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

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 1 of 51

No. 02-465C (Judge Hewitt) IN THE UNITED STATES COURT OF FEDERAL CLAIMS

LA GLORIA OIL AND GAS COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT AND SECOND SUPPLEMENTAL APPENDIX

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

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

Attorneys for Defendant May 26, 2006

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 2 of 51

TABLE OF CONTENTS FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 I. DESC's EPA Clauses Are Authorized by FAR 16.203-1 . . . . . . . . . . . . . . . . . . 10 A. B. C. EPA Clauses Need Not Be Based Upon Plaintiff's Own Prices . . . . . . . 10 DESC's PMM-Based EPA Clause Is Legal . . . . . . . . . . . . . . . . . . . . . . . 11 La Gloria's FAR 15.802(b) Allegation Does Not State A Cause of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

II.

La Gloria's Alternative Illegality Theories In Counts II-VI Must Be Dismissed 16 A. B. Count II (Misrepresentation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Count III ("Breach of Contract") and Count IV ("Implied-In-Fact Contract") . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Count V ("Failure of Consideration and Frustration of Purpose") . . . . . 18 Count VI (Mistake) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

C. D. III. IV.

La Gloria's Takings Claim Should Be Dismissed . . . . . . . . . . . . . . . . . . . . . . . . 19 La Gloria's Small Business Program Complaints Must Be Dismissed . . . . . . . . 21 A. The Court Lacks Jurisdiction To Entertain The Fifth Amendment Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 DESC's Small Business Program Is Not Improper . . . . . . . . . . . . . . . . . 23

B. V.

Waiver and Estoppel Bar La Gloria's Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 A. B. C. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 La Gloria Has Waived Its Claims As A Matter Of Fact . . . . . . . . . . . . . 32 La Gloria Has Waived Its Claims As A Matter Of Law . . . . . . . . . . . . . 32

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

-i-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 3 of 51

SECOND SUPPLEMENTAL APPENDIX Excerpt from Barrett trial testimony of John Cook, dated July 29, 1998 . . . . . . . . . . . . . . . . . . . 1 Excerpt from deposition of Jacob Bournazian, dated December 3, 2003 . . . . . . . . . . . . . . . . . . . 7 Form EIA-782A ("Refiners'/Gas Plant Operators' Monthly Petroleum Product Sales Report . . 9 A Comparison of Selected EIA-782 Data with Data From Other Sources, by Jacob Bournazian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Excerpt from Platts website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Excerpt from NYMEX website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 FAR 15.610 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 TABLE OF AUTHORITIES CASES American Telephone and Telegraph Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim American Telephone & Telegraph Co. v. United States, 177 F.3d 1368 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Armstrong v. United States, 364 U.S. 40 (1960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Barrett Refining v. United States, 242 F.3d. 1055 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Barrett v. United States, 50 Fed. Cl. 567 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Beta Systems, Inc. v. United States, 838 F. 2d 1179 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Brooklyn Sav. Bank v. O'Neill, 324 U.S. 697 (1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Cessna Aircraft v. Dalton, 126 F.3d 1442 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Chris Berg, Inc. v. United States, - ii -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 4 of 51

426 F. 2d 314 (Ct. Cl. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Clark v. United States, 95 U.S. 539 (1877) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Coflexip & Servs., Inc. v. United States, 961 F. 2d 951, 952-953 (Fed. Cir. 1992) . . . . . . . . . . 22 Costanza Coal Min. Co. v. Weirton Steel Co., 150 F.2d 929 (4th Cir. 1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 42 Dairyland Power Cooperative v. United States, 16 F.3d 1197 (Fed. Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 DGS Contract Services, Inc. v. United States, 43 Fed. Cl. 227, 239 (1999) . . . . . . . . . . . . . 23, 25 E. Walters & Co., Inc. v. United States, 217 Ct. Cl. 576 F.2d 362 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Federal Crop Ins. v. Merrill, 332 U.S. 380 (1947) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Federal Elec. Corp. v. United States, 486 F.2d 1377 (Ct. Cl. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 General Eng'g. & Mach. Works v. O'Keefe, 991 F. 2d 775 (Fed. Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Gold Line Refining v. United States, 54 Fed. Cl. 285 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . 3, 37 Gould v. United States, 67 F.3d 925 (Fed. Cir. 930 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . 21, 22 Hartford Accident & Indem. Co. v. United States, 127 F. Supp. 565 (Ct. Cl. 1955) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Hermes v. United States, 58 Fed. Cl. 409 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Integrated Logistics Support Systems, Int'l v. United States, 42 Fed. Cl. 30 (1998) . . . . . . . . . 20 La Gloria v. United States, 56 Fed. Cl. 211 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 La Van v. United States, 382 F.3d 1340, 1352 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . 20 LaBarge Prods., Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim - iii -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 5 of 51

Ling-Temco-Vought, Inc. v. United States, 201 Ct. Cl. 135, 475 F.2d 630 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Louisville and Nashville R.R. Co. v. Cent. Iron and Coal Co., 265 U.S. 59 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 41 MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Mexican Intermodal v. United States, 61 Fed. Cl. 55 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Millmaster Intl. Inc. v. United States, 427 F. 2d 811 (Cust. Ct. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Nautilus Shipping Corp. v. United States, 141 Ct. Cl. 391 (1958) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Navajo v. United States, 58 Fed. Cl. 200, 213 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Northern Helex Co. v. United States, 197 Ct. Cl. 118, 125-26 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Osprey Pacific Corp. v. United States, 41 Fed. Cl. 150 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . 20 PCL Construction Services, Inc. v. United States, 41 Fed. Cl. 242, 252 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Pi Electronics Corp. v. United States, 55 Fed. Cl. 279 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Pittsburgh C.C. & St. L. Ry. Co. v. Fink, 250 U.S. 577 (1919) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 41 Rough Diamond Co. v. United States, 351 F.2d 636 (Ct. Cl. 1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Safeco Credit v. United States, 44 Fed. Cl. 406 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Short Bros., PLC v. United States, - iv -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 6 of 51

