 Cl. Ct. 639 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,14,16 Naylor v. United States, 53 Fed. Cl. 172 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Pratt v. United States, 50 Fed. Cl. 469 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 iii

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Ralph Larson & Son, Inc. v. United States, 17 Cl. Ct. 39 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Spezzaferro v. FAA, 807 F.2d 169 (Fed. Cir. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 State of Alaska v. United States, 35 Fed. Cl. 685, 704 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Torncello v. United States, 231 Ct. Cl. 20 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 19 United States v. Gil, 657 F.2d 712 (5th Cir. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 United States v. King, 395 U.S. 1 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 United States v. Mitchell, 445 U.S. 535 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 United States v. Sanchez, 521 F.2d 244 (5th Cir. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 United States v. Sherwood, 312 U.S. 584 (1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 STATUTES 28 U.S.C. §§ 1346(b), 2671-2680 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 28 U.S.C. § 1491 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS Distribution Postal Consultants, Inc., Plaintiff, v. The United States, Defendant. ) ) ) ) ) ) ) ) )

No. 08-17C (Judge Bruggink)

DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND, IN THE ALTERNATIVE, DEFENDANT'S MOTION TO DISMISS Defendant, the United States, respectfully requests this Court to grant summary judgment to the United States on Counts I and II of the complaint, pursuant to Rule 56 of the Rules of the United States Court of Federal Claims ("RCFC"). In the alternative, we respectfully request this Court to dismiss Count II of plaintiff's complaint for failure to state a claim upon which relief can be granted, pursuant to RCFC 12(b)(6), or, pursuant to RCFC 12(b)(1), for lack of subject matter jurisdiction. In support of our motions, we rely upon plaintiff's complaint (including the exhibits attached thereto), our brief, and the attached exhibits. DEFENDANT'S BRIEF QUESTIONS PRESENTED 1. Whether the United States is entitled to summary judgment on Counts I and II of plaintiff's complaint because the United States relied upon the apparent authority of plaintiff's representative to terminate plaintiff's contract. 2. In the alternative, whether Count II of plaintiff's complaint should be dismissed because it is barred by the doctrine of res judicata, fails to state a claim within this Court's subject matter jurisdiction, or to state a claim upon which relief may be granted.

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STATEMENT OF FACTS1 Plaintiff, Distribution Postal Consultants ("DPC"), is a mail consolidator in the business of producing, servicing, and managing mail for its customers. Plaintiff's Complaint ("Compl.") at ¶ 4. DPC has had extensive dealings with the United States Postal Service ("USPS" or "Postal Service"), including having entered into numerous agreements with USPS for postal discounts on its mailing services. Compl. at ¶ 5. DPC passes along the discounts to its customers, allowing them to ship postal items for less than USPS's normal rates. Id. On April 24, 2002, Mr. Robert Dunbebin, in his capacity as Vice-President of DPC, signed an International Customized Mail Agreement ("Original ICM Agreement" or "Original Agreement") with USPS.2 Compl. at ¶ 8; see also Pl. Exh. 1 at 7.3 The Original ICM Agreement was a three year contract giving DPC a 16% discount on international mail, but required that DPC tender, to USPS, mail generating at least $25,000,000 of actual postage on an annual basis. Compl. at ¶ 8; Pl. Exh. 1 at Art. 8. Under the terms of the Original ICM Agreement, if DPC did not meet its annual minimum postage obligation, additional postage would be due to USPS based upon a schedule of discounts for the amount of mail actually tendered. Id. Finally, DPC had only three months to pay USPS any such additional postage due. Id. On May 30, 2002, Mr. Dunbebin, purportedly acting on behalf of DPC, requested that

1

We treat the facts alleged in plaintiff's complaint as true solely for the purpose of our motion to dismiss. See Henke v. United States, 60 F.3d 795, 797 (Fed. Cir. 1995).
2

The Original Agreement is attached to plaintiff's complaint as Exhibit 1 (hereinafter "Pl. Exh. 1"). Additional exhibits attached to plaintiff's complaint are cited to herein as "Pl. Exh. _". Although DPC's complaint alleges that the date of the agreement was April 2, 2002, the agreement itself is dated April 24, 2002 (by both parties' signatories). See Pl. Exh. 1.
3

