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

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS BASS MANAGEMENT, INC. PLAINTIFF VS. UNITED STATES OF AMERICA DEFENDANT PLAINTIFF'S REPLY TO DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION FOR LEAVE TO AMEND Bass Management, Inc. (" as)elsoD f dn s poio t Pa tf Mo o B s r i t e nat O psi o ln fs t n " pe e ' tn i i' i fr ev t A ed " e nat O psi " a fl w : o L aeo m n ( f dn s poio )so o s D e ' tn l INTRODUCTION 1. This cn atd pt cn r o t i e r ao o t " rs r e t ot c i u et s n h n r e t n f h G os e i s r s e e e t p ti e cp" In the complaint, B s Maae et Ic ( as) as ngm n n. " s , B " CIVIL ACTION NO. 07-056C

definition in the Lease Agreement.

demonstrates the definition o " rs r e t means B s gos no ewas to be used in f G os e i s cp" as rs i m ' c calculating rent. The Defendant contends, however, the plain language expands the meaning to encompass the gross income of sublessees,s e a, asgosno e a w l sB s rs i m . l ' c 2. O v ul B s d ar swt D f dn sepni r d g If De nat bi s as i ge i e nat xas e e i . o y s e h e ' v an f dn s e '

argument prevails, however, that means the language used in the Lease Agreement contradicts the intent of the parties at the time it was drafted and signed and the practice for the first six (6) years after signed. The proposed alternative legal theory of relief is reached only if the

D f dn s xas eed g r as e nat epni r i pe i. e ' v an vl 3. Mistake is a viable basis for seeking reformation of a contract. See e.g. Bromley

Contracting Co., Inc. v. United States, 596 F.2d 448, (Ct. Cl. 1979). Indeed, the Defendant does not contend the Court lacks authority to reform a contract based on mistake, either mutual or unilateral.

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NO PREJUDICE 4. Prejudicei " et cs n frh dn l f na ed et State of Alaska, s t o ht e o t ei o a m nm n " h u o e a .

supra 15 Cl. Ct. at 279 (citing Cornell and Co., Inc. v. Occupational Safety and Health Review Commission, 573 F.2d. 820, 823 (3rd Cir. 1978)). A cri l " so i o udeo cod g , a hwn f nu r ny g

subs n a pe d e s ni pr i t w r n t dn l f m t nt a eda o p i . t tl r ui ia m e t e o a ath ei o a o o o m n cm ln " ai j c av r e a i at Id. at 280 (citing Howery v. United States, 481 F.2d. 1187, 1190 (9th Cir. 1973). Here the Defendant has not suggested it is prejudiced by the amendment. THE AMENDMENT IS NOT FUTILE 5. N r ay " ae oa edsol b f e pr ie asn sfc n ep c om l , l v t m n hu e r l e td betuf i t xli l e d ey m t ie , it

r sn i i t g htthu b dn d State of Alaska v. United States, 15 Cl. Ct. 276, 279 e osn c i t isol e ei . a d an a d e" (1988) (citing Hess v. United States, 210 Ct. Cl. 43 57F2. 5, 6 (96. " t 8, 3 . 47 41 17) I h d f e underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ogto e f re a opr n y o et ic i o t m rs Forman v. Davis, 371 U.S. uh t b a odd n pot i t t h lm n h e t" f ut s s a e i. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed.2d. 222 (1962). The only reason the Defendant offers for denying the motion to amend is futility. 6. " e fti ipooe a a aifr ey ga ed ga o p i , or Whr u ly s rpsd s bs o dni m ni cm ln cut e it s n n at s

will discern whether a pleading is frivolous and insufficient on its face or has been adequately addressed in the prior complaint. Id. at 280 (citing Johnson v. Oroweat Foods Co., 785 F.2d. 503, 510 (4th Cir. 1986). Here, Defendant contends the proposed Second Amended Complaint is in essence frivolous and insufficient on its face. 7. S eicl , e nat s r, B s f lt aee hth C rsn ne ay pc i l D f dn as t " as aso lg t t op i edd n f ay e es i l a e t

r t cl li o e t n t tfud i t l s ar m n (presumably referring to e a a u t n t r h h on n h e e ge et n l c ao h a a e a e " D f dn s ur tn rr ao o " rs r e t ) ad B s de ntlg t th pre e nat cr n i e e t n f G ose i s n " as os o aeeh t a i e ' e t p ti cp" l a e ts both erroneously believe that `rs r e t i l e ol B s s rs i o e D f dn s gos e i s n u d ny as gosn m . e nat cp' c d ' c " e '

