00-1534
PACRIM
PIZZA COMPANY,
Appellant,
v.
Robert
Pirie, SECRETARY OF THE NAVY,
Appellee.
Robert
M. Cambridge, of Arlington, Virginia, argued for appellant.
John
N. Kane, Jr. Attorney, Commercial Litigation Branch, Civil Division,
Department of Justice, of Washington, DC, argued for appellee. On the brief were Stuart E. Schiffer,
Acting Assistant Attorney General; David M. Cohen, Director; Todd M.
Hughes, and Paul D. Hoburg, Trial Attorney. Of counsel was Virginia G. Farrier,
Attorney. Of counsel on the brief was Julius
Rothlein, Attorney, Office of Counsel for the Commandant, U.S. Marine
Corps., of Washington, DC.
Appealed from: Armed Services Board of Contract
Appeals
United States Court of Appeals for the Federal Circuit
00-1534
PACRIM
PIZZA COMPANY,
v.
Robert
Pirie, SECRETARY OF THE NAVY,
__________________________
DECIDED: September 23, 2002
__________________________
Before MAYER, Chief Judge,
NEWMAN and BRYSON, Circuit Judges.
Opinion for the court filed by Chief
Judge MAYER. Dissenting opinion
filed by Circuit Judge NEWMAN.
MAYER, Chief Judge.
Pacrim Pizza Company appeals the
decision of the Armed Services Board of Contract Appeals sustaining the
contracting officer’s default termination of its contract for noncompliance
with the accounting and discrimination provisions. Pacrim Pizza Co., ASBCA No. 51608, 00-2 BCA ¶ 30,928 (May
16, 2000). Because the nonappropriated
funds doctrine bars our jurisdiction, we dismiss.
Background
In June of 1993, Pacrim Pizza
Company (“Pacrim”) entered into a contract with the Morale, Welfare, and Recreation activity, a local, base level
nonappropriated fund instrumentality, located at the Marine Corps Air Station
in Iwakuni, Japan. Under the contract,
Pacrim was to provide fast food services at the air station for a period of ten
years. On March 31, 1998, the
contracting officer terminated the contract for default based on Pacrim’s
violations of paragraph 7 requiring that Pacrim maintain daily accounting
records of all transactions, and paragraph 27, the Equal Employment
Opportunities clause, prohibiting discrimination in the form of sexual
harassment. Pacrim appealed the
termination to the Armed Services Board of Contract Appeals, which concluded
that Pacrim was not in compliance with these provisions and sustained the
termination. This appeal followed.
We have jurisdiction over appeals
from final decisions of agency boards of contract appeals under 28 U.S.C. §
1295(a)(10), which requires that the contracts at issue be made pursuant to the
Contract Disputes Act of 1978. See
G.E. Boggs & Assoc. v. Roskens, 969 F.2d 1023, 1026 (Fed. Cir. 1992)
(“If the Contract Disputes Act does not apply to the Boggs contract . . . this
Court lacks jurisdiction over this appeal . . . .”). The Contract Disputes Act, in relevant part, applies to “any
express or implied contract (including those of the nonappropriated fund
activities described in sections 1346 and 1491 of Title 28) entered into by an
executive agency for—(2) the procurement of services.” 41 U.S.C. § 602(a)(2) (2000). Sections 1346 and 1491 limit the covered
nonappropriated fund instrumentality (“NAFI”) contracts to express or implied
contracts with “the Army and Air Force Exchange Service, Navy Exchanges, Marine
Corps Exchanges, Coast Guard Exchanges, or Exchange Councils of the National
Aeronautics and Space Administration.”
28 U.S.C. §§ 1346(a)(2), 1491(a)(1) (2000). Contracts with NAFIs outside these enumerated exchanges are not
covered by the Contract Disputes Act. Furash
& Co. v. United States, 252 F.3d 1336, 1343 (Fed. Cir. 2001) (“The
parenthetical language [in 41 U.S.C. § 602(a)(2)] describes the military
exchanges as ‘the nonappropriated fund activities described in [the Tucker
Act],’ which implies that other non-appropriated fund activities are not
included.”).
Pacrim
argues that we have jurisdiction under the Contract Disputes Act because its
contract with the Morale, Welfare, and Recreation activity is included in the
enumerated exceptions in that the contract encompasses services that are
routinely performed by Marine Corps Exchanges.
Besides, it says, the contract stated that it was subject to the
Contract Disputes Act.