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USPS terminate the Original ICM Agreement. See Pl. Exh. 2 (Letter from W. Olson to M. Plunkett) at 2. USPS agreed to Mr. Dunbebin's request. Id. Thus, on May 30, 2002, Mr. John Alepa, a USPS manager, and Mr. Dunbebin ­ once again representing himself as Vice-President of DPC ­ signed an amendment to DPC's Original ICM Agreement that terminated that contract. See DPC's Complaint in DPC v. Dunedin and AMS, Case No. 4C-04-007557 (Cir. Ct. Balt. City 2004) at ¶ 8; Amendment One to the Original ICM Agreement.4 On the same day that Mr. Dunbebin had USPS terminate DPC's Original ICM Agreement, he signed a new ICM agreement with USPS on behalf of American Mail Sort, LLC (the "AMS ICM Agreement"). See Pl. Exh. 4; AMS ICM Agreement at 7 (attached hereto as Def. Exh. 1). DPC alleges that it learned, for the first time, in May 2004, that it no longer had an ICM agreement with USPS because Mr. Dunbebin had terminated DPC's Original ICM Agreement in May 2002. Compl. at ¶ 12. However, during the two year period following the termination of the Original Agreement ­ from May 2002 until May 2004 ­ DPC never informed USPS that the amendment to the Original ICM Agreement was invalid. USPS received no shipping volume from DPC during this two year period. See Def. Exh. 10 (May 11, 2005 Letter from M. Plunkett to W. Olson) at 2.

Both documents are attached as Exhibit 4 to DPC's complaint in this case. We note that DPC's case in state court was captioned incorrectly, misspelling Mr. Dunbebin's name as "Dunedin." In that case, DPC sued Mr. Dunbebin and American Mail Sort ("AMS") in the Circuit Court for Baltimore City. Compl. at ¶ 20; Pl. Exh. 4. DPC alleged AMS's ICM agreement with USPS directly interfered with DPC's business by preventing DPC from meeting its minimum postage obligations. Compl. at ¶¶ 15-16, 20; Pl. Exh. 4. On December 12, 2005, DPC received a judgment against AMS and Mr. Dunbebin, jointly and severally, in the amount of $755,197.31, plus $10,000,000.00 in punitive damages. Compl. at ¶ 21; Pl. Exh. 4. -3-

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DPC thereafter claimed that the Original ICM Agreement was improperly transferred to AMS, and demanded that USPS comply with the terms of the Original ICM Agreement. Compl. at ¶ 12. On August 4, 2004, however, USPS entered into a new ICM agreement with DPC (the "Second ICM Agreement"). Compl. at ¶ 14. The Second ICM Agreement had an effective date of August 14, 2004. See Second ICM Agreement at Art.12 (attached hereto as Def. Exh. 2). Upon the expiration of the Second ICM Agreement, DPC and USPS executed a new ICM agreement (the "Third ICM Agreement) in December 2005. See Third ICM Agreement at Art. 12 (attached hereto as Def. Exh. 3). The Third ICM Agreement was to expire on December 31, 2006. Id. In 2004, 2005, and 2006, DPC failed to meet its minimum postage obligations as required by the New ICM Agreement. Compl. at ¶¶ 16, 28. As a result, and as required by the terms of the new agreements, DPC was required to pay USPS the amount of the unearned discount, or deficiency, for the years in which it failed to meet its minimum postage obligation. Id. at ¶ 28. USPS accordingly notified DPC that it owed a deficiency of approximately $136,000 for failing to meet its minimum postage obligation. Id. In addition, USPS refused to further renew its ICM agreement with DPC until it paid the deficiency. Id; see also December 1, 2006 Letter from M. Plunkett to L. Haber, Jr. (attached hereto as Def. Exh. 4). On February 27, 2006, DPC filed an administrative claim under the provisions of the Federal Tort Claims Act ("FTCA"), see 28 U.S.C. §§ 1346(b), 2671-2680, for monetary damages allegedly sustained by DPC. Compl. at ¶ 25. On September 26, 2006, USPS denied the claim and found no negligent act or omission by USPS or any of its employees. See Pl. Exh. 5 (Sept. 26, 2006 Letter from W. Wiedermann-Hudson, Esq. to R. Scarlett, Esq.).

