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

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 1 of 50

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 MOTION TO DISMISS THE AMENDED COMPLAINT AND SUPPLEMENTAL APPENDIX

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: HOWARD M. KAUFER Assistant Counsel Office of Counsel Defense Energy Support Center Ft. Belvoir, VA DONALD S. TRACY Trial Attorney Defense Supply Center Richmond, VA STEVEN J. GILLINGHAM Assistant Director Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 1100 L Street, N.W., 8th Floor Washington, D.C. 20530 Tele: (202) 616-2311 Fax: (202) 353-7988 Attorneys for Defendant March 31, 2006

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 2 of 50

TABLE OF CONTENTS STATEMENT OF THE ISSUES ................................................................................................... 1 STATEMENT OF THE CASE ...................................................................................................... 3 I. Nature Of The Case ............................................................................................... 3

SUMMARY OF MATERIAL FACTS .......................................................................................... 4 I. II. La Gloria's Contracts ............................................................................................. 4 DESC's Small Business Set-Aside Program ......................................................... 6

SUMMARY OF THE ARGUMENT ............................................................................................ 7 ARGUMENT ............................................................................................................................... 10 I. II. Standard of Review .............................................................................................. 10 DESC's EPA Clauses Are Authorized by FAR 16.203-1 ................................... 11 A. B. EPA Clauses Need Not Be Based Upon The Contractor's Own Prices .. 11 La Gloria's Fair Market Value Allegations Do Not State A Cause of Action ....................................................................................................... 16 La Gloria's FAR 15.802(b) Allegation Does Not State A Cause of Action ....................................................................................................... 17 Summary .................................................................................................. 20 La Gloria Cannot Demonstrate Harm ...................................................... 21

C.

D. E. III.

La Gloria's Alternative Illegality Theories In Counts II-VI Must Be Dismissed 22 A. B. C. D. E. Count II (Misrepresentation) .................................................................. 22 Count III ("Breach of Contract") ............................................................. 23 Count IV ("Implied-In-Fact Contract") ................................................... 24 Count V ("Failure of Consideration and Frustration of Purpose") .......... 24 Count VI (Mistake) .................................................................................. 25 -i-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 3 of 50

1. 2. IV. V.

Mutual Mistake ............................................................................ 26 Unilateral Mistake ........................................................................ 27

Count VII (Takings Allegation) Fails To State A Claim ..................................... 29 La Gloria's Complaints Concerning DESC's Small Business Program Must Be Dismissed ....................................................................................................... 31 A. The Court Lacks Jurisdiction To Entertain The Fifth Amendment Complaint ................................................................................................ 31 DESC's Small Business Does Not Constitute An Auction ..................... 32 The Court Lacks Jurisdiction To Entertain The Complaint That DESC's Small Business Program Violates FAR 52.219-7, Which It Does Not .. 34

B. C.

VI.

Waiver and Estoppel Bar La Gloria's Claims ..................................................... 35

CONCLUSION ............................................................................................................................ 39 INDEX TO THE SUPPLEMENTAL APPENDIX Declaration of John R. Walker ...................................................................................................... 1 DESC Clauses ............................................................................................................................... 4 FAR Part 15, 15.610 Written or oral discussion ............................................................................ 8 52.219-7 Notice of Partial Small Business Set-Aside (Oct. 1995) .............................................. 10 Notice of Evaluation Preference for Small Disadvantaged Business Concerns (Jun. 1997) ....... 11 Notice of Partial Small Business Set-Aside With Preferential Consideration for Small Disadvantaged Business Concerns Clause (May 1995) .................................................. 14 DFSC Memo, re: Base Reference Date for EPA References Tied to Petroleum Marketing Monthly (PMM), dated January 6, 1986 ........................................................ 18 Defense Logistics Agency Inter-Office Memorandum, dated December 2, 1987 Subject: Economic Price Adjustment in the Domestic Bulk Program ............................ 20 Excerpt of Deposition of Lawrence Ervin, dated December 1, 2003 .......................................... 27

-ii-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 4 of 50

Request for Class Deviation and Permanent Coverage in DLAR, dated May 12, 1995 ............. 37 Comptroller General Opinion re: DFSC Small Business Set-Aside Procurements ..................... 42 Excerpt from Platts web site ........................................................................................................ 47

TABLE OF AUTHORITIES CASES All Phase Environmental, Inc., B-292-919.2, 2004 CPD ¶ 2004 WL 437450 ..................................................................... 19 Am. Tel. & Tel. Co. v. United States, 177 F.3d 1368 (Fed. Cir.1999) ....................................................................................... 19 Am. Tel. & Tel. Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) ............................................................................... passim American Commerce National Bank v. United States, 38 Fed. Cl. 271 (1997) .................................................................................................... 29 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ........................................................................................................ 10 Atlas Corp. v. United States, 895 F.2d 745 (Fed. Cir. 1990) ........................................................................................ 26 Barrett Refining v. United States, 242 F.3d. 1055 (2001) ..................................................................................................... 24 Bernaugh v. United States, 38 Fed. Cl. 538 (1997), aff'd., 168 F.3d 1319 (Fed. Cir. 1998) (table) .......................... 30 Brookhard v. Janis, 384 U.S. 1 (1966) ............................................................................................................ 36 Calcasieu v. United States, 2003 WL 22049528 ......................................................................... 37 CCD Distributors, Inc. v. U.S., 69 Fed. Cl. 277 (2006) .............................................................. 16 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ........................................................................................................ 10