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Opposition, page 5. The proposed Scn A eddC m ln ( m n. o p )hw vr eod m ne o p i " ed C m ., o ee at A " , states "th t eh L ae at i t es Agreement became effective, the Corps intended for Bass to report em e its gross income to the Corps as ` Gross Receipts. ' "Amend. Comp. ¶ 39. The Corps knew Bass calculated rent based on its gross receipts. Amend. Comp. ¶ 39. In this context, the Corps' knowledge raises an inference the Corps intended for Bass to use its gross income. 8. Proof o t C rsknowledge and intent includes the December 1995 transmittal fh op' e

letter of the Contracting Officer. In the letter, the Contracting Officer " sut , ` orB s ] i t c d Y u [as nr e ' m n l r t i b 2 pr n o yu [as t a sl ...."Continuing, it states, " ot y e wl e . e et f or B s ]o l a s h n l 3 c ' t e [Y]our total sales' en t gos no eB s r e e f m i oe t n wt nt cnes n m ath rs i m as e i d r t pr i s i i h ocs o. e c cv o s ao h e i " Amend. Comp. ¶ 34. The letter is an incorporated exhibit. Amend. Comp. ¶ 33. The

Contracting Officer' letter and associated factual allegations specify: (1) the who: Contracting s Officer; (2) the when: December 20, 1995; (3) the how: by letter; (4) the what was said and intended: pay on your gross sales; and (5) the what was understood: use your gross income. T elt adasc t aeao sei af t l ai et lh gt C rs i et h ee n s ie lgt n pc y a u bs s b si h op'n n that tr oad l i f ca s ai n e t Bass use its gross income to calculate rent. It is this intended meaning o " rs r e t that f G os e i s cp" stands in contradiction wt t D f dn s ur tn rr ao. i h e nat cr ni e e t n h e e ' e t p ti 9. I ad i ,B s r snb blvdiw sor ot n pyr tot C rs n dio " as e oal eee t a t e rad a e t h op tn a y i p n e

bsdol o i gosno e B s blf a bsdo t C rs representations, approval ae n n t rs i m . as ee w s ae n h op' y s c ' i e of Hls ul s... an i pate ne t L ae gem n "A edC m . 4. 1998, i'sb ae l e d t r i udrh es A r et m n. o p¶ 3 In s cc e e . B s ngtt a e l gt m sb ae i Hls ae sae A ed C m . 4.The as eo a d nw o e ul s wt i' Lk Ecp. m n. o p ¶ 0 ie n r e h l sublease makes economic sense if Bass used its gross income, which included rent Hls a t i'pi o l d Bass. Une t D f dn sn rr ao o " drh e nat i e e t n f gross receipts," o ee im ks oeoo i e e ' t p ti hw vr t ae n cnm c , sense because Bass owed m r t t C rs n i'gosno ehn tee e in rent from oeo h op o Hls rs i m t ir i d e l c a cv Hls Amend. Comp. ¶ 42. The Corps reviewed and approved the Hls i' l. i' sublease. Amend. l