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In January, 2007, DPC sued USPS in United States District Court in Maryland. See DPC's Complaint in DPC v. USPS, No. RDB-07-200 (D. Md. 2007) (attached hereto as Def. Exh. 5). In that case, DPC alleged that USPS breached the Original ICM Agreement and an implied covenant of good faith and fair dealing. Id. DPC also sought a preliminary injunction against USPS to continue the then-existing ICM Agreement that USPS refused to renew until DPC paid its deficiency. Id. On January 26, 2007, the District Court issued a six month preliminary injunction to allow DPC to continue operating under the then-existing ICM agreement. See Jan. 25, 2007 TRO Hearing before Judge Quarles, Jr., DPC v. USPS, No. RDB07-200 (D. Md. 2007) ("TRO Tr.") (attached hereto as Def. Exh. 8); January 26, 2007 Order in DPC v. USPS, No. RDB-07-200 (D. Md. 2007) (attached hereto as Def. Exh. 6). On June 4, 2007, the District Court vacated the preliminary injunction, dismissed DPC's implied covenant of good faith and fair dealing claim, and, on jurisdictional grounds, transferred DPC's case (i.e., only the breach of contract claim) to this Court. See June 4, 2007 Motions Hearing before Judge Richard Bennett, DPC v. USPS, No. RDB-07-200 (D. Md. 2007), at Tr. 35:8-25; 36:1-5; 36:24-25; 37:1-2 ("Mot. Tr.") (attached hereto as Def. Exh. 9); Judge Bennett's June 4, 2007 Order (attached hereto as Def. Exh. 7). In so ordering, the District Court found, and DPC conceded, that its claim for breach of implied covenant of good faith and fair dealing was a tort claim. Mot. Tr. 16:5-8; 35:8-12; 35:23-25; 36:1-5. Following the transfer of DPC's case to this Court, DPC filed the complaint, now at issue, alleging breach of contract (Count I) and breach of an implied covenant of good faith and fair dealing (Count II).

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ARGUMENT The United States is entitled to summary judgment on both counts of DPC's complaint because there is no dispute that Mr. Dunbebin had apparent authority to act on behalf of DPC when he requested the Postal Service to terminate DPC's Original ICM Agreement. Moreover, this Court should dismiss Count II of DPC's complaint in this case because it is barred by res judicata, and, in any event, either states a claim "sounding in tort" ­ and is thus not within this Court's jurisdiction ­ or does not state a claim upon which relief can be granted. I. The United States Is Entitled To Summary Judgment Because Mr. Dunbebin Had Apparent Authority To Act For DPC When He Terminated Its Original ICM Agreement A. Summary Judgment Is Appropriate On The Issue Of Mr. Dunbebin's Apparent Authority

Summary judgment may be granted where there are no genuine issues of material fact in dispute and the movant is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 139091 (Fed. Cir. 1987); Ralph Larson & Son, Inc. v. United States, 17 Cl. Ct. 39, 42 (1989). A court may consider a motion for summary judgment in stages. The initial inquiry should be whether the movant has presented an adequate legal basis for its motion. In this case, DPC's claims must fail as a matter of law because the Postal Service terminated DPC's contract at the request of its agent, who had apparent authority to make such a request on behalf of DPC. Once a movant has established an adequate legal basis for its motion, the Court must consider whether the opposing party has identified any genuine issues of material fact. The first step is to determine whether the issues raised are truly factual issues, or are issues of law. The second step is to determine what subset of the truly factual issues are material to the decision of

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the case. The third step is to examine the evidence presented by the parties to determine whether there is any genuine issue concerning any material factual issue. Ralph Larson & Son, 17 Cl. Ct. at 43 (describing three steps); accord Anderson, 477 U.S. at 248 ("Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted."). DPC alleges that USPS breached the Original ICM Agreement by transferring it to American Mail Sort ("AMS"). Compl. at ¶ 35. In that regard, however, DPC admits that USPS did not actually transfer the Original ICM Agreement to AMS, but rather that USPS only "effectively" transferred that agreement to AMS, when USPS terminated DPC's agreement and signed a new one with AMS. See Pl. Exh. 2 at 2. DPC has conceded, however, that Mr. Dunbebin represented that he had actual authority to terminate DPC's Original ICM Agreement that he executed, on behalf of DPC, with USPS. See Pl. Exh. 4 (DPC's Complaint, at ¶ 8, in DPC v. Dunedin and AMS, Case No. 4C-04-007557 (Cir. Ct. Balt. City 2004); Amendment One to the Original ICM Agreement); Def. Exh. 8 (TRO Tr. at 12:4-10). Moreover, DPC does not ­ indeed, cannot ­ allege that it had an exclusive ICM agreement with USPS; nor, for that matter, does DPC allege that USPS promised that it would not enter into ICM agreements with other mail consolidators. Thus, as a matter of law, USPS did not breach the Original ICM Agreement simply by signing an ICM agreement with AMS. Accordingly, the validity of DPC's breach of contract claim turns not upon whether USPS entered into other ICM agreements with DPC competitors but, rather, upon whether Mr. Dunbebin had the apparent authority to request that USPS terminate the Original ICM Agreement. As demonstrated in detail below, this case is ripe for summary judgment because

