Opinion
Civil No. 2:20-cv-57
2020-10-01
EAST COAST REPAIR & FABRICATION, LLC, Plaintiff, v. UNITED STATES of America, THROUGH the DEPARTMENT OF THE NAVY, and its activity, the Mid-Atlantic Regional Maintenance Center, Defendant.
Dustin Mitchell Paul, Anthony Joseph Mazzeo, Daniel R. Weckstein, Vandeventer Black LLP, Norfolk, VA, for Plaintiff. Garry D. Hartlieb, United States Attorney Office, Norfolk, VA, for Defendant.
Dustin Mitchell Paul, Anthony Joseph Mazzeo, Daniel R. Weckstein, Vandeventer Black LLP, Norfolk, VA, for Plaintiff.
Garry D. Hartlieb, United States Attorney Office, Norfolk, VA, for Defendant.
ORDER
Arenda L. Wright Allen, United States District Judge
Pending before the Court is Defendant's Motion to Dismiss (ECF No. 7) and Plaintiff's Cross-Motion for Summary Judgment (ECF No. 10). For the following reasons, Defendant's Motion to Dismiss is construed as a Motion for Summary Judgment. Plaintiff's Cross-Motion for Summary Judgment (ECF No. 10) is DENIED. Defendant's Motion for Summary Judgment (ECF No. 7) is GRANTED.
I. BACKGROUND
Plaintiff East Coast Repair & Fabrication, LLC ("East Coast") performs ship repair work for the United States Government, including the United States Navy. Verified Compl. at 1, ECF No. 1. Defendant, the Government through the Department of the Navy, contracted with East Coast to conduct repairs on U.S. Navy Ships. Id. Under contract number N50054-13-C-1306, East Coast contracted with the Government to repair the vessel USS Hurricane. Id. The Hurricane is a U.S. Navy Patrol Coastal Ship.
East Coast is suing for breach of contract. East Coast's claims are related to events from two other similar litigations. The events leading up to the suits are relevant to this litigation and summaries follow.
A. The USS Thunderbolt Suit
East Coast filed this action against the Government alleging various contract disputes. See ECR & Fabrication, LLC v. United States , 199 F. Supp. 3d 1006 (E.D. Va. 2016). After a bench trial, the Court awarded East Coast partial damages. Id. at 1102.
B. The USS Tempest Suit
In December 2014, East Coast sued the Government for breach of contract regarding repairs to the USS Tempest. See ECR-Tempest , No. 2:14-cv-653, ECF No. 1. The suit was filed in the Norfolk Division of the Eastern District of Virginia. Id. The contract in dispute provided that the Navy could withhold funds as liquidated damages if delivery of the USS Tempest was late. Late Delivery Letter, ECF No. 8-3. The Ship was scheduled to be delivered in early February 2013 but was not delivered until May 1, 2013. Tempest Letter, ECF No. 8-5. Because the delays were not caused by the Government and were not excusable, the amount of liquidated damages was $474,600. Id. This amount was withheld from the final invoice. Id. East Coast filed a Request for Equitable Adjustment, which was denied. Final Withholding Letter, ECF No. 8-4.
Under the USS Tempest contract, the $474,600 in damages usually would have been withdrawn from the retainage, defined as funds withheld to assure satisfaction under a contract. Because only $1,000 was left in that retainage account, the Government withheld $473,600 from the USS Hurricane Contract Count ("the Set Off"). East Coast was advised of this on May 30, 2014. Late Delivery Letter, ECF No. 8-3. The contracting agent for the Navy again notified East Coast of this via letter on July 29, 2014. Final Withholding Letter, ECF No. 8-4.
