Free Published Opinion/Order - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
No. 02-465 C (E-filed: August 28, 2006) ______________________________________ LA GLORIA OIL AND GAS COMPANY Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) Summary Judgment; Motion to Dismiss; Motion to Permit Discovery Pursuant to Rule 56(f) of the Rules of the Court of Federal Claims (RCFC); Legality of Basing Contract Price Adjustment Clauses on Indexes Rather Than the Contractor's Own Prices; Legality of Basing Contract Price Adjustment Clauses on the Petroleum Marketing Monthly and Platts Oilgram Report; Whether Federal Acquisition Regulation (FAR) § 15.402 Provides a Cause of Action to Contractors; Whether the Court of Federal Claims Has Jurisdiction Over an Equal Protection Claim in This Non-Bid Protest Context; Whether the Court of Federal Claims Has Jurisdiction Over Implied-in-Fact Contract Claims of a Successful Bidder Concerning the Contract Price; Misrepresentation; Breach of Contract; Breach of the Implied Covenant of Good Faith and Fair Dealing; Failure of Consideration and Frustration of Purpose; Mistake; Implied-in-Fact Contract; Whether a Takings Claim May Be Maintained When a Contract Exists; Waiver; Estoppel

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J. Keith Burt, Washington, DC, for plaintiff. Gary A. Winters, Washington, DC, of counsel. Peter D. Keisler, with whom were David M. Cohen, Director, and Steven J. Gillingham, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, DC, for defendant. Howard M. Kaufer, Assistant Counsel, Office of Counsel, Defense Energy Support Center, Ft. Belvoir, VA, and Donald S. Tracy, Trial Attorney, Defense Supply Center, Richmond, VA, of counsel.

OPINION HEWITT, Judge This case is one of twenty-three cases dealing with some or all of the issues addressed in the opinion of the Court of Appeals for the Federal Circuit in Tesoro Hawaii Corp. v. United States, 405 F.3d 1339 (Fed. Cir. 2005) (Tesoro II), reh'g denied and reh'g en banc denied, Tesoro Hawaii Corp. v. United States, 2005 U.S. App. LEXIS 19620 (Fed. Cir. Aug. 22, 2005). Plaintiff, La Gloria Oil and Gas Company (La Gloria or plaintiff), filed its initial complaint in 2002 against defendant, acting through the Defense Energy Support Center (DESC) of the U.S. Department of Defense (DOD).1 Plaintiff alleged, inter alia, that defendant's use of economic price adjustment (EPA) clauses that were not tied to plaintiff's own established prices in its fuel supply contracts was illegal. Complaint (Compl.) ¶ 18. On April 15, 2003, upon consideration of cross-motions for partial summary judgment, this court held that defendant's use of EPA clauses not tied to plaintiff's own established prices violated the Federal Acquisition Regulation (FAR) § 16.203.2 La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211, 226 (2003) (La Gloria). On March 22, 2004, the court stayed the proceedings pending the Federal Circuit's consideration of interlocutory appeals filed in Tesoro Hawaii Corp. v. United

DESC is a field activity of the Defense Logistics Agency (DLA) in the DOD. Def.'s Facts ¶ 2. Citations for factual background to filings of only one party, unless otherwise noted, do not involve matters in dispute. Specifically, the court denied defendant's motion for partial summary judgment on the issue of liability and granted plaintiff's motion for partial summary judgment on the issues of entitlement to quantum valebant relief and the invalidity of defendant's requested and approved deviations from the Federal Acquisition Regulation (FAR) § 16.203. La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211, 226 (2003) (La Gloria). Those rulings were abrogated by Tesoro Hawaii Corp. v. United States, 405 F.3d 1339 (Fed. Cir. 2005) (Tesoro II). 2
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States, 58 Fed. Cl. 65 (2003) (Tesoro I) and Hermes Consolidated, Inc. v. United States, 58 Fed. Cl. 409 (2003) (Hermes II), which involved legal issues substantially similar to the legal issues in this case. Stay Order of March 22, 2004 at 2. In Tesoro II, the Federal Circuit abrogated this court's decision in La Gloria. Tesoro II, 405 F.3d at 1348 ("The regulations permit use of contracts that include adjustments based on established prices, but do not limit those adjustments to changes only in the specific prices offered by an individual contractor."). After the Tesoro II decision was issued, La Gloria filed a sevencount amended complaint against defendant, alleging illegal award and administration of six fuel supply contracts,3 Amended Complaint (Am. Compl. or Amended Complaint) ¶¶ 35-44, five related contracts claims, id. at ¶¶ 45-123, and a related takings claim. Id. at ¶¶ 124-132. On March 31, 2006, defendant filed a 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) or, alternatively, for summary judgment pursuant to RCFC 56(b).4 Defendant's Motion to Dismiss the Amended Complaint (Def.'s Mot. or defendant's motion) at 1. Defendant's motion was accompanied by a Supplemental Appendix (Def.'s App.). On May 1, 2006, plaintiff filed a motion pursuant to RCFC 56(f), requesting that the court "refuse [defendant's] application for summary judgment or, in the alternative, grant a continuance [to allow plaintiff to] obtain [full] discovery." Plaintiff's Motion Pursuant to RCFC 56(f) to Refuse Defendant's Application for Summary Judgment or, in the Alternative, for a Continuance to Permit Discovery (Pl.'s Mot. or plaintiff's 56(f) motion) at 2. The court heard oral argument on both motions on July 13, 2006. The court now has before it defendant's motion, plaintiff's Rule 56(f) motion, and the following responsive briefing: Plaintiff's Opposition to Defendant's Motion to Dismiss (Pl.'s Resp.); Defendant's Reply to Plaintiff's Opposition to Defendant's Motion to Dismiss the Complaint (Def.'s Reply) and Second Supplemental Appendix (Def.'s Second App.); Defendant's Response to Plaintiff's RCFC 56(f) Motion (Def.'s Resp.); Plaintiff's Reply to Defendant's Response to Plaintiff's Motion Pursuant to RCFC 56(f) To Refuse Defendant's Application for

This count contained six sub-parts including two small business complaints and an allegation that defendant awarded and administered plaintiff's contracts in violation of the Due Process Clause of the Fifth Amendment. Amended Complaint (Am. Compl. or Amended Complaint) ¶¶ 39-41. Defendant's motion specifically requests that paragraphs 40 and 41 of the Amended Complaint (plaintiff's small business and equal protection claims) be dismissed pursuant to RCFC 12(b)(1), and that the remainder of the Amended Complaint be dismissed pursuant to RCFC 56(b) or, in the alternative, pursuant to RCFC 12(b)(6). Defendant's Motion to Dismiss the Amended Complaint (Def.'s Mot.) 1. 3
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Summary Judgment or, in the Alternative, for a Continuance to Permit Discovery (Pl.'s Reply); Defendant's Proposed Findings of Uncontroverted Fact (Def.'s Facts); Plaintiff's Response to Defendant's Proposed Findings of Uncontroverted Fact (Pl.'s Fact Resp.); Plaintiff's Proposed Findings of Fact (Pl.'s Facts); Defendant's Response to Plaintiff's Proposed Findings of Fact (Def.'s Fact Resp.); and the Oral Argument Transcript (Tr.). I. Background