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Comp. ¶ 40. These circumstances give rise to an inference that the Corps intended for Bass to use its gross receipts in calculating rent. Otherwise one must infer the Corps intentionally contrived by its acts and omission to cause Bass to commit to a long term sublease that costs Bass money. 10. The practice o ui B s gos f s g as rs income in calculating rent was followed from n '

t i et n fh L ae gem n i Jna 19 t og 20.A ed C m .'43 and h n p o o t es A r etn aur 96 h uh 02 m n. o p ¶ e c i e e y r s 47. The Corps' current i e r ao i"ot r t t i et fh pre at t eh L ae n r e t ns cn ayoh n n o t a i th i t es t p ti r e t e ts e m e Agreement became effective, and was contrary to the practice both before and after the Lease A r m n bcm e et e A ed C m . 17 ge et ea e f cv. m n. o p ¶ 0.For six (6) years Bass used its gross e f i " income in calculating rent. Since the Contracting Officer and the Corps knew Bass was using its gross income, it follows that the Corps intended Bass to do so. A similar inference arises from the Contracting Officer certifying in October 2003 that Bass was not in default on any term or condition of the Lease Agreement. Amend. Comp. ¶ 61, 62. 11. The proposed amendment incorporates all prior allegations, including those cited

above. Amend. Comp. ¶ 158. It then alleges, "r ro n at t eh L ae gem n w s Pi t ad th i t es A r et a o em e e s ndt pre r snb blvd hth df io o " rs r e t ol cvr B s i e,h a i e oal eee t t e n i f G ose i s n oe d as g e ts a y i a e itn cp" y e ' gos no ef m bs es pr i s i i t cnes n A ed C m . 10 The rs i m r c o ui s oe t n wt n h ocs o. m n. o p ¶ 6. n ao h e i " proposed amendment alleges that if the Corps' current interpretation i de e cr c " e s em d or t t e, h pre w r m t l m s kni t ii e r ao...a t t et L aeA r m n w s a i e u ay iae n h rn r e t n th i h es ge et a ts e u l t e t p ti e m e e signed and afterwards for a number of years. Amend. Comp. ¶ 161. Accordingly, " Lease " the A r m n m s b r om dt r l th oi nln rr ao adi et f h pre. ge et ut e e r e o e e t r i i e e t n n n n o t a i " e f f c e g a t p ti t e ts Amend. Comp. ¶ 161. 12. Even if the Corps claims it was not mistaken, the same facts show that Bass was

mistaken. The same facts show the Corps caused the mistake and it was reasonable for Bass to

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believe it was to use its gross income. Thus the same factual allegations and inferences establish unilateral mistake if theD f dn scr n i e r ao prevails and the proof fails to e nat ur t n r e t n e ' e t p ti establish mutual mistake. 13. D f dn s ot t nt pooe a ed etf l t p a f tw i cn e nat cn n o h rpsd m nm n " id o l d a s h h a e ' ei e ae e c c

r snb g eret a i e neo m s k o t pro ehr a y i oe t aoe e oal i i o n n r c f iae n h a f i e pr " g r h bv a y v s fe t e t t t n s e factual allegations and factual inferences. When those allegations and inferences are viewed

f m t pr et eo D f dn scurrent interpretation o "rs r e t"the mistake is r h e pcv f e nat o e s i e ' f gos e i s cp, manifest by the contradiction between the intent and practice on the one hand and the interpretation on the other. The count for Reformation and Restitution adequately states a claim so as to allow Bass the opportunity to establish its merits. REFORMATION IS REMEDY FOR MISTAKE 14. Defendant recognizes this Court' at ryt r om acn at D f dn s s u oi o e r h t f ot c r . e nat e '

Opposition, page 4. In a case discussed by De natt C ut f lm s t , I t f dn h or o Ca s te " h e , e i as f e intention of both parties can be established as something other than was contained in the contract, this court has jurisdiction to reform the contract as an incident to the rendition of money judgm n "Jansen v. United States, 170 Ct. Cl. 346, 344 F.2d. 363, 369 (1965). The proposed et . amendment alleges factual circumstances that demonstrate both directly and inferentially that the Contracting Officer and Bass intended for Bass to use its gross income in calculating rent. Accordingly, if the definition is not interpreted consistent with that intent, then the Lease Agreement must be reformed. 15. In Jansen,h C ut f lm a o eon e,Iia ao o cnt co t t t oro Ca s l r gi s" s cnn f osut n h e i s c z t r i a

the interpretation placed by the parties upon a contract during its performance is demonstrative of their intention." Id. at 369 (citing Universal Match Corp. v. United States, 161 Ct. Cl. 418 (1963). It is undisputed that for the first six (6) years Bass used its gross income in calculating

