LYNN J. BUSH, Senior Judge.
The court has before it the government's motion to dismiss brought under Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). Defendant's motion has been fully briefed. Oral argument was neither requested by the parties nor required by the court. For the reasons set forth below, defendant's motion is denied.
Most of the relevant background for this dispute may be found in Ground Improvement Techniques, Inc. v. United States, 108 Fed. Cl. 162 (2012) (GIT I), Ground Improvement Techniques, Inc. v. United States, No. 12-57C (Fed. Cl. May 3, 2013) (GIT II), Ground Improvement Techniques, Inc. v. United States, No. 12-57C (Fed. Cl. April 30, 2014) (GIT III), and Ground Improvement Techniques, Inc. v. United States, 618 F. App'x 1020 (Fed. Cir. 2015) (GIT IV). Only the facts essential to the dispute currently before the court are presented here. In 1995, Ground Improvement Techniques, Inc. (GIT) became the subcontractor for MK-Ferguson Company (MK) on a United States Department of Energy project in Slick Rock, Colorado (the DOE project) for the remediation of uranium mill tailings.
In 2001, MK filed for bankruptcy under Chapter 11 of the Bankruptcy Code, in the United States Bankruptcy Court for the District of Nevada (the MK bankruptcy litigation). The unsatisfied portion of GIT's judgment against MK, and post-judgment interest, were claims administered in MK's bankruptcy. The bankruptcy court required MK to file a certified claim with DOE to attempt to satisfy GIT's claims against MK related to the DOE project. MK did so in 2010, but the certification was contested as inadequate.
MK very recently corrected its certification of GIT's claim to comply with claim certification requirements under the Contract Disputes Act of 1978, 41 U.S.C. §§ 7101-7109 (2012) (CDA). Pls.' App. Ex. 3. The type of claim presented in this suit is sometimes referred to as a pass-through claim, where the prime contractor certifies the claim of the subcontractor and sponsors that claim under its own name. Because GIT also went through bankruptcy, any proceeds from GIT's claim will be paid to the assignees of that claim in GIT's bankruptcy, usually referred to as the "Secured Parties."
There are three basic arguments which provide the foundation for defendant's motion to dismiss presently before the court. Def.'s Mot. at 3-4. The government's first jurisdictional argument essentially contends that the pass-through claim asserted in the amended complaint was never properly certified to the contracting officer and that the defects in certification are so grave that they cannot be cured. The government's second argument, relying on RCFC 12(b)(1) and RCFC 12(b)(6) and citing Severin v. United States, 99 Ct. Cl. 435 (1943), contends that because MK is not liable for GIT's claim, MK cannot sponsor GIT's claim before this court. In the alternative, defendant argues that the costs presented in MK's pass-through claim are not allowable costs pursuant to MK's contract with DOE; thus, in the government's view, the claim set forth in the amended complaint fails as a matter of law.
In rendering a decision on a motion to dismiss for lack of subject matter jurisdiction pursuant to RCFC 12(b)(1), this court must presume all undisputed factual allegations to be true and construe all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), abrogated on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982); Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 747 (Fed. Cir. 1988). However, the plaintiff bears the burden of establishing subject matter jurisdiction. Alder Terrace, Inc. v. United States, 161 F.3d 1372, 1377 (Fed. Cir. 1998) (citing McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936)). To meet this burden, the plaintiff must establish jurisdiction by a preponderance of the evidence. Reynolds, 846 F.2d at 748 (citations omitted).
It is well-settled that a complaint should be dismissed under RCFC 12(b)(6) "when the facts asserted by the claimant do not entitle him to a legal remedy." Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002). When considering a motion to dismiss brought under RCFC 12(b)(6), "the allegations of the complaint should be construed favorably to the pleader." Scheuer, 416 U.S. at 236. The court must not mistake legal conclusions presented in a complaint, however, for factual allegations which are entitled to favorable inferences. See, e.g., Papasan v. Allain, 478 U.S. 265, 286 (1986) ("[W]e are not bound to accept as true a legal conclusion couched as a factual allegation.") (citations omitted).
The court must also determine whether a complaint meets the plausibility standard described by the United States Supreme Court, i.e., whether it adequately states a claim and provides a "showing [of] any set of facts consistent with the allegations in the complaint." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 (2007) (Twombly) (citations omitted). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (Iqbal) (quoting Twombly, 550 U.S. at 570). Plausibility is a context-specific inquiry. See, e.g., Iqbal, 556 U.S. at 679 ("Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.") (citation omitted).
As ordered by the judge in the MK bankruptcy litigation, MK certified GIT's subcontractor claim on October 22, 2010 and provided that certification, with supporting documents, to the contracting officer on the DOE project. That certification statement contains the following language:
Am. Compl. Ex. 4 at 26. The claim amount was for $9,842,711.83. Id. at 27.