-iii-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 5 of 50

Conley v. Gibson, 355 U.S. 41 (1957) .......................................................................................................... 11 DGS Contract Services, Inc. v. United States, 43 Fed. Cl. 227 (1999) .................................................................................................... 33 Dairyland Power Cooperative v. United States, 16 F.3d 1197 (Fed. Cir. 1994) ........................................................................................ 26 Dale Ingram, Inc. v. United States, 201 Ct. Cl. 56, 475 F.2d 1177 (1973) ............................................................................. 27 Durable Metals Prods., Inc. v. United States, 27 Fed. Cl. 472 aff'd, 11 F.3d 1071 (Fed. Cir. 1993) (table) .......................................... 20 Dynalectron Corp. v. United States, 4 Cl. Ct. 424 (1984), aff'd, 758 F.2d 665 (Fed. Cir. 1984) .............................................. 31 E. Walters & Co., Inc. v. United States, 217 Ct. Cl. 254, 576 F.2d 362 (1978) ...................................................................... passim Eastport Steamship Corp. v. United States, 178 Ct. Cl. 599, 372 F.2d 1002 (1967) ........................................................................... 31 Everett Plywood Corp. v. United States, 227 Ct. Cl. 415, 651 F.2d 723 (1981) ............................................................................. 25 Far West Fed. Bank v. OTS, 119 F.3d 1358 (9th Cir. 1997) ........................................................................................ 25 Florida Rock Indus. Inc. v. United States, 791 F.2d 893 (Fed. Cir. 1986) ........................................................................................ 29 Fraass Surgical Mfg. Co., Inc. v. United States, 215 Ct. Cl. 820, 571 F.2d 34 (1978) ......................................................................... 28, 29 Freightliner Corp. v. Caldera, 225 F.3d 1361 (Fed. Cir. 2000) ...................................................................................... 18 Glopak Corporation v. United States, 12 Cl. Ct. 96 (1987), aff'd., 851 F.2d 334 (1988) ............................................................ 29 Gold Line Refining v. United States, 54 Fed. Cl. 285 (2002) ..................................................... 37 Gould, Inc. v. United States, -iv-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 6 of 50

935 F.2d 1271 (Fed. Cir. 1991) ....................................................................................... 11 Gratz v. United States, 25 Cl. Ct. 411, aff'd, 985 F.2d 583 (Fed. Cir. 1992) ................................................. 30, 31 Hermes v. United States, 58 Fed. Cl. 3, 19 (2003)) ..................................................................... 37 Hermes v. United States, 58 Fed. Cl. 409 (2003) ............................................................................................. passim Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001) ...................................................................................... 30 Hume v. United States, 21 Ct. Cl. 328 (1886), aff'd., 132 U.S. 406 (1889) ......................................................... 28 Inupiat Community of the Arctic Slope v. United States, 230 Ct. Cl.647, cert. denied, 459 U.S. 969 (1982) ......................................................... 32 J&E Salvage v. United States, 37 Fed. Cl. 256 (1997) .............................................................................................. 27, 28 John Massman Contracting Co., v. United States, 23 Cl. Ct. 24 (1991) ........................................................................................................ 23 LaBarge Prods., Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) ............................................................................ 21, 22, 35 LaGloria v. United States, 56 Fed. Cl. 211 (2003) ...................................................................... 37 Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682 (1949) ........................................................................................................ 30 LeBlanc v. United States, 50 F.3d 1025 (Fed. Cir. 1995) ........................................................................................ 32 Liebherr Crane Corp. v. United States, 810 F.2d 1153 (Fed. Cir. 1987) ...................................................................................... 28 Ling-Temco-Vought, Inc. v. United States, 201 Ct. Cl. 135 (1973) .............................................................................................. 38, 39 MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) ............................................................................................. passim

-v-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 7 of 50

Montana v. United States, 124 F.3d 1269 (Fed. Cir. 1999) ...................................................................................... 10 Morrison-Knudsen Co. v. United States, 170 Ct. Cl. 712 (1965) ..................................................................................................... 23 Mullenberg v. United States, 857 F.2d 770 (Fed. Cir. 1988) ........................................................................................ 32 Navajo v. United States, 58 Fed. Cl. 200, 213 (2003) ................................................................. 37 Northern Helex Co. v. United States, 197 Ct. Cl. 118 (1972) ..................................................................................................... 38 Perpetual Financial Corp. v. United States, 61 Fed. Cl. 126 (2004) ..................................................................................................... 25 Reservation Ranch v. United States, 39 Fed. Cl. 696 (1997), aff'd, 217 F.3d 850 (Fed. Cir. 1999) (table) .............................. 36 Rochman v. United States, 27 Fed. Cl. 162 (1992) .................................................................................................... 11 Seaboard Lumber Co. v. United States, 903 F.2d 1560 (Fed. Cir. 1980) ...................................................................................... 36 Seaboard Lumber v. United States, 308 F.3d 1283 (Fed. Cir. 2002) ...................................................................................... 25 Sherwood v. Walker, 66 Mich. 568, 33 N.W. 919 (1887) ................................................................................. 26 Short Bros., PLC v. United States, 65 Fed. Cl. 695 (2005) .................................................................................................... 18 Spalding & Sons, Inc. v. United States, 28 Fed. Cl. 242 (1993) .................................................................................................... 25 Sun Oil Co. v. United States, 215 Ct. Cl. 716, 572 F.2d 786 (1978) ............................................................................. 30 Sunoco v. United States, 59 Fed. Cl. 390, 398 (2004) ................................................................. 37 Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560 (Fed. Cir. 1987) ...................................................................................... 10 -vi-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 8 of 50

Tabb Lakes, Ltd. v. United States, 10 F.3d 796 (Fed. Cir. 1993) .......................................................................................... 29 Tesoro v. United States, 58 Fed. Cl. 65 (2003) ........................................................................... 37 Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005) .............................................................................. passim Tony Downs Foods Co. v. United States, 209 Ct. Cl. 31, 530 F.2d 367 (1976) ............................................................................... 28 Trauma Service Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997) ...................................................................................... 24 United States v. Connolly, 716 F.2d 882 (Fed. Cir. 1983), cert. denied, 104 S. Ct. 1414 (1984) ............................. 31 United States v. Hamilton Enterprises, 711 F.2d 1038 (Fed. Cir. 1983) ................................................................................ 27, 28 United States v. Mitchell, 445 U.S. 535 (1980) ........................................................................................................ 31 United States v. Sherwood, 312 U.S. 584 (1941) ........................................................................................................ 31 United States v. Testan, 424 U.S. 392 (1976) ........................................................................................................ 31 Whittaker Electronic Systems v. Dalton, 124 F.3d 1443 (Fed. Cir. 1997) ................................................................................ 36, 37 STATUTES 10 U.S.C. § 2306(a) .................................................................................................................... 20 10 U.S.C. § 2323 ........................................................................................................................... 6 15 U.S.C. § 644 ............................................................................................................................. 6 15 U.S.C. § 772 ............................................................................................................................. 5 28 U.S.C. § 1491 .......................................................................................................................... 31

