Free Motion to Dismiss - Rule 12(b)(1) - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CALL HENRY, INC. Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 07-815C (Judge Wheeler)

DEFENDANT'S PARTIAL MOTION TO DISMISS Pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims ("RCFC"), defendant, the United States, respectfully requests that the Court dismiss in part the complaint filed by plaintiff, Call Henry, Inc. ("Call Henry"), for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. Our motion asks the Court to dismiss the entire complaint, except to the extent that the "underordering" claim in Count I is based upon the payments and changes clauses in the contract. In support of this motion, we rely upon the following brief and the terms of the governing contract. BRIEF STATEMENT OF THE ISSUES 1. Does the Court possess subject matter jurisdiction to entertain Counts II, III, and

V in the complaint when these claims were not submitted to the contracting officer? 2. Do Call Henry's allegations in Counts I through V state a cognizable claim upon

which relief may be granted? STATEMENT OF THE CASE In December 2004, the Department of the Air Force ("Air Force") awarded a contract to Call Henry for the provision of civil engineering services, on a time and materials basis, with a

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base year (2005) and four option years (the "contract"). Compl. ¶¶ 5, 15. A "time and materials" contract compensates the contractor for "supplies or services on the basis of -(1) [d]irect labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) [a]ctual cost for materials." 48 C.F.R. § 16.601(b). A time and materials contract "may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence." 48 C.F.R. § 16.601(c). The contract is attached as Exhibit A. 1 The contract supplies a procedure for the Air Force to place orders for Call Henry's services when they are needed: "Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders or task orders." Ex. A, Contract at 27 (Section 52.216-18(a)). "Such orders may be issued from 1 JAN 2005 through 31 DEC 2005." Id. Orders for Call Henry's services pursuant to the contract may range from $100 to as large as $2 million. Id. at 28 (Section 52.216-19). The Air Force estimated in the contract that it would issue task orders for a total of 158,680 service hours each year. Compl. Ex. 2 at 2.

Call Henry did not attach the contract to the Amended Complaint. See RCFC 9(h)(3). The contract is "integral" to Call Henry's suit for breach and, therefore, is part of the pleadings for purposes of this motion to dismiss. See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 153 & n.3 (2d Cir. 2002) (contracts are "integral" to claims for breach and may be considered upon a FRCP 12(b)(6) motion to dismiss) (collecting cases from ten other "sister circuits" that are in accord); Kawa v. United States, 77 Fed. Cl. 294, 307 (2007) (when ruling upon a RCFC 12(b)(6) motion to dismiss, "the Court `is not limited to the four corners of the complaint' and may also consider `matters incorporated by reference or integral to the claim ... without converting the motion into one for summary judgment.'") (quoting 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed. 2004)); RCS Enters. v. United States, 46 Fed. Cl. 509, 513 (2000) (when ruling upon a motion to dismiss for failure to state a claim for breach of contract, even if not attached, "[t]he contract itself is deemed part of the complaint"); Montana v. United States, 33 Fed. Cl. 82, 88 n.4 (1995) (contracts "are not beyond the pleadings and may be considered by the court in deciding whether to dismiss the complaint for failure to state a claim" for breach of contract").