The question of whether contracts
with Morale, Welfare, and Recreation entities fall within the enumerated
exceptions for exchanges is a matter of first impression. The plain language of the statutes suggests
that an entity which is not denominated a major exchange, is not covered under
the Contract Disputes Act. McDonald’s
Corp. v. United States, however, holds that there are exceptions to this
narrow construction. 926 F.2d 1126,
1133 (Fed. Cir. 1991) (the Navy Resale and Service Support Office, which is
responsible for and negotiates contracts on behalf of Navy exchanges, is
included in the statutory exception for armed service exchanges). A NAFI may be a covered contracting entity
under the Contract Disputes Act if it is closely affiliated with a post
exchange and meets a three-part test:
it must have sufficient assets to reimburse the United States the cost
of a judgment, be clearly defined as within the resale system, and provide
financial data sufficient to predict the government’s potential liability. Id. at 1132-33.
McDonald’s suggests
that under this inquiry, “organization[s] serving the recreational needs of
servicemen might not” “be considered within the enumerated category.” Id. at 1132. Because Pacrim’s contract was with a local
Morale, Welfare, and Recreation entity with supervision and contracting
structures separate and distinct from an exchange, the contract does not meet
the McDonald’s threshold requirement that the NAFI be closely affiliated
with a post exchange. Therefore, the
three-part test does not come into play.
In view of McDonald’s and the requirement that statutory waivers
of sovereign immunity be construed narrowly, United States v. Nordic
Village, Inc., 503 U.S. 30, 34 (1992), we conclude that the Morale,
Welfare, and Recreation activity is not a covered entity, and that Pacrim’s
contract is not subject to the Contract Disputes Act.
We are not
bound by board decisions, of course, but it is notable that the board has
repeatedly interpreted McDonald’s as holding that Morale, Welfare, and
Recreation contracts are not so closely affiliated with exchanges as to be
within the scope of the Contract Disputes Act.
See Atlantis Constr. Corp., ASBCA No. 44044, 96-1 BCA ¶
28,045 (Nov. 21, 1995) (citing McDonald’s for the proposition that a
contract entered on behalf of the Morale, Welfare, and Recreation, and other
entities with nonappropriated funds does not fall under the exceptions set
forth in section 1346 or 1491(a)(1) of title 28); Computer Valley Int’l,
Ltd., ASBCA No. 39658, 94-1 BCA ¶ 26,297 (Aug. 13, 1993) (citing McDonald’s
to conclude that the Wiesbaden Community Morale, Welfare, and Recreation Fund
does not fall within the enumerated exchange exceptions); see also Okinawa
Sunset Recording Studio & Prods., ASBCA No. 52343, 00-1 BCA ¶ 30,804
(Feb. 28, 2000); Recreation Enters., ASBCA No. 32176, 87-1 BCA ¶ 19,675
(Feb. 20, 1987).
Pacrim’s argument that the Morale,
Welfare, and Recreation activity is a covered entity because in this case the
service for which it contracted fulfills functions similar to those of an
exchange is also unpersuasive. The fact
that the two types of entities may offer duplicative services does not affect
our jurisdictional ruling in light of the structural distinctions between
them.
Pacrim asserts that because the
contract states that it is subject to the Contract Disputes Act, the government
should be estopped from asserting a lack of jurisdiction. The contract contains two provisions relevant
to our jurisdiction. First, paragraph
6, “Legal Status,” in part states that “MWR contracts are United States
contracts; however, they do not obligate appropriated funds of the United
States except for a judgment or compromise settlement in suits brought under
provisions of the Contract Disputes Act . . . .” This language does not render the contract
subject to the Contract Disputes Act, but instead states that if the Act does
apply, appropriated funds may be used to pay judgments. Because the Act does not apply here, this
clause is not operative.
Second, paragraph 21(c), “Disputes,”
reads in relevant part that “[t]he decision of the ASBCA is final and
conclusive except: (1) The contractor may appeal such a decision to the United
States Court of Appeals for the Federal Circuit within one-hundred-twenty (120)
days of receipt of a copy of the decision of the ASBCA.” The government acknowledges this clause, but
asserts it was included in error. It
further explains that the language for future contracts of this type has been
revised to omit such language. We
recognize the awkwardness of the government’s position, but only Congress can
grant waivers of sovereign immunity; parties may not by contract bestow
jurisdiction on a court. See Insurance
Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694,
701-02 (1982) (Federal court jurisdiction is “limited to those subjects
encompassed within a statutory grant of jurisdiction. . . . [N]o action of the
parties can confer subject matter jurisdiction upon a federal court.”); RHI
Holdings, Inc. v. United States, 142 F.3d 1459, 1461 (Fed. Cir. 1998).