-vii-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 9 of 50

41 U.S.C. § 423 ........................................................................................................................... 33 FAR 15.402(a) ..................................................................................................................... passim FAR 15.610 ............................................................................................................................ 32, 33 FAR 15.802(b) ..................................................................................................................... passim FAR 15.804-3 .................................................................................................................. 12, 13, 15 FAR 16.103(a) ............................................................................................................................. 20 FAR 16.104 .................................................................................................................................. 20 FAR 16.203-1 ...................................................................................................................... passim FAR 16.203-1(a) .......................................................................................................................... 12 FAR 16.203-2 .............................................................................................................................. 13 FAR 16.203-3 ........................................................................................................................ 13, 14 FAR 16.203-4 ........................................................................................................................ 12, 20 FAR 19.502-3(c) .......................................................................................................................... 34

-viii-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 10 of 50

MISCELLANEOUS Formation of Government Contracts (3rd Ed. 1998) at 1279 ...................................................... 19 Restatement (Second) of Contracts § 151a .................................................................................. 28

-ix-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 11 of 50

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 MOTION TO DISMISS THE AMENDED COMPLAINT The United States respectfully requests that the Court dismiss paragraphs 40 and 41 of the Amended Complaint ("Compl.") (small business complaints), pursuant to RCFC 12(b)(1), and the remainder of the complaint, pursuant to RCFC 56(b). In the alternative, defendant respectfully requests that the Court dismiss the remainder of the complaint pursuant to RCFC 12(b)(6). In support of this motion, we rely upon the Amended Complaint, the following brief, our proposed findings of uncontroverted fact ("PFF"), the exhibits filed with our motion for partial summary judgment ("Def. Exh."), and our supplemental appendix ("Supp. App."). STATEMENT OF THE ISSUES 1. Whether the contracts at issue were illegal because their Economic Price

Adjustment ("EPA") clauses were based upon "indexes rather than on Plaintiff's own established fuel prices," "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," as alleged in Count I of the Amended Complaint. 2. Whether the allegation contained in Count II that the "PMM [Petroleum

Marketing Monthly] indexes were not designed or intended to be used to set or adjust prices and which did not reflect at least the fair market value of military fuel" states a claim upon which

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 12 of 50

relief can be granted. 3. Whether the allegation contained in Count I that the EPA clauses violate the

Federal Acquisition Regulation ("FAR") 15.402(a) states a claim upon which relief can be granted. 4. Whether, if the answers to Issues 2 and 3 are in the negative, Counts II-VI, which

state alternative theories of relief based upon the same allegations concerning the PMM and are labeled as "Misrepresentation," "Breach of Contract," "Implied-In-Fact-Contract," "Failure of Consideration and Frustration of Purpose," and "Mistake," also should be dismissed for failing to state a claim upon which relief can be granted. 5. Whether the allegation contained in Count VII, that the contracts at issue effected

a taking, states a claim upon which relief can be granted. 6. Whether this Court has jurisdiction to entertain the allegation contained in

paragraph 46 that DESC violated "the equal protection component of the fifth amendment's due process clause by extending to minority-owned businesses bidding preferences." 7. Whether this Court has jurisdiction to entertain the allegation contained in

paragraph 41 that DESC improperly solicited and awarded "portions of the procurements set aside for small businesses together with those for large businesses" and, if so, whether that is true. 8. Whether DESC used "prohibited auction techniques, whereby DESC awarded

contracts to bidders that agreed to match other bidders' prices," as alleged in paragraph 40 of the complaint. 9. If the answers to any of the above are in the affirmative, whether La Gloria has

-2-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 13 of 50

waived any applicable benefit, or is estopped from litigating their applicability.1 STATEMENT OF THE CASE I. Nature Of The Case This case arises from six fuel supply contracts between La Gloria and the Defense Energy Support Center ("DESC"). Compl. ¶¶ 31.2 La Gloria complains that the EPA clauses contained in DESC fuel contracts were illegal and pads these complaints with various commonlaw theories of relief and a takings theory of relief, premised upon the very same illegality. La Gloria also asserts that certain features of DESC's small business program also were illegal. Presuming it has thus destroyed the very contracts it made and performed, without complaint, the complaint concludes that La Gloria is "entitled to recover based on the fair market value of the fuel it delivered to DESC." Compl. ¶ 44. In an earlier phase of this litigation, this case was stayed pending the outcome of an interlocutory appeal certified by this Court, and eventually resolved in Tesoro et al. v. United States, 405 F. 3d 1339 (Fed. Cir. 2005), petition for reh'g. en banc denied, No. 04-5064 (Fed. Cir. Aug. 22, 2005) ("Tesoro"). In Tesoro, the Federal Circuit held that DESC's PMM-based EPA clause was legal, and declined to reach the waiver issue. Following the decision in Tesoro, the Court permitted La Gloria to file its Amended Complaint, which includes what we consider

1

In this case, the Court has held that a waiver would not bar La Gloria's FAR 16.203-1 illegality allegation. La Gloria v. United States, 56 Fed. Cl. 211 (2003). Accordingly, although we believe our position was correct, we do not address the applicability of waiver to that allegation here. The Court did not, however, address the effect of waiver upon La Gloria's small business program illegality and common law causes of action. Until 1998, DESC was called the Defense Fuel Supply Center ("DFSC"). We use the current name.
2