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The Air Force compensated Call Henry for the hours of services performed at the labor rates established by the contract. Compl. ¶ 6 & Ex. 1 at 2. These labor rates included Call Henry's overhead costs, which Call Henry estimated and then spread over the total number of hours that the Air Force estimated would be ordered pursuant to the contract. Compl. ¶¶ 8-13. During the base year (2005), the Air Force placed orders for 130,160 hours of work or approximately 18 percent less than the Air Force's original estimate in the contract. Compl. ¶ 18. During the first option year (2006), the Air Force placed orders for 127,844 hours of work or approximately 19 percent less than the Air Force's original estimate in the contract. Compl. ¶ 19. Due to the variance between the estimated number of hours and the actual number of hours ordered, Call Henry alleges that it was not fully compensated for its overhead costs. Compl. ¶¶ 23-24. In or about March 2007, Call Henry submitted a certified claim pursuant to the "terms of the written contract" requesting an equitable adjustment. Compl. ¶ 28 & Ex. 1 at 1. The certified claim also relied upon a mutual mistake theory. Compl. Ex. 1 at 9. In November 2007, Call Henry filed a five count complaint asserting claims for: (I) breach of contract; (II) breach of the implied covenant of good faith and fair dealing; (III) breach of the implied duty to disclose superior knowledge; (IV) constructive change; and (V) breach of the implied warranty to provide accurate information. The claims in Counts II through V of the complaint were not included in Call Henry's certified claim. See Compl. Ex. 1. ARGUMENT I. COUNTS II, III & V IN THE COMPLAINT SHOULD BE DISMISSED PURSUANT TO RCFC 12(B)(1) BECAUSE CALL HENRY DID NOT EXHAUST THESE CLAIMS IN THE ADMINISTRATIVE PROCESS The plaintiff bears the burden of establishing jurisdiction by a preponderance of the evidence. Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988) -3-

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("[O]nce the [trial] court's subject matter jurisdiction [is] put in question[,] it [is] incumbent upon [the plaintiff] to come forward with evidence establishing the court's jurisdiction."). The jurisdiction of the Court of Federal Claims depends upon, and is circumscribed by, the extent to which the United States has waived its sovereign immunity. United States v. Testan, 424 U.S. 392 (1976); United States v. Sherwood, 312 U.S. 584, 586 (1941). As a waiver of sovereign immunity, the provisions of the Contract Disputes Act of 1978 ("CDA") are strictly construed. Cosmic Constr. Co. v. United States, 697 F.2d 1389, 1390 (Fed. Cir. 1982); Gregory Lumber Co. v. United States, 229 Ct. Cl. 762, 763 (1982). Under the CDA, a plaintiff must exhaust administrative remedies by submitting its claims to the contracting officer for a final decision. 41 U.S.C. § 605(a); England v. The Swanson Group, 353 F.3d 1375, 1379 (Fed. Cir. 2004) ("jurisdiction over an appeal of a contracting officer's decision is lacking unless the contractor's claim is first presented to the contracting officer and that officer renders a final decision"). "Objections to the proceedings of an administrative agency [must] be made while it has an opportunity for correction in order to raise issues reviewable by the courts." Wallace v. Dept. of the Air Force, 879 F.2d 829, 832 (Fed. Cir. 1989) (citation omitted). Accordingly, "[t]his Court does not have jurisdiction over a new claim or a claim of different scope brought by a contractor that was not previously presented and certified to the contracting officer for decision." AAB Joint Venture v. United States, 68 Fed. Cl. 363, 365 (2005) (citing Santa Fe Eng'r v. United States, 818 F.2d 856, 858-59 (Fed. Cir. 1987)). A new claim is "one that does not arise from the same set of operative facts as the claim submitted to the contracting officer." AAB, 68 Fed. Cl. at 365 (quoting J. Cooper & Assocs. v. United States, 47 Fed. Cl. 280, 285 (2000)). "The same set of operative facts has been found where the contractor submits additional evidence pertaining to damages to support the same factual claim, or where the claim merely

