Moore & Lee was once again selected as Tier 1 for Construction Law and Construction Litigation in both the National and Washington, DC Metro Area Rankings of the U.S. News & World Report’s Best Law Firms.
A Virginia-based IT contractor recently agreed to pay the government $400,000 to settle claims that its employees improperly accessed restricted information at a U.S. military installation. The allegations arose out of the contractor’s work at a U.S. Army Medical Information Technology Center. The contractor held a contract for IT services, under which its employees had access to the network, computers, and other resources solely for the purpose of performing work on the government’s information technology systems.
The Government contended that, while performing work under the contract, the contractor’s employees accessed information that they deemed useful for the contractor’s future efforts to obtain government contracts. The contractor’s employees allegedly searched for and downloaded documents from the network, including documents that were restricted or required security clearance. The documents were allegedly used to prepare proposals for three subsequent government contracts. The contractor did not secure any of those contracts and, additionally, withdrew itself from consideration for one contract before a source selection decision was made. Nevertheless, the government initiated an action against the contractor for improperly using restricted information.
Government contractors should be aware that the use of restricted government information for purposes beyond the scope of the contract, including for use in attempting to secure future contracts, can lead to government prosecution for false claims.
In K-Con Building Systems, Inc., v. United States, No. 2014-5062 (Fed. Cir. 2015), the Federal Circuit explained what constitutes a separate and distinct claim for jurisdiction purposes, providing guidance to federal contractors seeking to amend complaints in the Court of Federal Claims (“COFC”) in order to add later related claims.
K-Con entered into a contract with the federal government to construct a building for the Coast Guard. Once complete, the government imposed liquidated damages for delay in completion. K-Con then requested remission of the liquidated damages in a letter to the contracting officer (“CO”) on the grounds that the liquidated damages constituted an impermissible penalty and the government failed to issue extensions to the completion date as a result of changes to the contract. The CO denied this request. K-Con then sued in the COFC under the Contract Disputes Act (“CDA”). While litigation was underway, K-Con submitted a second letter to the CO, seeking additional compensation for extra work performed in response to the government’s changes. The CO also denied this request. K-Con then amended its complaint in the COFC to add the allegations included in the second letter.
K-Con’s amended complaint sought two forms of relief. First, it requested remission of the liquidated damages clause on two grounds – that the clause was unenforceable and that K-Con was entitled to an extension of the completion date. Second, K-Con requested additional compensation based on work performed in response to government requests that K-Con alleged amounted to contract changes. The COFC ruled against K-Con on all three claims on summary judgment.
On appeal, the government argued that there was no authorized final decision on K-Con’s changes claim before litigation on it commenced because K-Con sent its second letter to the CO after filing its original complaint. And so, the government argued, the CO’s final decision was invalid and could not serve as a basis for appeal because once a claim is in litigation, the CO may not rule on it even if the claim is not properly in litigation. While the Court agreed with this general rule, the Court disagreed with the government’s analysis. First, the Court explained that pending litigation divests COs of authority only as to the claims at issue in the pending litigation, not all potentially related claims – its jurisdiction is limited to individual claims, not entire cases. Accordingly, identifying what constitutes a separate claim is important. The Court explained that it should treat requests as involving separate claims if they either request different remedies or assert grounds that are materially different from each other factually or legally. The Court held that K-Con’s contract-changes claim was separate from the liquidated damages claim in the original complaint because the remedy requested in the second letter was categorically different: the original complaint asked for remission of liquidated damages, whereas the second letter asked for compensation for extra work performed. Consequently, the CO’s rejection of the second letter was an authorized final decision sufficient to establish jurisdiction.
K-Con is an important decision because it holds that even though litigation is pending at the COFC, a federal contractor is not precluded from adding related claims to its complaint. But federal contractors must remember to present a separate and distinct claim – different remedy or ground for relief– to a CO before seeking to amend their complaint. If a separate and distinct claim is presented to the CO, even after litigation has commenced on a related claim, the CO’s decision will be an authorized final decision sufficient to establish jurisdiction in the COFC.
In RSC Equip. Rental, Inc. v. The Cincinnati Ins. Co., the United States District Court for the Western District of Virginia adopted a narrow reading of a Virginia code section precluding any contracts “relating to” construction from requiring one party to indemnify another party for the indemnitee’s negligence. In this case, an equipment rental company rented a fork lift to a contractor for use on a construction project. After the employee of a subcontractor was injured by the forklift, the rental company was sued for negligence. The rental company then demanded the contractor indemnify the rental company pursuant to an indemnification clause in the parties’ contract. In response, the contractor argued that the indemnification clause was unenforceable pursuant to Va. Code § 11-4.1, which prohibits agreement in contracts “relating to” construction from requiring one party to indemnify another for claims related to the second party’s own negligence. The court ruled against the contractor and determined the rental agreement was not a contract related to construction within the meaning of the code section.
The Committee on Foreign Investment in the United States (“CFIUS”) is a committee chaired by the Secretary of the Treasury that reviews transactions involving acquisitions by foreign persons of U.S. businesses which may raise national security issues. The recent decision in Ralls Corp. v. Comm. on Foreign Investment in the United States, No. 12-cv-01513 (D.C. Cir.) may require significant changes in the manner in which CFIUS conducts its reviews.
Ralls Corporation is a United States company that is owned by Chinese citizens. In 2012, Ralls purchased various companies that held wind farm rights in Oregon. While Ralls did not voluntarily seek CFIUS review, CFIUS initiated its own review of the transaction. Following that review, the President issued an order denying the transaction and requiring Ralls to sell the assets in question.
Ralls filed suit in the U.S. District Court for the District of Columbia challenging the CFIUS decision and Presidential Order, but that suit was dismissed. Ralls then appealed to the U.S. Court of Appeals for the D.C. Circuit, arguing that it had been denied constitutional due process during the CFIUS review and subsequent Presidential action.
The D.C. Circuit overturned the lower court decision, holding that Ralls had been deprived of constitutional due process. In reaching that decision, the Court held that Ralls possessed a state law property interest in the property it acquired, and that interest was protected by the Fifth Amendment. The Court noted that Ralls had not received notice of an official action, nor had it had the opportunity to be heard at a meaningful time and in a meaningful manner, including the right to know the factual basis for an action and the opportunity to rebut evidence supporting the action – steps that due process ordinarily requires.
While the Ralls decision may be appealed to the U.S. Supreme Court, for the time being that decision should alter the CFIUS review process. Prior to Ralls, parties generally were provided with very little information regarding the review process and the justifications underlying CFIUS decisions. In light of that ruling, parties may have a greater opportunity to understand the factual basis for any pending decision and, additionally, have the opportunity to rebut evidence supporting the adverse decision.