65 Fed. Cl. 695 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Shutte v. Thompson, 82 U.S. 151 (1872) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 42 Sprague Steamship Co. v. United States, 172 F. Supp 674 (Ct. Cl. 1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Tesoro v. United States, 58 Fed. Cl. 65 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Thomas v. United States, 125 Ct .Cl. 76, 80 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Trauma Service Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Union Pacific Railroad Co. v. United States, 847 F.2d 1567 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 United States v. Mezzanatto, 513 U.S. 196 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Whittaker Electronic Systems v. Dalton, 124 F.3d 1443 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

-v-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 7 of 51

STATUTES AND REGULATIONS 15 U.S.C. § 772 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 41 U.S.C. § 423 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 24 DAR § 1-1502(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 FAR § 15.402(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR 15.404-1(b)(2)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR § 15.802(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR § 15.804-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 FAR § 16.203-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR § 16.203-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 FAR 52.219-7(b)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 MISCELLANEOUS Restatement (Second) of Contracts § 178 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Nash and Cibinic, Formation of Government Contracts (3rd Ed. 1998) . . . . . . . . . . . . . . . . . . . 15

- vi -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 8 of 51

IN THE UNITED STATES COURT OF FEDERAL CLAIMS LA GLORIA OIL AND GAS COMPANY, ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES, ) ) Defendant. )

No. 02-465C (Judge Hewitt)

DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT In our moving brief, we demonstrated that Plaintiff La Gloria's Amended Complaint ("Compl.") attempted to clone the cause of action approved in MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992), which held that DESC's jet-fuel contract price escalation Clause B19.33 was inconsistent with the Federal Acquisition Regulation ("FAR"). However, in Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005), reh'g en banc denied, No. 04-5064 (Fed. Cir. Aug. 22, 2005) ("Tesoro"), the court of appeals abrogated MAPCO, holding that B19.33 had been legal all along. In doing so, the court held that, in order to pass muster under FAR 16.203-1, economic price adjustment ("EPA") clauses need only rely upon "industry-based prices," which "may be established by reference to either a catalog or market sources independent of the manufacturer or vendor." Id. at 1347. Accordingly, the court explicitly rejected the contractors' contention, repeated here, that B19.33 was illegal because it was based upon "indexes rather than on Plaintiff's own established fuel prices;" and because it used the Department of Energy's Petroleum Marketing Monthly ("PMM") as a price reference. In response to the court of appeals decision in Tesoro, La Gloria amended its complaint to assert that the contracting officer had an obligation to assure La Gloria was paid "fair and reasonable prices, pursuant to FAR 15.802(b) (currently codified at FAR § 15.402(a))" (see

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 9 of 51

Compl. ¶ 38); yet, still clung to allegations squarely rejected by Tesoro (that the escalation clause must be based upon La Gloria's own prices) or those that invoke requirements found nowhere in the law (that EPA clauses must be "designed or intended" to set prices and "reflect at least the fair market value of military fuel"). As our motion explains, these allegations do not invoke a proper legal test for EPA clauses and, therefore, fail to state a claim upon which relief can be granted. La Gloria's amended complaint also assails the EPA clauses at issue under the guise of common-law allegations which, although allegedly grounded in the parties' understandings and commitments, lack a factual basis, i.e., the essential unrequited promise or understanding that typically undergirds such allegations. However, these allegations' deficiency is unsurprising, because, as our motion explains, they are but thinly-disguised restatements of the Count I complaints, which, in turn depend upon MAPCO for their vitality. Accordingly, with regard to these allegations as well, there simply is no relevant fact that La Gloria possessed or envisioned that can transform these counts into authentic common law claims. Our moving brief also explained that, regardless of the above, La Gloria abandoned any claim it might have had, and forfeited any right it might have had to litigate any such claim, when it waited as many years as it did to file the necessary claims. Acknowledging this Court's earlier holding that La Gloria had not waived its right to present its FAR 16.203-1 claim, we respectfully suggest that, at least, La Gloria's common law claims and other assorted causes of action have been waived.1

Other judges of this Court have reached different conclusions concerning whether FAR 16.203-1 may be waived. Compare Hermes v. United States ("Hermes II"), 58 Fed. Cl. 409 (2003) (waivable), Calcasieu v. United States, 2003 WL 22049528, *13 (Fed. Cl.), and Sunoco v. United States, 59 Fed. Cl. 390, 398 (2004) (waivable, but deferred a final ruling, pending -2-

1

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 10 of 51

Finally, we demonstrated that La Gloria's complaints concerning DESC's small-business program are primarily facial attacks upon a legal program. La Gloria's opposing brief responds with a broadside attack upon the PMM itself, based upon incomplete quotations, innuendo, and a report from its consultants quibbling with the use of the escalation clause that the parties agreed to use. Absent from the report's theoretical discussion is a report of actual harm to La Gloria and an acknowledgment that the court of appeals has determined that the clause is legal, even if not to the liking of La Gloria's pricing advisors. La Gloria's efforts to resuscitate the complaint via common law complaints of mistake, misrepresentation, breach, frustration of purpose -- premised on the very same lack of "fair market value" argument -- and absent traditional allegations of agreement-based, unrequited expectations ­ fare no better. That is so, because a cause of action that has, at its root, the existence of a right that does not exist (the right to an EPA clause based upon a contractor's own prices, or one based upon "fair market value") does not become stronger by adding further elements of proof. La Gloria also asserts that it requires discovery (Pl. Br. 18). However, the items La Gloria intends to discover concern its own case and other matters that are untethered to legal causes of action and, as we have explained in our RCFC 56(f) response, are not properly supported. Accordingly, La Gloria is not entitled to discovery and cannot plead lack of discovery to prevent the termination of this litigation.

