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INFORMATIONAL
MEMORANDUM FOR THE SECRETARY |
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Through: | Lou
Gallegos Assistant Secretary for Administration |
From: | Howard
A. Pollack Chair Board of Contract Appeals |
Subject: | Agriculture
Board of Contract Appeals Annual Report - Fiscal Year (FY) 2002 |
ISSUE:
The purpose of this memorandum is to inform the Secretary and persons
on the distribution list about the Board=s FY 2002 functions and activities.
DISCUSSION:
I. The
Board=s Functions
During FY 2002, the Department issued over 17,000 contract actions obligating
more than $5 billion for the procurement of commodities, supplies,
services, and construction to support agency operations. In addition, the Forest Service timber sale
program resulted in contracts it estimates were worth approximately
$163 million through September 30, 2002.
The Board was established under the Contract Disputes Act (CDA),
41 U.S.C. '' 601-613, and adjudicates claims arising under
these contracts. The Board
is empowered to grant the same relief in contract matters as the U.
S. Court of Federal Claims. Board
decisions are not reviewable within the Department, but contractors
or the Department may appeal to the U. S. Court of Appeals for the
Federal Circuit.
Additionally, under 7 CFR 24.4(b) and 400.169, the Board has jurisdiction
over appeals from final administrative determinations issued by the
Risk Management Agency on behalf of the Federal Crop Insurance Corporation
(FCIC) arising under Standard Reinsurance Agreements (SRA=s) involving the Federal Crop Insurance Act,
7 U.S.C. ' 1501 et. seq. Under 7 CFR 24.4(c) the
Board has jurisdiction over certain suspensions and debarments. Under the Equal Access to Justice Act, 5 U.S.C.
' 504, the Board is authorized to award attorneys= fees and costs to prevailing parties when the
Government=s position in litigation was not substantially
justified.
After an appeal to the Board is taken, the agencies are represented before
the Board by attorneys from the Office of the General Counsel. Contractors are generally represented by private
counsel, although a number of contractors, particularly on small dollar
value claims, represent themselves.
Many of the appeals require a Board member presiding over a
formal evidentiary hearing, where witnesses are subject to examination
and cross-examination. Board
proceedings are generally conducted in accordance with the Federal
Rules of Civil Procedure and the Federal Rules of Evidence.
In January 2002, the Board Chair, Judge Edward Houry, retired, leaving
the Board with three judges. In
August 2002, Judge Howard Pollack was named Chair.
The Board has not recruited a judge to fill the vacancy left
through the retirement of Judge Houry.
As a consequence, the remaining judges not only handle all
cases on their respective dockets, but also participate on the panel
for all other cases before the Board.
Panel involvement will vary depending on the appeal, however,
as is evidenced by the number of concurring opinions and dissents
at this Board, the panel members take an active role in both the review
and decision of appeals before this Board and panel participation
constitutes a significant commitment of time for each judge.
II. Workload
Data
The number of appeals on the Board=s docket, and the agencies from which the appeals originated, are set
forth in the table below.
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FY 02 APPEALS
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FY 02 DISPOSITIONS
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TOTAL PRESENTLY ON DOCKET |
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Agricultural Marketing Service |
1
|
2
|
0
|
|
Agricultural Research Service |
0
|
0
|
1
|
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Animal & Plant Health Inspection Service |
7
|
3
|
6
|
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Farm Service Agency |
1
|
2
|
1
|
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Federal Crop Insurance Corporation |
4
|
6
|
27
|
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Forest Service |
34
|
37
|
57
|
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Natural Resources Conservation Service |
6
|
9
|
5
|
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Interagency |
1
|
1
|
0
|
|
55
|
60
|
98
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All the Board=s FY
2002 decisions and rulings are posted on the Board=s web site at http://www.usda.gov/bca/.
They are also published in a number of reporting services such as
Westlaw, LEXIS, and CCH=s, Board of Contract Appeals Decisions.