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rent. This canon shows why the practice for six (6) years gives rise to an inference that the Corps intended for Bass to use its gross receipts. If the language actually used in the Lease Agreement failed to express the intent of the parties as shown by the performance for six (6) years, then it follows as day does night, the contract must be reformed to correct this mistake. 16. In Jansen the plaintiff was allowed to develop the facts through discovery and

present its case for reformation on the merits. The Court of Claims eventually determined the ei ne"saw o "w snt uf i t oet lht Pa tf a etl t hv t v ec a d hl a o sfc n t s b s h ln f w s n td o ae h e ie a i e ii ie e contracts reformed. Id. at 369. The Court of Claims, however, did not rule it was an error to give the plaintiff an opportunity to present its evidence on the merits. 17. The United States Supreme Court holding in Bell Atlantic Corporation v.

Twombly, ___ U. S. _____, 127 S. Ct. 1955 (07 de ntuprD f dn s oio. Bell 20) os o spot e nat psi e ' tn Atlantic was a putative consumer class action alleging an antitrust conspiracy against local telephone exchange carriers. The conspiracy was based on parallel conduct by the defendants. The Supreme Court noted since parallel conduct can be entirely proper, an allegation of parallel conduct without more is insufficient to allege conspiratorial agreement. Id. 1965-1966. The S pe eC uton t C m ln l kday"lgt n p ui ysget g(o m r y ur m orfud h o p i a e n aeaos l s l ugsn nt e l e at c l i a b i e cniet i ) gem n "Id. 1966. Indeed, the C m ln f l t "efr a i lf tn os t wt ar et sn h e . o p i ae o stot s g a i a t id h ne c a ot thtugs d n gem n "Id. at 1968-69. cn x t sget a ar et e a e e . 18. In contrast, here the factual allegations and inferences discussed above that

demonstrate an intent by Bass and by the Contracting Officer and Corps from late 1995 through 2002 that Bass use its gross income in calculating rent. T eD f dn si e r ao h e nat n r e t n e ' t p ti

inconsistent with that intent. Therefore, it fl w iD f dn sn rr ao prevails, then a o o sf e nat i e e t n l e ' t p ti mistake occurred in the language used in the Lease Agreement.

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19.

Secondly, in Bell Atlantic, the Supreme Court was concerned with the high cost of

discovery typically associated with antitrust lawsuits. Id. at 1967. That is not an issue here. It is a given that Bass has a viable breach of contract claim. The discovery on that claim will substantially overlap, if not duplicate, the discovery on the proposed amendment. Thus, no significant additional cost or time is imposed by the amendment. 20. In another case cited by Defendant, the Court allowed the amendment. See

Shoshone Indian Tribe of the Wind River Reservation v. United States 71 Fed. Cl. 163, 179 (2006). The Court rejected the defendant'argument the amended claims were futile because the s statute of limitations had run. Id. at 177. There is no statute of limitations at issue here. The Court also rejected the argument that the amendment was futile because it failed to distinguish between time barred claims and others. The Court found the p i i' aeaos a uby ln fs lgt n "r al a tf l i g invokd c i secognized by the Federal Circuit. Id. at 177. The amendment asserts mistake e" lm r a as alternative relief. As set out above, the amendment contains factual allegations and inferences that specify the circumstances of the mistake, that is, it clearly invokes claims recognized by this Court. 21. The proposed amendment alleges in detail (1) the context of the Lease Agreement

execution, (2) the Con at gO f e s t cn fcr intended meaning, () as i e r ao adr i c r i i ' 3 B s n r e t n n ea e ' t p ti ln on that interpretation, (4) the Corps' nweg o B s i e r ao ad the ue f as ko l e f as n r e t n n (5) d ' t p ti soBs ' interpretation for six (6) years following the effective date of the Lease Agreement. These together with the other allegations in the proposed Count VIII Reformation and Restitution are sufficient to support the alternative relief sought. " ]nce a claim has been stated adequately, it [ O may be supported by showing any set of facts consistent with the allegations in the complaint. See Sanjuan [v. American Bd. Of Psychiatry and Neurology, Inc.], 40 F.3d. [247] at 251 (7th Cir. 1994) (once a claim for relief has been stated, a plaintiff receives the benefit of imagination, so