Accordingly,
the appeal is dismissed for want of jurisdiction.
United States Court of Appeals for the Federal Circuit
v.
SECRETARY
OF THE NAVY,
Appellee.
NEWMAN, Circuit Judge,
dissenting.
I do not
agree that review under the Contract Disputes Act is foreclosed to this
contractor. Whether an agency receives
fees from activities it implements, and therefore engages in
"non-appropriated fund activity," is not a criterion of access to the
Contract Disputes Act.
The
various statutes concerning non-appropriated fund instrumentalities have been
interpreted as requiring the agency to pay its judgments without burdening the
United States Treasury; but they do not exclude from contract remedy and
judicial review this entire class of contracts. The Marine Corps, correctly interpreting its statutory
responsibility, designated the Contract Disputes Act for review of disputes
arising from this contract for restaurant services at the Marine base. I do not share my colleagues' view that this
provision is illegal and that judicial review of the asserted government breach
is barred.
Thus the
court dismisses this appeal, denying Pacrim Pizza the review that its contract
with the Marine Corps explicitly grants.
The court not only invalidates the "Disputes" clause in the
contract, but deprives of judicial remedy all contractors who enter into
contracts with any self-sustaining governmental activity except the military
and NASA Exchanges. The governing
statutes do not warrant this interpretation.
Indeed, this interpretation defies the CDA's well-conceived structure of
administrative and judicial review of contracts with the government, and cannot
have been intended in the statutes on which the court relies.
The Pacrim
Pizza Contract
Pacrim
Pizza contracted to provide pizza, sandwiches, and related food items to the
Marine Corps base in Iwakuni, Japan.
The contracting arm of the Marine Corps was its Morale, Welfare, and
Recreation activity, a so-called "non-appropriated fund
instrumentality" because it is supported by revenue generated by sales or
service fees (such as the fees paid by Pacrim Pizza), and thus does not receive
congressional appropriations. See
Dupo v. Office of Personnel Management, 69 F.3d 1125, 1127 n.1 (Fed.
Cir. 1995).
The Pacrim
Pizza contract stated that the Marine Corps will reimburse the Treasury for any
adverse judgment, even as it recognized that suits may be brought under the
Contract Disputes Act:
6. LEGAL STATUS. The Marine Corps Morale, Welfare and
Recreation located at Marine Corps Air Station, Iwakuni, Japan is an integral
part of the Department of Defense, and is a Non-Appropriated Fund
Instrumentality (NAFI) of the United States Government. MWR contracts are United States contracts;
however, they do not obligate appropriated funds of the United States except
for a judgment or compromise settlement in suits brought under provisions of
the Contract Disputes Act (41 U.S.C. 601-613), in which event the Marine Corps
MWR will reimburse the United States Government (31 U.S.C. 1304(c)).
The
government recognized that contracts with non-appropriated fund
instrumentalities "are United States contracts," and included the
procedures of the Contract Disputes Act in the "Disputes" clause of
the contract between Pacrim Pizza and the Marine Corps:
21. DISPUTES.
. . . .
b. All disputed claims relating to this contract
will be decided by the contracting officer, . . . The contracting officer's decision will be final and conclusive
unless:
(1) Within ninety (90) days from the date of
the contractor's receipt of the contracting officer's final decision, the contractor
mails or otherwise furnishes the contracting officer a written appeal (two
copies) addressed to the Armed Services Board of Contract Appeals (ASBCA); or
(2) Within twelve (12) months from the date
of the contractor's receipt of the contracting officer's final decision, the
contractor brings an action in the United States Claims Court.
c. The decision of the ASBCA is final and
conclusive except:
(1) The contractor may appeal such a decision
to the United States Court of Appeals for the Federal Circuit within
one-hundred-twenty (120) days of receipt of a copy of the decision of the
ASBCA.
*
* *
(3) . . . the ASBCA decisions on questions of
fact may be set aside only where the decisions are fraudulent, arbitrary,
capricious, or so grossly erroneous as to necessarily imply bad faith, or if
such decisions are not supported by substantial evidence. The decisions of the ASBCA on any questions
of law will not be final or conclusive as to the United States Court of Appeals
for the Federal Circuit.