From 1993 to 1999, DESC and La Gloria entered six competitively-awarded longterm contracts under which DESC purchased JP-8 jet fuel from La Gloria in Texas.5 La Gloria, 56 Fed. Cl. at 212; Def.'s Facts ¶ 4; Pl.'s Facts ¶ 2. The contracts "typically last[ed] one year," Def.'s Fact Resp. ¶ 2, and were valued collectively at approximately $157 million, Am. Compl. ¶ 5. The "contracts contained DESC's standard price adjustment [EPA] clause," 6 Am. Compl. ¶ 6, which allowed for adjustment of the "pergallon `base price' offered by fuel suppliers." Def.'s Mot. 4. The 1993 contract adjusted prices based on changes in price indexes published by the Department of Energy in the Petroleum Marketing Monthly (the PMM),7 La Gloria, 56 Fed. Cl. at 213; Def.'s Mot. 5, while the 1995-1999 contracts adjusted prices based on changes reported in Platts Oilgram Report (Platts), a daily industry publication. La Gloria, 56 Fed. Cl. at 213; Def.'s Mot. 5; Def.'s Facts ¶ 13. This court first considered the legality under the Federal Acquisition Regulation (FAR) of DESC's EPA clause B19.33 in MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) (MAPCO). FAR § 16.203-1 authorizes "[e]conomic price

The following contracts are at issue: DLA600-93-D-0559 (1993 contract), SPO600-95D-0480 (1995 contract), SPO600-96-D-0475 (1996 contract), SPO600-97-D-0464 (1997 contract), SPO600-98-D-0468 (1998 contract), SPO600-99-D-0478 (1999 contract). Am. Compl. ¶ 31; Appendix to Plaintiff's Opposition to Defendant's Motion to Dismiss (Pl.'s App.) 648-77 (1993-1999 contracts). "JP-8 jet fuel is kerosene-based and is similar in composition to commercial jet fuel (which is called `kerojet' or `Jet A')." Def.'s Facts ¶ 5; see also Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128, 129 (1998). The EPA clauses in all of the contracts, denominated B19.33 in each, were substantially similar except that the B19.33 clause in the 1993 contract used the indexes in the Petroleum Marketing Monthly (the PMM) as a price escalator, while the 1995-99 contracts used Platts Oilgram Report (Platts). Pl.'s App. 648-677. The PMM is published by the Energy Information Administration (EIA) of the Department of Energy's (DOE), and is a compilation of transaction prices that all refiners are required by law to submit monthly to the DOE. Def.'s Mot. 5; see 15 U.S.C. § 772. 4
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adjustments . . . of three general types:" (a) "adjustments based on established prices;" (b) "adjustments based on actual costs of labor or material;" (c) "adjustments based on cost indexes of labor or material." 48 C.F.R. § 16.203-1 (FAR § 16.203-1) (2005). The plaintiff-contractor in MAPCO contended that EPA clause B19.33, which used the PMM as an escalator, did not fit within the categories of EPA clauses authorized by the FAR § 16.203-1. MAPCO, 27 Fed. Cl. at 408. More specifically, plaintiff argued that in using the PMM as an escalator, B19.33 did not conform to FAR § 16.203-1(a) because "established prices" in FAR § 16.203-1(a) means the "contractor's own established prices," not "a price index or the average of other refiners' prices," such as the PMM. MAPCO, 27 Fed. Cl. at 408. Defendant asserted that clause B19.33 satisfied FAR § 16.203-1(a) because the phrase "established prices" encompasses "almost any agreed-upon price adjustment system, especially those that are published, like the PMM Index." MAPCO, 27 Fed. Cl. at 408. Defendant also claimed that clause B19.33 satisfied FAR § 16.203-1(c). MAPCO, 27 Fed. Cl. at 411. The MAPCO court held: (1) that FAR § 16.203(a) does not authorize the use of an EPA clause based on an index such as the PMM, which does not reflect the contractor's established prices, and is not "an established market price," and (2) that the PMM is not a "cost index" within the meaning of FAR § 16.203-1(c). MAPCO, 27 Fed. Cl. at 410-11. This court revisited DESC's EPA clause B19.33 and the PMM in Barrett Refining Corp. v. United States, 42 Fed. Cl. 128 (1998) (Barrett I). Barrett alleged that DESC's use of clause B19.33, which was based on the PMM, was not authorized by the FAR. Id. at 128-29. In contrast to its position in MAPCO, DESC conceded "that the pricing mechanisms used in the contracts . . . [at issue in Barrett I] were unauthorized," id. at 130, and "agree[d] that the [EPA] clauses [in the contracts were] unenforceable and that the plaintiff [was] entitled to recover on a quantum valebant theory." Id. at 129. The court entered judgment for plaintiff based on the court's calculation of the fair market value of the contracts. Barrett Ref. Corp. v. United States, 45 Fed. Cl. 166, 174 (1999) (Barrett II). On appeal, the Federal Circuit affirmed the Court of Federal Claims' grant of quantum valebant relief. Barrett Ref. Corp. v. United States, 242 F.3d 1055, 1058 (Fed. Cir. 2001) (Barrett III). After the MAPCO and Barrett III decisions, La Gloria filed suit against DESC, alleging that "the EPA clauses used in its contracts violated the Federal Acquisition Regulation (FAR)," La Gloria, 56 Fed. Cl. at 213 (quoting Compl. ¶¶ 3, 13-17), and claiming that it "is entitled to recover based on the fair market value of the fuel it delivered to DESC . . . by way of reformation, quantum valebant, or rescission and restitution." La Gloria, 56 Fed. Cl. at 213 (quoting Compl. ¶ 33). The parties then cross5

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moved for partial summary judgment on the issue of liability. Id. at 213. The court, in accord with the decisions in MAPCO and Barrett I, found that "FAR § 16.203-1 does not authorize an [economic price] adjustment based on price indexes." La Gloria, 56 Fed. Cl. at 214. The court also held that the individual and class FAR deviations obtained by defendant were invalid, id. at 217-24, and that "there is evidence in this case that supports a finding that defendant promised to pay fair market value for the military fuel it procured [from plaintiff]." Id. at 224. Further, based on Barrett III, the court held that "the use of an illegal EPA clause together with an implied-in-fact governmental promise to pay at least fair market value entitles a plaintiff to quantum valebant relief." Id. at 225. The court then granted plaintiff's motion for summary judgment on the issues of entitlement to quantum valebant relief and the invalidity of the individual and class deviations from the FAR obtained by defendant. Id. at 226. The court denied plaintiff's motion for summary judgment with respect to the applicability of judicial estoppel to the calculation of fair market value, and denied defendant's motion for summary judgment. Id. In 2003, plaintiffs in two similar cases, Tesoro I, 58 Fed. Cl. 65, and Hermes II, 58 Fed. Cl. 409, jointly petitioned the United States Court of Appeals for the Federal Circuit for permission to pursue interlocutory appeals "of issues relating to the legality of contract price determinations made by [DESC]." 8 Tesoro II, 405 F.3d at 1341. The Federal Circuit granted permission, id., and certified the following questions for interlocutory appeal: (1) "Did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses indexed to the PMM?" (2) "Were DESC's individual or class deviations obtained in violation of law?" (3) "Can DESC assert the defense of waiver to bar Tesoro from pursuing a remedy for DESC's illegal fuel prices?" (4) "Was DESC's promulgation of the economic price adjustment clauses indexed to the PMM unauthorized?" (5) "May defendant assert the defense of waiver to bar [plaintiff] from pursuing a remedy for DESC's unauthorized fuel prices?" Tesoro Haw. Corp. v. United States, 2003 U.S. Claims LEXIS 410, *4 (Oct. 30, 2003) (order certifying questions for interlocutory appeal); Hermes II, 58 Fed. Cl. at 420. Because the interlocutory appeals in Tesoro I and Hermes II involved "legal issues substantially similar to those presented" in this case, this court stayed proceedings in this case pending the Federal Circuit's consideration of the interlocutory appeals. Stay Order of March 22, 2004. The Tesoro II court changed the legal landscape dramatically. The contractors in
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In Hermes Consolidated, Inc. v. United States, 58 Fed. Cl. 3, 21-22 (2003) (Hermes I), the court denied the parties' cross-motions for summary judgment and requested supplemental briefing on waiver and the doctrine of laches. The court then addressed those issues in Hermes Consolidated, Inc. v. United States, 58 Fed. Cl. 409 (2003) (Hermes II). 6