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`augments the legal theories' underlying the certified claim. AAB, 68 Fed. Cl. at 365-66 (internal citations omitted, quoting Cerberonics, Inc. v. United States, 13 Cl. Ct. 415, 418-19 (1987)). "In contrast, the same set of operative facts has not been found where the contractor files a different type of claim from that presented to the contracting officer," AAB, Fed. Cl. at 366 (citing Sharman Co., Inc. v. United States, 2 F.3d 1564, 1570 (Fed. Cir. 1993); J. Cooper, 47 Fed. Cl. at 285-286; Metric Constr. v. United States, 44 Fed. Cl. 513, 518-19 (1999); Spirit Leveling Contractors v. United States, 19 Cl. Ct. 84, 91 (1989)), "or where the facts require different kinds of proof." AAB, 68 Fed. Cl. at 366 (citing Placeway Constr. v. United States, 920 F.2d 903, 909 (Fed. Cir. 1990); Foley Co. v. United States, 26 Cl. Ct. 936, 940 (1992)). Call Henry submitted a certified claim to the contracting officer requesting an equitable adjustment pursuant to the written contract, and then filed a breach of contract claim in Count I of the complaint, based upon a central allegation that the Air Force's estimate in the contract for the total number of hours turned out to be wrong. Compl. ¶¶ 18-19, 31-37 & Exs. 1-2. The constructive change claim in Count IV of the complaint is based upon similar allegations, albeit with a different legal theory that Call Henry never presented to the contracting officer. Compl. ¶¶ 52-54. In substance, Counts I and IV encompass the operative facts that were submitted to the contracting officer. Counts II, III and V, however, assert breaches of implied contract duties, such as the covenant of good faith and fair dealing, which are based upon an allegation that the Air Force knew or should have known, at the outset of the contract, that the estimates were wrong. Compl. ¶¶ 20, 40-41, 44, 47, 58. Call Henry never submitted this new allegation and these new implied contract theories to the contracting officer for a final decision. See Compl. Ex. 1. The Court therefore lacks jurisdiction to entertain Counts II, III and V of the complaint.

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II.

COUNTS II THROUGH V IN THE COMPLAINT SHOULD BE DISMISSED PURSUANT TO RCFC 12(B)(6) FOR FAILURE TO STATE A CLAIM Rule 8(a)(2) requires in the complaint "a short and plain statement of the claim showing

that the pleader is entitled to relief." RCFC 8(a)(2). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007) (citations omitted, interpreting Fed. R. Civ. P. 12(b)(6)); accord Griffin Broadband Communs., Inc. v. United States, 79 Fed. Cl. 320, 323 (2007) (following Bell Atlantic in context of RCFC 12(b)(6) motion), appeal pending (Jan. 14, 2008). "Legal conclusions, deductions, or opinions couched as factual allegations are not given a presumption of truthfulness." Figueroa v. United States, 57 Fed. Cl. 488, 497 (2003) (citing Blaze Constr., Inc. v. United States, 27 Fed. Cl. 646, 650 (1993) (quoting 2A James Wm. Moore & Jo Desha Lucas, Moore's Federal Practice, ¶ 12.07[2.-5] (2d ed. 1992))), aff'd, 466 F.3d 1023 (Fed. Cir. 2006). Stating "a claim requires a complaint with enough factual matter (taken as true) to suggest" an entitlement to relief. Bell Atlantic, 127 S. Ct. at 1965. "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic, 127 S. Ct. at 1965 (internal citations omitted). "Asking for plausible grounds to infer an" entitlement to relief "does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of" the claim. Id. "The need at the pleading stage for allegations plausibly suggesting (not merely consistent with)" an entitlement to relief "reflects the threshold requirement of Rule 8(a)(2) that the `plain statement' possess enough heft to `sho[w] that the pleader is entitled to

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relief.'" 2 Id. at 1966 (quoting FRCP 8(a)(2)). If the plaintiff has "not nudged [its] claims across the line from conceivable to plausible, the[] complaint must be dismissed." Id. at 1974. A. Count I Fails To State A Claim For Breach Of Contract Because The Written Contract Does Not Guarantee A Minimum Number Of Hours

"In order to recover for a breach of contract [Call Henry] must establish: `(1) a valid [contract] between the parties, (2) an obligation or duty arising out of the [contract], (3) a breach of that duty, and (4) damages caused by the breach.'" See Frazier v. United States, 67 Fed. Cl. 56, 60 (2005) (quoting San Carlos Irrigation & Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989)), aff'd without op., 186 Fed. Appx. 990 (Fed. Cir. 2006). Indeed, "for a claim to arise under a contract, it must rely upon a clause that authorizes a specific remedy." Brighton Village Assocs. v. United States, 52 F.3d 1056, 1060 (Fed. Cir. 1995). Contract interpretation is a question of law that is appropriate for adjudication upon a motion to dismiss. E.g., Ragard v. United States, 439 F.3d 1378, 1380 (Fed. Cir. 2006); Int'l Transducer Corp. v. United States, 30 Fed. Cl. 522 (1994), aff'd without op., 48 F.3d 1235 (Fed. Cir. 1995); Flathead Joint Bd. of Control v. United States, 30 Fed. Cl. 287, 294 (1993), aff'd without op., 59 F.3d 180 (Fed. Cir. 1995). When a contract is unambiguous and the contractor alleges that the Government has breached a non-existent duty, the cause of action should be dismissed for failure to state a claim. Frazier, 67 Fed. Cl. at 60 (RCFC 12(b)(6) motion granted).