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there is no dispute that Mr. Dunbebin had such authority and that USPS terminated the Original ICM Agreement only at his request. B. As A Matter Of Law, Mr. Dunbebin Had Apparent Authority To Act On Behalf Of DPC And To Request That USPS Terminate The Original ICM Agreement

While a government agent must have actual authority in order to bind the government in contract, a private entity can be bound by the acts of an agent having only apparent authority. Brunner v. United States, 70 Fed. Cl. 623, 627 (2006). Apparent authority is the power held by an agent "to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." Restatement (Third) of Agency § 2.03 (2006); see also Brunner, 70 Fed. Cl. at 628 (quoting Restatement (Second) of Agency § 8 cmt. a (1958) for the proposition that apparent authority is the "authority that a principal makes third parties believe he has conferred on an agent"). Apparent authority is created "by a person's manifestation that another has authority to act with legal consequences for the person who makes the manifestation, when a third party reasonably believes the actor to be authorized and the belief is traceable to the manifestation." Restatement (Third) of Agency § 3.03 (2006). A principal may create the appearance of an agent's authority in several ways. See Restatement (Third) of Agency § 3.03 cmt. b (2006); see also Brunner, 70 Fed. Cl. at 628 (citing Restatement (Second) of Agency § 8 cmt. b; § 27 cmt. a; § 49 cmts. b, c; § 159 cmt. b., and noting that a principal may create the appearance of an agent's authority by making statements directly to third parties, by authorizing the agent to communicate the scope of delegated power, or by employing the agent in a manner that creates the appearance of authority). A principal thus may make a manifestation of an agent's authority by "placing an agent in a defined position in an -8-

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organization or by placing an agent in charge of a transaction or situation." Restatement (Third) of Agency § 3.03 cmt. b (2006). In such a case, "[t]hird parties who interact with the principal through the agent will naturally and reasonably assume that the agent has authority to do acts consistent with the agent's position or role unless they have notice of facts suggesting that this may not be so." Id. In this case, there is no dispute that Mr. Dunbebin, at a minimum, had apparent authority to act for DPC in May 2002, when he signed the amendment to the Original ICM Agreement that terminated that agreement. DPC concedes that, on April 24, 2002, Mr. Dunbebin had actual authority to contract on behalf of DPC when he signed the Original ICM Agreement with USPS.5 See Def. Exh. 8 (TRO Tr. 9:10-24; 10:11-22; 11:16-22 (DPC's counsel repeatedly concedes that Mr. Dunbebin had authority to sign the Original ICM Agreement on behalf of DPC)). Thus, by authorizing Mr. Dunbebin to sign the Original ICM Agreement as the company's Vice-President, DPC cloaked Mr. Dunbebin with apparent authority to terminate that agreement. See Restatement (Third) of Agency § 3.03 cmt. b (2006) ("If a corporation permits a vice president to exercise significant transactional functions and to make or appear to be in control of operational decisions, it creates a basis on which actual or apparent authority may arise."). Accordingly, when Mr. Dunbebin sought to terminate the Original ICM Agreement, USPS had every reason to believe that he still had authority to act on behalf of DPC. In that regard, DPC alleges no facts in this case suggesting that USPS should have known that Mr. Dunbebin was not acting on behalf of DPC when he asked USPS to terminate the Original

On the other hand, if DPC were to argue that Mr. Dunbebin lacked authority to act for DPC in April 2002, then no valid contract ever would have existed between the parties. -9-