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Tesoro II asserted that the term "established prices" in FAR § 16.203-1(a) should be read as "contractor's established prices." Tesoro II, 405 F.3d at 1343. The contractors also argued that "DESC's use of an EPA clause tied particularly to the PMM does not comport with the express requirements of FAR § 16.203-3" because the PMM is a combination of petroleum sales that do not "reflect the product, the market, or the price for the military fuel [appellants] supplied." 9 Id. at 1348. After examining these issues among others, the Tesoro II court found that established prices under FAR § 16.203-1(a) are not limited to "prices offered by an individual contractor," that "market-based EPA clauses are permitted under the FAR" and, further, that "DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR." Id. The Tesoro II court did not reach the issues of deviations or waiver raised in the certified questions. Id. at 1348-49. II. DISCUSSION A. 1. Standards of Review Dismissal Under RCFC 12(b)(1)

Rule 12(b)(1) of the Rules of the Court of Federal Claims governs dismissal of a claim for lack of subject matter jurisdiction. RCFC 12(b)(1) (2006). When a defendant challenges jurisdiction, the plaintiff bears the burden of proving that jurisdiction is proper. Toxgon Corp. v. BNFL, Inc., 312 F.3d 1379, 1383 (Fed. Cir. 2002); Reynolds v. Army and Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988); Corrigan v. United States, 68 Fed. Cl. 589, 592 (2005). To establish subject matter jurisdiction under the Tucker Act, 28 U.S.C. § 1491(a)(1) (2000), the plaintiff must identify "a separate source of substantive law" mandating the payment of money damages by the United States. Fisher v. United States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (Fisher II). In deciding a motion to dismiss for lack of subject matter jurisdiction, the court need only decide contested facts relevant to the inquiry into subject matter jurisdiction. Betz v. United States, 40 Fed. Cl. 286, 290 (1998). If the court determines that it lacks subject matter jurisdiction, it must dismiss the claim. RCFC 12(h)(3). 2. Dismissal Under RCFC 12(b)(6)

Rule 12(b)(6) governs dismissal of a claim for "failure to state a claim upon which FAR § 16.203-3 stipulates that "[a] fixed price contract with economic price adjustment shall not be used" unless necessary "to protect the contractor and the government from significant fluctuations in labor or material costs or to provide for contract price adjustment in the event of changes in the contractor's established prices." FAR § 16.203-3. 7
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relief can be granted." Rule of the Court of Federal Claims (RCFC) 12(b)(6). When evaluating a motion under RCFC 12(b)(6), the court must accept all material facts alleged in the complaint as true, Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 325 (1991) (interpreting substantially identical provisions of the Federal Rules of Civil Procedure), and must draw all reasonable inferences in favor of the non-moving party, Sommers Oil Co. v. United States, 241 F.3d 1375, 1378 (Fed. Cir. 2001). It is inappropriate for a court to grant the motion "when the facts asserted by the plaintiff do not entitle him to a legal remedy." Boyle v. United States, 200 F.3d 1369, 1372 (Fed. Cir. 2000). Under RCFC 12(b)(6), where a motion is filed and "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided by RCFC 56." RCFC 12(b)(6); see also Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1250 (Fed. Cir. 2000). 3. Summary Judgment

Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affadavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." RCFC 56(c); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1562-63 (Fed. Cir. 1987). A genuine dispute over material facts exists if a reasonable finder of fact could find in favor of the non-moving party. Anderson, 477 U.S. at 248. If the party moving for summary judgment does not bear the burden of proof on an issue, that party need not produce positive evidence in order to demonstrate the absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). It is sufficient that the party demonstrate to the court "that there is an absence of evidence to support the non-moving party's case." Id. Once the moving party has demonstrated the absence of genuine issues of material fact, the burden shifts to the non-movant to establish the existence of material facts on which the party will bear the burden of proof at trial. Id. at 324; see also Novartis Corp. v. Ben Venue Labs., Inc., 271 F.3d 1043, 1046 (Fed. Cir. 2001). In order to defeat summary judgment, the non-movant must point to an actual "evidentiary conflict" in the record. SRI Int'l v. Matsushita Elec. Corp., 775 F.2d 1107, 1116 (Fed. Cir. 1985). Mere "conclusory statements" are insufficient. Id. The evidence is examined in a light most favorable to the non-moving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986), and all justifiable inferences must be drawn in favor of the non-movant, Anderson, 477 U.S. at 255. B. Issues Under FAR § 16.203

Plaintiff argues that defendant violated FAR § 16.203 "by basing price adjustments 8

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on indexes rather than on Plaintiff's own established fuel prices." Am. Compl. ¶ 36. Plaintiff's argument contains two prongs: (1) defendant violated the FAR by basing price adjustments on indexes and (2) defendant violated the FAR by failing to base price adjustments on plaintiff's own established fuel prices. Id. ¶¶ 36-37. Defendant moves for summary judgment under RCFC 56(b) or, in the alternative, to dismiss under RCFC 12(b)(6). Def.'s Mot. 1. The court evaluates the two prongs of plaintiff's argument in turn. 1. Whether Defendant Violated FAR § 16.203 By Failing to Base EPA Clauses on Plaintiff's Own Established Fuel Prices