In the past, the Court followed Conley v. Gibson, 355 U.S. 41, 45, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957), which for 50 years stood for the proposition that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." The United States Supreme Court recently held that "this famous observation [in Conley] has earned its retirement" and "is best forgotten as an incomplete, negative gloss on an accepted pleading standard." Bell Atlantic, 127 S. Ct. 1955, 1969; accord Griffin Broadband Communs., Inc. v. United States, 79 Fed. Cl. 320, 323 (2007) (noting that Bell Atlantic abrogated Conley formulation of standard).

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Call Henry asserts in Count I that the Air Force breached the contract by "underordering" hours. 3 Compl. ¶ 37. Although the complaint does not cite the pertinent contract provisions, see RCFC 9(h)(3), Call Henry's "under-ordering" theory implicates the ordering, payments, and changes clauses of the contract. The ordering clause of the contract provides: "Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders and task orders. Such orders may be issued from 1 JAN 2005 through 31 DEC 2005." 4 Ex. A, Contract at 27 (Section 52.216-18). Each order for Call Henry's services may range from $100 to as large as $2 million. Id. at 28 (Section 52.216-19). The timing and quantity of service hours in each individual task order is not otherwise specified in the contract and, therefore, is a matter committed to the contracting officer's "business judgment." See 48 C.F.R. § 1.602-2 ("Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment."); see also Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332 (Fed. Cir. 2001) (bid protest case: "the courts have recognized that contracting officers are `entitled to exercise discretion upon a broad range of issues confronting them' in the procurement process.") (quoting Latecoere Int'l, Inc. v. United States Dep't of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)). Call Henry's

To the extent that Count I may be construed as also including a "defective estimates" theory, it is duplicative of Count V and is addressed below in Argument § II-E. See Compl. ¶¶ 37, 58. A task order is defined as "an order for services placed against an established contract or with Government sources," whereas a delivery order is defined as "an order for supplies placed against an established contract or with Government sources." 48 C.F.R. § 2.101(b).
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complaint does not question that the Air Force's contracting officer placed task orders for service hours during the first two years of the contract based upon the Government's needs at the time. The payments and changes clauses address the parties' rights in the event of a variation in the estimated quantity of service hours. The payments clause provides: "If at any time during performing this contract, the Government has reason to believe that the work to be required in performing this contract will be substantially greater or less than the stated ceiling price, the Contracting Officer will so advise the Contractor, giving the then revised estimate of the total amount of effort to be required under the contract." Ex. A, Contract at 34 (emphasis supplied); 48 C.F.R. § 52.232-7(c) (Dec. 2002). 5 The changes clause further provides: "If any change causes an increase or decrease in any hourly rate, the ceiling price, or the time required for performance of any part of the work under this contract, ... the Contracting Officer will make an equitable adjustment in any one or more of the following and will modify the contract accordingly: (1) Ceiling price. (2) Hourly rates." 48 C.F.R. § 52.243-3; see also Ex. A, Contract at 20 (incorporating § 52.243-3 by reference); Ex. A, Contract at 44 ("This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text."). The questions of whether the Air Force had reason to believe that the amount of work on this contract would be "substantially less" than estimated, whether the alleged "under-ordering" by 18 to 19 percent (Compl. ¶¶ 18-19) was "substantial" or not, and whether the contracting officer had a duty to make an equitable adjustment to Call Henry's hourly rate, are not the subject of this motion to dismiss. Cf. H.L. Yoh Co., Inc. v. United States, 153 Ct. Cl. 104, 288 F.2d 493, 496 (1961) (government issued a change order that altered the scope of the project