-3-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 14 of 50

to be immaterial factual allegations concerning the PMM and to assert a cause of action pursuant to FAR 15.402(a) (contracting officer's duty to assure prices offered are fair and reasonable). See Compl. ¶ 38. SUMMARY OF MATERIAL FACTS The evidence set forth in the accompanying proposed findings of uncontroverted fact is sufficient to establish the Government's right to dismissal of the complaint. Generally, the proposed findings describe the market-based nature of the EPA clauses at issue, DESC's long, controversy-free use of those clauses, La Gloria's failure to object to the use of, or application of, the clauses, until many years after performing the contracts, and La Gloria's long history and familiarity with these clauses. They also demonstrate that DESC's small business program is consistent with applicable laws and regulations. I. La Gloria's Contracts La Gloria is a petroleum refiner operating in Texas. It also is an experienced Government contractor. Between 1993 and 1999, DESC paid La Gloria in excess of $137 million pursuant to the contracts at issue here, buying a total of more than 248 million gallons of jet fuel. PFF 4. At issue are DESC-drafted price adjustment clauses. PFF 8-13.3 These clauses adjusted the per-gallon "base price" offered by fuel suppliers. Id. Offerors also acknowledged a "reference price" for comparable petroleum products, which, since the early 1980s, has been

DESC began using EPA clauses during the 1973 oil embargo. At that time, the agency allowed offerors to choose between basing price adjustments upon either published prices of refined products, or actual crude oil costs. DESC began using market-prices exclusively in the early 1980s, primarily because the prior practice made it difficult to compare offers for evaluation purposes. PFF 8. -4-

3

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 15 of 50

taken from a number of widely-available petroleum price publications. PFF 9-11. After award, the base price per gallon was periodically adjusted up or down, by the exact number of fractions of a cent that the published reference price had risen or fallen since the last adjustment. PFF 9. La Gloria's 1993 contract contained an EPA clause tied to monthly average sale prices of refined petroleum products, by region, as reported by the Petroleum Marketing Monthly. PFF 10. The PMM is published by the Department of Energy's Energy Information Administration, and reports transaction prices that refiners, including La Gloria, are required by law to submit monthly. PFF 11; 15 U.S.C. § 772. Pursuant to the PMM-based EPA clause, suppliers' per-gallon prices were adjusted monthly. PFF 11. For example, for in 1993, La Gloria bid a base price of .566300 and .576300 cents per gallon for JP-8, tied to a PMM-based reference price, supplied by DESC, of .569500 cents per gallon for February, 1993. Def. Exh. 10 at 2, 7. Assuming hypothetically that, for the first month in which La Gloria delivered fuel, the reference price increased .10 cents, the contract price for that first month would have been the base price plus the same .10 cents per gallon. In 1995, DESC adopted as its EPA escalator a widely-used industry publication, Platts Oilgram Price Report ("Platts"). PFF 13. Accordingly, La Gloria's 1995-1999 contracts used Platts as their price reference. Id. DESC did so because, despite substantial advantages offered by the PMM, including the fact that it was a report of actual sale prices, the report of those prices was not available until three months after the sales took place. PFF 12-13. The EPA clauses, however, required monthly payments and, therefore, price adjustments. To accommodate this gap between the payment date and the availability of the data necessary to calculate the economic price adjustment applicable to those payments, DESC made an estimated interim -5-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 16 of 50

payment and then reconciled that payment with the amount properly due when the applicable PMM sales data became available. PFF 13. Thus, La Gloria's suggestion that the change from PMM demonstrates that a PMM-based clause was illegal or not market-based is, simply, hyperbole. See, e.g., Compl. ¶¶ 14-19. La Gloria never objected to the legality of any version of the EPA clause, or to any of the hundreds of price adjustments made pursuant to the clauses. PFF 28. Indeed, it was not until La Gloria submitted its first certified claim in 2001 ­ approximately eight years after the first contract was awarded, and nine years after MAPCO, 27 Fed. Cl. 405, was decided ­ that La Gloria alleged that the EPA clauses were illegal. Compl. ¶¶ 31; PFF 29. II. DESC's Small Business Set-Aside Program In accordance with 15 U.S.C. § 644 and FAR Part 19, DESC's Bulk Fuels Program solicitations included partial small business set-asides. Beginning in 1988, pursuant to 10 U.S.C. § 2323, DESC solicitations also included an evaluation preference of up to 10 per cent for small disadvantaged business concerns. DESC solicitation clauses I237.05, Notice of Evaluation Preference for Small Disadvantaged Business Concerns, and I237.06, Notice of Partial Small Business Set-Aside with Preferential Consideration for Small Disadvantaged Business Concerns, set forth the operation of these programs. The clauses provided that awards will be made to those small disadvantaged concerns whose offered price does not exceed the highest price the Government would pay for the non-set-aside portion plus ten percent, as adjusted for transportation and other factors. Supp. App. 6 (subparagraph (c)). DESC's domestic bulk fuels partial small-business set-aside program was described in the solicitation in DESC clauses I237.05 and I237.06 (DEVIATION). PFF 26. DESC also operated a small business set-aside program. Although small businesses could compete for non -6-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 17 of 50

set-aside amounts, DESC would award contracts to provide the set-aside amounts, the price for which was to be "negotiated by the Contracting Officer based upon prices the Government would otherwise pay under this solicitation had there been no set-aside for supply of the location at which the set-aside is placed, adjusted for transportation and other factors." Supp. App. 7 (subparagraph (d)). During the negotiations, the contracting officer did not provide small business concerns with either the identity or the prices of other offerors. Supp. App. 2 ¶ 5. DESC's method of awarding partial set asides in its bulk fuels acquisitions differs from the standard FAR and DFARS procedures, in that DESC makes offers for the set aside quantities before award of the basic quantities. Supp. App. 2 ¶ 5; Supp. App. 5-7. The standard FAR and DFARS procedure is to offer set aside quantities after award of the basic quantities. Supp. App. 14-17. Where there is a set aside failure, the quantities are awarded to the low offeror for the basic quantity rather than being re-solicited as a new requirement. Id. This procedure avoids the delay that would take place in re-soliciting set aside failure quantities under the standard FAR and DFARS procedures. Id. DESC has used this method since the 1960's pursuant to authorized deviations. Id.; Supp. App. 42. The DESC procedure has been approved by the Government Accountability Office ("GAO"), formerly the General Accounting Office, on several occasions. Sup. App. 42. SUMMARY OF THE ARGUMENT This case presents the incredible claim that an experienced Government supplier that performed at least six DESC contracts over seven years, without complaint, now is entitled to damages due to alleged defects in those contracts. Remarkably, La Gloria does not even allege that it misunderstood the clauses at issue, or that the clauses did not operate as their plain language suggests they would. -7-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 18 of 50