The court first addresses whether defendant violated FAR § 16.203 by failing to "bas[e] price adjustments . . . on Plaintiff's own established fuel prices." Am. Compl. ¶ 36. Defendant claims that, under FAR § 16.203, EPA clauses "need not be" based on "the contractor's own prices" and asserts that its position is supported by the Federal Circuit's decision in Tesoro II. Def.'s Mot. 13. The dispute requires the court to determine whether the issue was addressed and effectively disposed of by the Federal Circuit in Tesoro II. The Tesoro II court described the issue before it as whether "established prices" under FAR § 16.203-1 "should be read as `contractor's established prices' in order to be consistent with the term found in FAR § 16.203-3." Tesoro II, 405 F.3d at 1343. The Tesoro II court explicitly held that "FAR 16.203-3 does not require that adjustments be tied solely to changes in the prices charged by a particular contractor." Id. at 1348. Based on the ruling in Tesoro II that FAR § 16.203 does not require EPA clauses to be based on a contractor's own prices, Tesoro II, 405 F.3d at 1348, plaintiff's allegation that defendant violated FAR § 16.203 by failing to base price adjustments on plaintiff's own established fuel prices fails to state a claim on which relief may be granted. Cf. Boyle, 200 F.3d at 1372. 2. Whether Defendant Violated FAR § 16.203 by Basing EPA Clauses on Indexes in General or the PMM in Particular

The court next considers whether defendant violated FAR § 16.203 "by basing price adjustments on indexes." Am. Compl. ¶ 36. However, the court does not need to resolve the question of whether, as a general rule, defendant may base price adjustments on "indexes." Because plaintiff has raised separately the question of the legality of basing the adjustment of prices on indexes published in the PMM, the court considers whether defendant's use of the particular indexes at issue in this case violated FAR §

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16.203.10 a. The Parties' Arguments

Plaintiff argues that "[e]ven if FAR § 16.203 permitted DESC to base price adjustments on indexes rather than on Plaintiff's own established fuel prices, DESC knowingly awarded and administered Plaintiff's contracts in violation, inter alia, of FAR § 16.203" by basing its EPA clauses on the PMM which was "not market-based, w[as] not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel." Am. Compl. ¶ 37. Plaintiff further argues that these issues are outside the scope of the Tesoro II opinion because only the issue of the per se illegality of defendant's failure to base price adjustments on the contractors' own established fuel prices was before the Tesoro II court. Pl.'s Resp. 20.11 Plaintiff supports

Assuming arguendo that resolution of the issue of whether the use of indexes generally violates FAR § 16.203 is necessary to a resolution of the case, the court finds that defendant did not violate the FAR by basing adjustments on "indexes." In reaching this conclusion, the court is again guided by the holding in Tesoro II. There, the court held that "DESC's use of market-based references to determine adjustments to established prices was authorized under the law." Tesoro II, 405 F.3d at 1348. Although it is true that Tesoro II does not expressly address whether the use of "indexes" is authorized by the FAR, the court understands "index" to be shorthand for the concept of "economic price adjustment clauses indexed to the PMM" contained in the certified question directly before the Tesoro II court. Id. at 1342. By addressing whether or not "economic price adjustment clauses indexed to the PMM" were authorized by the FAR, id., the court in Tesoro II implicitly addressed the issue of whether or not the use of "indexes" in general is authorized by the FAR. The court's position is supported by the fact that Tesoro II quotes two portions of MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) (MAPCO), which refer to the PMM as an "index." MAPCO, 27 Fed. Cl. at 410 (using the term "index" to refer to prices published in the PMM). Therefore, in holding that "DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR," Tesoro II, 405 F.3d at 1348, the Tesoro II court held that the use of "indexes," such as the PMM, is authorized under the FAR. Id. at 1349. Consistent with Tesoro II, the court holds that defendant did not violate FAR § 16.203 by basing price adjustments on indexes. A claim of per se illegality alleges that the illegal act is "[u]nlawful in and of itself," Black's Law Dictionary 763 (8th ed. 2004), and "stand[s] alone, without reference to additional facts," id. at 1178. The concept of per se illegality does not appear to the court to be a useful analytic tool in this case. Here, the parties both refer to the concept but disagree about what the alleged per se illegality is: plaintiff's view is that it is the "failure to base price adjustments" on the contractors' own established prices, Am. Compl. ¶ 91, while defendant's view is that it is the "use of market-based indicators," Pl.'s App. 327 (Hearing Transcript, Oral Argument Before the Court of Appeals for the Federal Circuit, Jan. 10, 2005). 10
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its argument by referencing the contractors' principal brief in Tesoro II, which states, "Tesoro's and Hermes' Complaints contain seven counts; however, only the portion of Count I alleging per se illegality was the subject of the parties' cross motions and therefore within the scope of this certified appeal." Brief of Tesoro Hawaii Corp., Tesoro Alaska Co., & Hermes Consolidated, Inc. (Brief of Plaintiffs-Appellants) at 8 n.5, reprinted in Appendix to Plaintiff's Opposition to Defendant's Motion to Dismiss (Pl.'s App.) 377. Plaintiff also points to DESC's principal brief and its assertion during oral argument before the Federal Circuit that the issue of whether or not the PMM qualifies a market-based reference was not before the court. Pl.'s Resp. 21. In its principal brief in Tesoro II, DESC addressed criticism of the PMM by amicus curiae American Petroleum Institute (API) and further stated, "we do not regard this appeal as a referendum upon the appropriateness or suitability of particular price references." Brief for the United States at 26. During oral argument DESC stated: This is not a beauty contest about one economist's view of the best marketplace indicator versus another. Both parties have affidavits either championing or damning the PMM, but the question in this case is whether the government may rely on a market value indicator. . . . The challenge here is a per se challenge to the government's use of market-based indicators. Pl.'s App. 326-27. Finally, plaintiff argues that the language of the Tesoro II opinion demonstrates that "[t]he Federal Circuit concurred with both DESC and the Appellants that the claim before it was, in fact, only one of per se illegality and not one challenging the PMM on the ground that it was not a market-based reference." Pl.'s Resp. 22. Plaintiff points out that the Tesoro II court held that "DESC's use of market-based references to determine adjustments to established prices was authorized under the law," Tesoro II, 405 F.3d at 1348, but that neither the court nor DESC ever specifically "discuss[ed] whether the PMM was or was not a market-based reference," Pl.'s Resp. 22. Plaintiff asserts that the Tesoro II court's opinion was narrow, holding only that "DESC's use of the PMM was not per se illegal" because the EPA clause was not based on the contractors' established prices. Id. at 23. Plaintiff also asserts that this narrow interpretation of the holding is necessary in order to "comport[] with the limitations on the court's jurisdiction to entertain the appeal." Pl.'s Resp. 23. Plaintiff refers to a limitation contained in Section 1292(d)(2) of Title 28 of the United States Code, which permits appeal only of "controlling questions of law" that have been certified by the trial court. 28 U.S.C. § 1292(d)(2). Plaintiff argues that "[t]he issue of the PMM's relationship to the marketplace (and, therefore, the determination of whether it is a market-based reference) is solely a question of fact" and 11