There is no real dispute that an effective certification for a nine million dollar claim must include four elements prescribed by the CDA. The contractor must certify that:
41 U.S.C. § 7103(b). Only the last of those four elements is clearly present in the certification letter provided by MK on October 22, 2010. Unless the court orders issued by the bankruptcy court could relieve MK of its certification burden, it is clear that the October 22, 2010 certification is not sufficient under the CDA.
The court need not decide whether such a certification under court order, or a subsequent certification under court order submitted in MK's name but not authorized by MK, could ever be sufficient to certify a CDA claim. MK, on December 22, 2015, provided a second certification to the contracting officer which stated, in relevant part, that:
Pls.' App. at 22. The December 22, 2015 certification submitted by MK contains all four elements required by the CDA.
Defendant does not argue that the December 22, 2015 certification is itself defective. In the court's view, the December 22, 2015 certification cures the defects in MK's October 22, 2010 certification. The submission of a corrected and proper certification normally ends the court's inquiry into the certification issue because it is well-established that a defective certification can be corrected at any time before this court enters a judgment in a contractor's suit under the CDA. See, e.g., 41 U.S.C. § 7103(b)(3) ("A defect in the certification of a claim does not deprive a court or an agency board of jurisdiction over the claim. Prior to the entry of a final judgment by a court or a decision by an agency board, the court or agency board shall require a defective certification to be corrected."); M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1329 (Fed. Cir. 2010) ("[W]hile technical compliance with certification is not a jurisdictional prerequisite to litigation of a contractor's claim under the CDA, it is a requirement to the maintenance of such an action.") (citations omitted); James M. Ellett Constr. Co. v. United States, 93 F.3d 1537, 1546 (Fed. Cir. 1996) (noting that after late 1992 "certification of [a CDA claim is] not a jurisdictional prerequisite").
The government does not accept this interpretation of the effectiveness of the December 22, 2015 certification, however. Defendant asserts that the October 22, 2010 certification was not a certification at all, and thus does not benefit from the rule that a defective certification can later be corrected. See Def.'s Mot. at 15 ("Plaintiff[s'] claims are not merely defectively certified, they are not certified at all."). This is a plausible but ultimately unsuccessful argument.
The government's "failure to certify" argument is constructed upon a number of contentions. First, relying on a provision of the Federal Acquisition Regulation (FAR), 48 C.F.R. § 33.201 (2010), defendant characterizes the October 22, 2010 certification as a "failure to certify," rather than as a defective certification. Def.'s Mot. at 15; see also FAR 33.201 ("Failure to certify shall not be deemed to be a defective certification."). Second, the government suggests that jurisdiction in this court cannot lie where MK failed to certify the pass-through claim, relying principally on Scan Tech Security, L.P. v. United States, 46 Fed. Cl. 326 (2000). Third, defendant argues that MK lacked the necessary intent to certify the pass-through claim's accuracy and merit, thus rendering its October 22, 2010 certification not merely defective, but incurable. See Def.'s Reply at 3 ("MK's failure to certify is not susceptible to being cured, because its refusal to provide three of the four required certifications is not a mere defect.") (citing Scan Tech, 46 Fed. Cl. at 335). These arguments are not persuasive, for the following reasons.
Neither the regulation cited by defendant nor the CDA itself contains illuminating language which explains the difference between submitting a defective certification and "failing" to submit a certification. Both parties cite to legislative history of the CDA which indicates that the 1992 amendment of the CDA sought to prevent "[w]asteful and esoteric litigation" over the certification of CDA claims. H.R. Rep. 102-1006, at 28 (1992). The bill before Congress also apparently attempted to favor technically deficient certifications ("the result of innocent mistake or inadvertence") over certifications which were "made fraudulently, in bad faith, or with reckless or grossly negligent disregard of the Contract Disputes Act or applicable regulations," id. at 28-29, although this particular concern is not explicitly stated in the final amendment of the statute, 41 U.S.C. § 7103(b)(3). The court notes that the governing statute, 41 U.S.C. § 7103(b)(3), and the text of the regulation, FAR 33.201, even if these authorities were interpreted to incorporate every statement in the legislative history cited by the parties, do not, by any means, address every type of imperfect certification. Courts and contract appeals boards have attempted to apply the statute and regulation to diverse fact patterns, but the court has searched in vain for a case on all fours with the facts of this case.
