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

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS U.S. FINANCIAL CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant and Third Party Plaintiff, v. THE W.I.N.N. GROUP, INC., Third Party Defendant THIRD PARTY DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO MOTION TO DISMISS AND CROSS-MOTION FOR SUMMARY JUDGEMENT 1. Plaintiff's Opposition Nowhere Disputes, And Thereby Concedes, the Multiple, Fatal Defects Requiring Dismissal of its Complaint as Argued in WINN's Motion to Dismiss Nowhere in its Opposition to Third Party Defendant The W.I.N.N. Group, Inc.'s ("WINN") Motion to Dismiss does Plaintiff U.S. Financial Corporation ("U.S. Financial") dispute that its Complaint is fatally deficient and subject to dismissal pursuant to Rule 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims ("RCFC") . U.S. Financial does not dispute that the Complaint fails to allege that U.S. Financial is a contractor or that it has privity with the Government necessary for this Court to find jurisdiction under the Tucker Act, 28 U.S.C. § 1491, the Contract Disputes Act, or the Assignment of Claims Act of 1940, 31 U.S.C. § 3727, 41 U.S.C. § 15. See, e.g., Thomas Funding, 15 Cl.Ct. 495, 499 502 (1988) ("Thomas Funding")(Assignment of Claims Act assignee is not in privity with government and thus is not a "contractor" entitled to maintain an action under the CDA.). George W. Kane, Inc. v. U.S., 26 Cl.Ct. 655, 621 (Aug. 12, 1992) ("Kane") (Where plaintiff is not in privity with the Government and does not allege that it was a bank, a trust company or "other financial Case No. 03-623C (Senior Judge Margolis)

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institution," it cannot claim standing under either the CDA or the Assignment of Claims Act.). Produce Factors Corp. v. U.S., 199 Ct.Cl. 572, 467 F.2d 1343, 1348 (1972) (assignment "[cannot], and did not, create any contractual relationship between [the assignee] and the United States.") Since the requisite privity "is not found, this court simply lacks jurisdiction to entertain [the plaintiff's] claims," see Martinez v. United States, 48 Fed. Cl. 851, 860 (2001); citing Cienega Gardens v. United States, 194 F.3d 1231, 1239 (Fed.Cir.1998), aff'd, 281 F.3d 1376 (Fed. Cir.2002); and the Complaint should be dismissed pursuant to RCFC 12(b)(1). Nor does U.S. Financial dispute that the Complaint is devoid of allegations necessary to assert a claim on which relief may be granted and prevent dismissal of the Complaint pursuant to RCFC 12(b)(6). U.S. Financial does not pretend that the Complaint alleges that WINN owes U.S. Financial any debt. See American Nat'l Bank & Trust Co. of Chicago v. U. S., 22 Cl. Ct. 7, 13 - 14 (1990) ("American Nat'l I"), where the Claims Court noted:
The first issue presented is whether the complaint must be dismissed for plaintiff's failure to state a claim upon which relief can be granted. See RUSCC 12(b)(4); RUSCC 56. Plaintiff's claim is premised upon its purported status as an assignee to the DLA contract. An assignee's recovery from the United States is limited to the extent of that assignor's outstanding debt to the assignee. Security Bank & Trust Co. v. United States, 731 F.2d 861 (Fed.Cir.1984); Continental Bank and Trust Co. v. United States, 189 Ct.Cl. 99, 416 F.2d 1296 (1969). When Mercantile Holdings, under the terms of its purchase agreement with plaintiff, repurchased the outstanding balance of St. Bernice's loan from plaintiff, the assignor's (St. Bernice) debt to the assignee (plaintiff) was reduced to zero. Therefore, even assuming that the United States had breached a valid assignment with plaintiff, plaintiff would not be entitled to recover any damages. Plaintiff in its own right has no monetary damage claim to assert against the United States under the Tucker Act, . . . and therefore fails under RUSCC 12(b)(4) and 56 to state a claim upon which relief can be granted. United States v. Testan, 424 U.S. 392, 397-98, 96 S.Ct. 948, 952-53, 47 L.Ed.2d 114 (1976); United States v. King, 395 U.S. 1, 89 S.Ct. 1501, 23 L.Ed.2d 52 (1969).

Id. at 13 - 14. U.S. Financial muddled this precedent when, at the February 5, 2004 Hearing on Plaintiff's Motion for Summary Judgment, it took the position that, without reference to the underlying nature

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of the transaction giving rise to the assignment, the mere assignment by WINN to U.S. Financial created a debt running from the United States to the plaintiff, and that debt, alone, gave rise to an actionable interest on U.S. Financial's part:
THE COURT: All right. The government seems to contend that, in order to comply with the Assignment Act, that this money has to be owed U.S. Financial, and the funds had to be made available during the performance of a contract. What about those conditions? MR. WATERS: Both have been met. The money is owed because, as the assignment agreement reads, all monies due, or to become due, under the contract are U.S. Financial Corporation's. I think that ends that inquiry. . .

