KLINGE CORPORATION v. USA

Filing 64

PUBLISHED OPINION (Reissuance of November 21, 2008 Opinion for Publication.) Signed by Senior Judge Eric G. Bruggink. (alc)

KLINGE CORPORATION v. USA

Doc. 64

In the United States Court of Federal Claims
N o . 08-134C (O rig in a lly Issued Under Seal: November 21, 2008) (R e is s u e d with Redactions: December 10, 2008)1

************************ K L IN G E CORPORATION, Plaintiff, v. B id P rotest; E qual A c c es s to Justice A c t; Attorneys' Fees T H E UNITED STATES, Defendant, and

S E A BOX, INC. In te rv e n o r. ************************ R ic h a rd P. Rector and Seamus Curley, Washington, DC, for plaintiff. C h r is to p h e r L. Krafchek, United States Department of Justice, Civil D ivisio n , Commercial Litigation Branch, Washington, DC, with whom were G r e g o ry G. Katsas, Assistant Attorney General, Jeanne E. Davidson, Director, a n d Kirk Manhardt, Assistant Director, for defendant.
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This opinion was first issued under seal on November 21, 2008. The p arties were directed to propose redactions to the opinion on or before D e c em b e r 5, 2008. Defendant submitted its proposed redactions on December 5 , 2008. Plaintiff does not oppose defendant's redactions. The court has a d o p te d defendant's recommended redactions, as reflected herein. Redactions a re indicated by the use of asterisks.

Dockets.Justia.com

_________ O P IN IO N _________ B R U G G IN K , Judge. P e n d in g in this bid protest is plaintiff's post-award motion for A tto rn e ys ' Fees and Expenses pursuant to the Equal Access to Justice Act (" E A J A " or "the act"), 28 U.S.C. § 2412 (2000). On June 5, 2008, we entered ju d g m e n t for Klinge Corporation ("plaintiff" or "Klinge"). Klinge Corp. v. U n i te d States, 82 Fed. Cl. 127 (2008). We concluded that the U.S. Marine C o rp s Systems Command's ("the agency") award of a contract for Large Field R e f rig e ra tio n Systems ("LFRS") to Sea Box, Inc. ("Sea Box") was arbitrary, c a p ric io u s , and not in accordance with law. Plaintiff timely filed its EAJA motion requesting reimbursement of $ 8 4 ,0 6 8 .9 4 in fees and expenses. Defendant opposes the motion, arguing that th e government's position in the litigation was substantially justified within the m e a n i n g of the act. Defendant concedes that plaintiff otherwise meets EAJA req u irem en ts. For the reasons set out below, we hold that the government's o v e ra ll litigation position was not substantially justified and we grant p la in tif f 's motion.

BACKGROUND 2 O n April 10, 2007, the agency issued Request for Proposals ("RFP") M 6 7 8 5 4 -0 7 -R -5 0 6 0 . The agency sought to procure an indefinite quantity of L F R S s, which are large, portable, refrigerated containers. An LFRS is c o n stru c te d of two primary components, a refrigeration unit ("RU") and an in s u la te d container. This part of the proposal was covered by Contract Line Ite m Number ("CLIN") 0001. In addition, the RFP sought a two-year parts s u p p o rt package, covered by CLIN 0003.

The facts of this case are taken from our June 5, 2008 opinion. We a ss u m e the readers' knowledge of the facts and provide an abbreviated version h e re . 2