It is obvious that a complete failure to submit any certification whatsoever for a CDA claim seeking more than $100,000 is a "failure to certify" and this failure cannot qualify as a defective certification which may be cured. See, e.g., Estes Express Lines v. United States, 123 Fed. Cl. 538, 550 (2015) (dismissing a CDA claim for lack of jurisdiction in part because the contractor conceded that it had not submitted any certification of its large claim), appeal docketed, No. 16-1298 (Fed. Cir. Dec. 9, 2015). Under less obvious, but understandable, circumstances the Armed Services Board of Contract Appeals has repeatedly held that a failure to sign a certification also constitutes a failure to certify a CDA claim under FAR 33.201. See, e.g., Tokyo Co., ASBCA No. 59059, 14-1 BCA ¶ 35,590 (Apr. 23, 2014) ("Thus, the altogether lack of a signature on a certification is not a defect that can be cured under FAR 33.201 such that we can retain jurisdiction.") (citations omitted). There is also a line of decisions from the contract appeals boards that assesses the contractor's knowledge of proper certification language, or weighs evidence of the contractor's intent to be bound by its certification. E.g., Walashek Indus. & Marine, Inc., ASBCA No. 52166, 00-1 BCA ¶ 30,728 (Jan. 6, 2000); Keydata Sys., Inc., GSBCA No. 14281-TD, 97-2 BCA ¶ 29,330 (Oct. 10, 1997); Prod. Corp., ASBCA No. 49122-812, 96-1 BCA ¶ 28,053 (Nov. 6, 1995). None of these board decisions were discussed by the parties.
Defendant relies principally on Scan Tech for the proposition that MK did not certify its claim in 2010 as required by the CDA, thus depriving this court of jurisdiction over the claim presented in plaintiffs' amended complaint. Def.'s Mot. at 14 (citing Scan Tech, 46 Fed. Cl. at 334). Scan Tech, however, is inapposite. Two documents in Scan Tech, a "cost or pricing data" form submitted to the contracting officer and a letter sent to the contracting officer over two years later, were deemed by the court to have fallen short of the "defective certification" benchmark. 46 Fed. Cl. at 335-38. The form was a "Contract Pricing Proposal Cover Sheet" which bears no resemblance to the letter submitted by MK on October 22, 2010. Id. at 329. The second document was a letter from a company official which enclosed some invoices which he stated were "as complete an assembly as possible." Id. Unlike MK's October 22, 2010 certification, this letter did not explicitly attempt to certify a CDA claim. Id. The court in Scan Tech found that neither of these documents was a "defective certification" because each reflected "a complete disregard of the CDA's certification requirement." Id. at 338.
This court's interpretation of CDA certification requirements in Scan Tech, although persuasive, is not binding on this court. See, e.g., W. Coast Gen. Corp. v. Dalton, 39 F.3d 312, 315 (Fed. Cir. 1994) ("Court of Federal Claims decisions, while persuasive, do not set binding precedent for separate and distinct cases in that court.") (citations omitted). The court in Scan Tech appropriately relied on the FAR, which provides the following guidance:
FAR 33.201. The remainder of that court's analysis, however, applies caselaw to the facts before it in Scan Tech, which involved neither a bankrupt prime contractor under orders from a bankruptcy court, nor an explicit statement of certification, which is the case here. Because the court in Scan Tech did not confront facts similar to the instant case, this court cannot agree with the government that Scan Tech compels a finding that "MK's failure to certify is not susceptible to being cured, because its refusal to provide three of the four required certifications is not a mere defect." Def.'s Reply at 3.
The other cases cited by the government for its "failure to certify" argument are just as unavailing as Scan Tech. In CSX Transportation, Inc. v. United States, 123 Fed. Cl. 244 (2015), the court held that the submission of a standard claim form for damage to property, often used to lodge tort claims against the federal government, could indeed constitute a claim under the CDA. Id. at 251. Because the claim exceeded the $100,000 threshold, however, certification was required under 41 U.S.C. § 7103. Id. at 251-52. The standard form's certification language did not resemble the language required for CDA certification set forth in 41 U.S.C. § 7103(b). Id. at 252. The court therefore ruled that the plaintiff's certification on the standard claim form was a failure to certify, not a defective certification. Id. As in Scan Tech, the certification inquiry in CSX did not involve a bankruptcy court order or a letter whose sole purpose was to certify a subcontractor claim. For this reason, the analysis in CSX is distinguishable from the analysis required in this case.