In Tesoro, 405 F.3d 1339, the Federal Circuit explicitly rejected La Gloria's stubborn contention that the clauses were illegal because they were based upon "indexes rather than on Plaintiff's own established fuel prices" (Compl. ¶ 36) and that DESC's PMM-based EPA clause is prohibited by the FAR. Tesoro also effectively disposed of La Gloria's miscellaneous complaints concerning the EPA clauses, found in Count I. In Tesoro, the court held that, in order to pass muster under FAR 16.203-1, EPA clauses may 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. DESC's EPA clauses pass muster under Tesoro, because they are undeniably based upon "market sources independent of the manufacturer or vendor." La Gloria contends that the EPA clauses are suspect because they were not "designed or intended" to set prices and did not "reflect at least the fair market value of military fuel." These allegations do not invoke any part of the legal test for EPA clauses and, therefore, fail to state a claim upon which relief may be granted. Indeed, even if the EPA clauses were shown to be inconsistent with the FAR, La Gloria never has demonstrated that they were administered or interpreted in a manner inconsistent with La Gloria's own understanding and expectations. In short, La Gloria cannot demonstrate an essential element of any request for equitable adjustment, harm. La Gloria's parallel common law and takings allegations fare no better. The former, Counts II-VI, simply repackage La Gloria's illegality count as "Breach of Contract," "ImpliedIn-Fact-Contract," "Failure of Consideration and Frustration of Purpose," and "Mistake" counts. All are based upon the legally-unfounded premise that DESC owed a duty to La Gloria to utilize price references that were "designed or intended to be used to set or adjust prices," that the references "reflect at least the fair market value of military fuel," and that DESC pay "fair -8-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 19 of 50

market value." None is grounded in the language of La Gloria's actual contracts or the Federal Circuit's standard for assessing the legality of EPA clauses. All are thinly-disguised, back-door attempts to alter the legal standard for EPA clauses, established and applied in Tesoro. Accordingly, none of these states a cause of action upon which relief may be granted. To the extent they might, La Gloria simply cannot demonstrate the elements of proof necessary to sustain these traditional causes of action. The same is true of Count VII, which asserts that DESC's possession of the fuel purchased, pursuant to the contracts at issue, effected a taking. Count VII fails for the same reason as Counts II-VI. Moreover, it is well-established that, when the Government action at issue is subject to a contract claim, no Fifth Amendment takings may lie. Accordingly, Count VII, too, should be dismissed. The complaint also quarrels with various aspects of DESC's small business program, without demonstrating what harm even a demonstrable violation might have had upon any of La Gloria's contracts. Specifically, the complaint alleges that: (1) DESC's small business set-aside program violates the FAR's anti-auction provisions; (2) that program violates the FAR's prohibition against "awarding portions of the procurements set aside for small business together with those for large businesses"; and (3) DESC's small disadvantaged business program violates the equal protection component of the Fifth Amendment. These counts offer little reason to keep this litigation afloat. First, La Gloria cannot demonstrate any link between these allegations and its contracts. Second, this Court has no jurisdiction to address an equal protection claim or the facial attack concerning the order of procurement award. Third, the programs were administered pursuant to applicable regulations. Finally, if La Gloria's various allegations are not subject to dismissal for the reasons summarized above, we still are entitled to summary judgment, because, years ago, La Gloria -9-

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 20 of 50

abandoned any rights the FAR, the Fifth Amendment, or small business regulations might have conferred. La Gloria also forfeited any right it might have had to test those rights in litigation when it waited as many as eight years to file the necessary claims. In a case involving similar circumstances, this Court already has held as much. Hermes II, 58 Fed. Cl. 409 (concerning the alleged FAR 16.203 violation). Although the Hermes Court did not explicitly address La Gloria's common law, takings and other auxiliary illegality causes of action, there is no principled basis for treating them differently. ARGUMENT I. Standard of Review Summary judgment is warranted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." RCFC 56(c); accord Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir. 1999). A factual issue is material if it could affect the outcome of the case in light of the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute exists only if a reasonable trier of fact could find for the nonmoving party. Id. The movant need not "produce evidence" of the absence of factual disputes; it need only "point[] out" that the record does not support the other party's case. Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1563 (Fed. Cir. 1987) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). We have moved to dismiss some counts of the Amended Complaint pursuant to RCFC 12(b)(6), which permits the dismissal of an allegation that fails to state a claim upon which relief may be granted. Dismissal upon this ground is appropriate whenever "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). - 10 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 21 of 50

In making this determination, the Court must accept the factual allegations set forth in the complaint as true and "indulge in all reasonable inferences in favor of the nonmovant." Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991).4 II. DESC's EPA Clauses Are Authorized by FAR 16.203-1 In Count I, La Gloria presents several theories concerning the illegality of DESC's EPA clauses: (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) (currently codified at FAR 15.402(a)) (contracting officer's duty to review offers for price reasonableness) (Compl. ¶ 38). As explained below, none of these allegations entitle La Gloria to readjust its contracts' prices, because, pursuant to the standards enunciated in Tesoro, the clauses are legal. In short, La Gloria's illegality allegations are based upon standards not found in the law and, therefore, fail to state a claim. A. EPA Clauses Need Not Be Based Upon The Contractor's Own Prices