Among contract issues before the Board during FY 2002,
were appeals involving termination of leases, rights of the parties
as to timber damaged prior to cutting, estimating of timber quantities,
jurisdiction of the Board, quantity of commodities, and the obligation
of the Government to resell after termination. Because Board decisions are readily available from the above-cited reporting
services, this report does not list nor summarize individual Board
CDA or FCIC decisions.
The Board received 55 appeals during FY 2002, and disposed of 60 appeals.
During FY 2002, 24 appeals were disposed of through Board decision
or rulings. The remainder were settled by the parties, often after Alternative
Dispute Resolution (ADR) action by the Board. Thus, the number of appeals on the Board=s docket was reduced from 102 to 98. In contrast, during the prior year, FY 2001,
the Board received 75 appeals and disposed of 77. However, the drop in filed appeals during FY 2002 is somewhat deceiving,
as the number of appeals already docketed for the first quarter of
FY 2003 show an increase in the number of anticipated appeals for
FY 2003, leading to the expectation that the number of cases for FY
2003 will be more in line with prior year totals.
The Board has continued to take an active role in facilitating many of
the settlements achieved. The
Board regularly offers ADR, which often is conducted by telephone
conferences with the parties. Where
appropriate and desired by the parties, the Board conducts face-to-face
ADR, generally using mediation or neutral evaluation.
While the Board makes available options such as mini trial,
it has been the Board=s experience that parties prefer the informality
and lower cost of more informal types of ADR.
III. Motions
Practice
In addition to the 24 cases the Board disposed of through either decision
or ruling, the Board also spent
considerable time and resources in deciding motions submitted by both
the Government and contractors, where the end result was not a dispositive
ruling. These motions generally
fell into two categories, motions challenging Board jurisdiction or
Motions for Summary Judgment. In
a Motion for Summary Judgment, the moving party is contending that
there are no disputes over material facts and that the Board, as a
matter of law, should rule in that party=s favor on the record then before the Board. During FY 2002, the Board denied motions involving
14 appeals. The rulings on
these decisions required varying degrees of effort on the part of
the participating judges. Three
rulings in particular, Rain & Hail Insurance Service, Inc., AGBCA
No. 97-182-F; Rural Community Insurance Company, AGBCA No. 2000-154-F;
and Farmers Alliance Mutual Insurance Co., AGBCA No. 2000-163-F (along
with other companion appeals) were split decisions, with the majority
finding that summary judgment was not warranted and the dissent finding
otherwise.
IV. Legislation
This year Congress made no significant legislative changes affecting claims
before the Board.
V. Cases
Pending Before a District Court From Prior Years
Rural Community Insurance Services AGBCA No. 1999-189-F, 00-1 BCA & 30,916 Decided by the Board on April 20, 2000 U.S. District Court for the District of Columbia Civil Action No. 00-1908 ES, appealed August 8, 2000
VI. Appeals
of Board Decisions to the U. S. Court of Appeals for the Federal Circuit
As with the decisions of the U. S. Court of Federal Claims, which has
concurrent jurisdiction with the Board over CDA appeals, the Board=s CDA decisions are subject to appeal to the
U. S. Court of Appeals for the Federal Circuit by the contractor or
the Government. Only one Board decision, Butler Ford,
was appealed to the Court of Appeals in FY 2002. That appeal, along with four others (filed in prior years), was
decided in FY 2002 by the Court of Appeals for the Federal Circuit. In each instance the Board=s decision was affirmed. A brief description of each case is set out
below.
1. Ridge
Runner Forestry AGBCA No. 2000-161-1, 01-1 BCA & 31,300 Decided by the Board on February 13, 2001 Fed. Cir. No. 01-1233
The Ridge Runner Forestry appeal involves
a claim that Ridge Runner had been systematically excluded from receiving
orders for services. Ridge
Runner sought the lost profits on the work it claimed it should have
received. The Government moved to dismiss the appeal
for lack of jurisdiction, contending that the agreement was not a
contract as defined in the CDA. A
Board majority found that notwithstanding the fact that contractors
might have to expend funds to qualify for the agreement, the agreement
was similar to a basic ordering agreement (BOA), which under the Federal
Acquisition Regulations (FAR) was not a contract.
