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Elaine Hillard

 

Board of Appeals Heading

2001 Annual Report Heading

 

INFORMATIONAL MEMORANDUM FOR THE
SECRETARY
   
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.

 

 
FY 02 APPEALS 
FY 02 DISPOSITIONS 

TOTAL PRESENTLY ON DOCKET

Agricultural Marketing Service 
1
2
0
Agricultural Research Service  
0
0
1
Animal & Plant Health Inspection Service 
7
3
6
Farm Service Agency
1
2
1
Federal Crop Insurance    Corporation
4
6
27
Forest Service
34
37
57
Natural Resources    Conservation  Service
6
9
5
Interagency
   1   
   1   
     0  
 
55
60
98


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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