Finally, defendant, in its reply brief, relies upon another decision of this court, Sam Gray Enterprises, Inc. v. United States, 32 Fed. Cl. 526, 530 (1995), without explaining how the holding in that case supports its "failure to certify" argument. Def.'s Reply at 4. The communications between the businessman and the United States Air Force in that case did not include a CDA claim or a CDA claim certification. Sam Gray, 32 Fed. Cl. at 529-30. Instead, the businessman's letters and facsimiles presented requests for widely-varying amounts of money, and a statement that the contractor "in good faith" had to borrow "approximately Two Million Dollars" to provide housing to federal contractors in the Bahamas. Id. The "coincidental" usage of the term "good faith" was held to "bear[] so little resemblance to the broadest possible reading of the [CDA] certification requirement that the court [found] that [the] plaintiff never made any attempt to certify his claim and that his allegation [was] merely an after-the-fact attempt to ameliorate his error." Id. at 530. The facts in Sam Gray in no way resemble the facts of this case. The court cannot rely on the cases cited by the government to hold that MK failed to certify the pass-through claim submitted on October 22, 2010.
In the instant case the inquiry into certification requires consideration of the particular facts under which the October 22, 2010 certification was made by MK, and a review of analogous cases. Most relevant to this case, both in the court's view and as demonstrated by the parties' recitation of facts in their briefs, are the following circumstances: (1) MK's claim is a pass-through claim; (2) MK's October 22, 2010 certification of the claim was made under orders of the bankruptcy court; and, (3) MK's certification employed language specified by the bankruptcy court. See Def.'s Mot. at 9 (noting that MK's October 22, 2010 certification "utilized the language from the bankruptcy court's August 4, 2010 order"). For guidance, the court turns first to two precedential decisions of the United States Court of Appeals for the Federal Circuit which discuss the certification of pass-through claims. The court then turns to a dispute which proceeded from a contract appeals board to the Federal Circuit, and in which a bankruptcy court's order influenced a prime contractor's certification of a pass-through claim.
A seminal case, with a long procedural history not of interest here, is United States v. Turner Constr. Co., 827 F.2d 1554 (Fed. Cir. 1987). Turner, the prime contractor, offered two certifications of a pass-through claim originating from its subcontractor Johnson, but also advised the contracting officer, as required under its master contract, as to the merits of the claim. Turner, 827 F.2d at 1556-57. One of these advisory reports was negative, suggesting that the agency deny the claim, while a later advisory suggested that Turner could only provide factual background and no longer offered any legal advice as to whether the claim should be denied or granted. Id. at 1557. Although Turner's second certification conformed perfectly with CDA requirements, the government attempted to invalidate the certification because Turner had once recommended denial of the very claim it later certified. The Federal Circuit disagreed with the government's overly rigorous interpretation of the CDA's claim certification requirement.
The court's analysis of the validity of Turner's second certification is instructive:
Turner, 827 F.2d at 1561 (citation to legislative history omitted). The Federal Circuit also opined at length on the topic of pass-through claims, and the role of the sponsor of those claims:
Id. at 1559 (citation to legislative history omitted). Although Turner's certification, unlike MK's October 22, 2010 certification in this case, contained all of the required elements for a CDA certification, the Turner decision provides several key insights into the certification of pass-through claims.
First, the CDA "certification requirement requires not that the prime contractor believe the subcontractor's claim to be certain, but that the prime contractor believe that there is good ground for the claim." Turner, 827 F.2d at 1561. Second, the Federal Circuit requires that the sponsor of a pass-through claim make "a good faith effort to balance and comply with the competing concerns confronting it." Id. at 1559. Third, it is not the role of the prime contractor to adjudicate the pass-through claim, but to certify and present the pass-through claim to the contracting officer if good ground for the claim exists. Id. A few years later, the Federal Circuit had another opportunity to examine a certification of a pass-through claim in Transamerica Insurance Corp. ex rel. Stroup Sheet Metal Works v. United States, 973 F.2d 1572 (Fed. Cir. 1992), overruled in part on other grounds by Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995) (en banc).
The prime contractor in Transamerica was Bodenhamer Building Corporation (BBC). BBC sponsored a claim for its subcontractor Stroup, providing a certification which complied with the language required by the CDA, but also attaching a cover letter containing qualifying statements:
Transamerica, 973 F.2d at 1580 (quotations removed). The United States Claims Court deemed BBC's certification to be defective because of the qualifying language in the cover letter. Id. at 1579.
The Federal Circuit disagreed. Following Turner, the court stated that "the language of BBC's September 1, 1988 cover letter, which the Government alleges [impermissibly] qualified BBC's certification, is perfectly consistent with th[e] standard set out in Turner." Transamerica, 973 F.2d at 1580. The court specifically relied on the "good ground" language in Turner which describes the level of belief required for the sponsor of a pass-through claim, and also found that BBC's cover letter and enclosed certification were in substantial compliance with the CDA. Id. at 1580-81. Transamerica thus reinforces the "good ground" standard set forth in Turner, and also allows the prime contractor some leeway in qualifying its support for a pass-through claim, at least in some circumstances. See, e.g., George Hyman Constr. Co. v. United States, 30 Fed. Cl. 170, 176 n.11 (1993) (citing Transamerica, 973 F.2d at 1580, for the proposition that a prime contractor "is permitted to qualify its certification of the claim under the CDA by relying on the subcontractor's representations"), aff'd, 39 F.3d 1197 (Fed. Cir. 1994).