A BOA results in a contract only when the Government places
an order and the contractor accepts it. Thus, the Board found that the agreement was
not a contract within the meaning of the CDA and dismissed the appeal. The Court affirmed the Board=s decision on April 8, 2002.
2. Lance
Logging Co., Inc. dba Wolf Creek Industries, and Wolf Creek Industries,
Inc. AGBCA Nos. 98-137-1, et al., 01-1 BCA & 31,356 Decided by the Board on March 20, 2001 Fed. Cir. No. 01-1265
Lance Logging, Inc., dba Wolf Creek Industries,
and Wolf Creek Industries, Inc., involved eight timber sale contracts. Appellant claimed damages for each sale because
the Government had utilized timber cruise methods that the Government
allegedly knew were inaccurate in that they tended to overstate the
timber volume. The Government
filed a motion for summary judgment asserting that the language of
the contracts precluded the relief sought by the Appellant.
The Board found that the contracts provided no guarantee of
timber quantity. The Board also found that Appellant submitted
bids containing acknowledgments that the volume of timber in each
contract was not a guarantee or warranty, as well as that the bids
were based on Lance Logging=s inspection of the timber, without reliance
on the Government estimates. Under
these circumstances, the Board found that the contract language provided
no basis for relief and granted the Government=s motion. The Court affirmed the
Board=s decision on March 22, 2002.
3. Reidhead
Brothers Lumber Mill AGBCA No. 2000-126-1, 01-2 BCA & 31,486 Decided by the Board on June 29, 2001 Fed. Cir. No. 01-1441
Reidhead Brothers Lumber Mill involved a claim under the AInterruption or Delay of Operations@ clause of a timber sale contract. The
contract provided for the reimbursement of Aout-of-pocket@ expenses incurred as a Adirect result@ of delays
greater than 30 days. The
clause specifically excluded recovery of lost profits, the replacement
cost of timber, and other anticipatory losses.
The claim included expenses associated with the operation of
Reidhead=s sawmill, such as unamortized expenses, increased
direct labor expenses, and labor inefficiency. The claim also included unamortized G &
A expenses, increased logging and hauling expenses, and legal expenses. The parties filed motions for summary judgment.
A Board majority concluded that the expenses associated with
the sawmill operations and the G & A were not covered by the clause,
and granted the Government=s motion dismissing these claims. The Board denied both parties= motions for the increased logging and hauling
costs, and for the legal expenses, subject to additional proof. After additional evidence was submitted, a
Board majority granted Reidhead=s claim for the increased logging and hauling costs, and for a
portion of the legal expenses incurred for claim preparation, as opposed
to claim prosecution. An appeal
followed. The Court affirmed the Board=s decision on May 15, 2002.
4. Butler
Ford AGBCA No. 98-188-1, 01-2 BCA & 31,485 Decided by the Board on June 27, 2001 Fed. Cir. No. 02-1012
Butler Ford involved
a contract for leasing specified vehicles including sedans and pickup
trucks from February 7, 1996, through September 30, 1996. Appellant filed claims for $68,522 because
vehicles were returned in June and July 1996, prior to the expiration
of the contract, and for $318,911 because APHIS ordered vehicles from
GSA that APHIS should have allegedly ordered from Butler. Appellant claimed that the contract was a Arequirements@ contract, which mandated that all the Government=s needs be satisfied under the contract. The Board denied the appeal concluding that
the contract was neither an indefinite-quantity nor a requirements
contract, with the result that Appellant was entitled to payment only
for vehicles actually ordered and provided.
The Court affirmed the Board=s decision on July 16, 2002.
5. Rain & Hail Insurance
Service, Inc. AGBCA No. 97-182-F, 02-1 BCA & 31,790 Decided by the Board on December 10, 2001 Fed. Cir. No. 02-1062
Rain & Hail Insurance Service, Inc. (RHIS) is an action where RHIS filed at the Federal Circuit and moved for an
order from the Court determining the Court=s jurisdiction over the appeal. Both
RHIS and FCIC took the position that the Court did not have jurisdiction
over an appeal of the AGBCA which was not rendered pursuant to the
CDA. This appeal involves
the identical dispute that was also filed as an action in the U. S.