On December 23, 2014, East Coast sued the Government again, arguing that the Navy should be held responsible for the late delivery of the USS Tempest. See ECR-Tempest , No. 2:14-cv-653, ECF No. 1. On September 27, 2016, the Parties reached a settlement agreement of all claims related to the USS Tempest. The Government paid $2,500,000 plus interest to East Coast under the settlement agreement. Settlement Agreement at 2, ECF No. 1-3. The action was dismissed with prejudice. The Settlement Agreement provides the following:
[East Coast] agrees to accept the payment described above in paragraph one in full settlement and satisfaction of any and all claims that [East Coast] not has or may hereafter acquire against the UNITED STATES, its present and former agents and employees, or any of its agencies arising out of or in any way relating to the Contract. In consideration of that payment and those actions, [East Coast] hereby releases and discharges the UNITED STATES and all of its present and former agents, employees, and agencies from any and all actions, claims, demands, rights, liens, attorney liens, damages, injuries, losses, suits, causes of action, expenses, judgments, contracts, covenants, orders, and
liabilities of any type, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, or open or hidden, which have existed, presently exist, or may exist in the future, arising out of or in any way relating to the Contract. This settlement and release excludes any remaining retainages in the future close-out of the Contract.
Settlement Agreement at 2, ECF No. 1-3.
The UNITED STATES hereby releases and discharged the RELEASOR and all of its present and former agents and employees from any and all civil actions, claims, demands, rights, liens, attorney liens, damages, injuries, losses, suits, causes of action, expenses, judgments, contracts, covenants, orders, and liabilities of any type, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, or open or hidden, which have existed, presently exist, or may exist in the future, arising out of or in any way relating to the issues that were raised in the pleadings or could have been raised in the pleadings in the above-captioned action. This settlement and release excludes any remaining retainages involved in the future close-out of the Contract. This settlement and release applied only to civil remedies, and does not apply to any existing or potential criminal remedies or actions.
Settlement Agreement at 3, ECF No. 1-3.
C. The USS Hurricane – The Instant Action
On February 12, 2013, East Coast and the Navy entered into another contract to repair the USS Hurricane. Verified Compl. at 3, ECF No. 1. The USS Hurricane was repaired and delivered on the date agreed. Id. The Navy has not paid to East Coast the $473,600 withheld due to the late delivery of the USS Tempest.
On September 10, 2014, East Coast submitted a Request for Equitable Adjustment and Certified Claim seeking compensation for an unrelated claim regarding the amount of steel needed. Verified Compl. at 14, ECF No. 1. After this request was not satisfied, East Coast appealed to the Armed Services Board of Contract Appeals ("ASBCA"). Mem. Opp'n. to Mot. to Dismiss at 8, ECF No. 8. On July 8, 2016, East Coast filed a motion for summary judgment disputing previous set-offs under the contracts involving the USS Thunderbolt and the USS Tempest. East Coast Mot. Partial Summ. J., ECF No. 8-5. This Motion was withdrawn. The ASBCA did not adjudicate the issue of set-offs, and the remainder of the ASBCA decision is unrelated to the issue of set-offs or the $473,600 in liquidated damages withdrawn from the USS Hurricane contract for the late delivery of the USS Tempest. Mem. Conference Call of Dec. 8, 2016 at ¶ 3, ECF No. 8-8.
On January 30, 2020, East Coast filed the Complaint in this suit. ECF No. 1. Count One is an appeal of the final decision from the Government's denial of East Coast's Request for Equitable Relief; Count Two is an alternative breach of contract under the USS Hurricane contract claim. Verified Compl., ECF No. 1. The Government filed a Motion to Dismiss (ECF No. 7), and subsequently East Coast filed its Opposition to the Motion to Dismiss (ECF No. 9) and its Cross-Motion for Summary Judgment (ECF No. 10). Briefing is complete and the matter is now ripe for resolution. The Court has determined that oral argument regarding these motions is unnecessary.
II. MOTION TO DISMISS CONVERSION TO SUMMARY JUDGMENT
A. Legal Standard
The Federal Rules of Civil Procedure provide that on a motion under 12(b)(6), if "matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." FED. R. CIV. P. 12(d) ; see also Hickey v. Bon Secours Richmond Health Sys. , No. 3:12-CV-691, 2012 WL 6623039, at *2 (E.D. Va. Dec. 19, 2012) ("Courts generally may not consider materials outside the complaint in ruling on a motion to dismiss without converting the motion to one for summary judgment."). The Fourth Circuit has recognized an exception to this; courts may consider "official public records, documents central to the plaintiff's claim, and documents sufficiently referred to in the complaint so long as the authenticity of these documents is not disputed." Witthohn v. Fed. Ins. Co. , 164 Fed. App'x 395, 396-97 (4th Cir. 2006).