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Agreement. Indeed, DPC concedes that, in May 2002, when Mr. Dunbebin terminated DPC's Original ICM Agreement with USPS, he continued to hold himself out as acting on behalf of DPC. See Def. Exh. 8 (TRO Tr. 12:4-11; 31:2-6); Pl. Exh. 4 at ¶ 8 (DPC's state court complaint). When, as in this case, "a principal has given an agent general authority to engage in a class of transactions, subject to limits known only to the agent and the principal, third parties may reasonably believe the agent to be authorized to conduct such transactions and need not inquire into the existence of undisclosed limits on the agent's authority." See Restatement (Third) of Agency § 3.03 cmt. b (2006); see also Brunner, 70 Fed. Cl. at 628 (noting that "when a principal is responsible for the appearance of an agent's authority, a third party aware of this appearance may rely on it"). Moreover, during the two year period following the termination of the Original Agreement ­ from May 2002 until May 2004 ­ DPC never informed USPS that the amendment to the Original ICM Agreement was invalid. USPS received no shipping volume from DPC during this two year period and, therefore, had no reason to believe that anything putatively improper had occurred. See Def. Exh. 10 (May 11, 2005 Letter from M. Plunkett to W. Olson) at 2. By failing to inform USPS of Mr. Dunbebin's allegedly unauthorized amendment to the Original ICM Agreement, DPC bears responsibility for USPS's belief that Mr. Dunbebin had authority to act on behalf of DPC. See Restatement (Third) of Agency § 3.03 cmt. b (2006) ("[a] principal's inaction creates apparent authority when it provides a basis for a third party reasonably to believe the principal intentionally acquiesces in the agent's representations or actions"). Because Mr. Dunbebin had authority to act for DPC when it entered into the Original

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ICM Agreement, USPS had no obligation to inquire into the scope of Mr. Dunbebin's authority when he notified USPS that DPC wanted to terminate the Original ICM Agreement. If Mr. Dunbebin, in fact, no longer had authority to act for DPC, then DPC had an obligation to inform USPS of the changed circumstances. See Restatement (Third) of Agency § 3.03 cmt. b (2006) (principal may be estopped "from denying the agent's authority . . . if the principal is responsible for the agent's representation, typically because the principal did not exercise reasonable care to prevent the agent from making the representation or to inform the third party of its falsity"). Finally, DPC concedes that Mr. Dunbebin defrauded both DPC and USPS by terminating the Original ICM Agreement, and by signing a new ICM agreement with USPS on behalf of AMS. Compl. at ¶ 10; Pl. Exh. 2 at 2; Def. Exh. 8 (TRO Tr. 12:8-11; 95:14-25; 96:1-4; 96:11-15 (Mr. Scarlett admits that USPS was defrauded by Mr. Dunbebin's misrepresentations)); see also Def. Exh. 8 (TRO Tr. at Tr. 100:16-19; 104:21-23; 108:4-5 (district court noting that USPS is innocent and is a victim of fraud)). Thus, whatever Mr. Dunbebin's liability may be to DPC, USPS cannot be held responsible for DPC's putative losses in this case, and DPC remains bound by Mr. Dunbebin's modification to the Original ICM Agreement. See United States v. Gil, 657 F.2d 712, 715 (5th Cir. 1981) (citing United States v. Sanchez, 521 F.2d 244, 246 (5th Cir. 1975), for the proposition that under "federal common law a principal can be held liable for even fraudulent acts of its agents if the agent had apparent authority"). Accordingly, the United States is entitled to summary judgment on both counts of DPC's complaint in this case.

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II.

Count II Of DPC's Complaint In This Case, Alleging Breach Of The Implied Covenant Of Good Faith And Fair Dealing, Should Be Dismissed Because the district court dismissed DPC's claim for breach of the implied covenant of

good faith and fair dealing, the doctrine of res judicata precludes DPC from relitigating this claim (Count II in this case), before this Court.6 Alternatively, Count II should be dismissed because it essentially asserts a tort claim that is not within this Court's jurisdiction. Finally, even if the Court possesses jurisdiction, Count II fails to allege sufficient facts to survive a motion to dismiss pursuant to RCFC 12(b)(6). A. The Doctrine Of Res Judicata Bars Count II Of DPC's Complaint

A claim preclusion defense appropriately is considered as a motion to dismiss pursuant to RCFC 12(b)(6). See Lyons v. United States, 45 Fed. Cl. 399, 402 (1999); see also Burnett v. United States, 40 Fed. Cl. 806, 809 (1998). Res judicata, also known as claim preclusion, "`provides that when a final judgment has been entered on the merits of a case, it is a finality as to the claim or demand in controversy . . . .'" Montego Bay Imports, Ltd. v. United States, 25 Cl. Ct. 639, 648-49 (1992) (quoting Magnus Electr., Inc. v. La Republica Argentina, 830 F.2d 1396, 1400 (7th Cir. 1987) (internal quotes omitted)). The doctrine is used to "strengthen judgments and accord legitimacy to this nation's judicial system." Lyons v. U.S., 45 Fed. Cl. at 402. Courts routinely use res judicata to "bar litigation in a second action where the matter has previously been adjudicated upon the merits." Id.; see also Dachman v. United States, 73 Fed.