District Court for the Southern District of Texas, Civil Action No.
M-01-280. The Federal
Circuit found that the Standard Reinsurance Agreement (SRA) between
RHIS and FCIC was not a CDA contract.
The Court stated, AThe SRA=s purpose is to provide insurance for the agricultural procedures in accordance
with the FCIA, rather than to procure goods or services for FCIC.@ The
matter was dismissed by the Court on March 1, 2002.
VII. Cases Before a U.S. District Court on Appeals
Decided by the AGBCA on FCIC Appeals.
All of the suits involving Board decisions, which are currently before
various U.S. District Courts involve FCIC insurance claims. FCIC matters (disputes under the Standard Reinsurance
Agreement) are appealed to the Board by reinsurers pursuant to 7 CFR
24.4 and not under the CDA. Board
decisions are final within the Department.
Since FCIC appeals are not before the Board under the CDA,
suits addressing Board decisions on FCIC matters do not go to the
Court of Appeals for the Federal Circuit.
Rather, all actions to date, regarding a decided Board decision,
have been filed by reinsurers (identified as Appellants at the Board
and Plaintiffs at the U.S. District Court) in one of the Federal District
Courts. At the beginning of
FY 2002, there was one matter, Rural Community
Insurance Services, pending at the U. S. District Court for
the District of Columbia. That
matter was described in last year=s report and is still pending action.
During FY 2002, three other Board decisions on FCIC disputes became subject
of actions in various District Courts.
In two of the actions, the reinsurer challenged Board=s decision in favor of FCIC. In each of those cases, the Plantiff (previously
Appellant) claimed a right to proceed de novo with the proceeding
at the Court. In a third matter,
Rain & Hail Insurance Service, Inc., AGBCA No. 97-182-F, Plaintiff filed
its Complaint at the District Court prior to a decision by the Board.
The above-noted cases are the first cases where Appellants before the
Board have brought FCIC cases decided by the Board to the District
Courts. Thus, the decisions being rendered by the District
Courts are all matters of first impression, as regards Board decisions
and jurisdiction on FCIC matters.
Accordingly, given the import of these decisions, which may
not be readily available for review in reporting services, a detailed
summary is provided.
1. Rain
and Hail Insurance Service, Inc. v. Federal Crop Insurance Corp.
AGBCA No. 98-195-F, 98-196-F,
98-197-F, 99-125-F, 01-2 BCA & 31,534 Decided by the Board on July 26,
2001 U. S. District Court for the Southern District of Texas, McAllen Division Civil Action No. M-01-280, action filed November 16, 2001
Rain & Hail Insurance Service, Inc. (RHIS), filed appeals over a dispute
with the Government, arising out of planting in the Coastal Bend area
of Texas. The appeals involved
FCIC determinations on noncompliance with FCIC approved
policies and procedures, and allegations that Appellant made overpayments
of $1,511,607 on 36 crop insurance policies.
The bulk of the indemnities at issue fell into one of two categories. Either, they arose out of situations where
no crops emerged because of drought, and Appellant=s adjusters released the acreage before the
final planting date (but did not require replanting where replanting
was occurring in the area); or arose where no crops emerged and adjusters
based their determination of loss upon seed viability, releasing the
acreage before the final planting date. After conducting a hearing
on the merits and after briefing by the parties, the Board issued
a decision. The Board concluded that applicable FCIC manuals and handbooks
required that the original crop be replanted if practical, and that
the evidence indicated that practicality existed here. Replanting to the original crop would have
resulted in an extension of the original insurance, not a new risk
under a second policy as occurred where the acreage was replanted
to a different crop. The Board
also concluded that although the FCIC Regional Service Office authorized
seed viability as an appraisal method, as practiced in these instances,
where acreage was released before the final planting date, seed viability
did not yield accurate results as implemented.