If the documents in question do not fall into one of these exceptions, the documents must be "central to plaintiff's claim" to be considered. Hickey , 2012 WL 6623039, at *2 (citing Cortec Industries, Inc. v. Sum Holding, L.P. , 949 F.2d 42 (2d Cir. 1991) ). In evaluating whether documents are central to plaintiff's claim, courts will consider whether the plaintiff had notice about those documents. Id. "Where plaintiff has actual notice of all the information in the movant's papers and has relied upon these documents in framing the complaint the necessity of translating a Rule 12(b)(6) motion into one under Rule 56 is largely dissipated." Id. at *3 (quoting Cortec Industries, Inc. , 949 F.2d at 48 ).
A district court has discretion in converting a Rule 12(b)(6) motion to a Rule 56 motion. Finley Lines Joint Protective Board v. Norfolk Southern Corp. , 109 F.3d 993, 996 (4th Cir. 1997). The district court has the discretion to ignore the supplementary material that has been filed and may continue to evaluate the motion under Rule 12(b)(6). Id.
B. Analysis
The contract that the Navy entered with East Coast regarding the USS Hurricane and the Settlement Agreement pertaining to the USS Tempest contract are filed with the Complaint. ECF Nos. 1-2 and 1-3. These could be considered without converting the motion to a motion for summary judgment.
The Government filed the following documents with its Memorandum in Support of its Motion to Dismiss:
(1) June 25, 2013 Letter from the contracting agent Mr. Rice notifying East Coast of late delivery of the USS Tempest (ECF No. 8-1);
(2) East Coast's first Request of Equitable Adjustment regarding USS Tempest (ECF No. 8-2);
(3) May 30, 2014 Letter from Mr. Rice notifying East Coast of withholding under the USS Hurricane for the late delivery of the USS Tempest (ECF No. 8-3);
(4) July 29, 2014 Letter from Mr. Rice describing liquidated damages for USS Thunderbolt and adjusting the withholding amount for USS Tempest to $473,600 (ECF No. 8-4);
(5) East Coast's Motion for Partial Summary Judgment before ASBCA (ECF No. 8-5);
(6) East Coast's Statement of Undisputed Material Facts for ASBCA (ECF No. 8-6);
(7) Government's Response to Motion for Partial Summary Judgment before ASBCA (ECF No. 8-7);
(8) ASBCA Memorandum of Conference Call (ECF No. 8-8), and
(9) the ASBCA Decision (ECF No. 8-9). East Coast does not dispute that the Court should consider documents found at ECF Nos. 8-5 through 8-9 because these documents are "properly before the court as public documents in another proceeding." Mem. Opp'n. to Mot. To Dismiss at 15, n. 5, ECF No. 9. The Court agrees. Ellis v. Cates , 178 F.2d 791, 793 (4th Cir. 1949) (allowing consideration of documents from prior judicial proceedings on a Rule 12(b)(6) motion); Philips v. Pitt Cnty. Memorial Hosp. , 572 F.3d 176, 180 (4th Cir. 2009) ("we may properly take judicial notice of matters of public record").
At issue is whether documents associated with ECF Nos. 8-1 through 8-4 can be considered on a Rule 12(b)(6) motion or whether their consideration requires converting the pending motion to one for summary judgment. The documents the Government attached with ECF Nos. 8-1, 8-3, and 8-4 can be considered on a 12(b)(6) motion because they are construed as documents central to Plaintiff's claim.
First is a letter from the contracting agent, Mr. Rice, notifying East Coast of the late delivery of the USS Tempest. ECF No. 8-1. This letter describes the late delivery of the USS Tempest , and establishes the issue regarding the liquidated damages of $474,600. The letter contains an assertion that East Coast delivered the USS Tempest late and explains that liquidated damages arise as a result. Although East Coast does not rely on this correspondence regarding the USS Tempest exclusively when framing its Complaint, the performance of the USS Tempest contract and documents surrounding it are key to determining whether the withholding of $473,600 under the USS Hurricane contract was proper.