FAR 16.203-1 provides as follows: A fixed-price contract with economic price adjustment provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies. Economic price adjustments are of three general types: (a) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreedupon level in published or otherwise established prices of specific

However, "legal conclusions, deductions, or opinions couched as factual allegations are not given a presumption of truthfulness." Rochman v. United States, 27 Fed. Cl. 162, 168 (1992)(quoting 2A Jeremy C. Moore, Moore's Federal Practice, ¶ 12.07 [2.-5] (2d ed. 1992)). - 11 -

4

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 22 of 50

items or the contract end items. (b) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance. (c) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract. FAR Section 16.203-1(a) describes two types of "established" price adjustments -- those based upon "published" prices and those based upon "otherwise established" prices ­ but does not define those terms. However, FAR 16.203-4(a), and (b) ("Clauses"), which prescribe standardized clauses for "adjustments based on established prices," specifically refer to the use of established prices for supplies that have either established "catalog" or "market prices." Since January 1997, FAR 16.203-4 has not explicitly defined the terms "catalog" or "market prices."5 However, its predecessor made clear that the terms referred to the definitions found in FAR 15.804-3. The predecessor stated that, before using a "published or otherwise established price" EPA clause, the contracting officer must determine that "the requirement is for . . . supplies that have an established catalog or market price verified using the criteria in FAR 15.804-3" (emphasis added). Section 15.804-3 (c), in turn, defined "established catalog prices" as "prices (including discount prices) recorded in a catalog, price list, schedule, or other verifiable and established record that (A) are regularly maintained by the manufacturer or vendor; and (B) are published or otherwise available for customer inspection." FAR 15.8043(c)(1) (1995). It defined "established market prices" as "current prices that (i) are established

5

This provision was deleted from the FAR effective January 2, 1997. - 12 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 23 of 50

in the course of ordinary and usual trade between buyers and sellers free to bargain and (ii) can be substantiated by data from sources independent of the manufacturer or vendor." Id. § 15.8043(c)(2) (emphasis added). In Tesoro, the Federal Circuit, reviewing the PMM-based EPA clause at issue here, held that FAR 15.804-3 supplies the meaning for "established prices," which need not be, as La Gloria asserts here, still, the contractor's own prices: 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. FAR § 15.804-3 defines "established prices" to include contractor-specific prices, namely "established catalog prices," and industry-based prices, namely "established market prices." As indicated by FAR § 16.203-2 and FAR § 15.804-3, 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 (emphasis added).. Rejecting La Gloria's theory, the court held explicitly 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).. The court did not stop there, however. Rather, it 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 ­ foreclosing consideration of the question anew. Indicating that it was indeed considering the legality of the PMM-based EPA clause, the court recited the PMM's - 13 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 24 of 50

various features as well as the parties' contentions concerning the effect of those features upon the viability of the PMM-based EPA clause. The court's specific recitations concerning the PMM included the following. · The court's statement of the certified question as "Did DESC establish the price of fuel in violation of law by employing economic price adjustment clauses indexed to PMM?" Tesoro, 405 F.3d at 1342 (emphasis added). "The reference prices to which the price adjustments were tied were drawn from market publications. Until June 23, 1994, DESC drew its EPA reference prices from the market publication known as the [PMM]." Id. at 1341. The court's observation that the PMM is published by DOE and reports "monthly average sales figures for specified fuels for five fuel regions known as Petroleum Administration for Defense Districts (`PADDS')." Id. "All refiners, including Tesoro and Hermes, are required by law to submit monthly sales data to the DOE, which then compiles the data to report the monthly average sales prices per PADD for various products." Id. The observation that the complaints in both suits claimed that "DESC's actions were per se illegal because the PMM-based EPA clause was inconsistent with the applicable section of the FAR." Id. at 1342 (emphasis added). The observation that the contractors 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 . . . Relying on the language of MAPCO, Appellants claim that a PMM-based EPA clause fails to address either of the "mischiefs" specified in FAR § 16.203-3, because the PMM is an "amalgamation" of petroleum sales that does not reflect the product, the market, or the price for the military fuel Tesoro and Hermes supplied." Id. at 1348 (emphasis added). A review of the MAPCO analysis of the PMM itself, which was distinct from MAPCO's analysis of whether, in general, EPA clauses must be based upon the contractor's prices. See MAPCO, 27 Fed. Cl. at 410-11. The appellate court's review included MAPCO's dissection of the PMM, including the fact that it was an "amalgamation of the previous month's sales data" and, as such, did not comport with the dictionary definition of "established." The review also recited MAPCO's conclusion ("In sum, the index at issue is neither the contractor's, nor does it reflect an established price"), which underscored the fact that the appellate court and the MAPCO court considered the general question of whether an "established prices" EPA clause could be market - 14 -

·

·

·

·

·

·

·

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 25 of 50

based as well as whether DESC's PMM clause was an "established prices" clause. Id. at 1347 (emphasis added). Following these recitations, the court concluded, in unmistakable language, that the PMM-based EPA clause was, indeed, a permissible EPA clause: 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. Id. at 1348-49 (emphasis added). The appellate court's conclusion is not surprising. The PMM is based upon sales data from a large number of refiners and sellers of petroleum products. It reports averages of the actual prices sellers have charged and buyers have paid for various petroleum products in different states and regions of the country. PFF 11. Because the prices are established in actual sales between a number of sellers and buyers, they clearly are "market prices," and satisfy the FAR 15.804-3 requirement that market prices be established in the course of ordinary business between "buyers and sellers free to bargain." The Platts Oilgram Price Report, also is a market-based publication that is widely used to adjust prices. PFF 13, 22-23; Supp. App. 47. Indeed, La Gloria's own "fair market value" claim is based upon Platts. PFF 30. Accordingly, La Gloria's Platts-based EPA clauses easily pass muster under Tesoro's "market sources"/ "market-based" standard. La Gloria's complaint does not assert otherwise. Indeed, La Gloria's sole complaint concerning these publications is that: "[o]n information and belief, DESC also knew that some of the other indexes it used to set or - 15 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 26 of 50

adjust prices were not appropriate for these purposes." Compl. ¶ 25. This allegation appears to be of the same character as La Gloria's alternative EPA clause illegality argument, i.e., that EPA clauses must meet a higher standard than that defined in Tesoro. We discuss that argument in the next section. B. La Gloria's Fair Market Value Allegations Do Not State A Cause of Action