Transcript (1 Vol.), Taken at Washington, DC, on Feb. 5, 2004 Before Sr. Judge Lawrence S. Margolis, Filed Feb. 10, 2004 ("Hrg. Trnscpt. 2/5/04"), P.5, ll. 13 ­ 23. The United States did not share U.S. Financial's confusion:
MS. McGHEE: . . . U.S. Financial has provided absolutely no evidence supporting one key element of its claim, namely that the contractor, WINN Group, still owes it money, still has debts outstanding, to U.S. Financial. This Court and the [F]ederal [C]ircuit have held that that is an essential element, or more properly, that an assignment is extinguished as soon as the underlying debt is extinguished. . . · · · . . . the question is essentially whether U.S. Financial simply has standing to get to recover money from the government. THE COURT: But they have got a valid assignment. MS. McGHEE: However, the case - THE COURT: Isn't that standing? MS. McGHEE: They cannot recover under an assignment if there is no outstanding debt from WINN Group to U.S. Financial.

Hrg. Trnscpt. 2/5/04, P.7, ll. 18 - 25; id., P. 10, ll. 13 - 22. Neither can it point to any part of the Complaint that alleges that U.S. Financial is "a bank, trust company, or other financing institution" and the assignee of contract proceeds under a valid assignment that secured a loan made by U.S. Financial "to the assignor to finance the assignor's performance" of Contract No. F49642-97-C-0030. Diamond Manft'g Co. v. U.S., 3 Cl.Ct. 424, 427

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(1983) (no valid assignment under the terms of the Assignment of Claims Act can exist where Plaintiff does not assert that it is a "bank", a "trust" or a "financing institution."); Twin City Shipyard, Inc. et al. v. U.S., 21 Cl.Ct. 582, 589 (1990). See also American Nat'l Bank & Trust Co. of Chicago v. U. S., 22 Cl. Ct. at 16 -17 (In order to prove the existence of a valid statutory assignment of contract proceeds, plaintiff must show, inter alia, it loaned money or at least made money available for the performance of that contract; where facts show otherwise, no valid statutory assignment under the Assignment of Claims Act occurred.) Finally, U.S. Financial does not dispute that its Complaint fails to assert the grounds upon which subject matter jurisdiction is based, as required by RCFC 8(a), or that this failure merits dismissal of the Complaint pursuant to RCFC 12(b)(6). George W. Kane, Inc. v. U.S., 26 Cl.Ct. 655, 622 (Aug. 12, 1992) ("Kane"). Instead, U.S. Financial asks this Court to overlook its failure to carry its burden of establishing jurisdiction and to leap with it to consider, prematurely, substantive issues, many of which are raised for the first time in plaintiff's Cross-Motion for Summary Judgment.1 It does so, moreover, by tightly interweaving its arguments made in support of a new Cross-Motion brought against the United States, arguments which are comprised of deliberately-worded half-truths and which ignore and mis-characterize caselaw. WINN urges that, in light of the unopposed

jurisdictional arguments raised by WINN and by the Government, the better course is for the Court

U.S. Financial does not explain why it filed a Cross-Motion, on its face directed to the United States, when its original Motion for Summary Judgment remains pending. At a minimum, inasmuch as the second CrossMotion raises new, additional "uncontroverted" facts, it appears to concede that U.S. Financial's original Motion failed to propound all material facts necessary to the entry of judgment as a matter of law, and thus could be interpreted as a withdrawal of the original Motion. As noted infra.at §2, the United States's subsequent adoption of a position inconsistent with that underlying the Response filed October 24, 2003, to the original M otion argues against any reliance on that Response now. Even if that were not the case, however, the effective withdrawal of the original Motion for Summary Judgment should effect a similar withdrawal of the original Response.

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to decline to consider these substantive issues and instead to dismiss the Complaint pursuant to RCFC 12(b)(6) with prejudice, based on the arguments and facts asserted in WINN's Motion and supporting papers, all of which are incorporated herein by reference. Nevertheless, in an abundance of caution, WINN addresses those arguments that are interwoven throughout U.S. Financial's CrossMotion in the event that the Court should elect to consider those arguments in its consideration of WINN's Motion to Dismiss.2 2. The Government's New, Clarified Position and WINN's Submission of Controverting Evidence by Affidavit Establish Disputed Material Facts Plaintiff's Proposed Findings of Uncontroverted Fact dated September 16, 2004 consists of fifteen (15) numbered Proposed Findings of Fact ("PPFP"). Six of those (PPFP Nos. 2, 3, 4, 5, 6 and 7) rely exclusively on Defendant's Response to Plaintiff's Proposed Findings of Uncontroverted Fact dated October 24, 2004, which document was filed before the United States became aware of the facts asserted in WINN's Motion and before the United States recently recognized the need to file its own challenge to jurisdiction, a position that is inconsistent with its earlier position to the extent that the earlier position appeared to concede jurisdiction. In argument before this Court in February 2004, the United States nevertheless raised the importance of deferring action in this matter pending WINN's entry into the case and the subsequent opportunity to ascertain potentially relevant facts:
MS. McGHEE: And that point ties into our motion to summon a third party, Your Honor, because any defense that WINN Group might have against our claim might very well, and likely would, bear upon the government's liability to U.S. Financial. If, for example, WINN Group could demonstrate that it currently owes no money to U.S. Financial, then that is