additional discovery) with Navajo v. United States, 58 Fed. Cl. 200, 213 (2003), Tesoro v. United States, 58 Fed. Cl. 65 (2003), and Gold Line Refining v. United States, 54 Fed. Cl. 285 (2002) (not waivable). In Tesoro, the waiver question was certified for interlocutory review, which, although accepted by the Federal Circuit, was not reached. See also Mexican Intermodal v. United States, 61 Fed. Cl. 55 (2004) (citing Hermes II, Court held that contractor waived illegal auction complaint). -3-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 11 of 51

FACTS La Gloria continues to rely upon the same partial quotations and quaint charges of Government scheming pedaled in its Amended Complaint. To this, La Gloria adds a consultants' opinion concerning the performance of the PMM, also built-upon unfounded premises, and a conclusory statement from a La Gloria official declaring that La Gloria intended to receive legal prices and fair market value.2 Pl. App. 640. In addition to being untrue, these allegations concern the relative merits of various price references -- a discussion best left to economists and fuel-industry analysts -- not the parties to a contract years after their contracts have been fully performed. In general, La Gloria's logic-bending story is that: DESC knew that its use of the PMM was corrupt; DESC had concluded that the price of fuel would, in the future, move in one direction; the PMM and all of the references DESC used would report movement in the opposite direction; that movement always would favor DESC; and, somehow, the fuel industry never would detect this or, upon learning it, would bid eagerly nonetheless. La Gloria's story begins with the Energy Information Administration ("EIA"), the author of the PMM. Among La Gloria's favorite allegations and a pillar of its complaint is that the EIA

Notably, La Gloria declines to address contracts containing other than PMM price references. Pl. Br. 3, n. 5. It also declines to address our PFFs concerning those references, citing RCFC 56(f). La Gloria cannot seriously assert that the other references are not market-based price sources or that it requires discovery to learn that fact. In fact, while disagreeing that a DESC study supported the use of PMM, La Gloria's brief acknowledges that the study "supported using the commercial price references Platts and OPIS to make price adjustments." Pl. Br. 5. Indeed, La Gloria's consultants use Platts to assess the market. Pl. App. 625 ¶ 52. Platts' description of its publication (not to mention La Gloria's failure ever to protest its use) also suggests that there can be no disagreement over this matter. See Defendant's Supplemental Appendix ("SA") 47, which is attached to our motion to dismiss. Indeed, La Gloria used Platts to value the fuel in pricing its claims. Def. Ex. 43 (attached to our motion for partial summary judgment) at 18-22. Accordingly, there is no basis for further proceedings concerning paragraph 25 of the Amended Complaint, which alleges that "[o]n information and belief, DESC also knew that some of the other indexes it used to set or adjust prices were not appropriate for these purposes." -4-

2

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 12 of 51

has acknowledged that the PMM was not "intended to be an index that is used for setting prices." Pl. PFF 16. The implication is that the PMM is unsuitable or illegal for use as a price reference. What La Gloria avoids quoting is the testimony of the EIA's Dr. Cook on that point, which was: We're not opposed to [the PMM] being used for that purpose. We don't, per se, collect the data and justify its collection with OMB for that specific use. We justify its collection on the basis of its general value in measuring actual average prices, wholesale and retail, for everything from crude oil from the wellhead to the pump for state energy offices or various federal agencies, and most especially for Congressional committees for analysis purposes, forecasting, market tracking, all those uses. It's, it's, it happens to be useful, according to oil companies and DFSC for indexing, as well, but we didn't specifically design it for that. Defendant's Second Supplemental Appendix ("SA2") (attached to this brief) at 5-6 (Tr. 632, l. 14). La Gloria also suggests that EIA and DESC cooperated surreptitiously to tilt the PMM in DESC's favor, and that DESC breached an obligation to disclose that it worked with EIA "to see that our needs are satisfied." Pl. Br. at 40, n.47; see also Pl. Br. at 4, n.8. However, the document upon which the assertion relies, Pl. App. 100, is taken out of context. As La Gloria's next document explains, DESC asked that EIA employ a "phased-in" approach to a new PMM format EIA was developing. DESC suggested that this could take the form of a dual reporting scheme in which EIA proceeded with its new method, but also included the old method until existing DESC contracts relying on the old method expired. Pl. App. 101-02. This hardly affected the contracts at issue or implicated a legal duty owed to Government fuel suppliers. Lacking EIA's condemnation, La Gloria relies upon a litigation consultants' generalized assessment of the PMM, to argue that the PMM is illegal because it does not "reflect fair market value" (Pl. Br. 9), suffers from an "index number problem" (Pl. Br. 13), and does not measure -5-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 13 of 51