This was particularly the case when measured against scientific
studies in the record and the sampling requirements of the Astand reduction@ appraisal method. The Board denied
the appeals. RHIS (Plaintiffs) then brought suit in District Court, alleging breach
of the SRA, statutory violations, and a constitutional taking by the
FCIC, Risk Management Agency (RMA) and the United States. RHIS alternatively
requested administrative review of the Board decision Ato the extent Plaintiffs do not have an original cause of action regarding
matters already determined by the ABCA (sic AGBCA).@ RHIS
also requested declaratory relief against FCIC, RMA and the United
States pursuant to 28 U.S.C. ' 2201.
The Defendants (the various Government entities) responded with a motion
to dismiss arguing the following.
First, they argued that the District Court lacked jurisdiction,
asserting that as such claims must be brought in the U.S. Court of
Federal Claims, pursuant to 28 U.S.C. ''1346(a)(2) and 1491, which directs that suits over $10,000 be brought
in the Federal Claims Court. Defendants
further claimed Plaintiff failed to file a colorable takings claim
and as to the claim for interest, the Defendants argued RHIS was barred
by res judicata or failure to exhaust an interest claim administratively. Finally, and specifically relevant to the Board
jurisdiction, Defendants argued that insurers were limited to the
Court=s administrative review of the claims brought
before the Board. The Court issued an order on October 31, 2002, addressing
those matters.
As to the takings claim, the Court concluded that the Plaintiffs did not
have a colorable takings claim against the United States. The Court then noted however, that defendants
were correct in that the claim did not differ from a breach of contract
claim for improper offsets under the SRA. The Court noted that a takings claim is inappropriate where it duplicates
a breach of contract claim and where a breach of contract claim is
available to the Plaintiff.
As to the review of the administrative record matters, the Court concluded
as follows. Since an administrative determination and a Court order
from the Federal Circuit have concluded that SRAs are not standard
government procurement contracts, and do not fall under CDA, then
the arbitrary and capricious standard of review set out in the Wunderlich
Act would not necessarily apply.
The Court, however, said it did not need to reach that question,
as case law overwhelmingly directs that the APA=s arbitrary and capricious standard should govern
the review of the FCIC determinations.
The Court further rejected Plaintiff=s argument that because 7 U.S.C. '1506 (d) confers Aexclusive original jurisdiction@ in the District Court for suits against FCIC, the Court must necessarily
review the claims de novo. The Court stated that the argument ignores
7 U.S.C. ' 6912(e) and 7 CFR 400.169, which require the
parties to exhaust their claims against FCIC.
The Court then laid out the following standards of review for what it
described as the FCIC/ABCA determinations.
The reference ABCA refers to the Agriculture Board of Contract
Appeals. The standards of
review are: (1) the APA scope of review governs, (2) the Court should
review the FCIC/ABCA decision under an arbitrary and capricious standard,
(3) the agencies= factual determinations must be supported by
substantial evidence, (4) pure questions of law should be reviewed
de novo, (5) the Court should employ the AChevron Doctrine@ to review the agencies construction of a statute and must Agive effect to the unambiguously expressed intent
of Congress.@
Critical to Court decision is that by borrowing the APA standard of review,
the Court did not mean to suggest that APA governs the suit so as
to limit damages to equitable relief.
Rather, the Court borrowed the standard of review only because
the specific administrative exhaustion provision (5 U.S.C. ' 6912(e)) did not provide a standard of review.
Claims are otherwise still governed by 5 U.S.C. '' 1506
and 6912, which place no bar on the recovery of monetary relief.
As to improperly offset interest, the Court said that it could not decide
the matter without seeking information outside the pleadings. It thus concluded that this issue was not appropriate
for a motion to dismiss. The
review of the Board=s decision and the other matters not dismissed by the Court remain before
the Court at this time.
2. American Growers Insurance
Company v. Federal Crop Insurance Corporation AGBCA No. 98-200-F, 00-2 BCA & 30,980 Decided by the Board on June 15, 2000 U.S. District Court for the Southern District of Iowa, Western Division Civil Action No. 1:01-CV-10059,
filed October 30, 2001 Order issued June 26, 2002
American Growers had filed an appeal with the Board claiming reimbursement
due to changes in the prevented planting coverage sold to farmers
under the 1996 SRA agreement. The
Board issued a decision, which consisted of three separate opinions,
two favoring the motion and one dissenting.