Second is Mr. Rice's May 30, 2014 letter notifying East Coast of withholding the liquidated damages under the USS Hurricane contract. Third is Mr. Rice's July 29, 2014 letter adjusting the withholding amount under USS Hurricane from $474,600 to $473,600 because of the $1,000 left in the USS Tempest retainage account. ECF Nos. 8-3 and 8-4.
These are central to Plaintiff's claims. East Coast is arguing that the Government incorrectly withheld $473,600 under the USS Hurricane contract. The reasoning for withholding this sum under the USS Hurricane contract is explained by these letters. Examining these letters is necessary to discern whether the withholding was proper or whether it constituted a breach of the contract.
East Coast's first Request of Equitable Adjustment, ECF No. 8-2, cannot be considered under a Rule 12(b)(6) motion. It does not fall under any of the exceptions outlined by the Fourth Circuit and is not central to East Coast's claims. The request sought an adjustment from the Government regarding the amount paid to East Coast for the USS Thunderbolt and USS Tempest as a result of unexpected work issues. The letter describes the USS Tempest contract, which is already separately considered by the Court, but does not describe anything related to the withholding of the $473,600. The Request also does not describe a relationship between the USS Tempest and the USS Hurricane. Evaluating this letter is significant for adjudicating subject-matter jurisdiction issues. Therefore, the Government's Motion to Dismiss is construed as a Motion for Summary Judgment. The Government "does not object to the conversion of its motion to dismiss ... to a motion for summary judgment." Government's Reply at 2, ECF No. 9.
III. SUBJECT-MATTER JURISDICTION
A. Legal Standard
Under 41 U.S.C. §§ 7101 - 09, the Contract Disputes Act of 1978 ("CDA"), a contracting party with the Government must take various steps to resolve contractual disputes before it can file an action. First, the contracting party must file a claim in writing to the contracting officer in the Government. 41 U.S.C. § 7103. The contracting party must obtain a decision. Id. If the contracting officer fails to issue a decision within sixty days, then it is deemed a denial and the contracting party may move forward with an appeal of that decision. 41 U.S.C. § 7103(f)(5). The contracting party may only appeal in one forum. 41 U.S.C. § 7104. The contracting party may appeal to the ASBCA or to a United States District Court. 41 U.S.C. §§ 7104 and 7105. In lieu of appealing to one of these forums, the contracting party may also bring the claim in the United States Court of Federal Claims. Id. After a party has elected to proceed in one forum, it cannot choose to proceed in the other. Id.
This has given rise to the Election Doctrine. This Doctrine states that "once the contract[ing] [party] makes a binding forum selection, the decision must stand and the contractor may not appeal the contracting officer's decision in the non-selected forum." BRC Lease Co. v. United States , 93 Fed. Cl. 67, 71 (2010). However, separate claims arising under the same contract can be brought in different forums. Id. Where the contracting party has "separate and distinct disputes over separate and distinct contracting decisions under a single contract," the contracting party may appeal one dispute to one forum and the second dispute to another forum. Id. It need not appeal both disputes to the same forum. Id. Disputes are separate and distinct if they do not arise from "common or related set of operative facts." Placeway Const. Corp. v. United States , 920 F.2d 903, 907 (Fed. Cir. 1990). "If the court will have to review the same or related evidence to make its decision, then only one claim exists." Id.
B. Analysis
At issue is whether East Coast elected ASBCA when it filed its partial motion for summary judgment but then withdrew it. East Coast first filed a complaint under the USS Tempest contract in this Court on December 23, 2014. ECR-Tempest , No. 2:14-CV-653, ECF No. 1. On July 8, 2016, East Coast filed an appeal from its denied Request for Equitable Adjustment under the USS Hurricane. ASBCA Decision at 1, ECF No. 8-9. In its Motion for Partial Summary Judgment before the ASBCA, East Coast explained that "[t]his motion covers the single issue of liquidated damages being improperly withheld from payments due under this contract." East Coast Mot. Partial Summ. J. at 1, ECF No. 8-5. However, this Motion was withdrawn and was never adjudicated by ASBCA.
In Bonneville Associates v. United States , 43 F.3d 649 (Fed. Cir. 1994), the plaintiff filed an appeal to the General Services Administration Board of Contract Appeals ("Board") and subsequently withdrew it. Id. at 651. The court determined that although the appeal was withdrawn, the Board still had jurisdiction over the plaintiff's claims and the Court of Federal Claims had to dismiss the case for lack of subject matter jurisdiction. Id. at 652.