"military jet fuel." Id. at 14. As we explain in our response to La Gloria's proposed findings, the difficulty with the fair market value allegation (in addition to its lack of relevance to the parties' actual price agreement) is the fact that it depends upon the assumption that the "market" is represented only by data published in Platts. Platts publishes spot market price assessments. Def. Exh. 43 at 18-22. The PMM reports all sales. SA2 at 12 (item III) and 19 (item 23). A "spot" market is "a market where goods are traded for immediate delivery." SA2 at 36 (Platts Glossary); see also SA2 at 39 (NYMEX Glossary (spot is a "[t]erm which describes a one-time open market cash transaction, where a commodity is purchased `on the spot' at current market rates. Spot transactions are in contrast to term sales, which specify a steady supply of product over a period of time")). La Gloria's "index number problem" allegation also is untethered from the parties' contracts, and is not supported by the evidence. The index number problem refers to an "index" that contains two or more products whose relative prices or quantities are changing. The basis for this argument is La Gloria's consultants' assertion that the PMM "uses current-period volume weights; that is, the reported sales prices are weighted by the actual sales volumes of different products and in different locations in each period." Pl. App. 615. The consultants also assert that "the price data reported in the PMM often represent an aggregate of multiple different fuels sold across many locations." Id. at 616. (Apparently, the consultants mean the product mix changes). However, as EIA's Mr. Bournazian explained to La Gloria's counsel, during a deposition in La Gloria v. United States, No. 02-465 (Fed. Cl.), the price data at issue is not an index, which is "a ratio of two numbers." SA2 at 8. Moreover, the PMM does not mix fuel products. As the contracting officer has explained, "PMM price averages are based on petroleum product sales information reported to -6-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 14 of 51

DOE and grouped by product, type of sale, states, and by geographic regions." Def. Exh. 1 (Walker Decl. ¶ 4). The EIA Form 782A, which collects that information, confirms as much. SA2 at 9-20. It provides strict requirements that require the segregation of product sales reports. Thus, kerosene-based jet fuel is reported on one line of the form, while different types of gasoline and diesel fuels are reported on others.3 Even the article relied upon by La Gloria's consultants does not indicate fuel products were mixed. In fact, it studies the different types of fuel separately, including "U.S. Kerosene-Type Jet Fuel." SA2 at 22-7. La Gloria's quarrel with the type of fuel references goes well beyond the test of a "market based" EPA clause announced in Tesoro, and also is unwarranted. The contracts at issue were for the sale of JP-8. Def. Exh. 1 ¶ 9. The PMM explicitly requires the report of JP-5 and JP-8 sales on line 15 of the PMM report form (SA2 at 10 (Line 15) and 19 (Item 13)), and that is the item to which the JP-8 contracts referred. See, e.g., Pl. App. 676 ("Reference Price Tabulation"). Lacking any proof of the PMM's inherent illegality, La Gloria asserts it was misled, because DESC knew that the PMM moved as much as two cents per gallon out of step with other market references, would not protect suppliers, and failed to disclose that. Compl. ¶¶ 16-18; Pl. Br. 5-7. For example, the complaint alleges that a 1987 DESC study concluded that "PMM did not protect against market fluctuations and did not ensure that the prices DESC paid for military fuel under the long-term contracts reflected at least fair market value." Compl. ¶ 18. See also Thus, this reporting is different than that which might be encountered with a true "index," such as the Consumer Price Index, which is based upon a "market basket" of different items. See, generally, http://www.bls.gov/lpc/lprdho95.pdf (Bureau of Labor Statistics paper on the index number problem); http://www.imf.org/external/np/sta/tegppi/ch15.pdf (International Monetary Fund paper addressing the question of "How exactly should the microeconomic information involving possibly millions of prices and quantities be aggregated into a smaller number of price and quantity variables? This is the basic index number problem"). -73

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 15 of 51

Pl. Br. 5 (the "study supported using the commercial price references Platts and OPIS to make price adjustments -- not the PMM"). In fact, although the study found features to recommend both the PMM and trade publications (Def. PFF 15-21), it concluded that DESC should continue using PMM prices, but change the reference month, in order to use a reference price that had been published and was available at the time bidders were submitting their offers. PFF 21.4 Avoiding the 1987 study's actual conclusions, La Gloria relies upon out of context quotations taken from the study. For example, La Gloria cites a supplier's statement that "we never know if we have made or lost money when you (D[E]SC) lift a cargo." Pl. Br. 6. La Gloria fails to explain that the comment concerned the interim-final price adjustment issue, not the use of PMM per se. See SA at 21, Background. But, the disparity between interim payments and final payments was well known by both parties, i.e., that various interim references (those used to provide a price adjustment while final PMM numbers for the month were being compiled by EIA) yielded different figures than the PMM and could over or under-predict the final price adjustment due. For that very reason, the contracts with PMM EPA clauses provided for final price adjustments, to be made when the applicable PMM prices were published. Such a two-step payment procedure would have been unnecessary if the references were identical. Thus, La Gloria knew from its many interim and final payments that reference prices differed.5 See PFF
4

La Gloria's allegation that "DESC did not disclose this study to its suppliers" is undercut by the very evidence it offers on that point. See Pl. App. 596 (handwritten note on cover memorandum to "proposed final draft" shows that some suppliers were canvassed on the proposal to continue using PMM prices with an earlier base reference price. ("Option II industry survey-Barrett, Pride, Chevron, Dia. Sh.-great idea! Calcasieu-indifferent Sun, West. Pet, Gladieux, Peerless, AIRI-won't hurt-might help")).
5

La Gloria attempts to infuse some significance to the difference between the PMM and other price references by asserting that DESC required its suppliers to submit bids to the one tenthousandth of a cent. DESC did not "require" that offerors ". . . submit bids to sell military fuel to the one-ten-thousandth of a cent ($.000001)." Compl. ¶ 16; Pl. Br. 5. DESC only evaluated -8-