Finally, the court turns to a contract appeals board decision, and the subsequent reversal of that decision by the Federal Circuit, which concerned a pass-through claim sponsored, at the insistence of a bankruptcy court, by a prime contractor. Arnold M. Diamond, Inc., ASBCA No. 40885, 93-2 BCA ¶ 25,680, 1992 WL 398328 (Dec. 31, 1992) (Diamond I), rev'd, 25 F.3d 1006 (Fed. Cir. 1994) (Diamond II). The contracting agency was the United States Navy, the prime contractor was Arnold M. Diamond, Inc. (Diamond), and the subcontractor was Perth Amboy Iron Works, Inc. (PAI). The subcontractor's claim against the Navy was valued at approximately two million dollars, by PAI, although Diamond communicated to PAI that the prime contractor believed the claim was only worth $44,000 and warned PAI about procurement fraud:
Diamond I, 1992 WL 398328.
Diamond submitted PAI's claim to the Navy two months later with no CDA certification from Diamond and this language in Diamond's cover letter:
Id. The Navy rejected the pass-through claim because it was not certified by Diamond. PAI went into bankruptcy, whereupon Diamond attempted to convince the bankruptcy court that PAI's two million dollar claim was abandoned because it had not been properly certified (by PAI). Under orders from the bankruptcy court to issue a proper CDA certification, PAI issued "a properly worded" CDA certification of its claim, and continued to assert the same amount for that claim. Diamond demanded a response from PAI to Diamond's highly critical analysis of PAI's claim for approximately two million dollars, and requested "documentation which would justify and support the claim." Id. No documentation from PAI was received by Diamond.
Diamond then renewed its request to the bankruptcy court that it find PAI's two million dollar claim to have been abandoned. The bankruptcy court held a hearing. The colloquy between the bankruptcy judge, Mr. Christopher M. Houlihan (Diamond's counsel), and Mr. Samuel Z. Gdanski (Special Counsel relied upon for his expertise in government contract law) is reproduced in relevant part here:
Diamond I, 1992 WL 398328. Diamond then complied with the court's order and certified PAI's claim for approximately two million dollars, and included the prime contractor's mark-up on that claim. Id. Diamond did not mention within its certification that its CDA certification of the pass-through claim was submitted in compliance with the order of the bankruptcy court.
The Navy denied the pass-through claim in its entirety, and Diamond sought review of that decision before the Armed Services Board of Contract Appeals (ASBCA or board). The board acknowledged that Diamond's certification of the pass-through claim "contain[ed] the language required by the CDA." Diamond I, 1992 WL 398328. The board cited Turner, but noted that, unlike the circumstances of Turner, "[i]n this appeal[] we confront the unique, undisputed factual situation in which the prime contractor has itself attacked the claim it later certified, and certified the claim only after receiving a court order to do so." Diamond I, 1992 WL 398328.
In the face of strong evidence that Diamond did not believe in the validity of PAI's two million dollar claim, the ASBCA held that Diamond's certification was not valid. The board stated that:
Diamond I, 1992 WL 398328. The ASBCA also commented that the board was "unprepared to attach unwarranted importance to a [bankruptcy] court order which is violative of a statute [(the CDA)] over which we have province." Id. After Diamond's motion for reconsideration was denied, Diamond appealed the board's decision to the Federal Circuit.
The Federal Circuit largely adopted the board's factual findings, but noted that Diamond's CDA certification of PAI's claim had been accompanied by a letter notifying the Navy of the bankruptcy court's order, and that a copy of the court order was attached to that letter. Diamond II, 25 F.3d at 1009. The court then proceeded to rule upon Diamond's CDA certification. The court's thorough discussion of pass-through claims, bankruptcy court orders and the effect of such orders on CDA certification is instructive. The Federal Circuit first noted that Diamond met its obligations as a prime contractor under the CDA:
Id. (footnoted omitted).
The Federal Circuit then discussed bankruptcy proceedings and the authority of bankruptcy courts, and concluded that a bankruptcy court's orders are entitled to significant deference in government contract disputes when the prime contractor and subcontractor are within the bankruptcy court's jurisdiction. Diamond II, 25 F.3d at 1010. The court then applied that deference to the issue of the "good faith" of the sponsor of a pass-through claim, noting, first, that the "term `good faith' is not defined in the CDA." Id. The Federal Circuit borrowed a definition of good faith from an en banc decision of the Supreme Court of California:
Id. (quoting People v. Nunn, 46 Cal.2d 460, 468, 296 P.2d 813, 818 (1956) (en banc)).