Here, East Coast appealed the decision of liquidated damages under the USS Tempest contract in front of ASBCA. East Coast Mot. Partial Summ. J., ECF No. 8-5. East Coast analyzes the Government's right to conduct a set-off, and whether the Government exercised its set-off right properly in withholding $473,600 under the USS Hurricane contract. Id. This is essentially the same claim as presented in this Complaint. Because the Motion was first filed in front of the ASBCA, this court lacks subject matter jurisdiction over both counts in East Coast's Complaint. The Court addresses the res judicata claim below.
The Court agrees with East Coast's judicial estoppel theory. The Government appears to have taken contrary positions on whether this Court has subject matter jurisdiction; compare Mem. Opp'n. to Mot. to Dismiss at 14, ECF No. 8 ("Although the ASBCA had subject matter jurisdiction to consider the substance of the Hurricane appeal on the merits, the election doctrine deprived it of jurisdiction to consider ... [the] motion concerning liquidated damages.") with Government Reply at 12, ECF No. 14 ("[I]f this case is really about $473,600 in underpayment for work performed ... then the ASBCA is the correct tribunal – not this Court – because that is where East Coast ... introduced the liquidated damages issue."). Subject matter jurisdiction "can be raised by a party or by the court sua sponte , at any time prior to final judgment." Educ. Credit Mgmt. v. Kirkland , 600 F.3d 310, 314 (4th Cir. 2010).
IV. RES JUDICATA
A. Legal Standard
Under the doctrine of res judicata , where a right or fact has been decided by another court, it "cannot be disputed in a subsequent suit between the same parties or their privies ...." Southern Pac. R. Co. v. United States , 168 U.S. 1, 48-49, 18 S.Ct. 18, 42 L.Ed. 355 (1897). Traditionally, a prior judgment bars a subsequent claim under res judicata if the first judgment is: (1) final, (2) on the merits, (3) rendered by a court of competent jurisdiction, (4) involving identical parties or parties in privity in the two actions, and (5) the claim in the second suit is based upon the same cause of action involved in the first suit. Allen v. McCurry , 449 U.S. 90, 94, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980). See also RESTATEMENT (SECOND) OF JUDGMENTS , §§ 13 et seq. (1982).
"[W]here the parties stipulate to having a case dismissed, a somewhat modified res judicata applies to the written settlement agreement upon which such dismissal is predicated, if one exists." Norfolk S. Corp. v. Chevron, USA Inc. , 371 F.3d 1285, 1291 (11th Cir. 2004). Whether a suit is precluded by a settlement agreement is determined by the intent of the parties. Id.
Courts use contract interpretation principles to determine the intent of the parties. Keith v. Aldridge , 900 F.2d 736, 741 (4th Cir. 1990). "If the parties intended to foreclose through agreement litigation of a claim, assertion of that claim in a later suit, whether or not formally presented in the earlier action, is precluded." Id. To discern the intent of the parties, the interpretation "focuses on the writing, and its terms may supercede [sic] other manifestations of intention." RESTATEMENT (SECOND) OF CONTRACTS CH. 9, INTRODUCTORY NOTE (1981). Res judicata is inapplicable where the parties intended to settle only one part of a claim and intended to leave the other parts open for future litigation. Id.
B. Analysis
At issue is whether the Parties intended to settle all claims arising out of the Settlement Agreement or only those directly stipulated to. Count One of the Verified Complaint is an "Appeal of Final Decision" from the denial of East Coast's Request for Equitable Relief; Count Two is an alternative breach of contract under the USS Hurricane. ECF No. 1. Both counts are requests "only as ... alternative[s]" to each other and are based on the same facts. The court addresses them together. The clause in the Settlement Agreement explaining what claims East Coast released follows:
[East Coast] agrees to accept the payment described above in paragraph one in full settlement and satisfaction of any and all claims that [East Coast] not has or may hereafter acquire against the UNITED STATES, its present and former agents and employees, or any of its agencies arising out of or in any way relating to the Contract. In consideration of that payment and those actions, [East Coast] hereby releases and discharges the UNITED STATES and all of its present and former agents, employees, and agencies from any and all actions, claims, demands, rights, liens, attorney liens, damages, injuries, losses, suits, causes of action, expenses, judgments, contracts, covenants, orders, and liabilities of any type, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, or open or hidden, which have existed, presently exist, or may exist in the future, arising out of or in any way relating to the Contract. This settlement and release excludes any remaining retainages in the future close-out of the Contract.