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 16 of 51

12.6 La Gloria also cites a DESC statement that the use of trade journals "would cost DESC money" and that there would be "market risk" if adjustments were based on trade journal prices for "jet kerosene." Pl. Br. 6. But, the quotations were based upon potential flaws with the trade journals, not advantageous flaws in the PMM. The "market risk" stemmed from DESC's analysis that trade journals reported unrealistically high prices ("price stickiness") during periods of declining prices. PFF 19; SA 23. Another "market risk" noted was the fact that only a single trade journal reported "jet kerosene" prices, and that it might discontinue publication. SA 23. To round out its conspiracy tale, La Gloria alleges that "seven years later, in 1994, senior officials at DLA learned of DESC's 1987 study, and, upon review of the study, directed DESC to stop using PMM to set military fuel prices." Compl. ¶ 20. However, as we explained in our response to La Gloria's PFF 10, it was DESC, not DLA, which, in 1994, first sought a FAR deviation to begin using trade publication prices for price adjustments. PFF 22, 23. DESC did so, not because it had concluded that refiners were not receiving "fair market value," but for some of the same reasons that had been set out in the 1987 study, including the elimination of the need for interim price adjustments, the wide acceptance of trade publication prices by industry, and the relative simplicity of the use of trade publication prices. PFF 23. The apparent basis for La Gloria's theory is the deposition testimony of Lawrence Ervin that the change from PMM prices to trade journal prices "was made in response to some pressure from headquarters offers to that decimal place. Bidders were free to, and often did, submit bids to fewer decimal places. See, e.g., Pl. App. 654 (two places). La Gloria's "Response to Defendant's Proposed Findings of Uncontroverted Fact" denies PFF 12, "pursuant to Rule 56(f)." La Gloria cannot seriously claim a need for discovery regarding whether its contracts contained interim and final price adjustments. In fact, its own Appendix contains a contract specifying them, precisely as set forth in PFF 12. See, e.g., Pl. App. 673-77. -96

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 17 of 51

to do things differently." SA 36. However, as he explained, the "pressure" was to "produce substantial savings to the taxpayer." Id; see also Def. Response to PFF 11. La Gloria cannot explain how DLA would expect to produce "substantial savings to the taxpayer" while at the same time eliminating the use of PMM, which, according to La Gloria, underpaid suppliers. ARGUMENT I. DESC's EPA Clauses Are Authorized by FAR 16.203-1 In Count I, La Gloria asserts: (1) that the clauses were illegal because there were not based upon "Plaintiff's own established fuel prices" (Compl. ¶ 36); (2) that the clauses were illegal because they were "not market-based, were not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel" (Compl. ¶ 37); and (3) that the contracts were awarded in violation of FAR § 15.802(b) (now codified at FAR 15.402(a)) (contracting officer's duty to review price reasonableness) (Compl. ¶ 38). A. EPA Clauses Need Not Be Based Upon La Gloria's Own Prices

As explained in our moving brief, La Gloria explicitly rejected La Gloria's first argument, holding that the theory that "FAR 16.203-3 requires that adjustments be based only on changes in the prices charged by individual contractors eviscerates the regulatory meaning of the term `established prices' and the policy reasons for using it." Id. Summarizing, the court explained that: "According to the interplay of all four sections of FAR § 16.203, a `contractor's established price' may be established by reference to either a catalog or market sources independent of the manufacturer or vendor." Id. at 1347 (emphasis added). La Gloria's only rebuttal to this point is its assertion that the Federal Circuit's decision Tesoro is wrong, and that Barrett Refining v. United States, 242 F.3d. 1055, 1060 (2001), provides the proper rule of decision. Pl. Br. 21, n. 26. However, that argument was examined in - 10 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 18 of 51

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

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

- 11 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 19 of 51

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

La Gloria reads too much into the comment in our appellate brief that we did not consider the appellate court's review to be a "beauty contest" of individual price references. Indeed, we did not and do not here, because it is not for the courts to determine whether one EPA clause is better than another from a business, pricing or economic standpoint. That choice is the agency's and can be voided only upon a finding that it is illegal. In any event, our argument does not dictate how the court itself actually decided the appeal. - 12 -

7

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 20 of 51

Even if the court intended to effect a sub silentio remand on the question of whether a PMM-based clause was a market-based clause, the FAR itself requires nothing more than the clause be "market-based" ­ not that it move with Platts or that it meet any particular standard of precision. Indeed, La Gloria offers no new legal standard. Rather, it simply seeks to remove the unambiguous standard the parties agreed upon years ago.8 And, rooted as it is in the post hoc arguments of economists and industry-watchers, La Gloria's approach relegates the parties to observers, not makers, of their agreements. Nonetheless, the complaint asserts that the PMM clauses could not be legal, because they were "not market-based, were not designed or intended to be used to set or adjust prices, and did not reflect at least the fair market value of military fuel" (Compl. ¶ 37). As we noted in our moving brief, these standards cannot be found in the regulation or in Tesoro. Rather than defend the sufficiency of these proffered legal tests, La Gloria relies upon the opinion offered by its consultants concerning an appropriate price reference. The difficulty with relying upon opinions, even if taken as fact, is that, absent a legally-cognizable cause of action, the facts are immaterial to a court of law. In sum, the materiality of the opinions rests upon the degree to which they can plumb the simple regulatory requirement that an EPA clause be "market-based." But, there is little room for doing so. Indeed, in Tesoro, the court was able to decide the legality of the DESC clause with little more than the legal description of the PMM. Following the appellate court's lead, our