The court
today holds that these rights are not available. The government stated at oral argument that inclusion of these
clauses in the Pacrim Pizza contract was an error on its part, but that since
the issue is jurisdictional it can be raised at any time and cannot be
waived. Thus the government argued, and
the court now holds, that judicial review is not available for the asserted
breach of the Marine Corps MWR contract with Pacrim Pizza. However, as I shall discuss, the statutes do
not bar judicial review of all contracts with self-sustaining governmental
activities except for the military and NASA Exchanges. The legislation does not establish a regime
whereby every other government activity that receives fees and supports itself
is immune from review and from remedy under the Contract Disputes Act.
The
Relevant Statutes
The
relevant statutes are the Contract Disputes Act and the statutes that hold that
the military and NASA Exchanges shall be treated like other United States
agencies but shall reimburse the government for their judgments. The statutes do not thereby also provide
that every contract with every other self-sustaining governmental activity is
immune from judicial review.
The only
reference to non-appropriated fund activities in the Contract Disputes Act
appears in §602(a):
41 U.S.C.
§602(a). Unless otherwise
specifically provided herein, this chapter applies to any express or implied
contract (including those of the non-appropriated fund activities described in
sections 1346 and 1491 of Title 28) entered into by an executive agency . . . .
The
referenced sections of Title 28 relate to contracts with the military and NASA
Exchanges, and state that contracts with the Exchanges are considered contracts
with the United States. Section 1346 is
the Little Tucker Act:
28 U.S.C.
§1346(a)(2). For the purpose of
this paragraph, an express or implied contract with the [military and NASA]
Exchanges shall be considered an express or implied contract with the United
States.
Section
1491 defines the jurisdiction of the Court of Federal Claims, and includes:
28 U.S.C.
§1491(a)(1). For the purpose of
this paragraph, an express or implied contract with the [military and NASA]
Exchanges shall be considered an express or implied contract with the United
States.
These
provisions do not remove contracts with other United States non-appropriated
fund entities from the Contract Disputes Act; they simply say that Exchange
contracts are considered contracts with the United States. Other statutory provisions do not exclude
all other non-appropriated fund instrumentalities from the Contract Disputes
Act; the statute-based difference is in who pays the judgment, not in whether
there is judicial review. Section
1304(c) of Title 31 states that when a judgment is rendered against an
Exchange, the government shall be reimbursed by the Exchange:
31 U.S.C.
§1304(c)(1). A judgment or
compromise settlement against the Government shall be paid under this section
and sections . . . when the judgment or settlement arises out of an express or
implied contract made by-
(A) the Army and Air Force Exchange Service;
(B) the Navy Exchanges;
(C) the Marine Corps Exchanges;
(D) the Coast Guard Exchanges; or
(E) the Exchange Councils of the National
Aeronautics and Space Administration.
(2) The
Exchange making the contract shall reimburse the Government for the amount paid
by the Government.
Paragraph
6 of the contract with Pacrim Pizza similarly requires the Marine Corps MWR to
reimburse the government. Section
1304(c) of Title 31 neither prohibits nor requires non-appropriated fund
instrumentalities other than the Exchanges to reimburse the government. Nor does §1305(c) remove contracts with all
other non-appropriated fund instrumentalities from the Contract Disputes Act.
Neither
the Contract Disputes Act nor the corollary jurisdictional statute of the
Federal Circuit states the exclusion of all other non-appropriated fund
instrumentalities:
28 U.S.C.
§1295(a) The United
States Court of Appeals for the Federal Circuit shall have exclusive
jurisdiction --
*
* * *
(10) of an appeal from a final decision of an
agency board of contract appeals pursuant to section 8(g)(1) of the Contract
Disputes Act of 1978 (41 U.S.C. 607(g)(1)).
Section 607(g)(1) of the Contract
Disputes Act in turn provides:
41 U.S.C.
§607(g)(1). The decision of an
agency board of contract appeals is final unless appealed . . . [setting 120
days for appeal to the Federal Circuit].
The
Contract Disputes Act contains no exclusion from appeal to the Federal Circuit
for non-appropriated fund instrumentalities.
Further,
the jurisdiction of the agency boards, provided in §607(d), draws no
distinction between appropriated fund and non-appropriated fund
instrumentalities:
41 U.S.C.
§607(d). Each agency board
shall have jurisdiction to decide any appeal from a decision of a contracting
officer (1) relative to a contract made by its agency, and (2) relative to a
contract made by any other agency when such agency or the Administrator has
designated the agency board to decide the appeal. In exercising this jurisdiction, the agency board is authorized
to grant any relief that would be available to a litigant asserting a contract
claim in the United States Court of Federal Claims.