Applying deference and this definition of good faith, the Federal Circuit approved of Diamond's CDA certification:
Diamond II, 25 F.3d at 1010-11 (footnote omitted). Finding good faith in Diamond's CDA certification, the court reversed the ASBCA and remanded for further proceedings.
It is important to note that the Diamond II decision distinguished Turner, not because the "good ground" standard of belief in the validity of a subcontractor's claim is too low for the factual scenario of Diamond II, but because "good ground" may actually be too high a standard of belief for a court-ordered CDA certification:
Diamond II, 25 F.3d at 1009 n.2. Thus, Diamond II considers the CDA certification of a pass-through claim which results from a bankruptcy court order to be a special type of CDA certification, and one which may, in certain circumstances, be held to less-stringent standards than those set forth in Turner and Transamerica, for example. Compliance with a bankruptcy court order appears to be enough to satisfy the good faith requirement, in the circumstances of Diamond II, which are very similar to the circumstances of MK's October 22, 2010 certification of GIT's claim.
Having considered Diamond II, the precedential case most on point, and the holdings of Turner and Transamerica, the court notes first that in each of these three cases, the prime contractor provided a certification with language containing the elements required by the CDA, along with the pass-through claim. Here, MK's conforming certification was not delivered to the contracting officer until December 22, 2015, after plaintiffs' amended complaint was filed in this court. In addition, none of these precedential decisions applied the 1992 amendment to the CDA to the cases before them. Acknowledging these distinctions, the court does not believe the holdings of these precedential cases can be extended to find that MK's October 22, 2010 certification, by itself, was a valid certification under the CDA.
Nevertheless, the court does consider these three precedential cases to controvert the "failure to certify" challenge raised by defendant. Defendant argues that MK's October 22, 2010 certification is fatally undermined by MK's representations to the bankruptcy court that MK had legitimate concerns as to the amount claimed by GIT. Def.'s Reply at 7. The holding in Diamond II, however, shows that compliance with a bankruptcy court's order can be sufficient to show that, despite expressed reservations, the prime contractor's sponsorship is made in good faith. The holding in Turner shows that certainty as to a subcontractor's claim is not required, just a belief that the claim has "good ground." The Transamerica holding permits the prime contractor to express qualified support for a pass-through claim. In light of these authorities, the court cannot conclude that MK's October 22, 2010 certification was a complete failure to certify GIT's claim. Instead, under Diamond II, Turner and Transamerica, it was a defective certification, and that defective certification was cured on December 22, 2015. This court is not deprived of jurisdiction, nor does plaintiffs' amended complaint fail to state a claim upon which relief may be granted because of the manner of MK's certification of GIT's claim.
The court turns now to the government's argument which relies on the Severin doctrine, a doctrine named for a 1943 opinion issued by the Court of Claims. According to this doctrine, a prime contractor may not sponsor a pass-through claim unless it remains liable to its subcontractor on the underlying claim. See Severin, 99 Ct. Cl. at 443 ("If [the prime contractor] plaintiffs had proved that they, in the performance of their contract with the Government became liable to their subcontractor for the damages which the latter suffered, that liability, though not yet satisfied by payment, might well constitute actual damages to plaintiffs, and sustain their suit."). In this case, defendant argues that because "MK obtained a discharge of its liability to GIT in bankruptcy, . . . MK is not liable to GIT or the secured parties for the claims asserted in this litigation [and MK] cannot sponsor the secured parties' claims under the Severin doctrine." Def.'s Mot. at 25-26.
The Severin doctrine has evolved since 1943. See, e.g., United States v. Johnson Controls, Inc., 713 F.2d 1541, 1552 n.8 (Fed. Cir. 1983) ("In subsequent cases, the application of the Severin doctrine has been narrowly construed.") (citation omitted); Seger v. United States, 469 F.2d 292, 300 (Ct. Cl. 1972) ("It is time to put the Severin rule to rest insofar as subcontractor claims are asserted as an equitable adjustment under the provisions of a prime contract with the Government.") (footnote omitted). Among the limitations on the modern Severin doctrine are two that are applicable in this case: (1) the burden is on the government to prove that the prime contractor is no longer liable to its subcontractor on the pass-through claim; and (2) the Severin doctrine generally requires an "`an iron-bound release or contract provision immunizing the prime contractor completely from any liability to the sub.'" E.R. Mitchell Constr. Co. v. Danzig, 175 F.3d 1369, 1370-71 (Fed. Cir. 1999) (citations omitted).