8

La Gloria's reference to Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988), does not supply that standard either. At issue there was a Defense Department FAR supplement not applicable here, which supplied specific criteria for cost index-type clauses. Indeed, the existence of such a detailed provision suggests that, if the agencies had wished to further regulate EPA clauses to the degree La Gloria suggests, they would have done so. Where the regulating authorities having stayed their hand, the courts should not regulate. - 13 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 21 of 51

moving brief established that the PMM was "market-based" upon the same basis. Thus, we noted that a statute requires refiners and sellers of petroleum products to report actual sales data to DOE. 15 U.S.C. § 772. It is this data upon which the PMM is based. See Def. PFF 11. Because the prices are established in sales between fuel sellers and buyers, it surely can be said that the EPA clause was based upon market prices, and satisfies the FAR 15.804-3 requirement that market prices be established in the ordinary course of business between buyers and sellers free to bargain. C. La Gloria's FAR 15.802(b) Allegation Does Not State A Cause of Action

In our moving brief, we demonstrated that La Gloria's effort to root its core complaint in a violation of FAR § 15.802(b) (currently codified at FAR 15.402(a)), does not state a claim upon which relief can be granted, because it does not create an enforceable right for contractors.9 See Short Bros., PLC v. United States, 65 Fed. Cl. 695, 764-65 (2005) ("The FAR provisions cited by La Gloria purport to do no more than to provide internal government direction. For example, FAR § 15.802 (1993), entitled "Policy," only requires that the contracting officer "[p]urchase supplies and services from responsible sources at fair and reasonable prices [.]" FAR § 15.802(b) . . . It does not afford a judicial remedy").10 We further explained that that provision was found in that part of the regulation that was concerned with obtaining adequate price competition, so that the Government was assured of paying a reasonable price. FAR 15.402(a) provides that the contracting officer "must- (a) Purchase supplies and services from responsible sources at fair and reasonable prices."
10 9

La Gloria's effort to distinguish Short Bros. is limited to noting that it was not limited to the proposition for which we cite it, and that plaintiff sought a different contract type. Nonetheless, the holding we cited is correct, and the plaintiff in Short Brothers also sought money, as La Gloria does here. La Gloria seeks to distinguish All Phase Environmental, on the ground that the GAO did not, among other things, discuss the purpose of FAR 15.402. To the contrary, the GAO noted that the agency's concern was in not paying more than warranted. - 14 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 22 of 51

To address our analysis, La Gloria relies upon the regulation, the dictionary (definition of "fair"), and guidance to contracting officers and auditors found in the Armed Services Pricing Manual ("ASPM"), which suggests that a price should be fair to both sides. However, even if La Gloria were entitled to bring a FAR 15.402-based claim to this Court, the complaint still fails to state a claim, because FAR 15.402 concerns bid and award prices ­ not adjusted prices, which are calculated during contract performance, based upon the movement of the EPA clause. Accordingly, the ASPM refers to "price" in the singular and to "current market conditions," not subsequent adjusted prices. As we have explained, the contractors set their offer prices and no contractor has suggested that its offer prices were unreasonable. In any event, the ASPM guidance, the dictionary's definition of fairness, and La Gloria's other secondary references amount to nothing more than good advice for contracting officers interested in working with contented, motivated contractors, who are not looking to file claims.11 However, they do not establish the existence of an enforceable interest. Moreover, to suggest that the FAR, which was issued against a backdrop of longestablished principles of commercial law (including the principle of unilateral mistake, which the FAR addresses), intended to add a cause of action not rooted in mistake is as preposterous as it is illogical.12 Indeed, if, as La Gloria argues, the contracting officer's obligation to assess price Indeed, the declarations in the record submitted by the contracting officer, John Walker (Def. Exh. 1 ¶ 8) and the DESC Price Analysis and Pre-negotiation Briefing Memoranda (Pl. App. 144-70, 206-78) explain how prices were determined fair and reasonable. The undisputed facts show that prices were determined fair and reasonable based upon competition and, in many cases, comparison with market prices. See FAR 15.404-1(b)(2)(i) ("normally, adequate price competition establishes price reasonableness"). See Nash & Cibinic, Formation of Government Contracts (3rd Ed. 1998) at 1279 ("The primary focus of these requirements is to ensure that the Government does not pay unreasonably high prices," although they caution that "prices that are unreasonably low must also be dealt with before an award is made, because they could be evidence of mistake, non-responsibility, lack of - 15 12 11

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 23 of 51

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

In our moving brief, we established that the misrepresentation count (DESC "misrepresented and otherwise failed to disclose that PMM and other indexes were not designed or intended to be used to set or adjust prices and did not reflect at least fair market value" (Compl. ¶ 53)) should be dismissed, because there is no such applicable rule for EPA clauses. La Gloria's brief does not suggest one or that the Government actually misrepresented anything. Instead, La Gloria asserts that, because the complaint alleged a "misrepresentation," for the purposes of our motion, it is an established fact. Pl. Br. 34-35. However, misrepresentation is an allegation of law, which we need not accept. In fact, the entire point of our motion is to challenge it. Accordingly, absent any material fact pertaining to an actual misrepresentation, that count now must be dismissed. understanding of the work, or a buy-in"). La Gloria's own argument makes this connection, asserting that it is grounded in a misrepresentation. Pl. Br. 33.
13

La Gloria acknowledges that its claim cannot stand on FAR 15.402 alone, when it argues that "the determination of price reasonableness was, in essence a sham: that DESC knew that the PMM did not reflect the marketplace, [and] misrepresented what it knew for its own benefit." Pl. Br. 33 (emphasis added). In other words, as La Gloria's misrepresentation count goes, so goes its FAR 15.402 count. As we have explained, La Gloria has yet to put a fact in evidence that amounts to a misrepresentation or establishes its fanciful conspiracy theory. - 16 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 24 of 51

B.