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therefore not reviewable under 28 U.S.C. § 1292(d)(2). Pl.'s Resp. 23. Plaintiff also argues that because neither of the certified orders before the Tesoro II court made factual findings as to whether the PMM reflects the marketplace, the court would have "exceeded its jurisdiction" in deciding "whether the PMM is a market-based reference." Id. Finally, plaintiff states that the "plain language" of Tesoro II does not support a finding "that the PMM is a market-based reference." Id. at 19. Defendant does not specifically address plaintiff's contention that the only issue before the Tesoro II court was that of per se illegality. See Def.'s Reply 11-14. Defendant simply focuses on the Tesoro II court's finding that "DESC's PMM-based EPA clause was an `established prices clause'" and that the clause was legal. Id. at 11. Defendant argues that the Tesoro II court "did not stop with the question of whether, in general, an EPA clause not based upon the contractor's own price would be illegal." Id. Instead, defendant states that the Tesoro II court "explicitly considered whether DESC's PMM-based EPA clause was an `established prices' clause contemplated by FAR § 16.203(1) and held that it was," a holding which, defendant asserts, "foreclos[es] consideration of the question [of whether a PMM-based EPA clause is legal] anew." Def.'s Mot. 13. Defendant also points out that the Tesoro II court specifically considered the legality of the PMM itself because one of the certified questions for interlocutory review was, "`Did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses indexed to the PMM?'" Def.'s Reply 11 (quoting Tesoro II, 405 F.3d at 1342). Defendant also notes that the Tesoro II court considered various findings in MAPCO including that "the PMM is an `amalgamation' of petroleum sales that does not reflect . . . the market," Def's Mot. 14 (quoting Tesoro II, 405 F.3d at 1348), before holding that "`DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR.'" Def.'s Reply 11 (quoting Tesoro II, 405 F.3d at 1348).

b.

Analysis

To resolve the parties' dispute about what the Federal Circuit decided in Tesoro II, the court must determine what was before the Federal Circuit. The court begins by reviewing the scope of the Federal Circuit's review of questions presented in an interlocutory appeal. Section 1292(d)(2) of Title 28 of the United States Code provides in pertinent part: [W]hen any judge of the United States Court of Federal Claims, in issuing an interlocutory order, includes in the order a statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that 12

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order may materially advance the ultimate termination of the litigation, the United States Court of Appeals for the Federal Circuit may, in its discretion, permit an appeal to be taken from such order . . . . 28 U.S.C. § 1292(d)(2). Section 1292(c)(1) grants the United States Court of Appeals for the Federal Circuit "exclusive jurisdiction . . . of an appeal from an interlocutory order or decree described in subsection (a) or (b) of this section [describing interlocutory appeals from district judges] in any case over which the court would have jurisdiction of an appeal under section 1295 of this title . . . ." 28 U.S.C. § 1292(c)(1). Section 1292(d), applicable to appeals from the United States Court of Federal Claims, is substantially similar to Section 1292(b), applicable to appeals from the district courts. Compare 28 U.S.C. § 1292(d) with 28 U.S.C. § 1292(b). The Tesoro II court based jurisdiction over the interlocutory appeal on these sections. Tesoro II, 405 F.3d at 1343 ("We have jurisdiction pursuant to 28 U.S.C. § 1292(c)(1)."); Tesoro Haw. Corp. v. United States, 89 Fed. Appx. 732, 732 (Fed. Cir. 2004) (citing 28 U.S.C. § 1292(d)). It is clear that Courts of Appeals decide questions of law before them on interlocutory appeal. The issue of legality of the PMM under FAR § 16.203, however, presents a mixed question of law and fact. See Campbell v. Merit Sys. Prot. Bd., 27 F.3d 1560, 1565 (Fed. Cir. 1994) (stating that "the application of a general legal standard to particular facts" presents a mixed question of law and fact). The reason that this question presents a mixed question of law and fact is that the court must determine whether a particular index, about which there is a substantial factual record, fits within a regulatory definition. See id. The issue, therefore, is to what extent mixed questions of fact and law are considered to be subject to review for the purposes of deciding an interlocutory appeal. Although neither the Federal Circuit nor the Supreme Court has addressed the precise issue, other Courts of Appeals have examined the scope of review in interlocutory appeals under Section 1292(b), a provision substantially similar to Section 1292(d). Moreover, the relevant Courts of Appeals decisions appear to the court to be consistent with closely related Supreme Court precedent. The Sixth and Ninth circuits have specifically held that mixed questions of fact and law are treated as questions of law for the purposes of an interlocutory appeal. Flint v. Ky. Dep't of Corr., 270 F.3d 340, 346 (6th Cir. 2001) (holding that "[m]ixed questions of fact and law are treated as questions of law for the purposes of an interlocutory appeal" (citing Williams v. Mehra, 186 F.3d 685, 690 (6th Cir. 1999))); Steering Comm. v. United States, 6 F.3d 572, 575-77 (9th Cir. 1993) (deciding sua sponte to hear an interlocutory appeal containing a mixed question of fact and law). The Supreme Court has stated that once a Court of Appeals permits an appeal, that court can "`exercise jurisdiction over any question that is included within the order that contains the controlling question of law.'" 13

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Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 204 (1996) (quoting order granting certiorari, 514 U.S. 1126 (1995)). Upon consideration of the appeal, a Court of Appeals also "may address any issue fairly included within the certified order." Yamaha, 516 U.S. at 205. Further, "all questions material to the order [certified for appeal] are properly before the court of appeals," Nuclear Eng'g Co. v. Scott, 660 F.2d 241, 246 (7th Cir. 1981), because 28 U.S.C. § 1292(b) authorizes appeals from orders involving "`a controlling question of law as to which there is substantial ground for difference of opinion,'" Id. at 245 (quoting 28 U.S.C. 1292(b)), not just the specific question certified. Cf. 28 U.S.C. § 1292(d)(2). "To view section 1292(b) as allowing review of only the question of law making an order appealable would frustrate the utility of the section 1292(b) appeal process." Nuclear Eng'g Co., 660 F.2d at 246. The court finds that persuasive authority favors the view that mixed questions of fact and law are to be treated as questions of law for the purposes of an interlocutory appeal. The Supreme Court has taken an expansive view of the jurisdiction of a Court of Appeals on interlocutory appeal. Yamaha, 516 U.S. at 204. This court cannot ignore the Tesoro II court's explicit holding "that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR." Tesoro II, 405 F.3d at 1348. The Federal Circuit's holding in Tesoro II is very different from the holding of the United States Court of Federal Claims in Williams Alaska Petroleum, Inc. v. United States, 57 Fed. Cl. 789, 803 (2003) (Williams Alaska). In Williams Alaska, the court stated that its holding that market-based EPA clauses are authorized under the FAR "does not resolve the case in its entirety." 57 Fed. Cl. at 803. The court then noted that "[t]here remains to be considered plaintiffs' contention that even if DESC had the authority to use such market-based EPA clauses, these [PMM-based] clauses were nevertheless defective because the price index they incorporated failed to ensure payment of the fair market value of the delivered fuel." Id. If the Tesoro II court had intended (as did the trial court in Williams Alaska) to limit its opinion to the holding that an EPA clause based on established market prices is not necessarily illegal, the court assumes that it would have so stated. It did not. The court also cannot ignore the circumstances surrounding Tesoro II and the entire content of the opinion. The trial court in Tesoro I focused solely on the legality of DESC's EPA clauses that were tied to the PMM and declined to rule on EPA clauses that were tied to Platts, or to the Oil Price Information Service, or to the Lundberg Letter. Tesoro I, 58 Fed. Cl. 65 at 69-70. Had the Tesoro I court and the Tesoro II court been concerned only with the illegality of basing an EPA clause on a source other than the contractor's own prices, as plaintiff urges, Pl.'s Resp. 20, the Tesoro I court could have certified and the Tesoro II court could have addressed a question such as "did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses that were not based on the contractor's established prices?" However, the Tesoro 14