I cannot
find in the Contract Disputes Act, or any other statute, the exclusion from the
Contract Disputes Act of all contracts with non-appropriated fund
instrumentalities other than the Exchanges.
As I have noted, the contract between the Marine Corps and Pacrim Pizza
provides that "MWR contracts are United States contracts" and that
"in suits brought under provisions of the Contract Disputes Act the Marine
Corps MWR will reimburse the United States Government," citing 31 U.S.C.
§1304(c).
The
government argues that the reference to the Exchanges in §602(a) and §1304(c)
means that contracts with all other non-appropriated fund instrumentalities are
excluded from judicial review. It
strains belief that Congress intended to legislatively bar review of all such
breaches by the government. This interpretation
leaves an apparently large number of contractors without access to the remedy
for which the Contract Disputes Act was designed. This court rejected such an interpretation in McDonald's Corp.
v. United States, 926 F.2d 1126 (Fed. Cir. 1991). Declining to adopt today's theory, the court found that a
contract with the Navy Resale and Services Support Office (NAVRESSO), a
non-appropriated funds instrumentality that had contracted with McDonald's for
restaurant services, was subject to suit under the Contract Disputes Act even
though NAVRESSO was not an Exchange.
The court explained that Congress did not intend to exclude contracts
that could meet the "more sensible reading" that the court found in the
legislative intent and summarized as follows:
A more sensible reading [than that urged by
the government] of the comprehensive and categorical listing in the statute is
that found in the legislative history, where Congress indicated its intention
to limit the waiver of sovereign immunity to a specific category of military
organizations funded by resale activities which rendered them solvent and
therefore able to support an adverse judgment without risk to the general
treasury. The House Report lays out a
three-part functional test that it applied in developing the category of
organizations:
First, since not every nonappropriated fund
activity has sufficient assets to reimburse the United States, the cost of the
judgment would in some cases be imposed on the taxpayer --a result which is
inconsistent with the very concept of nonappropriated fund activities.
Second, the broad inclusion of all
nonappropriated fund activities might create serious definitional questions,
making it difficult to predict the outer limits of the liability of the Federal
Government.
Third, data concerning all of the
nonappropriated fund activities of the United States is unavailable. The Bureau of the Budget has not compiled
such data nor can such data be obtained from the various Government agencies
under which nonappropriated fund activities are conducted.
Under this three-part test, we must conclude
that a NAFI which lacks sufficient assets, is not clearly defined as being
within the resale system, or over which the Government could not obtain
financial data, would not be included in the statutory waiver.
McDonald's, 926 F.2d
at 1132 (citation omitted).
The court
in McDonald's did not hold that the NAFI must be "closely
affiliated" with an Exchange; the court held that an activity with
sufficient assets, clearly defined, and financially accountable, is subject to
the Contract Disputes Act. The Marine
Corps Morale, Welfare and Recreation arm is "funded by resale activities
which [render it] solvent and therefore able to support an adverse judgment
without risk to the general treasury," McDonald's, 926 F.2d at
1132, and meets the three-part test as fully as did NAVRESSO. There is no indication that the Marine Corps
MWR cannot meet the judgment against it; it is clearly within the resale system
(the government recognized that "both the exchanges and base-level MWR
activities may conduct retail sales activity on Marine Corps bases," gov't
brief at 10); and the Marine Corps MWR is administered by personnel "over
which the Government [could] obtain financial data." I cannot discern a substantive difference
between the solvency and accountability of NAVRESSO and the Marine Corps MWR as
would render the Contract Disputes Act available to contractors dealing with
one and barred to those dealing with the other.
Our
precedent directly supports the conclusion that the Contract Disputes Act
applies to this contract -- as the contract itself states. The court's contrary ruling diverges from
precedent as well as from statute, and exacerbates the unfairness of the
practice here illustrated. The
government did not dispute at argument of this appeal that the contract clauses
that the government now states were improperly included in this contract, are
frequently used. It is a travesty of
fair dealing for our government to issue contracts that state that remedy is
available under the Contract Disputes Act, but when a dispute arises to hold
that the Disputes clause was included by governmental error, and that the
promised judicial review is not available.[1] I respectfully dissent.
[1] Despite the statement in the majority opinion, the briefs
and argument record contain no governmental promise to change any NAFI
contracts, existing and future, to avoid inclusion of Contract Disputes Act
clauses like those in the Pacrim Pizza contract.