Settlement Agreement at 2, ECF No. 1-3 (emphasis added).
The key to this clause is the phrase "arising out of or in any way relating to the Contract." The contract referred to is the agreement governing the repair of the USS Tempest. The Government assessed whether East Coast had breached the contract by delivering the USS Tempest late pursuant to the terms outlined in the contract referenced in the Settlement Agreement. As a result, the question of whether the Government was entitled to the liquidated damages of $474,600 is also determined under that contract. Whether the Government properly withheld the $473,600 as liquidated damages under the USS Tempest contract although the funds were withheld from the USS Hurricane account, turns on the interpretation of the USS Tempest contract not the USS Hurricane contract. East Coast stipulated to the dismissal of all claims relating to the USS Tempest contract. See Mem. in Opp. to Mot. to Dismiss at 17, ECF No. 9. The argument from East Coast that this suit turns on the USS Hurricane contract and not the USS Tempest contract is rejected. But for the liquidated damages assessed under the USS Tempest contract, there would be no dispute regarding the $473,600 that was withheld by the Government.
East Coast could have litigated the issue of liquidated damages under the USS Tempest contract. This could have led to a potential recovery of the $473,600 that was withheld. East Coast could have disputed the set-off the Government exercised in withholding the $473,600. This particular claim appears to have almost adjudicated before the ASBCA but was withdrawn. Mem. Conference Call of Dec. 8, 2016 at ¶ 3, ECF No. 8-H. By withdrawing it, the Parties intended the "arising out of" language to encapsulate all claims related to the liquidated damages issue and more. See Coakley & Williams Const., Inc. v. Structural Concrete Equipment Inc. , 973 F.2d 349, 352-53 (4th Cir. 1992) ("[T]he words ‘arising out of’ suggests [sic] that the parties intended to release more than just the claims contained in the pleadings."). East Coast agrees that "[t]he Court should also put an end to matters ‘arising out of or in any way related to’ the pleadings in the Tempest case as those issues were settled." Mem. in Opp. to Mot. to Dismiss at 22, ECF No. 9.
If the Parties intended to narrow East Coast's release, they could have carved out specific exceptions. Keith , 900 F.2d at 741 (holding that res judicata "will not apply ... if the parties intended to settle only one part of a single claim and intended to leave another part open for future litigation."). Like the settlement agreement in Keith , the Settlement Agreement here explicitly kept the right to litigate "any remaining retainages involved in the future close-out of the contract." Settlement Agreement at 2, ECF No. 1-3. The parties carved out an exception to the Settlement Agreement to litigate the $1,000 remaining in the USS Tempest retainage account. If the parties had intended to carve out an additional exception for the withheld $473,600 and liquidated damages totaling $474,600, they could have used language more limited than "arising out of." Coakley & Williams Const., Inc. , 973 F.2d at 353 ("[B]ecause the release was very broadly phrased, it seems that if the parties intended to allow any future claims against each other, they would have done so specifically.").
The Court disagrees with East Coast that denying this claim "would have the effect of reducing the payment to East Coast to $2,026,400 thus contradicting the clear meaning and language of the Settlement Agreement." Mem. in Opp. to Mot. to Dismiss at 23, ECF No. 9. The Government withheld the $473,600 before the USS Tempest litigation was filed. East Coast proceeded with settlement negotiations and entered into the Settlement Agreement knowing the amount of $473,600 was withheld. There is nothing in the Settlement Agreement indicating that the $2,500,000 plus interest should be impacted by the already withheld $473,600.
V. CONCLUSION
For the foregoing reasons, Defendant's Motion to Dismiss is converted to a Motion for Summary Judgment. Plaintiff's Cross-Motion for Summary Judgment (ECF No. 10) is DENIED. Defendant's Motion for Summary Judgment (ECF No. 7) is GRANTED.