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Inasmuch as the Cross-Motion is directed exclusively to defendant United States, WINN does not understand that it is a party entitled to oppose it pursuant to RCFC 56. In the event that the Court determines otherwise, WINN respectfully requests that the Court order that W INN be granted a reasonable time, not to exceed five (5) business days from WINN's receipt of the order, in which to file and serve its Opposition and Response.

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evidence that it might have that would impact upon the government's liability to the Plaintiff in this case. So there are some underlying factual issues, . . .

Hrg. Trnscpt. 2/5/04, P.8, ll. 4 - 13. Similarly, in responding to the Court's queries regarding the two payments to WINN pursuant to Modification 13, the United States argued:
THE COURT: . . .Why did you pay [WINN]?

MS. McGHEE: I believe it was an administrative error, Your Honor. THE COURT: Twice? MS. McGHEE: The first was an administrative error, and payment was misdirected. Then the contractor, WINN Group, requested that the assignment be dissolved before the second payment was made, and the contracting officer executed a contract modification dissolving the assignment. . . THE COURT: Yes. I was wondering where they entered into that. Ms. McGHEE: There was some misunderstanding between the various parties involved, Your Honor. The fact that that happened and the fact that WINN Group requested that change might indicate that WINN Group thought that U.S. Financial was no longer entitled to receive money pursuant to this assignment. So, again, there might be an issue there that would become evident in the course of any litigation with WINN Group, which is why the government would hope to handle all of this through a single proceeding.

Hrg. Trnscpt. 2/5/04, P. 8, l. 20 - P. 9, l. 20. It would appear, however, that to the extent that the United States questions jurisdiction,3 reliance on its prior, inconsistent assertions of fact with respect to PPFP Nos. 2, 3, 4, 5, 6 and 7 would be misplaced; WINN respectfully urges the Court to treat those proposed findings as disputed by the Government. Moreover, the two affidavits submitted by WINN in support of its Motion and Reply dispute PPFP Nos. 2, 3, 4, 5, 6, 7, 10 and 11.

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Prior to filing this Reply and Opposition undersigned counsel attempted to determine whether the Government would seek to amend its earlier positions regarding jurisdiction. Counsel for the United States was not available to advise as to the United States' position with respect to the foregoing.

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3.

Where, as Here, the Defective Nature of the Purported Assignment to U.S. Financial, the Absence of a Governmental Waiver of Those Defects, and the Absence of Underlying Debt Owed by WINN to U.S. Financial Remain in Dispute, Summary Judgment May Not Issue. In considering cross-motions for summary judgment, the Court evaluates each party's motion

separately on its own merits with care taken to draw all reasonable inferences against the party whose motion is under consideration. See American Nat'l Bank & Trust Co. of Chicago v. U. S., 23 Cl. Ct. 542, 545 (1991) ("American Nat'l II") (plaintiff's failure to provide complete and correct information bearing on nature of assignment precluded finding government had adequate knowledge of actual assignment; under the totality of circumstances test, no waiver effected), citing Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.Cir.1987); and the non-moving party must designate specific facts which show that there is a genuine issue for trial. American Nat'l II, op. cit., citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). In its Motion to Dismiss and with the Reply, WINN has brought forth evidence to establish that no valid assignment of the proceeds of the Bolling Contract was effected by WINN's execution of the Escrow Agreement or its execution of the purported assignment; that the purported assignment was made in contravention of express statutory requirements not subject to waiver; alternately, that Modification P0001, accepting the purported assignment, was made without disclosure of the nature of the underlying Escrow Agreement having been made to the Contracting Officer, who thus could not waive any defects in the purported assignment. See Affidavit of Marlon Phillips (Ex.1 to WINN's Motion to Dismiss at Appendix ["App."] 2) ; 2nd Affidavit of Marlon Phillips (Ex. 6 to this Reply) at p.2 4.
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WINN has utilized consecutive numbering for its exhibits relating to its Motion to Dismiss, and thus (continued...)