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from total conversion to selective conversion; contractor entitled to equitable adjustment based upon the 33 percent decrease that represented a "very substantial curtailment of volume"). That is, we do not seek dismissal of Count I to the extent it may be construed as alleging breach of the payments and changes clauses in the written contract. To the extent that Call Henry's "under-ordering" theory is predicated upon a notion that the Air Force agreed to order a minimum number of hours, however, the contract does not support it and Count I fails to state a claim. The Air Force compensated Call Henry for each hour of services that it performed at the rates established by this time and materials contract. Compl. ¶ 5-6 & Ex. 1 at 2. Call Henry does not (and cannot) allege that it bargained for any guaranteed minimum number of hours of work. Instead, Call Henry acknowledges in the complaint that the Air Force only provided an "estimate of hours" to help Call Henry price its bid. Compl. ¶ 21. Call Henry's contract rights relative to the alleged "under-ordering" are governed by the ordering, payments, and changes clauses. Count I otherwise fails to state a claim. See Flink/Vulcan v. United States, 63 Fed. Cl. 292, 300-01 (2004) ("government estimate of work potentially to be performed ... does not constitute a guaranteed minimum amount of work") (citing Ralph Constr., Inc. v. United States, 4 Cl. Ct. 727, 732-33 (1984) (absent a guaranteed minimum provision, government estimates cannot supply the guaranteed minimum term); Shader Contractors, Inc. v. United States, 149 Ct. Cl. 535, 545, 276 F.2d 1, 7 (1960) (rejecting argument that contract bound government to order the estimated quantity of services: "The figures given as estimates were that and nothing more. They were not guarantees or warranties of quantity, but figures which the bidders might reasonably employ so as to make realistic quotations.")).

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B.

Count II Fails To State A Claim For Breach Of The Implied Covenant Of Good Faith And Fair Dealing Because The Air Force Paid Call Henry For Every Hour Of Work Performed And Call Henry Does Not Sufficiently Allege Bad Faith

Count II fails to state a claim for breach of the implied covenant of good faith and fair dealing for three reasons: (i) Call Henry does not allege it was denied the benefit of its bargain with the Government; (ii) Call Henry does not allege malice or a specific intent to injure; and (iii) Call Henry does not allege that any contract clause was breached by virtue of any bad faith. "A breach of the covenant of good faith and fair dealing by one party prevents the other party from enjoying the fruits of the bargain." La Gloria Oil & Gas Co. v. United States, 72 Fed. Cl. 544, 572 (2006) (citing Centex Corp. v. United States, 395 F.3d 1283, 1305 (Fed. Cir. 2005)). "`The duty applies to the government just as it does to private parties.'" La Gloria Oil & Gas, 72 Fed. Cl. at 572 (quoting Centex, 395 F.3d at 1304). Call Henry does not plead facts which, if proven, would show that it was denied the benefit of its bargain. Call Henry entered into a "time and materials contract" with the Government. Compl. ¶¶ 5, 15. The contract provided that Call Henry was to be compensated for each hour of labor that it performed at an agreed-upon hourly rate. Compl. ¶ 6. There is no dispute Call Henry was paid for every hour of work that it actually performed pursuant to the contract; Call Henry does not, and cannot, allege otherwise. Call Henry fails to allege that it was deprived of the benefit of its bargain with the Government and, thus, Count II fails to state a claim. See La Gloria Oil & Gas, 72 Fed. Cl. at 572 (granting motion to dismiss claim for breach of implied covenant of good faith and fair dealing). Call Henry nevertheless alleges that it was provided with "inaccurate data" with respect to the number of hours that the Air Force would order. Compl. ¶ 41. Even taking this allegation as true, as we must, for purposes of this RCFC 12(b)(6) motion, "[t]here is ... a general presumption that government officials act conscientiously and in good faith, and to overcome the presumption contractors must submit `well-nigh irrefragable proof' of bad faith." D.V. Gonzalez - 11 -