Count III ("Breach of Contract") and Count IV ("Implied-In-Fact Contract")

In our moving brief, we established that La Gloria's breach of contract count and implied-in-fact contract counts should be dismissed, because there is no ground for striking the parties' own unambiguous agreement. We also established that an "implied-in-fact contract cannot exist if an express contract already covers the same subject matter." Trauma Service Group v. United States, 104 F.3d 1321, 1326 (Fed. Cir. 1997). Other than asserting that the contract "expressly" requires the payment of "fair market value," La Gloria cites no language to contradict the unambiguous language of the contract's pricing clause. Instead, La Gloria attempts to oust that clause obliquely, reasoning that the Spearin doctrine (Government warrants that design specifications will yield satisfactory result) and principles of contract reformation somehow trump a contract's unambiguous language.14 But, the plain language of the contract's pricing clause does not permit such machinations. We do not necessarily disagree that if, as a matter of law, the pricing clause were stricken, that reformation could be available. Nor do we necessarily disagree that the remedy would include reviewing the parties' dealings to search for an implied arrangement; but, until this contract is voided through some other cause of action, these counts unnecessarily bloat the complaint.

14

La Gloria alludes to the "implied" promise to pay fair market value found in Barrett, 242 F.3d 1060. Pl. Br. 40. However, in that case, the contract was assumed to be invalid, and the court was looking for evidence of an implied in fact contract. Here, should we reach such a remedy phase, we would expect the parties to adduce evidence concerning the fact of any such implied agreement. Absent agreement upon what "fair market value" means, it is unlikely the parties are in any position to agree upon what, specifically, that might be. Notably, the denouement of Barrett was the trial court's finding that, based upon the presumed implied-in-fact agreement, the Government overpaid for three of the four contracts at issue. Barrett v. United States, 50 Fed. Cl. 567, 569-70 (2001). We understand that La Gloria would dispute the existence of such an implied-in-fact agreement. - 17 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 25 of 51

C.

Count V ("Failure of Consideration and Frustration of Purpose")

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

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

- 18 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 26 of 51

contract provision that was never alleged to operate or be administered or interpreted improperly.15 In sum, La Gloria's mistake pleading lacks a factual premise. III. La Gloria's Takings Claim Should Be Dismissed La Gloria continued assertion that it may pursue a taking-based remedy is based upon its allegation that "La Gloria alleges that the contracts were unlawful, and thus DESC physically possessed fuel to which it had no right." Id. at 50.16 However, contracts fully performed are not necessarily void, which La Gloria's argument implies. Instead, "the courts have variously sustained the contract, reformed it to correct the illegal term, or allowed recovery under an implied contract theory; the courts have not, however, simply declared the contract void ab initio." American Telephone and Telegraph Company v. United States, 177 F.3d 1368 (Fed. Cir. 1999 (en banc). Here, neither party contends that the contract is void. In truth, both parties rightfully took ownership of the consideration freely exchanged under the fuel supply contracts; both parties received exactly that for which they contracted; and these voluntary transactions had none of the aspects of a physical or regulatory taking. In fact, a contract constitutes a right to payment of damages in the event of a failure of performance. As long as the right to such

15

La Gloria's reliance upon Beta Systems does not supply its missing factual ingredient. Not only are the facts of that case not suggested here by any evidence, that case involved a DFAR supplement and specific EPA clause criteria not applicable here.
16

La Gloria's reliance upon Castle v. United States, 148 Fed. Cl. 187 (2000) for the proposition that a contractor may maintain a takings claim, even when its rights have been "exclusively created by contract" misses the point. This is not a situation where the Government has eliminated right created by contract as, for example, by legislation. This complaint presents a contract dispute and, as Castle confirms, where the property owner has "available" contractbased claims, its "expectations with regard to their property interests have not been contravened and the value of those interests have not been diminished." Id. at 217. - 19 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 27 of 51

damages remains intact, as it does here, no taking has occurred. See, e.g., La Van v. United States, 382 F.3d 1340, 1352 (Fed. Cir. 2004). La Gloria's argument that its constitutional claim is "substantially identical" to that in Osprey Pacific Corp. v. United States, 41 Fed. Cl. 150 (1998), also cannot bear scrutiny. Pl. Br. 48. Among other important distinctions, plaintiff in Osprey was a third party to the contract under which the Government asserted ownership of the boat, and plaintiff did not willingly deliver its property to the Government for remuneration, as did La Gloria. Nor is it true that "courts have consistently permitted [a] contractor to pursue takings claims in addition to breach of contract claims" when the contractor is dissatisfied with the price it received. Id. at 51. In the first case cited by La Gloria to support the latter assertion, Pi Electronics Corp. v United States, 55 Fed. Cl. 279 (2003), the property right allegedly "taken," through disclosure, was a trade secret, which plaintiff did not agree to convey to the Government. Id. at 281-83. La Gloria, by contrast, freely passed title to its fuel for consumption by the military. In Armstrong v. United States, 364 U.S. 40 (1960), also cited by La Gloria, the plaintiffs were not Government "contractors," but subcontractors who asserted liens in the subject of the contract. Those plaintiffs were not attempting to convert contract claims into takings claims. In Scan-Tech Security v. United States, 46 Fed. Cl. 326 (2000), the Court held sensibly that "[i]f the express writings of the parties encompass[ed] the [Government's] right to possession" ­ as DESC's fuel contracts undeniably did ­ plaintiffs' "takings claim should be dismissed" and replaced with contract claims. Id. at 332. Similarly, in Integrated Logistics Support Systems, Int'l v. United States, 42 Fed. Cl. 30 (1998), the Court could not "conclude that the contract conferred expressly upon defendant rights of possession, use, ownership, and alienation in the materials . . . ." Id. at 35. No such ambiguity exists in the contracts at issue. - 20 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 28 of 51