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long as the hypothesis are consistent with the complaint)." Bell Atlantic Corporation v. Twombly, supra, 127 S. Ct. at 1969. Here, the alternative relief is consistent with the complaint because it relies on the same operative facts. The claim is, however, conditioned upon the D f dn s e nat interpretation o "rsr e t peai . e ' f gose i s r in c p " v lg RESTITUTION 22. G nr l a pr n who has been unjustly enriched at the expense of another is ee l , "e o ay s

r u e t m k r tu o t t o e "Hamilton Securities Advisory Services, Inc. v. United e i d o ae e i t n o h t r qr st i e h. States, 60 Fed. Cl. 144, 159-160 (2004) (citing Restatement of Restitution § 1 (1937).) In connection with the reformation of the Lease Agreement, Bass seeks to recover the portion of rent paid to the Corps since 2003 that is attributable to sublessees gross income. 23. " s rf sr a e ep i ,h cn a a of restitution for a Defendant' A Poe o Pl r xln t et l im s m as e r s

breach is to recover benefits transferred by the plaintiff in the performance of the contract. Sometimes restitution will be in specie and sometimes in the amount of money payments made by the plaintiff...." First Nationwide Bank v. United States, 51 Fed. Cl. 762, 768 (2002) (citing George E. Palmer, The Law of Restitution § 4.2 (1978)). First Nationwide Bank held restitution cnb a a e w e t "ot c i m ai fl d ib . Id. at 769. Here, the excess a e w r d hr h cn ats en gu y i s l" d e e r n l v ie payment imposed in 2003 is readily spr e f mt r t u o B s gosee t ea t r h e de n as rs r i s ad o e n ' cp. 24. Retu o o ecs r ts prpie" peet n pr a t expense of st i f xes e i apor t t r n oe a y th itn n a o v t e

ao e f m r a i abnf t w i h i ntetl . United States v. Bedford nt r r e i n h, o tn g ee t o h h e s o n td i c ie " Associates, 713 F.2d. 895, 903 (2nd Cir. 1983). In Bedford Associates, the Second Circuit awarded the United States restitution for excess rent and amounts paid by mistake. If the excess rent paid by Bass is not recoverable as damages under the reformed Lease Agreement, then Bass has a restitutional interest in having those funds returned. In short, the Defendant has been unjustly enriched by that amount, thus the excess amount must be returned to Bass.

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CONCLUSION For reasons stated here and in its Motion for Leave to Amend Complaint, Bass Management respectfully requests the Court to grant to it leave to file the Second Amended Complaint. Respectfully submitted,

BY:

/s/Frank W. Trapp Frank W. Trapp, MB #8261 PHELPS DUNBAR LLP 11 at ai l t e· u e 0 1 E sC p o Sr t S i 60 t e t Jackson, Mississippi 39201-2122 P. O. Box 23066 Jackson, Mississippi 39225-3066 Telephone: (601) 352-2300 Telecopier: (601) 360-9777

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CERTIFICATE OF SERVICE The undersigned attorney for Bass Management, Inc., does hereby certify that I have this dt e c oi l fe t fr o gPa tf R p t D f dn s poio t Pa tf a l t n ay id h oe i ln fs el o e nat O psi o ln fs e er cl l e g n i i' y e ' tn i i' Motion for Leave to Amend Complaint with the Clerk of the Court using the ECF system which sent notification of such filing of the above and foregoing to the following: David M. Hibey, Esq. U. S. Department of Justice Civil Division 1100 L. Street NW Washington, DC 20530 SO CERTIFIED, this the 31st day of July, 2007. /s/Frank W. Trapp FRANK W. TRAPP

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