6

In Count II of DPC's complaint, DPC alleges that USPS breached the implied covenant of good faith and fair dealing by failing to prevent the allegedly improper transfer of the Original ICM Agreement to AMS, by failing to correct that transfer, and by failing to terminate AMS's ability to use the ICM after USPS allegedly discovered that AMS did not comply with the USPS qualifications for such an agreement. Compl. at ¶ 40. - 12 -

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Cl. 508, 522 (2006) (noting that a final judgment on the merits bars further claims by parties based on the same cause of action). A finding of res judicata requires that: "(1) the court's prior decision must be a valid and final judgment, (2) the suit before the court must involve the same claim or cause of action as in the prior decision, (3) the prior decision must have been made on the merits of the case, and (4) the same parties must be involved in both cases." Lyons, 45 Fed. Cl. at 403. DPC is precluded from relitigating Count II of its complaint in this Court because all four elements of res judicata are satisfied. The issue of DPC's ability to establish a valid claim for breach of an implied covenant of good faith and fair dealing previously has been decided, on the merits, by the district court. That court, prior to transferring the case here, held, as a matter of law, that DPC's claim for breach of an implied covenant of good faith and fair dealing is a tort claim. See Def. Exh. 9 (Mot. Tr. 11:5-12; 12:3-25; 13:3-14; 14:6-15; 14:20-23; 35:5-12; 35:23-25; 36:1-5). The district court then transferred only DPC's breach of contract claim to this Court but dismissed the tort claim because DPC failed to state a tort claim, under the FTCA, upon which relief may be granted. See id. (Mot. Tr. 35:5-25; 36:1-25; 37:1-2). The district court concluded that no contractual or regulatory provisions give rise to the types of (tort) duties that DPC alleged that USPS breached. Id. at 36:7-10. The court likewise held that Maryland law does not recognize a tort action for merely economic loss unless there has been some risk of personal injury. Id. at 36:1-5. Finally, this case involves the same parties as DPC's action before the district court. To be clear, DPC does not raise any new claims before this Court. We note that the underlying rationale for the doctrine of res judicata is "to encourage reliance on judicial

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decisions, prevent vexatious litigation, and permit courts to resolve other pending suits being litigated for the first time." Montego Bay Imports, 25 Cl. Ct. at 649. That logic applies with full force when, as in this case, the facts and claim presented in DPC's Count II are identical to those raised in the same claim litigated before the district court. As such, DPC has had a full and fair opportunity to litigate what the district court found to be a tort claim, and DPC should be barred from relitigating that cause of action as a contract claim before this Court. See Montego Bay Imports, 25 Cl. Ct. at 650 (res judicata prevented plaintiff from establishing subject matter jurisdiction under the Tucker Act when a court previously had held plaintiff's claim sounded in tort); Franklin Savings Corp., v. United States, 56 Fed. Cl. 720, 738 (2003) (granting defendant summary judgment as to plaintiff's breach of covenant of good faith and fair dealing claim when plaintiff simply had alleged issues previously adjudicated); Naylor v. United States, 53 Fed. Cl. 172, 176-77 (2002) (holding res judicata bars relitigation of identical claims when party had a full and fair opportunity to litigate the adjudicated claims). B. In The Alternative, Count II Should Be Dismissed Because This Court Lacks Jurisdiction Over Tort Claims

As the party invoking the jurisdiction of this Court, DPC bears the burden of demonstrating that the Court has the requisite subject matter jurisdiction to grant the relief plaintiff requests. Gibbs v. Buck, 307 U.S. 66, 72 (1939); McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936). To establish the Court's jurisdiction, plaintiff must demonstrate a waiver of the United States' sovereign immunity. F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994). The Government is immune from suit except to the extent that it has expressly consented to be sued. United States v. Sherwood, 312 U.S. 584, 586 (1941). It is axiomatic that when the United States has not consented to suit, dismissal of the action is required. Gilbert v. - 14 -