The above analysis establishes that DESC's EPA clauses pass muster under the Tesoro standard for EPA clauses and, therefore, are legal. However, La Gloria asserts that the clauses may not be considered 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). But, we are aware of no legal basis for invalidating EPA clauses upon these grounds and the complaint identifies none. Indeed, contractors may bid below cost. See CCD Distributors, Inc. v. U.S., 69 Fed. Cl. 277 (2006) ("However, the fact that an offer [for a fixed-price contract] may not include any profit or may be an attempted buy-in (below cost) does not, in itself, render an otherwise responsible firm ineligible for award."). In short, La Gloria's effort to raise the standard for EPA clauses is rooted neither in La Gloria's contracts nor the applicable law. Accordingly, we see no apparent ground upon which these allegations might state a claim. C. La Gloria's FAR 15.802(b) Allegation Does Not State A Cause of Action

In yet another effort to create an unfounded legal test for EPA clauses, La Gloria asserts that the clauses were illegal because they somehow violated FAR § 15.802(b) (currently codified at FAR 15.402(a)). Compl. ¶ 38. As this Court has already held, that regulation does not create rights for contractors. In other words, a complaint rooted in this regulation fails to state a claim upon which relief can be granted. - 16 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 27 of 50

FAR 15.402(a) provides that: Contracting officers must(a) Purchase supplies and services from responsible sources at fair and reasonable prices. In establishing the reasonableness of the offered prices, the contracting officer must not obtain more information than is necessary. To the extent that cost or pricing data are not required by 15.403-4, the contracting officer must generally use the following order of preference in determining the type of information required: (1) No additional information from the offeror, if the price is based on adequate price competition, except as provided by 15.403-3(b). (2) Information other than cost or pricing data: (i) Information related to prices (e.g., established catalog or market prices or previous contract prices), relying first on information available within the Government; second, on information obtained from sources other than the offeror; and, if necessary, on information obtained from the offeror. When obtaining information from the offeror is necessary, unless an exception under 15.403-1(b)(1) or (2) applies, such information submitted by the offeror shall include, at a minimum, appropriate information on the prices at which the same or similar items have been sold previously, adequate for evaluating the reasonableness of the price. (ii) Cost information, that does not meet the definition of cost or pricing data at 2.101. (3) Cost or pricing data. The contracting officer should use every means available to ascertain whether a fair and reasonable price can be determined before requesting cost or pricing data. Contracting officers must not require unnecessarily the submission of cost or pricing data, because it leads to increased proposal preparation costs, generally extends acquisition lead time, and consumes additional contractor and Government resources. We start with the proposition that not every regulation provides the contractor with an "enforceable interest." Am. Tel. & Tel. Co. v. United States, 307 F.3d 1374, 1381 (Fed. Cir. 2002) ("AT&T V"). And that is precisely where this Court started in Short Bros., PLC v. United - 17 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 28 of 50

States, 65 Fed. Cl. 695, 764-65 (2005). In rejecting the very argument that La Gloria advances here, the Court explained: The FAR provisions cited by plaintiff 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. Short Bros. is consistent with the principle that contractors lack standing to bring suit based upon regulations issued for the Government's benefit. E.g., Freightliner Corp. v. Caldera, 225 F.3d 1361(Fed. Cir. 2000). The decision also is consistent with AT&T V's application of that principle. In AT&T V, the court considered a contractor's allegation that, in selecting a fixed-price contract, the Navy had "violated a variety of procurement regulations and directives that guide a contracting officer's selection of contract type." 307 F.3d at 1379. Specifically, the contractor alleged, and there was no dispute, that Navy contracting officials had failed to obtain a statutorily-mandated departmental-level certification that would have permitted it to enter into the fixed-price shipbuilding contract at issue. But, the court refused to entertain the contractor's claim, finding no intent in the legislation to "make any provision for judicial enforcement" (id.) - and this was so, despite the fact that passage of the statute was prompted by shipbuilding claims of the sort at issue. See Am. Tel. & Tel. Co. v. United States, 177 F.3d 1368, 1370-71 (Fed. Cir.1999) (en banc). If the court could not find an enforceable interest for contractors in a statute, the enactment of which was motivated by contractors having to bear costs overruns, La Gloria will be hard pressed to find one here. Indeed, the purpose of FAR 15.402(a) is not to protect contractors (other than from needless demands for documents), but to protect the Government - 18 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 29 of 50

from prices that are "higher than warranted." All Phase Environmental, Inc., B-292-919.2, 2004 CPD ¶ 62, 2004 WL 437450 at 6. That purpose is evident, for example, in the regulation's warning against prices that include "contingency" amounts, i.e., amounts that would make a price "higher than warranted." Professors Nash and Cibinic agree, explaining that: "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 understanding of the work, or a buy-in." Formation of Government Contracts (3rd Ed. 1998) at 1279.6 Indeed, if, as La Gloria argues, the contracting officer's obligation to assess price reasonableness is 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" That is precisely what La Gloria seeks to do here: insist that it be paid what it calls "fair market value," a term apparently to be defined by an expert at trial. D. Summary

At bottom, La Gloria's complaint concerns the type of market-based clause selected. However, absent a prohibition, the agency had the discretion to select an appropriate clause. See AT&T V, 307 F.3d at 1378-80; accord 10 U.S.C. § 2306(a) (agency head generally "may enter into any kind of contract that he considers will promote the best interests of the United States"); see also FAR 16.103(a) ("Selecting the contract type is generally a matter for negotiation and