La Gloria was not coerced to bid for or perform these contracts, and the assertion that DESC "abrogated La Gloria's rights" by awarding lucrative contracts in a proprietary capacity refutes itself. Pl. Br. 47 n. 52. No authority supports the argument that such free exchanges of a commodity for money in a competitive market can be recharacterized, years after the fact, as a compensable Fifth Amendment taking if the private seller can find some way to undo what both parties understood to be the contracts. Further, even if La Gloria were to prevail, as the Federal Circuit held in Barrett, only the pricing mechanism would be stricken. The remainder of the agreements, including the Government's right to receive the fuel, would stand, or would, at a minimum, be "implied in fact" from the parties' conduct. Accordingly, there is no basis upon which to allege the fuel was "taken" within the meaning of the Constitution. IV. La Gloria's Small Business Program Complaints Must Be Dismissed A. The Court Lacks Jurisdiction To Entertain The Fifth Amendment Complaint

In our moving brief, we demonstrated that this Court possesses no jurisdiction to entertain claims based upon the Fifth Amendment's equal protection clause. La Gloria claims to skirt that rule, because it has "express contracts" tainted by the award. Pl. Br. 53-54. But, here, La Gloria has no award based upon any purported equal protection violation.17 Moreover, the test is not whether a contractor has a contract, it is whether the contract "underlies its claim." Trauma Service Group, 104 F.3d at 1324. Here, La Gloria's contract is, at best, incidental to its claim, which concerns the award of set-aside portions it presumably was not awarded. By contrast, the cases upon which La Gloria relies, such as Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983), Gould v. United States, 67 F.3d 925 (Fed. Cir. 930 (Fed. Cir.
17

A further symptom of the sheer creativity of the complaint is La Gloria's failure to include any evidence that the premise of its argument has any basis in fact, such as a declaration or document explaining how the purported violation affected its contracts. - 21 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 29 of 51

1995), and Trauma Service Group, concern claims that contract terms (including their proper interpretation in light of applicable statutes or regulations) were illegal or supported the requested relief. See, e.g., Trauma Service, 104 F.3d 1321, 1325 ("TSG contends the MOA is an express contract"); Gould, 67 F.3d at 929 ("The illegality in this case, if there is one, turns on questions of fact and the terms of the contract in dispute"); LaBarge Prods., Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) (pricing provision formed in violation of an auction procedure was reviewable). Here, La Gloria has failed to identify any of its contract terms that were written in violation of any statute or regulation. La Gloria also insists that the "Federal Circuit already has expressly held that there is Tucker Act jurisdiction over this precise type of claim." Pl. Br. 54 (citing Rothe Dev. Corp. v. United States Dept. of Defense, 262 F. 3d 1306 (Fed. Cir. 2001)). However, this is not a Rothe claim. Rothe was a disappointed bidder. It did not seek damages arising from a contract, nor did the court assert its jurisdiction on that basis. Rothe alleged that the application of a 10 percent evaluation preference to a small disadvantaged business bid deprived Rothe of obtaining a contract. Thus, it was upon its bid protest jurisdiction (then based upon the premise that, "[u]nder the Tucker Act an unsuccessful bidder can recover its bid preparation costs from the Government on the theory that failure to evaluate a `bid honestly and fairly' breaches an implied-in-fact contract of fair dealing") that the court entertained the appeal. Rothe, at 1317 (citing Coflexip & Servs., Inc. v. United States, 961 F. 2d 951, 952-953 (Fed. Cir. 1992)). By contrast, La Gloria's claim alleges that the Fifth Amendment (which, if anything, would have deprived La Gloria of a contract) entitles La Gloria to recover damages for supplies that it provided pursuant to an express contract. Pl. Br. 54-5 (the Fifth Amendment claim "relates to its express contracts with DESC"). Rothe provides no grounds for this Court's jurisdiction. - 22 -

Case 1:02-cv-00465-ECH

Document 81

Filed 05/26/2006

Page 30 of 51

La Gloria's claim also lacks a proven factual premise. Its stated premise is that the "contracts contained an illegal term that resulted in it receiving less than fair market value for the fuel it sold to DESC." Pl. Br. 55. However, La Gloria identifies no term of its contract that violates the Fifth Amendment. That is not surprising, because the preference clause is inoperative in a contract awarded to a contractor, such as La Gloria, that does not obtain the evaluation preference. For firms that actually obtain the preference, the relevant clause requires that the resultant contract be performed by a qualifying minority owned concern. See, e.g., SA 5 ("SDB concerns must supply petroleum product from an SDB manufacturer, who complies with the petroleum product size standards at 13 CFR 121, to be eligible for the evaluation preference"). B. DESC's Small Business Program Is Not Improper La Gloria argues that DESC's match price method for conducting partial small business set aside procurements violates the Office of Federal Procurement Policy ("OFPP") Act, 41 U.S.C. § 423, the FAR "prohibition" on auction techniques, and the FAR's method of awarding the set-aside portion of the procurement separately. Pl. Br. 56-64. We demonstrated in our moving brief that the DESC program follows published guidance, did not constitute a prohibited "auction," and had no effect upon La Gloria. An "auction" is the "direct bidding of price between two competing offerors." DGS Contract Servs., Inc. v. United States, 43 Fed. Cl. 227, 239 (1999). The contracting officer's declaration explains that there is no such auctioning.18 Rather, the small business offeror is given the opportunity to match the price the Government otherwise would pay, adjusted for the transportation cost the Government would incur. The offeror agrees to match or not. If it does,
18

The declaration is supported by the relevant clause