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I court's certified questions included a specific inquiry about the legality of using the PMM. See Tesoro II, 405 F.3d at 1342; Tesoro Haw. Corp., 2003 U.S. Claims LEXIS *4 ("Did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses indexed to the PMM?"). In Hermes Consolidated, Inc. v. United States, 58 Fed. Cl. 3 (2003) (Hermes I), the trial court also specifically considered the PMM and held that "this court adopts the multiple rationales set forth in MAPCO [for finding the use of the PMM unauthorized]." Hermes I, 58 Fed. Cl. 3, 10 (2003). The multiple rationales in MAPCO include the holding that, even if FAR § 16.203-1 encompasses both contractor's established prices and established market prices, "the PMM Index does not reflect an `established market price'" under FAR § 15.804-3(c)(2) because "the index is an amalgamation of the previous month's petroleum sales data." MAPCO, 27 Fed. Cl. at 410. Furthermore, the question certified by Hermes II also addressed the legality of an EPA clause specifically tied to the PMM, stating, "Was DESC's promulgation of the economic price adjustment clauses indexed to the PMM unauthorized?" Hermes II, 58 Fed. Cl. at 420. The Tesoro II court, in answering the certified questions, first focused on the meaning of the term "established prices" under FAR § 16.203-1(a). Tesoro II, 405 F.3d at 1342. The court considered the contractors' argument "that the term `established prices' in FAR § 16.203-1 should be read as `contractor's established prices' in order to be consistent with the term found in FAR § 16.203-3." Id. at 1343. The court also considered DESC's argument that established prices should be understood to encompass "established market prices" as defined by FAR § 15.804-3(c).12 Id. at 1345. After examining these arguments as well as prior litigation of the issue in MAPCO and Williams Alaska, among other cases, the Tesoro II court found that "although the term `established price' is not expressly defined in FAR § 16.203, the definition of the term in FAR § 15.804-3 is incorporated by reference." Tesoro II, 405 F.3d at 1347. The Tesoro II court stated that FAR § 15.804-3 defines "established prices" to include "contractorspecific prices, namely `established catalog prices,' and industry-based prices, namely `established market prices.'" Id. The court further stated that the FAR does not limit EPA clauses to "changes only in the specific prices offered by an individual contractor" and that "DESC's use of market-based references to determine adjustments to established prices was authorized under the law." Id. at 1348. The Tesoro II court went on specifically to examine the PMM and whether "DESC's use of an EPA clause tied particularly to the PMM . . . comport[s] with the express requirements of FAR § 16.203-3." Id. at 1348. As part of this determination, the
12

FAR § 15.804-3(c) was omitted from the FAR on Oct. 10, 1997. 15

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Tesoro II court considered the section of the MAPCO decision that held that the PMM "`is neither the contractor's, nor does it reflect an established price,'" and that the PMM does not reflect an established market price because "`[t]he [PMM] index is an amalgamation of the previous month's petroleum sales data . . . [and] not, as § 15.8043(c)(2) contemplates, determinitive of any particular corporation's current prices.'" Id. (quoting MAPCO, 27 Fed. Cl. at 410). The Tesoro II court then held that "it was legal error for the court to reject DESC's use of the PMM on the grounds that it `does not reflect any specific vendor's current price.'" Tesoro II, 405 F.3d at 1348. Nor does the Tesoro II opinion end there. The Tesoro II court also held that "we conclude that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR," id., and "the use of the PMM-based EPA clause was authorized under the statute," id. at 1349. The certified questions before the Tesoro II court specifically asked whether the DESC's use of "economic price adjustment clauses indexed to the PMM" was illegal, id. at 1343, and the Tesoro II court specifically found that "the use of the PMM-based EPA clause was authorized under the [FAR]," id. at 1349. In order for an EPA clause to be authorized under the FAR, it has to satisfy FAR § 16.203-1, which requires that the EPA clause be one of three types: "(a) Adjustments based on established prices . . . (b) Adjustments based on actual costs of labor or material . . . (c) Adjustments based on cost indexes of labor or material." FAR § 16.203-1. Therefore, in holding "that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR," Tesoro II, 405 F.3d at 1348, the Tesoro II court necessarily decided that DESC's use of an EPA clause tied to the PMM fit within one of these provisions. Furthermore, at issue in Tesoro II was whether the PMM was authorized under FAR § 16.203-1(a), "Adjustments based on established prices," which states, "These price adjustments are based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items." FAR § 16.203-1(a).13 The Tesoro II court interpreted "established prices" to encompass both "contractor-specific prices, namely `established catalog prices,' and industry-based prices, namely `established market prices.'" Tesoro II, 405 F.3d at 1347. The PMM is not a "contractor-specific" price. In holding "that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR," id. at 1348, the Tesoro II court necessarily found that the PMM is authorized as an "established price" because it is an "established market price." Id. Notwithstanding the foregoing, plaintiff claims that defendant violated FAR § In neither this case nor in Tesoro II did the defendant address whether the PMM should be classified within FAR § 16.203-1(b) or (c). See generally Tesoro II, 405 F.3d 1339; see also Def.'s Mot. 11-13. 16
13

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16.203 by basing its EPA clauses on the PMM because the PMM is "not market-based, w[as] not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel." Am. Compl. ¶ 37. It is true that the Tesoro II court held that an "established price" that is not a contractor-specific price must be an industry-based or established market price. Tesoro II, 405 F.3d at 1348. However, Tesoro II also held that the PMM was authorized by the FAR, Id. at 1348, and this court concludes that, a fortiori, the PMM must be viewed as either an industry-based price or an established market price. In addition, neither FAR § 16.203-1(a), "Adjustments based on established prices," nor Tesoro II, in its interpretation of "established prices," requires that an "established price" be "designed or intended to be used to set or adjust prices" or reflective of "at least the fair market value of military fuel" in order to be authorized under the FAR. Compare Am. Compl. ¶ 37 with FAR § 16.203-1(a) and Tesoro II, 405 F.3d at 1347. Plaintiff also attempts to bolster its argument that the PMM was not authorized by the FAR by contending that the "PMM suffered from a statistical flaw known as an `index number problem,' whereby different categories or classes of fuel were used to calculate the value of the index in different months." Am. Compl. ¶ 15. Plaintiff claims that this problem "renders use of the PMM essentially meaningless for measuring changes in price levels from month to month as DESC did." Id. In making this argument, plaintiff relies on the expert report of Joseph P. Kalt and Peter Killen dated April 28, 2006. Pl.'s App. 608-38. Plaintiff states that, according to Kalt and Killen, "this statistical flaw . . . results in the PMM erroneously reporting chang[es] in the volume of fuel sold as changes in the price of fuel." Pl.'s Facts ¶ 24. Plaintiff also states that, "unlike DOE [Department of Energy] here, other federal agencies that publish indexes intended to be used as price indexes go to great lengths to ensure that the indexes do not suffer an index number problem." Id. ¶ 25. Defendant argues that plaintiff's allegations regarding the PMM's index number problem are "immaterial because [they] do[] not apply the standard for a legal EPA clause that was established in [Tesoro II], which specifically approved DESC's use of the PMM." Def.'s Fact Resp. ¶ 24. Defendant also contends that Kalt and Killen's report "depends for its truth upon its unproven assumption that the `market' is represented only by data published in Platts," even though "Platts publishes spot market price assessments" while "[t]he PMM reports all sales." Id. ¶ 24. Defendant also states that Kalt and Killen's report "incorrectly assumes that the PMM is an `index,' and that it mixes products in its calculations." Id. ¶ 25. The expert report of Kalt and Killen specifically addresses the PMM's alleged index number problem. Pl.'s App. 616. The report states that the "methodology used in 17