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T h e contract was subject to the Trade Agreements Act of 1979 (" T A A " ), 19 U.S.C. § 2501 (2006). See also 48 C.F.R. § 25.402(b) (2007). T h e solicitation required offerors to certify "[f]or all line items subject to the T ra d e Agreements clause of this solicitation . . . each end product to be d e liv e re d under this contract . . . is a U.S.-made, qualifying country, or d e sig n a te d country end product." Defense Federal Acquisition Regulation S u p p lem en t ("DFARS") 252.225-7020 (Trade Agreements Certificate). D F A R S standard clause 252.225-7021(a)(12), incorporated in the solicitation b y Amendment No. 1 to the RFP (Administrative Record ("AR") at 43), in s tru c ts offerors that a "US-made end product" is one that is "mined, p ro d u c e d , or manufactured in the United States" or is "substantially tra n sf o rm e d in the United States into a new and different article of commerce w ith a name, character, or use distinct from that of the article or articles from w h ic h it was transformed." DFARS 252.225-7021(a)(12). It was clear from Sea Box's initial proposal that its container would be b u ilt in China and that the RU would be shipped from Singapore to China to b e joined with the container. China was listed in the schedule of work as the p la c e of "Final Assembly." Sea Box certified, however, that Singapore was th e "country of origin" of its LFRS. Singapore is a "qualifying country" under th e TAA. In a separate entry on its proposal form, Sea Box indicated that the p la c e of manufacture was outside of the United States. After review of the in itia l proposals, the agency determined that Sea Box's proposal provided the b e s t value and awarded the contract to Sea Box on July 12, 2007. Klinge filed a protest with the General Accountability Office ("GAO") o n July 30, 2007, challenging its exclusion from the competition. In response to the protest, the agency informed the offerors that it would take corrective a c tio n by admitting Klinge to the competitive range and reopening discussions. T h e GAO dismissed the protest as moot. The agency then asked Klinge and Sea Box in writing to provide a TAA C e r t if ic a te and to explain how their manufacturing processes satisfied the T A A . Despite the questions raised by Sea Box's proposal concerning its TAA c o m p lian c e and Klinge's protest, there were no documents in the record, as it e x is te d during the second evaluation, reflecting any consideration by the a g e n cy of the TAA compliance issue. Instead, as only later became apparent in the agency submission during a second GAO protest, agency counsel c o n ta c te d counsel for Sea Box and orally expressed reservations about Sea B o x 's TAA compliance, although only with respect to CLIN 0001. According 3

to an affidavit by agency counsel, which the agency supplied late in the GAO p ro c e ss , he felt assured by Sea Box's counsel, who in turn was passing on in f o r m a tio n from Sea Box's President, that Sea Box had inadvertently misc h a r a c te r iz e d its manufacturing process in its written discussion responses. S e a Box's counsel, Mr. Farber, assured agency counsel that in fact the m e c h an ic a l and electrical integration of its LFRSs did not occur in China. B a s e d on that information, Sea Box was found to be technically acceptable, a n d the award to Sea Box was confirmed on October 18 & 23, 2007. Klinge a n d a third offeror were also deemed acceptable. On November 6, 2007, Klinge filed a second protest at the GAO, q u e stio n in g once again Sea Box's compliance with the TAA. On February 13, 2 0 0 8 , the GAO rejected Klinge's second protest. Based on Sea Box's a s s e rtio n s in its written explanation, the GAO concluded, inter alia, that the o n ly activity which occurred in China was the bolting of the panel to the c o n ta in e r for shipment purposes, and that the rest of the integration of the L F R S occurred in the United States. On March 6, 2008, plaintiff filed its complaint in this court. On March 1 9 , 2008, we remanded the case to the agency, so that it could further develop th e record and explain its analysis of the TAA compliance issue. We also s o u g h t an explanation of the "entire process of manufacturing, assembly and te stin g " to assess what Sea Box meant in its schedule of work that "Final A s s e m b ly" and testing would take place in China. In order to respond to potential confusion concerning CLIN 0003 (spare p a rts ), Sea Box, after consultation with its parts supplier, admitted that * * * of the costs of its parts included in CLIN 0003 were not sourced from the U n ite d States or from a designated country.3 Because of this admission and th e fact that nearly one year had passed after the solicitation had been issued, th e CO intended to cancel the award to Sea Box as well as the solicitation and c o n d u c t more market research with the idea of issuing a new solicitation at a la te r time. The agency changed course shortly thereafter; thus, defendant filed a motion to extend the stay of proceedings in order to give the agency more

Defendant conceded that "Sea Box failed to provide an explanation o r reconcile this latest certification of TAA compliance with its RFP or prior s u b m is s io n s to GAO." Def.'s Br. in Resp. 19. 4