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DaGrosa, 756 F.2d 1455, 1458 (9th Cir. 1985). Moreover, it is a well-established principle that "[a] waiver of sovereign immunity `cannot be implied but must be unequivocally expressed.'" United States v. Mitchell, 445 U.S. 535, 538 (1980) (quoting United States v. King, 395 U.S. 1, 4 (1969)). The Court of Federal Claims is a court of limited jurisdiction. Jentoft v. United States, 450 F.3d 1342, 1349 (Fed. Cir.2006) (citing United States v. King, 395 U.S. 1, 3 (1969)). Pursuant to the Tucker Act, 28 U.S.C. § 1491, this Court may "render judgment upon any claim against the United States founded . . . upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." 28 U.S.C. § 1491(a)(1). Thus, the Tucker Act's jurisdictional grant does not extend to cases sounding in tort. See Keene Corp. v. United States, 508 U.S. 200, 214 (1993); Jentoft, 450 F.3d at 1349-50; Edelmann v. United States, 76 Fed. Cl. 376, 380 (2007); Dachman, 73 Fed. Cl. at 519 (citing McCauley v. United States, 38 Fed. Cl. 250, 264 (1997), aff'd, 152 F.3d 948 (Fed. Cir. 1998) (noting that the United States District Courts are granted exclusive jurisdiction to hear tort claims under the FTCA)). The gravamen of DPC's second count is that USPS breached the implied covenant of good faith and fair dealing by effectively transferring DPC's ICM agreement to AMS, allegedly contrary to USPS regulations.7 See Compl. at ¶ 40. Not only has the district court already found that such allegations constitute a tort claim, but also, prior to the district court's transfer of this case to this Court, DPC conceded that Count II was a tort claim. See Def. Ex. 9 (Mot. Tr. 16:58). Moreover, DPC must view Count II as sounding in tort, considering that DPC originally

As explained above, however, USPS did not transfer DPC's ICM agreement to AMS. Rather, USPS terminated that agreement ­ at the request of DPC's authorized representative, Mr. Dunbebin ­ and executed a new ICM agreement with AMS. - 15 -

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filed that claim in district court under the FTCA. See Def. Exh. 5. DPC cannot create jurisdiction in this Court simply by labeling a tort claim as a breach of contract claim. See Dachman, 73 Fed. Cl. at 518 (dismissing for lack of jurisdiction plaintiff's action for damages sustained from allegedly fraudulent, negligent, or wrongful actions by government employees because, although in some instances styled as "fraudulent breach of contract" claims, plaintiff's claims sounded in tort). Additionally, "[t]he fact that plaintiff[] do[es] not label [its] claim as one sounding in tort is irrelevant. This court is not bound by labels selected by the parties to characterize their action." Adams v. United States, 20 Cl. Ct. 132, 13536 (1990) (holding that the "gravamen of plaintiffs' complaint" states a cause of action "that sounds in tort" and dismissing complaint for lack of subject matter jurisdiction); see also Montego Bay Imports, 25 Cl. Ct. at 655 (holding that the underlying claim was a tort, regardless of how a party characterizes the claim). C. Even If Res Judicata Does Not Preclude Count II, And Assuming Count II Is Within This Court's Jurisdiction, This Court Nevertheless Should Dismiss That Count Because It Fails To State A Claim Upon Which Relief Can Be Granted

Alternatively, if this court determines that DPC's claim for breach of the implied covenant of good faith and fair dealing is a contract claim within this court's jurisdiction, and is not barred by res judicata, this Court still should dismiss that claim because DPC has failed to state a claim upon which relief can be granted. In the recent case of Bell Atlantic Corp. v. Twombly, -- U.S. --, 127 S. Ct. 1955 (2007), the Supreme Court held "there is no need to pile up further citations to show that Conley's `no set of facts' language has been questioned, criticized, and explained away long enough" and that "a wholly conclusory statement of claim would [not] survive a motion to dismiss" simply "whenever the pleadings left open the possibility that a