6

We are not aware of any allegation of pricing mistake here of the sort referred to in this treatise. - 19 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 30 of 50

requires the exercise of sound judgment."); FAR 16.104 (selection of contract type turns upon "many factors"). Indeed, the FAR expressly affords the contracting officer latitude to use agency-prescribed EPA clauses when the standard FAR clauses are "inappropriate." FAR 16.203-4 (a)(2), (b)(2), and (c)(2) (1995). To borrow this Court's phrase: "An important consideration is the prevailing view among courts that determinations in procurement matters should ordinarily be left to the discretion of administrative officials exercising procurement authority." Durable Metals Prods., Inc. v. United States, 27 Fed. Cl. 472, 477 n.6, aff'd, 11 F.3d 1071 (Fed. Cir. 1993) (table). Any doubt concerning the agency's exercise of discretion in this case should be erased by the uncontroverted facts of this case: during years of contract performance, La Gloria did not complain about the legality of its contracts' formation or operation. PFF 28. That silence is telling. There simply is nothing inherently suspicious or illegal about DESC's fuel contracts. La Gloria, which, as claimant must prove otherwise, has not done so. E. La Gloria Cannot Demonstrate Harm7

To maintain a cause of action against the Government, La Gloria must demonstrate that it was injured, damaged, or harmed by the Government's allegedly wrongful action. Failure to prove harm or the existence of injury as part of entitlement is a failure of plaintiff's cause of action. Pennsylvania Dept. of Transp. v. United States, 226 Ct. Cl. 444, 451, 643 F.2d 758, 762-

We have argued that La Gloria could not prevail on its FAR 16.203-1 allegation, because it could demonstrate no harm flowing from the alleged illegality. In its earlier decision in this case, however, the Court disagreed, reasoning that the argument could be addressed in connection with any damages determination and that, once the EPA clause at issue was stricken, harm would be, in essence, irrelevant to the damages. La Gloria, 56 Fed. Cl. at 225. Accordingly, although we believe our position is correct, we do not raise that argument again with respect to the FAR 16.203-1 illegality question. - 20 -

7

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 31 of 50

63 (1981) (observing the "well-established rule" that Government contractors have the "burden of establishing the fundamental facts of liability, causation, and resultant injury"); Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991); Elter, S.A., ASBCA No. 52451, 2001-1 BCA ¶ 31,373 (denying entitlement because the contractor failed to establish that a Government delay caused injury); see also 1 Dobbs' Law of Remedies § 3.1 (2d. ed. 1993) ("The amount of harm may be either more or less than the amount of damages. . . . [T]he term damages is best reserved for the claim or the remedy rather than the underlying loss or injury."). The appellate court's decision in LaBarge Prods., Inc. v. West, 46 F.3d 1547, 1557 (Fed. Cir. 1995), is instructive. There, plaintiff asserted that it was entitled to reformation of its contract, because the Government had violated the FAR by sharing plaintiff's prices with a competitor. The court disagreed, explaining that "Even though the [price] disclosures to [a competitor] clearly violated the FAR . . . LaBarge was not harmed by the disclosures in any concrete way contemplated by the FAR and, therefore, is not entitled to relief." Id. at 1556. See also PCL Construction, 41 Fed. Cl. 242 (no damages where plaintiff could not demonstrate prejudice stemming from the Government's inclusion of an unauthorized "subject to availability of funds" clause in its contract). Thus, assuming there still exists otherwise viable causes of action, before La Gloria will be entitled to a remedy, it first must demonstrate that it was harmed in some way, e.g., that it was caused to do or refrain from doing something to its detriment -- for example by offering prices it otherwise would not have offered. In other words, simply alleging the Government acted incorrectly alone is an allegation of "injury without harm" and, therefore, must be dismissed. III. La Gloria's Alternative Illegality Theories In Counts II-VI Must Be Dismissed In addition to its core complaint, that the EPA clauses violate the FAR, La Gloria - 21 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 32 of 50

presents several common-law theories of relief in Counts II-VI. These trojan horse allegations merely repackage the premise discussed in Sections II.B. and C., above: that EPA clauses must be "designed and intended," and, in fact, provide for the payment of "fair market value." As explained, however, this premise arises neither from La Gloria's contracts nor from the Federal Circuit's announced standard for EPA clauses. As explained below, the premise gains no traction in a common law guise and, therefore, Counts II-VI also fail to state a claim. A. Count II (Misrepresentation)

In sum, Count II alleges that 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. The apparent premise for this allegation is that "[i]n basing price adjustments on PMM, DESC represented and warranted that PMM accurately reflected at least the fair market value for fuel and that prices for military fuel were fair and reasonable." Compl. ¶ 12. "Misrepresentation occurs when the government misleads a contractor by a negligently untrue representation of fact, or fails to disclose information it has a duty to disclose." John Massman Contracting Co., v. United States, 23 Cl. Ct. 24, 32 (1991) (citing Morrison-Knudsen Co. v. United States, 170 Ct. Cl. 712 (1965)). La Gloria has not identified a fact that DESC had a duty to disclose or one that was material to its bargain. The essential terms of the DESC contracts are that La Gloria would supply fuel at a given location and that DESC would pay La Gloria according to a specified formula. La Gloria has not alleged that any part of the contract was ambiguous, that DESC failed to honor the pricing clause, or that the clause failed to operate as described in the contract. B. Count III ("Breach of Contract") - 22 -

Case 1:02-cv-00465-ECH

Document 66

Filed 03/31/2006

Page 33 of 50

Count III is based upon the premise that "DESC's basing price adjustments on PMM and other indexes that were adequate to accomplish the stated purposes of its price adjustment clause to protect against market fluctuations and to ensure that the prices DESC paid for military fuel reflected at least fair market value was a material condition of the contracts upon which Plaintiff reasonably relied in entering the contracts." Compl. ¶ 61