The parties have not cited to any cases providing precedent binding on this court which analyze the liability of a bankrupt prime to its subcontractors for purposes of applying the modern Severin doctrine to pass-through claims. Both parties rely on J. L. Simmons Co. v. United States, 304 F.2d 886 (Ct. Cl. 1962), as providing some guidance. The court agrees that J. L. Simmons is helpful because it shows that anything less effective than an "iron-bound release or contract provision" is insufficient for the Severin doctrine to block a pass-through suit. The analysis in J. L. Simmons also provides an analytical framework which, in the court's view, compels a rejection of the government's Severin doctrine challenge to the amended complaint in this case.
The subcontracts between J. L. Simmons and its subcontractors contained "releases" which permitted two means for resolving the subcontractors' claims against the prime contractor. J. L. Simmons, 304 F.2d at 888. If the prime's pass-through suit was successful, the prime would pay out the proceeds to its subcontractors. Id. If, however, the pass-through suit failed, the prime's liability was extinguished. Id. The court described this arrangement as falling into a middle ground between liability and no liability: "Lying between these extremes are those cases involving situations wherein the prime contractor has agreed to reimburse its subcontractor for damages it has suffered at the hands of the Government, but only as and when the former receives payment for them from the Government." Id. at 889. The court noted that this middle ground of liability was enough to escape dismissal of a pass-through claim under the Severin doctrine. Id. (citing cases). Ruling for J. L. Simmons, the court provided an analytical framework for deciding when a prime contractor retains at least an "implicit" liability to its subcontractors:
Id. at 890.
The court must follow J. L. Simmons, and finds a strong parallelism between the implicit liability described in that case and the implicit liability of MK in the MK bankruptcy litigation. Instead of releases written into its subcontracts, MK's liability is established by the bankruptcy court's jurisdiction over MK and that court's order requiring MK to submit a CDA certification. Even though post-bankruptcy MK, just like J.L. Simmons, may not be required to pay anything to satisfy its subcontractor's claim, MK still has "certain obligations . . . which it must fulfill before its duty to reimburse [its] subcontractor[] . . . is extinguished." J.L. Simmons, 304 F.2d at 890. As was the case for J.L. Simmons, if MK prevails in this suit, the proceeds must be paid by post-bankruptcy MK to the owners of GIT's claim.
The parties also dispute whether this case should be distinguished from or governed by the analysis set forth in Brazier Forest Products, Inc. v. United States, 11 Cl. Ct. 468 (1987). The court relies on Brazier for the limited purpose of establishing that a bankrupt prime may, in certain circumstances, sponsor a pass-through claim despite the Severin doctrine. For the same limited purpose, the court notes that a bankrupt prime contractor was nonetheless able to sponsor a pass-through claim in International Technology Corp., ASBCA No. 54136, 04-1 BCA ¶ 32,607 (Apr. 27, 2004). That pass-through claim eventually failed on the merits, but it did not fall prey to the Severin doctrine. See id. n.1; see also Int'l Tech. Corp. v. Winter, 523 F.3d 1341, 1344 n.1 (Fed. Cir. 2008). The court must reject defendant's Severin doctrine challenge to the amended complaint because the government has not met its burden to prove that the modern Severin doctrine bars MK's pass-through claim.
Having confirmed its jurisdiction over this suit, and having rejected defendant's arguments regarding the certification of MK's pass-through claim and MK's liability for that claim, the court turns to the government's RCFC 12(b)(6) argument disputing the "allowability" of the cost of the pass-through claim under MK's contract with DOE. The government contends that "the claimed costs [in GIT's claim] are not allocable or allowable under the contract between MK and DOE because MK never incurred the costs, and has no liability for the costs." Def.'s Mot. at 2; see also Def.'s Reply at 12 (arguing that any lingering liability from MK's bankruptcy "does not establish that MK has incurred or will incur the cost of [GIT's] claim"). This argument relies on two authorities, a FAR provision alleged in the amended complaint to be part of MK's contract with DOE, and an inapposite citation from a decision of the Civilian Board of Contract Appeals adjudicating DOE's reimbursement liability for another aspect of the litigation between MK and GIT. Neither of these authorities convinces the court that MK's pass-through claim is not plausible.
The FAR provision cited by defendant is FAR 31.201-1, 48 C.F.R. § 31.201-1 (1984).
Id. The government focuses on the "incurred or to be incurred" language of the regulation, and again argues, just as it did in its Severin doctrine argument, that MK has not incurred and will never incur the costs of the pass-through claim because of its discharge of GIT's claim in the MK bankruptcy litigation. For this reason, the government argues that "MK's liability for the GIT judgment . . . [cannot] be charged to the [DOE] contract as an allowable cost." Def.'s Mot. at 29.