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plaintiff might later establish some `set of [undisclosed] facts' to support recovery." 127 S. Ct. at 1968-69 (discussing Conley v. Gibson, 355 U.S. 41 (1957), and concluding that it stands for only the proposition that "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint"). In sum, "[c]onclusory allegations unsupported by any factual assertions will not withstand a motion to dismiss." McAfee v. United States, 46 Fed. Cl. 428, 437 (2000). In this case, DPC fails to allege any facts to support its claim for breach of the obligation of good faith and fair dealing inherent in every agreement. Thus, although we agree that "[t]he obligation of good faith and fair dealing is implied in every contract with the Government," Pratt v. United States, 50 Fed. Cl. 469, 478 (2001) (citing Maxima Corp. v. United States, 847 F.2d 1549, 1556-57 (Fed. Cir. 1988)), "[t]he obligation is not ethereal; it must attach to a specific, substantive obligation, mutually assented to by the parties." 50 Fed. Cl. at 478-79 (citing State of Alaska v. United States, 35 Fed. Cl. 685, 704 (1996), aff'd, 119 F.3d 16 (Fed. Cir. 1997)). Moreover, the Federal Circuit has found that, because government officials are presumed to act in good faith in the discharge of their duties, a plaintiff's burden of proof is exceedingly stringent. Spezzaferro v. FAA, 807 F.2d 169, 173 (Fed. Cir. 1986). Accordingly, "[t]o prevail on a claim for breach of good faith and fair dealing, a plaintiff must allege and prove facts constituting a specific intent to injure plaintiff on the part of a government official." Pratt, 50 Fed. Cl. at 478 (emphasis added) (noting that on "summary judgment the court therefore must examine the record for evidence of malice or intent to injure plaintiff as demonstrated by specific acts of bad faith."); Detroit Housing Corp., v. United States, 55 Fed. Cl. 410, 417 (2003) (citing

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Torncello v. United States, 231 Ct. Cl. 20, 47 (1982), and explaining that, to satisfy the high burden of proof, plaintiff must present "well-nigh irrefragable proof" that the government acted in bad faith). Count II fails to state a claim upon which relief can be granted because DPC alleges only that USPS violated the implied covenant by failing to prevent the so-called transfer of an ICM agreement to AMS. Compl. at ¶ 40. However, even if Mr. Dunbebin lacked apparent authority, which he did not, and even if the Government breached its agreement with DPC by terminating the Original ICM Agreement, which it did not, Count II of DPC's complaint still fails as a matter of law because DPC does not identify a specific, substantive obligation in the contract mutually assented to by the parties that contains either an express or implied obligation on the part of USPS not to enter into ICM agreements with other mail consolidators. Nor, for that matter, does DPC's Original ICM Agreement contain any obligation that requires USPS to enter into ICM agreements only with companies that meet specific criteria. DPC does not allege that it had an exclusive ICM agreement with USPS. While Article 20 of the Original ICM Agreement does preclude the rights of either party, under that agreement, from being assigned or transferred to any other person, firm, or corporation without the other party's prior, express, and written consent, nothing in the Original ICM Agreement prevents USPS from entering into ICM agreements with DPC competitors. See Pl. Exh. 1. USPS, therefore, did not breach an implied covenant of good faith and fair dealing simply by terminating the Original ICM Agreement at Mr. Dunbebin's request, or by signing another ICM agreement with AMS.

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Finally, even if USPS somehow did "transfer" improperly the Original Agreement from DPC to AMS, DPC still does not allege facts constituting specific intent, on part of USPS, to injure DPC. In fact, DPC admits that USPS, like DPC, was a victim of Mr. Dunbebin's fraud. Def. Exh. 8 (TRO Tr. 12:8-11; 95:14-25; 96:1-4; 96:11-15). Because DPC does not allege that USPS was aware of Mr. Dunbebin's lack of authority, there can be no allegation of any bad faith action taken by USPS. In the absence of any specific allegations that USPS acted with malice or intent to injure DPC by particular acts, Count II must be dismissed as a matter of law. Detroit Housing Corp., v. United States, 55 Fed. Cl. 410 (2003) (citing Torncello v. United States, 231 Ct. Cl. 20, 47 (1982)). CONCLUSION For all of the above reasons, we respectfully request this Court to grant summary judgment to the United States on Counts I and II of the complaint and, in the alternative, to dismiss Count II of the complaint pursuant to RCFC 12(b)(6) or 12(b)(1).

Respectfully submitted, JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JEANNE E. DAVIDSON Director Reginald T. Blades, Jr. REGINALD T. BLADES, JR. Assistant Director

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s/ Matthew H. Solomson MATTHEW H. SOLOMSON Trial Attorney Commercial Litigation Branch Civil Division, U.S. Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 305-3274 March 31, 2008 Counsel for Defendant

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