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All are material issues, which is why U.S. Financial goes to great lengths to argue that the validity of the assignment is not at issue, and to assert that any defects in the assignment were waived. What U.S. Financial has failed to establish, however, under any reading of what has been alleged, is that the Contracting Officer knew at the time that Modification P0001 issued, that the purported assignment was not made so that U.S. Financial could finance WINN's performance, but rather was made to in furtherance of a mere escrow agreement, all of which was prohibited by the Assignment of Claims Act. Indeed, the circumstances here closely resemble the "financing" arrangement rejected by the Claims Court in American Nat'l I. There, the Court noted, in part:
The facts affirmatively show that plaintiff did not loan any money or make any of its funds available for the performance of the DLA contract. To the contrary, under the ingenious four party "financing" arrangement described in the January Agreement, not one penny of Mercantile's, Mercantile Holdings' or American's funds actually went toward the purchase of raw materials for the DLA contract whether initially or during subsequent debt restructuring efforts. Thus, since plaintiff has failed to prove compliance with the second criteria set forth above, the court finds that a valid statutory assignment under the Act did not occur.

American Nat'l I, 22 Cl. Ct. at 16. WINN has disputed U.S. Financial's contention that the assignment was valid, and has itself offered evidence that it was not valid. (See Ex. 6 at p.2).5 The issue of knowledge necessary to infer

(...continued) designates the 2 nd Phillips Affidavit as Exhibit 6. Indeed, U.S. Financial's argument overlooks the import of the action of the Contracting Officer in 2002, both of which establish that the validity of the assignment is disputed at this juncture: First, the issuance of Modification P0013 effectively rescinded Modification P0001 and rejected the purported assignment. Second, the Contracting Officer's direction of two payments to WINN (July 3 and September 30, 2002) pursuant to Modification P0013 was conscious and deliberate and not "erroneously" made, as U.S. Financial contends; and U.S. Financial's citations to Florida Nat'l Bank of Miami v. United States, 5 Cl.Ct. 396 (1984) (where government concedes erroneous payment of assigned proceeds, assignee may recover proceeds) and Central Nat. Bank of Richmond v. United States, 91 F. Supp.738 (1950) (recovery by assignee where payment made to third party erroneously) are thus inapposite.
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a recognition of a noncomplying assignment is distinctly different from the issue of notice, which is a requirement of the Act that may be waived. American Nat'l II, op. cit. Thus, even putting aside the question of whether the foregoing requirement can be waived, much as U.S. Financial would pretend otherwise disclosure of the nature of the underlying escrow arrangement prior to execution of Modification P0001 is necessary, even critical, to establish the validity of the assignment itself and any purported waiver. Its citations to Norwest Bank Arizona, N.A. v. United States, 37 Fed. Cl. 605 (1997) (where prime contractor assigned its payments under government contract to subcontractor's bank, as demanded by subcontractor before it would deliver goods, with intent to discharge or prevent any present or future liability to subcontractor, subcontractor was third party beneficiary of the assignment and thus entitled as assignee to enforce government's obligation to pay assignee pursuant to prior modification of underlying contract.) and D&H Distributing Co. V. United States, 102 F.2d 542 (Fed. Cir. 1996) (contracting officer's modification of contract to change payee information to supplier, with full knowledge that the change was to secure financing advanced by supplier, made supplier third party beneficiary of modified contract). CONCLUSION For the reasons set forth above and in its Motion to Dismiss, U.S. Financial's complaint fails for want of jurisdiction and fails to state a claim on which relief may be granted. Third Party Defendant The W.I.N.N. Corporation thus respectfully moves the court: 1. To dismiss with prejudice U.S. Financial's complaint pursuant to RCFC 12(b)(6), and to dismiss Defendant / Third Party Plaintiff's derivative Third Party Complaint as moot; in the alternate,

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2.

To dismiss U.S. Financial's complaint pursuant to RCFC 12(b)(1), and to dismiss Defendant/Third Party Plaintiff's derivative Third Party Complaint as moot. Respectfully submitted,

Date: October 7, 2004

/s/ Carol L. O'Riordan Carol O'Riordan THE O 'RIORDAN BETHEL LAW FIRM , LLP 1314 19th Street, NW Washington, D.C. 20036-1602 Ph: (202) 822-1720 Fax: (202) 822-1721 Counsel for Third Party Defendant The W.I.N.N. Group, Inc.

Of Counsel: Pamela J. Bethel, Esq. THE O 'RIORDAN BETHEL LAW FIRM , LLP 1314 19th Street, NW Washington, D.C. 20036-1602 Ph: (202) 822-1720 Fax: (202) 822-1721 And Brian T. Scher, Esq.
SCHUMACK RYALS PLLC

3900 Jermantown Road Fairfax, Virginia 22030 Ph: (703) 934-4656

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