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the PMM to calculate average prices reported undermines the usefulness of those data for use as an index of actual product price (and attendant market value) movements." Id. The expert report also states that "the PMM category of kerosene-type jet fuel" used in contract DLA600-93-D-0559 (1993 contract) for JP-8 jet fuel "can encompass several products, including Jet A, JP-5, and JP-8, which are not broken out separately." Id. The expert report further states that "calculating weighted average prices" of these products "can obscure actual price movements of specific products at specific locations because changes in the volume of sales of one product relative to the others or changes in the volume at one location relative to the others affect the weighted average price." Id. The foregoing can lead to an "index number problem," which means that "comparing changes in volume-based average prices across different periods can imply changes in the value of the underlying products when, in fact, none has occurred." Id. at 617. Kalt and Killen give an example of this problem in a hypothetical. See id. In hypothetical "period 1," 10,000 gallons of Product A are sold at 75 cents per gallon while 10,000 gallons of Product B are sold at 70 cents per gallon. Id. "The volume-weighted PPM reported average price" for period 1 "would be 72.5 cents." Id. In period 2, if the prices for A and B each fall by 1 cent, but the volume of A sold increases to 20,000 gallons while the volume of B sold decreases to 5,000 gallons, "the actual market value of the products has declined . . . by 1 cent" but, "because a greater volume of [A] is now sold relative to [B] . . . the hypothetical weighted average PMM-reported price actually rises by .5 cents, to 73 cents." Id. The expert report states that the hypothetical illustrates a potential problem with DESC's using "PMM-reported kerosene-type commercial jet fuel (known as "Jet A")" as the proxy in the PMM because, if "the relative price of Jet A moved down" while JP-5 and JP-8 stayed constant, "the PMM would reflect a fall in prices, and the DESC's PMM-based escalator would lower the price paid" in contracts involving JP-5 and JP-8, "even though the underlying market value of those fuels had not changed." Id. By alleging that the PMM has an "index number problem," Am. Compl. ¶ 15, plaintiff appears simply to restate its arguments that PMM is not market-based and does not accurately reflect the market. That more comprehensive allegation has been dealt with in a number of cases including MAPCO. See generally MAPCO, 27 Fed. Cl. 405. Although the so-called "index number problem" was not dealt with in the exact terms addressed in the Kalt and Killen expert report in MAPCO, the MAPCO court did directly examine whether or not the PMM reflected the market. Id. at 410-11. MAPCO found that "the PMM Index does not reflect an `established market price'" because "the index is an amalgamation of the previous month's petroleum sales data," not "any particular corporation's current prices." Id. at 410. This precise discussion in MAPCO was considered by and cited by the Tesoro II court. See Tesoro II, 405 F.3d at 1348. 18

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Furthermore, the so-called "index number problem" was specifically before the Tesoro II court in the form of API's amicus brief. Brief for American Petroleum Institute as Amicus Curiae at 16-19 (stating that "DESC's use (or misuse) of PMM data presents . . . the "index number problem"). The court concludes that the Tesoro II court was fully aware of the same alleged flaws in the PMM that are alleged by plaintiff here. That court had before it sufficient facts and argument to decide any subordinate issues necessary to determining the controlling legal question of whether the PMM was authorized under the FAR when it held "that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR." Tesoro II, 405 F.3d at 1348. 3. Whether Defendant Violated FAR § 16.203 by Basing EPA Clauses on Platts

Defendant's Motion requests the court to address an additional issue under FAR § 16.203 that lies just beneath the surface of the parties' dispute about the PMM: whether defendant violated FAR § 16.203 by basing EPA clauses on Platts. Def.'s Mot. 15. a. The Parties' Arguments

Plaintiff never specifically mentions Platts in its complaint. Am. Compl. passim. However, five of the six contracts at issue are indexed to Platts rather than the PMM. Pl.'s App. 648-77. The court therefore assumes that the term "indexes" as used in plaintiff's argument that DESC violated FAR § 16.203 "by basing price adjustments on indexes that were not market-based, were not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel," Am. Compl. ¶ 37, refers not only to the PMM, but also to Platts.14 Defendant argues that "La

At oral argument, plaintiff's counsel identified the issue as whether Platts, which "meaningfully reflects the spot price for commercial jet fuel" when it is based on the appropriate region, is "an appropriate measure to be used to set the price of military jet fuel, which is a different fuel than commercial jet fuel." Tr. 48:15-17. In support of its position, plaintiff's counsel stated, "[M]ilitary jet fuel is not commercial jet fuel. As we state in our expert report, a more appropriate index to capture what military fuel is would be the use of several indexes, because the military fuel essentially has components of several different fuels." Id. at 47:20-25. The question posed by FAR § 16.203 is not, however, whether the publication to which the EPA clause is indexed accurately reflects the market for military jet fuel but whether the measure itself is "market-based." Because the inquiry posed by plaintiff implicates only the question of price fairness, which is not required by FAR § 16.203, and not the question of whether Platts is "market-based," the court does not consider plaintiff's inquiry for the purpose of determining whether indexing an EPA clause to Platts violates FAR § 16.203. 19

14

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Gloria's Platts-based EPA clauses easily pass muster under Tesoro's `market sources'/ `market-based' standard" and points out that "La Gloria's complaint does not assert otherwise." Def.'s Mot. 15. b. Analysis

