American Telephone and Telegraph Company v. The United States, Defendant/cross-Appellant

124 F.3d 1471, 41 Cont. Cas. Fed. 77,174, 1997 U.S. App. LEXIS 26291, 1997 WL 592166
CourtCourt of Appeals for the Federal Circuit
DecidedSeptember 24, 1997
Docket95-5153, 95-5154
StatusPublished
Cited by26 cases

This text of 124 F.3d 1471 (American Telephone and Telegraph Company v. The United States, Defendant/cross-Appellant) is published on Counsel Stack Legal Research, covering Court of Appeals for the Federal Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Telephone and Telegraph Company v. The United States, Defendant/cross-Appellant, 124 F.3d 1471, 41 Cont. Cas. Fed. 77,174, 1997 U.S. App. LEXIS 26291, 1997 WL 592166 (Fed. Cir. 1997).

Opinions

Opinion for the court filed by Circuit Judge PLAGER. Dissenting opinion filed by Circuit Judge PAULINE NEWMAN.

PLAGER, Circuit Judge.

Congress prohibited the expenditure by the Department of Defense (“DOD”) of federal funds for certain types of research and development contracts. This ease is about the consequences, legal and financial, to a contractor and to the Government when they perform a purported contract made in apparent violation of the Congressional prohibition of expenditure of money in that manner.

American Telephone and Telegraph Company (“AT & T”) entered into a contract with the United States (“Government”) for a fixed-price contract involving research, development and production of a ship-towed, undersea surveillance system known as the Reduced Diameter Array (“RDA”). AT & T, claiming that it incurred expenses exceeding the contract’s fixed price by several multiples, submitted to the contracting officer a claim for recovery of these added expenditures. The claim was denied.

AT & T filed for recovery in the United States Court of Federal Claims. The Court of Federal Claims, in response to the parties’ cross motions for summary judgment, concluded that the contract was void as a matter of law and could not be reformed as requested by the contractor. The court held, however, that the contractor might be entitled to the remedy of quantum meruit, measured by the value of goods and services received by the Government. American Telephone & Telegraph v. United States, 32 Fed. Cl. 672, 682-83 (1995).

Because the trial court’s ruling confronted the parties with the prospect of an extended trial on whether the Government had been unjustly enriched, and if so by how much, and because the ruling placed in doubt the legality of a large number of DOD contracts of a similar nature, the trial court certified, and we accepted, the case for interlocutory appeal. Both parties appeal the judgment of the trial court. We affirm-in-part and reverse-in-part.

BACKGROUND

The ability to locate enemy submarines within broad ocean areas has been considered the single most important element of an effective antisubmarine warfare system. The Reduced Diameter Array is part of the larger Surveillance Towed-Array Sensor System (“SURTASS”), which provides un[1473]*1473dersea surveillance of submarines. The SURTASS-equipped surface ship collects acoustic data by towing its electronic sonar array — a long, slender flexible hose, approximately 8,000 feet long, containing hydrophones and other sensors and electronics— through the ocean. Once the sonar array collects acoustic data, the SURTASS ship processes the collected data with its onboard electronics and transmits the data through its communications equipment to a satellite and ultimately to a shore-based facility. In the effort to monitor Soviet submarines, SURTASS was one of the Government’s most important ongoing programs.

On December 31, 1987, the Navy awarded AT & T a fixed-price incentive fee contract with an initial contract ceiling price of $19 million for research and development of the RDA.1 The RDA was to replace the existing SURTASS sonar array, which was based on older technology. In addition to basic research and development, the RDA contract provided for delivery and testing of a fully functioning engineering development model. The contract also contained an option for a second engineering development model and an option to purchase three production-level RDA subsystems. Both options have been exercised by the Navy.

At the time this suit was filed, performance of the contract was essentially complete. The work, however, was considerably more costly than the parties had anticipated, or at least than the contract contemplated. Despite AT & T’s pleas to the Government not to elect purchase of the production-level units because of the cost overruns already experienced by AT & T, the Government ordered and AT & T produced in accordance with its contract three RDA units, all of which were delivered under the RDA contract.

Over the course of the contract the agreed contract price increased to $34.5 million. Even so, AT & T claims to have incurred much higher contract costs, approaching $101 million. After its claim for reimbursement by the Government for its extra costs was rejected by the contracting officer, AT & T filed suit in the Court of Federal Claims, seeking approximately $60 million in extra costs.

In its opinion, the Court of Federal Claims held that the contract was invalid because, under § 8118 of the Department of Defense Appropriations Act, Pub.L. No. 100-202, § 8118, 101 Stat. 1329, 1329-84 (1987), the Government had no authority to enter into such a contract. However, citing United States v. Amdahl, 786 F.2d 387 (Fed.Cir. 1986), the trial court concluded that it had jurisdiction to award relief based on a theory of unjust enrichment, and announced its intention to engage in fact-finding to determine if the failure to grant relief to AT & T would “unjustly” enrich the Government, and if so, by how much. Both the Government’s motion to dismiss or for summary judgment, and AT & T’s motion for partial summary judgment were denied.

In response to the parties’ concerns with this disposition of their motions, the trial court agreed to certify under 28 U.S.C. § 1292(d)(2) an interlocutory appeal from its order, and we accepted the case for interlocutory appeal.

DISCUSSION

A. The Statute

1.

When enacting the annual appropriations bills for the various federal agencies, Congress often incorporates instructions regarding use of the funds for specific purposes. In 1987, the bill, which contained the appropriation for the Department of Defense, contained instructions, inter alia, for further development of the SDI research program, for expeditious development and operational testing by the Army of the M72E4 weapons [1474]*1474program, for the lifting of monetary limits on vehicles purchased for intelligence activities, and for prohibiting the obligation and expenditure of funds for certain feed price-type contracts. This last provision was § 8118 of the bill, and read:

None of the funds provided for the Department of Defense in this Act may be obligated or expended for feed price-type contracts in excess of $10,000,000 for the development of a major system or subsystem unless the Under Secretary of Defense for Acquisition determines, in writing, that program risk has been reduced to the extent that realistic pricing can occur, and that the contract type permits an equitable and sensible allocation of program risk between the contracting parties: Provided, That the Under Secretary may not delegate this authority to any persons who hold a position in the Office of the Secretary of Defense below the level of Assistant Under Secretary of Defense: Provided further, That the Under Secretary report to the Committees on Appropriations of the Senate and House of Representatives in writing, on a quarterly basis, the contracts which have obligated funds under such a feed price-type developmental contract.

Pub.L. No. 100-202, § 8118, 101 Stat. 1329, 1329-84 (1987).

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124 F.3d 1471, 41 Cont. Cas. Fed. 77,174, 1997 U.S. App. LEXIS 26291, 1997 WL 592166, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-telephone-and-telegraph-company-v-the-united-states-cafc-1997.