The government fails to cite a single case which interprets the scope and meaning of FAR 31.201-1, in general, or which interprets this regulation specifically in terms of a bankruptcy discharge. The court thus has nothing more than the government's ipse dixit assertion that an unsatisfied judgment that is part of a prime contractor's bankruptcy estate cannot be allowable to a cost reimbursement contract under FAR 31.201-1.
The government fares no better with its reliance on URS Energy & Construction, Inc., CBCA No. 2260,12-2 BCA ¶ 35,094 (June 29, 2012). The decision in URS Energy focused on a liability of MK that was not discharged in the MK bankruptcy litigation, i.e., MK's liability to its surety "Federal":
Id. The board of contract appeals in URS Energy nowhere discusses the allowability of a claim that was discharged in bankruptcy, under FAR 31.201-1 or any other regulation. Simply put, the board did not discuss or make any findings as to the effect of a bankruptcy discharge on the allowability of contract costs. The government's contention that MK's pass-through claim is not plausible under FAR 31.201-1 and URS Energy is not persuasive.
The court raises an issue sua sponte regarding further proceedings in this case. Normally, having dismissed all of the government's challenges to a complaint, the court would require an answer to the complaint. Here, however, the DOE contracting officer never reached the merits of MK's pass-through claim due to a defective certification that was only corrected very recently. In somewhat analogous circumstances, this court remanded a CDA claim to a federal agency for a decision on the merits of that claim:
Rollock Co. v. United States, 115 Fed. Cl. 317, 334 (2014) (citations omitted).
In another recent case, a contracting officer delayed the issuance of his final decision on a CDA claim too long and the contractor brought suit in this court under a "deemed denial" theory. Rudolph & Sletten, Inc. v. United States, 120 Fed. Cl. 137 (2015). This court found that it had jurisdiction over the cause, but remanded the claim to the contracting officer for a final decision on the merits. Id. at 143. The court cited 41 U.S.C. § 7103(f)(5) for its authority to do so. Under the same statutory authority the boards of contract appeals also will stay proceedings, in some circumstances, to allow a contracting officer's decision to issue on the merits of a CDA claim. See, e.g., Brad West & Assocs., Inc., CBCA No. 3879, 14-1 BCA ¶ 35,744 (Sept. 18, 2014) (noting in the procedural history of that case that the board had "directed [the agency] to issue a [contracting officer's] decision within thirty days, or advise the Board as to why such a decision could not be issued"); Lobar, Inc., ASBCA No. 59178, 14-1 BCA ¶ 35,584 (Apr. 18, 2014) ("We conclude that the issuance of a CO's decision will better enable the parties to potentially settle this appeal and therefore grant the motion to stay proceedings until 12 May 2014 to issue a CO's decision.").
The court believes that there is ample reason for a remand to DOE in this case. First, the defective certification has been cured, thus removing the reason the contracting officer gave for refusing to consider MK's pass-through claim. Am. Compl. ¶ 24. Second, the factual underpinnings of the pass-through claim are interwoven with proceedings before a number of federal courts and the Civilian Board for Contract Appeals. These complex facts need to be analyzed in the context of the DOE project and contract documents. The DOE contracting officer is best situated to undertake this review in the first instance. Third, the type of underlying claim presented here is rather unusual, in that it is founded on a partially-satisfied judgment issued by a district court. DOE must render a decision on this unusual claim in light of its own interpretation of relevant law and relevant contract provisions.
For all of the above reasons, the court will remand MK's pass-through claim to DOE. In order for this process to function smoothly, the court solicits the parties' input into an appropriate remand order. The instructions to DOE cannot dictate any particular outcome, as such an order would exceed this court's remand authority. See, e.g., Todd Constr., L.P. v. United States, 88 Fed. Cl. 235, 245 (2009) ("The common theme running through these [remand] cases is that the remand does not mandate a particular factual determination, but directs the agency's attention to matters the court believes require further action to create an adequate record for the agency's decision."). However, the parties may be able to suggest the appropriate period of time for such a remand and other requirements that would help this litigation proceed more efficiently from this point forward. Once the court has received a jointly-drafted proposed remand order from the parties, the court will remand MK's pass-through claim to DOE's contracting officer for the issuance of a final decision on that claim.
For the foregoing reasons, defendant's motion to dismiss is denied. The court agrees with defendant, however, that the caption of this case should be modified to reflect the correct corporate name of the current prime contractor with DOE, URS Energy & Construction, Inc., the successor to MK and the sponsor of the claim set forth in the amended complaint. See Def.'s Mot. at 3. The parties should substitute "URS Energy & Construction, Inc." for "M.K. Ferguson Company" in the caption of this case from this point going forward. The next procedural step in this case will be to remand plaintiffs' claim to DOE. The court stays all other proceedings in this case until further order of the court.
Accordingly, it is hereby