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Elec. & Gen. Contrs., Inc. v. United States, 55 Fed. Cl. 447, 457 (2003) (quoting Schweiger Constr. Co. v. United States, 49 Fed. Cl. 188, 199 (2001) (citing Kalvar Corp. v. United States, 211 Ct. Cl. 192, 543 F.2d 1298, 1301-02 (1976))). 6 "Well-nigh irrefragable" means proof by clear and convincing evidence. Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40 (Fed. Cir. 2002). "Courts have often equated `well-nigh irrefragable proof' with evidence of some specific intent to injure the plaintiff." D.V. Gonzalez Elec., 55 Fed. Cl. at 457 (citing Kalvar Corp., 543 F.2d at 1302); accord Am-Pro, 281 F.3d at 1240 ("well-established precedent" provides that "the necessary `irrefragable proof' has been equated with evidence of some specific intent to injure the plaintiff") (quoting Kalvar). "[T]o survive defendant's motion to dismiss for failure to state a claim, plaintiff must allege facts which if proved would constitute malice or a specific intent to injure the plaintiff." D.V. Gonzalez Elec., 55 Fed. Cl. at 457 (citing AscoFalcon II Shipping Co. v. United States, 32 Fed. Cl. 595, 604 (1994); Texas Instr., Inc. v. United States, 991 F.2d 760, 768 (Fed. Cir. 1993)). Call Henry's allegations do not even approach this high pleading threshold. There is no suggestion in the complaint that the Air Force underestimated the number

In Tecom, Inc. v. United States, 66 Fed. Cl. 736, 769-71 (2005), Judge Wolski espoused the minority view that the "presumption of good faith has no application" to good faith and fair dealing claims that are rooted, not in bad faith, but in the implied duties to cooperate and not to hinder performance. Judge Allegra recently observed in North Star Alaska Hous. Corp. v. United States, however, that "[i]t is unclear whether Tecom may be squared either with Federal Circuit precedent or the jurisprudential underpinnings of the doctrine, in which performing in good faith and bad faith are often viewed as mutually exclusive." 76 Fed. Cl. 158, 188 n.34 (2007) (citations omitted). Judge Lettow also recently addressed this issue in Rodriquez v. United States and declined to follow Tecom, noting that Tecom "disagreed with opinions that have adopted and applied the clear and convincing evidence standard broadly when analyzing a potential breach of the implied covenant." 69 Fed. Cl. 487, 499 & n.14 (2006) ("For a plaintiff to successfully assert a claim for breach of the implied covenant of good faith and fair dealing respecting a contract with the government, she `must allege and prove facts constituting a specific intent to injure [the] plaintiff on the part of a government official.'") (citing, inter alia, Texas Instr., Inc. v. United States, 991 F.2d 760, 768 (Fed. Cir. 1993)).

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of service hours in bad faith with an intent to injure Call Henry. Count II should be dismissed. See D.V. Gonzalez Elec., 55 Fed. Cl. at 457-58 (granting motion to dismiss claim for breach of good faith and fair dealing that alleged Government "failed to make an equitable adjustment during the performance of the contract"). Finally, as noted, "for a claim to arise under a contract, it must rely upon a clause that authorizes a specific remedy." Brighton Village, 52 F.3d at 1060. Although Call Henry claims damages in this action for the Air Force's alleged breach of an implied duty of good faith and fair dealing, that implied duty "must attach to a specific substantive obligation, mutually assented to by the parties." State of Alaska v. United States, 35 Fed. Cl. 685, 704 (1996), aff'd, 119 F.3d 16 (Fed. Cir. 1997). Call Henry identifies no such contract clause here. For each of these independent reasons, Count II should be dismissed. C. The Superior Knowledge Claim In Count III Fails Because Call Henry Had Constructive, If Not Actual, Knowledge That Orders Pursuant To A Time And Materials Contract Could Vary Substantially From The Original Estimates