For an EPA clause to be considered authorized under FAR § 16.203-1(a), it must be "based on established prices." FAR § 16.203-1(a). "Established prices" can be either "contractor-specific prices, namely `established catalog prices,'" or "industry-based prices, namely `established market prices.'" Tesoro II, 405 F.3d at 1347. However, neither FAR § 16.203-1(a), "Adjustments based on established prices," nor Tesoro II, in its interpretation of "established prices," requires that an "established price" be "designed or intended to be used to set or adjust prices," and reflective of "at least the fair market value of military fuel" in order to be authorized under the FAR. Compare Am. Compl. ¶ 37 with FAR § 16.203-1(a) and Tesoro II, 405 F.3d at 1347. Because the FAR does not require that an established price be "designed or intended to be used to set or adjust prices," and reflective of "at least the fair market value of military fuel" in order to be authorized under the FAR, the court considers only plaintiff's argument that Platts is "not market-based." Am. Compl. ¶ 37. The PMM has been found to be "market-based." See Tesoro II, 405 F.3d at 1348. In holding "that DESC's use of a market-based EPA clause tied to the PMM was authorized under the FAR," id. at 1348, the Tesoro II court necessarily found that the PMM is authorized as an "established price" because it is an "established market price." Id. "The PMM is published monthly and presents average price and total sales volume data by month, by state and region, and for several classes of trade for a number of petroleum products (motor gasolines, aviation gasoline, kerosene-type jet fuel, kerosene, No. 1 and No. 2 distillate fuels, No. 4 Fuel, residual fuel oil, and propane)." Pl.'s App. 3 (Biddle Memorandum). Prices published in the PMM are based on regional averages of refiners' sales. See id. ("By law, all refiners are required to report their average sales prices to DOE on a monthly basis."). While the PMM is a government compilation of transaction prices, Def.'s Mot. 5, Platts is a daily commercial publication, Def.'s Facts ¶ 13. Platts is widely used by the petroleum industry in commercial contracts to set prices for commercial fuels. See Tr. 47:10-11 (plaintiff's counsel describing Platts); see also Pl.'s Resp. 7 (referring to Platts and OPIS as "commercial market references"). When arguing that prices published in the PMM fail to reflect the market, plaintiff uses Platts as indicative of the marketplace, as did plaintiff's experts in their expert report. See, e.g., Pl.'s Resp. 10 (citing Kalt and Killen's expert report); Pl.'s App. 636 (chart entitled "PMM Adjustment Fails to Track 20

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the Market: Market-Based JP-4 Escalator and PMM-Based JP-4 Escalator Frequently Move in Different Directions" and using Platts as "the market"). Plaintiff also used Platts as the source in its calculation of the "fair market value" of the disputed contracts in its complaints to the contracting officer. See Appendix to Defendant's Motion for Partial Summary Judgment Ex. 43-44. If prices published in the PMM are considered an "established market price" authorized under Tesoro II's interpretation of FAR § 16.2031(a), then Platts, a commercial publication widely accepted and used by the petroleum industry in its own contracts, is also an "established market price." See Tesoro II, 405 F.3d at 1348. 4. Issues Under FAR § 16.203: Conclusion

Plaintiff's claims that defendant violated FAR § 16.203 by failing to base EPA clauses on plaintiff's own established prices and by basing EPA clauses on the PMM do not state claims upon which relief may be granted. See RCFC 12(b)(6). Plaintiff's claim that defendant violated FAR § 16.203 by basing EPA clauses on Platts does not involve a genuine dispute of material fact and defendant is entitled to summary judgment on that claim. C. Whether Defendant Violated FAR § 15.802(b) (1993), Currently Codified at FAR § 15.402(a) (2005), by Allegedly Failing to Establish Prices That Were "Fair" and "Reasonable" to the Contractor

Plaintiff argues that DESC violated former FAR § 15.802(b), currently codified at FAR § 15.402(a), "by using PMM and other indexes to establish prices for military fuel that were not fair and reasonable." Am. Compl. ¶ 38. Specifically, plaintiff argues that the requirement contained in FAR § 15.402(a) that "contracting officers . . . purchase supplies and services . . . at fair and reasonable prices" requires the contracting officer to establish a contract price that is "fair and reasonable" both to the contractor and to the government and that, to the extent that the parties agree on a price that is not "reasonable" and "fair," FAR § 15.402(a) provides a cause of action to contractors. Pl.'s Resp. 28. Plaintiff argues both that the plain meaning of the word "fair" and the context of the regulatory section as a whole compel this result. Id. at 28-30. Defendant argues that plaintiff fails to state a claim upon which relief may be granted because FAR § 15.402 does not create a right enforceable by contractors. Def.'s Mot. 18; Def.'s Reply 14. Defendant reasons that the regulation does not create an enforceable right because the purpose of the regulation is to protect the Government from prices that are higher than warranted. Def.'s Mot. 18-19; Def.'s Reply 14 ("[The regulation at issue] was found in that part of the regulation that was concerned with 21

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obtaining adequate price competition, so that the Government was assured of paying a reasonable price."). Defendant further argues that the regulation does not apply in the context presented by this case because the regulation applies only to "bid and award" prices and not to "adjusted prices," which are the prices at issue here. Def.'s Reply 15. The Federal Circuit has stated: "In order for a private contractor to bring suit against the Government for violation of a regulation, that regulation must exist for the benefit of the private contractor. If, however, the regulation exists for the benefit of the Government, then the private contractor does not have a cause of action against the Government in the event that a contracting officer fails to comply with the regulation." Freightliner Corp. v. Caldera, 225 F.3d 1361, 1365 (Fed. Cir. 2000). In order to determine whether a regulation "confers a cause of action upon the private contractor," the court analyzes each regulation separately. Id. Where the regulation "serves as an internal operating procedure," id., or is cautionary rather than prohibitive, and provides guidance to the contracting officer, see AT&T v. United States, 307 F.3d 1374, 1380 (Fed. Cir. 2002), the regulation does not create a cause of action. AT&T, 307 F.3d at 1380; Freightliner, 225 F.3d at 1365; Short Bros. v. United States, 65 Fed. Cl. 695, 765 (2005). FAR § 15.802 (1993) provides: (b) Contracting officers shall ­ (1) Purchase supplies and services from responsible sources at fair and reasonable prices . . . . FAR § 15.802(b)(1). The regulation goes on to describe the procedures for ensuring that the contracting officer obtains a reasonable price. See FAR § 15.402. The procedures include not obtaining more information than is necessary and not requiring the submission of cost or pricing data where it is unnecessary because such a requirement leads to increased proposal preparation costs and consumes additional contractor and government resources. FAR § 15.402(a), (a)(3). Although the Federal Circuit has never decided whether FAR § 15.402 or its predecessor creates a cause of action for contractors, this court has held that the regulation at issue "does not afford a judicial remedy" because it "do[es] no more than to provide internal government direction" and guidance to the contracting officer. Short Bros., 65 Fed. Cl. at 764-65. This conclusion is consistent with decisions of the Comptroller General which, although not binding on this court, Thompson v. Cherokee Nation, 334 F.3d 1075, 1084 (2003), provide valuable guidance. Info. Tech. & Applications Corp. v. United States, 51 Fed. Cl. 340, 352 n.20 (2001). The Comptroller General has stated, in the context of a 22

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bid protest, that the contracting officer's evaluation for price reasonableness under FAR § 15.402(a) of an offer provided by a bidder "focuses primarily on whether the offered prices are higher than warranted . . . below-cost pricing is not prohibited." All Phase Envtl., Inc., Nos. B-292919.2 - B-292919.7, 2004 WL 437450, at *7 (Comp. Gen. Feb. 4, 2004); accord CSE Constr., No. B-291268.2, 2002 WL 31835783 (Comp. Gen. Dec. 16, 2002), at *4; see also Rodgers Travel, Inc., No. B-291785, 2003 WL 1088876 (Comp. Gen. Mar. 12, 2003), at *2 n.1 (stating that the purpose of a price reasonableness determination is to ensure that the prices offered are not higher, as opposed to lower, than warranted); Ralph C. Nash & John Cibinic, Price Reasonableness: a Much Misunderstood Term, 17 Nash & Cibinic Rep. ¶ 22 (Apr. 2003) (construing the phrase "focuses primarily" in the decisions of the Comptroller General to mean that the regulation