Each of the opinions favoring the motion, granted it on the
basis of a different rationale.
American Growers, Plaintiff, filed its Complaint with the Court seeking
damages rather than asking for a review of the above decision of the
Board. In Count I of the Complaint, American Growers alleged
a breach of the 1996 SRA. In
Count II it alleged a violation of the Federal Crop Insurance Act,
7 U.S.C.' 1501 et seq. Count III was essentially
a takings claim asserting violation of the Fifth Amendment. In arguing that the Board=s decision had no effect on the Court=s ability to hear Plaintiff=s claims, the Plaintiff relied on 7 U.S.C. '1506(d). That
statute provides that FCIC may be sued in District Court and that
the District Court shall have exclusive original of jurisdiction of
such matters.
On June 26, 2002, the Court issued an order addressing the parties= contentions. The Court pointed out that the Asue and be sued@ language in 7 U.S.C. ' 1506(d) does not address the effect of prior administrative decisions
or whether administrative remedies must be exhausted. The Court then
noted that 7 U.S.C. ' 6912(e) addresses the matter of exhaustion. That provides that a party must exhaust its administrative remedies.
The Court then continued that the administrative appeal procedures
that must be exhausted are set out in 7 CFR 400.169.
Accordingly, the Court found that American Growers could not
maintain a claim for damages under Count I of its Complaint.
As to Count II, the Appellant alleged a violation of a federal statute.
The Court stated that it was unclear as to whether the matter was
before the Board or whether it could have been brought before the
Board. Because resolution of this matter required
the Court to go outside of the pleadings, it concluded that the matter
needed to be reserved for a ruling on summary judgment motion.
As to the matter of review of the Board=s decision, the Court declined to make an affirmative determination as
to the exact scope of review of the Board=s decision. However, the Court
did grant Plaintiff leave to file a breach of contract claim that
seeks judicial review of the Board=s adverse decision. The
matter is still pending before the District Court.
3. Rain
& Hail Insurance Service, Inc. v. Federal Crop Insurance Corporation AGBCA No. 97-182-F, 02-1 BCA & 31,790 Decided by the Board on December 10, 2001 U.S District Court for the Southern District of Iowa, Western Division Civil Action No. 1:01-CV-10053 Order issued May 1, 2002
Rain & Hail Insurance Service (RHIS) filed this suit
for breach of the reinsurance agreement due to changes to prevented
planting provisions for the 1996 crop year.
At the time of the Plaintiff=s filing, the Board had before it a Motion for Summary Judgment from FCIC.
Between the date of Plaintiff=s filing and the Government response to the
Plaintiff=s suit, the Board (on December 10, 2001) issued
a decision denying the Government=s Motion for Summary Judgment.
In response to RHIS=s suit at the District Court, FCIC filed a motion to dismiss, asserting
that the Court lacked subject matter jurisdiction and contending that
RHIS had to exhaust its administrative remedies under 7 U.S.C. ' 6912(e) before bringing the matter before the
Court. The Court, in responding,
found that the failure to exhaust administrative remedies under 7
U.S.C. ' 6912 does not divest the Court of subject matter
jurisdiction, rather the failure to exhaust administrative remedies
is an affirmative defense more appropriately addressed by a Rule 12
(b) motion to dismiss.
The Court then took the following action. It issued an order dated May 1, 2002, in which it stated that 7 U.S.C. ' 6912(e) clearly requires plaintiff to first exhaust its administrative remedies prior to bringing a claim in the Court. Notwithstanding that requirement, the Court decided that due to potential statute of limitation issues, equity demanded that the Court stay RHIS=s claims, rather than dismiss them outright. The Court concluded that while the pending appeals before the Board may ultimately resolve the case, it is also possible that further federal proceedings might prove necessary and thus the matter was stayed. The appeal is now back before the Board with hearing on the merits scheduled for early 2003. |
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