Count III of the complaint purports to assert a superior knowledge claim. Under the "superior knowledge doctrine," a contracting agency has "an implied duty to disclose to a contractor otherwise unavailable information regarding some novel matter affecting the contract that is vital to performance ... where: (1) a contractor undertook to perform without vital knowledge of a fact that affects performance costs or duration; (2) the government was aware the contractor had no knowledge of and had no reason to obtain such information; (3) any contract specification supplied misled the contractor or did not put it on notice to inquire; and (4) the government failed to provide the relevant information." Giesler v. United States, 232 F.3d 864, 866 (Fed. Cir. 2000) (citing Hercules, Inc. v. United States, 24 F.3d 188, 196 (Fed. Cir. 1994)). Call Henry alleges that "the possibility that the [Air Force] would order significantly less hours" than it originally estimated was a "vital fact" that should have been disclosed pursuant to - 13 -

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the Air Force's implied duty to disclose superior knowledge. Compl. ¶¶ 44-45. An estimate about the "potential level of effort required [to perform the contract]," however, "is not a fact" and thus "fail[s] to satisfy the criteria for a superior knowledge claim." Northrop Grumman Corp. v. United States, 47 Fed. Cl. 20, 52 (2000); see also Stuyvesant, 834 F.2d at 1581 (government estimates are not warranties). In any event, the contract provides for the rights of the parties in the event of a "substantial" change in the amount to be ordered. See supra § II-A. Even if the contract itself did not include provisions that put Call Henry on notice of the "possibility" that actual orders could vary from the original estimate, the law would presume that Call Henry knew this anyway. Call Henry alleges that it bid for and entered into a time and materials contract. Compl. ¶¶ 5-15. Federal Acquisition Regulation Section 16.601 provides that a "time and materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence." 48 C.F.R. 16.601(c) (emphasis supplied). "[G]overnment contractors are presumed to have constructive knowledge of federal procurement regulations." Gen. Eng'g & Mach. Works v. O'Keefe, 991 F.2d 775, 780 (Fed. Cir. 1993). The law charges Call Henry with constructive knowledge of the "vital fact" that allegedly was not disclosed; namely, that the number of service hours to be ordered by the Air Force could not be estimated accurately or with a reasonable degree of confidence. Count III fails to state a claim. D. Count IV Fails To State A Claim For Constructive Change Because Call Henry Performed Fewer, Not More, Than The Estimated Number Of Hours Of Work

"A constructive change occurs where a contractor performs work beyond the contract requirements without a formal order, either by an informal order or due to the fault of the Government." Int'l Data Prods. Corp. v. United States, 492 F.3d 1317, 1325 (Fed. Cir. 2007). Before it can recover for a constructive change, the contractor must show that its "performance

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requirements are enlarged; and the additional work is not volunteered but results from a direction of the Government's officer." Len Co. & Assocs. v. United States, 181 Ct. Cl. 29, 385 F.2d 438, 443 (Ct. Cl. 1967). In other words, the additional work must be "beyond the requirements of the pertinent specifications or drawings." Ets-Hokin Corp. v. United States, 190 Ct. Cl. 668, 420 F.2d 716, 720 (Ct. Cl. 1970). Work that cannot be "fairly characterized as `additional' to the contract" is not a constructive change. Int'l Data Prods., 492 F.3d at 1325. A reduction in estimated quantity is not a constructive change. Technical Assistance Int'l v. United States, 150 F.3d 1369, 1372-73 (Fed. Cir. 1998) (reversing trial court's ruling that government effected constructive change by ordering less than estimated quantities in requirements contract). Call Henry alleges that the variance between the estimated number of hours in the contract and the actual number of hours ordered by the Air Force "constitutes a constructive change" to the contract. Compl. ¶ 53. Yet, Call Henry alleges that it performed fewer, not more, than the estimated number of hours of work set forth in the contract. Compl. ¶¶ 18-19, 53. Call Henry does not allege that it performed any additional work beyond what was called for by the contract. Count IV therefore should be dismissed. E. Count V Fails To State A Claim Because The Implied Warranty to Provide Accurate Information Does Not Apply To The Hours Estimate In The Contract

Count V alleges that the Air Force provided "defective estimates" in breach of the implied warranty to provide accurate information and specifications. Compl. ¶¶ 56-58; see also id. ¶ 37. Counts V fails to state a claim for at least two reasons. First, the implied warranty only applies to design specifications. See Stuyvesant Dredging Co. v. United States, 834 F.2d 1576, 1582 (Fed. Cir. 1987). "Design specifications explicitly state how the contract is to be performed and permit no deviations." Id. "Performance specifications, on the other hand, specify the results to be obtained, and leave it to the contractor

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to determine how to achieve those results." Id. The specification that Call Henry challenges here ­ the estimated total number of hours ­ is a matter that pertains to overall performance and does not instruct how the work is to be performed. The implied warranty does not apply. Second, Call Henry's defective estimates claim overlooks the fundamental difference between requirements contracts and time and materials contracts. Defective estimates claims typically arise in the context of requirements contracts. In a requirements contract, Federal regulations dictate that "the contracting officer shall state a realistic estimated total quantity in the solicitation and resulting contract." 48 C.F.R. § 16.503(a)(1). The contractor may sue for negligently prepared estimates that appear in a requirements contract. Rumsfeld v. Applied Cos., 325 F.3d 1328, 1335 (Fed. Cir. 2003); Womack v. United States, 182 Ct. Cl. 399, 389 F.2d 793, 800 (Ct. Cl. 1968). In contrast, Call Henry entered into a time and materials contract. Compl. ¶¶ 5-15. A time and materials contract "may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence." 48 C.F.R. § 16.601(c) (emphasis supplied). The distinction between a requirements contract and a non-requirements contract "is crucial to an understanding of the parties' legitimate expectations and their responsibilities." Dot Sys., Inc. v. United States, 231 Ct. Cl. 765, 769 (1982) (contrasting requirements and indefinite delivery contracts). "The contractor here cannot expect the kind of accuracy in estimation that it can in a requirements or fixed price contract." Id. "By the same token, the Government cannot be held to the negligence standard for requirements contracts, enunciated in Womack v. United States." Dot Sys., 231 Ct. Cl. at 769; see also Travel Centre v. Barram, 236 F.3d 1316 (Fed. Cir. 2001) (reversing board's decision that agency breached indefinite delivery contract "by inducting Travel Centre to base its proposal on quantities that [the agency] knew or should have known

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were overstated" because, "regardless of the accuracy of the estimates delineated in the solicitation, ... Travel Centre could not have had a reasonable expectation" in receiving the estimated quantity of work). An estimate that is merely incorrect, or even negligently prepared, is not sufficient to trigger an agency's liability in the context of a time and materials contract. We do not suggest, however, that the Air Force's estimate for the quantity of work in this time and materials contract is completely insulated from judicial review. The Air Force's estimate remains subject to the covenant of good faith and fair dealing that is implied in every contract. As discussed above, however, Call Henry's does not sufficiently allege a breach of the implied covenant of good faith and fair dealing. See supra Argument § II-B. Further, the payments and changes clauses in the contract expressly provide a mechanism for adjusting Call Henry's hourly rate in the event of a "substantial" decrease in the total amount of work. See supra Argument § II-A. Call Henry's implied warranty theory cannot trump the express contract terms. Accordingly, Count V should be dismissed. CONCLUSION For these reasons, we respectfully request that the Court dismiss the entire complaint, except to the extent that the "under-ordering" claim in Count I is based upon the payments and changes clauses in the contract.

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Respectfully submitted,

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General

JEANNE E. DAVIDSON Director

s/Patricia M. McCarthy PATRICIA M. MCCARTHY Assistant Director

OF COUNSEL CHRISTOPHER L. MCMAHON Major, USAF Trial Attorney Commercial Litigation Division Civil Law and Litigation Directorate Air Force Legal Operations Agency AFLOA/JACQ 1501 Wilson Blvd, Suite 606 Arlington VA 22209-2403 Tel: (703) 696-9091 March 7, 2008 s/Douglas G. Edelschick DOUGLAS G. EDELSCHICK Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L. Street, N.W. Washington, DC 20530 Tel: (202) 353-9303 Attorneys for Defendant

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CERTIFICATE OF SERVICE I hereby certify that on March 7, 2008, a copy of foregoing "DEFENDANT'S MOTION TO DISMISS" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/Douglas G. Edelschick

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