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tim e to solicit further information from both offerors regarding TAA c o m p l ia n c e. We granted that motion on April 8, 2008. B o th Sea Box and Klinge provided further supplementation regarding T A A compliance. Sea Box changed its prior explanations by representing that " th e country of origin for each and every one of the * * * individual parts . . . is either the United States or a designated country." AR at 1464 (Sea Box le tte r to the CO, Apr. 10, 2008). In order to make this representation, h o w e v e r, it explained that it had to get assurance from its primary supplier that th e supplier would source all parts from compliant locations, albeit at higher c o st to itself. This assurance meant that all * * * spare parts were now to be a c q u ire d from the United States or other designated countries. Based on this re p re s e n ta tio n , the agency confirmed the award to Sea Box. In response, Klinge filed an amended complaint. In its complaint, K lin g e contested the agency's acceptance of Sea Box's proposal in the face of w h a t it asserted were problems with CLIN 0001's TAA compliance. On June 5 , 2008, we entered judgment for Klinge, concluding that the agency's award to Sea Box was arbitrary, capricious, and not in accordance with the law. K lin g e , 82 Fed. Cl. at 137-38. Specifically, we held that: A t no point has the CO given a satisfactory justification f o r his reliance upon the characterization of what occurs in C h in a as the `mere bolting of the Singapore refrigeration unit in to the Chinese container for shipment to the U.S.' It should h a v e been readily apparent to the CO that Sea Box's informal o ra l characterizations of its proposal were inaccurate . . . . .... . . . [T]here can be no question that, up until April 1, 2 0 0 8 , when Sea Box offered to make the LFRS in New Jersey, th e CO could not have treated the proposal as clearly TAA co m p lian t with respect to CLIN 0001. At a minimum, there w e re so many statements suggesting that the critical functions of tu rn in g the product into an LFRS occurred in China, that the CO sh o u ld have insisted on more information. We view Sea Box's c o u n se l's disavowals of these contraindications as not a su b stan tial basis for eliminating concern. Sea Box's s u b m i s s io n s to the agency, to the GAO, and to this court have 5

b e e n materially inconsistent and confusing, and they have been p red icated on an incorrect understanding of the relevant test. It w a s arbitrary and capricious to ignore this fact. We conclude th a t it was arbitrary and capricious of the agency to accept Sea B o x 's proposal as satisfying the TAA certification requirement. Id . We enjoined the agency from accepting further performance of the RFP f ro m Sea Box. Id. at 139. On July 3, 2008, plaintiff filed its EAJA motion.

DISCUSSION A party in an action by or against the United States may recover atto r n e ys' fees if (1) the claimant is a prevailing party; (2) the government's litig a tio n position was not substantially justified; (3) no special circumstances m a k e an award unjust; and (4) the fee application is submitted to the court w ith in 30 days of final judgment in the action and is supported by an itemized s ta te m e n t. 28 U.S.C. § 2412(d)(1)(A), (B). The only issue with respect to the p e n d in g motion is whether the government's litigation position was s u b s ta n tia lly justified, an issue as to which the government holds the burden o f proof. White v. Nicholson, 412 F.3d 1314, 1315 (Fed. Cir. 2005). The Supreme Court has defined substantial justification as "not `ju st ified to a high degree,' but rather `justified in substance or in the main'­ th a t is, justified to a degree that could satisfy a reasonable person." Pierce v. U n d e rw o o d , 487 U.S. 552, 565 (1998). A position can be justified "even th o u g h it is not correct, and . . . it can be substantially (i. e., for the most part) ju s tif ie d if a reasonable person could think it correct, that is, if it had a re a so n a b le basis in law and fact." Id. at 566. We must "look at the entirety of the government's conduct [both prior to and during litigation] and make a judgment call whether the government's o v e ra ll position had a reasonable basis in both law and fact." Chiu v. United S ta te s, 948 F.2d 711, 715 (Fed. Cir. 1991). The government's `position' e n c o m p a s s e s both "the agency's pre-litigation conduct and the Department of J u s tic e 's subsequent litigation positions . . . only one threshold determination f o r the entire civil action is to be made." Comm'r v. Jean, 496 U.S. 154, 159 (1 9 9 0 ).

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D e f en d a n t argues that the government's overall litigation position was s u b s ta n tia lly justified because it relied on a United States Customs and Border P r o te c tio n ("CBP") Advisory Ruling, as well as upon the test set forth by the U n ite d States Supreme Court in Anheuser-Busch Brewing Ass'n. v. United S ta te s, 207 U.S. 556, 562 (1908), in taking the position that Sea Box's LFRSs w e re substantially transformed in the United States. The CBP ruling to which defen d an t refers determined the issue of substantial transformation by applying a `totality of the circumstances' test, and considered factors such as: The country of origin of the article's components, the e x te n t of the processing that occurs within a given country, and w h e th e r such processing renders a product with a new name, c h a ra c te r, or use . . . . Additionally, facts such as resources ex p en d ed on product design and development, extent and nature o f post-assembly inspection procedures, and worker skill re q u ire d during the actual manufacturing process will be c o n sid e re d when analyzing whether a substantial transformation h a s occurred; however, no one such factor is determinative. United States Customs and Border Protection Advisory Ruling, HQ W563587 (F e b ru a ry 8, 2007). The United States Supreme Court's test in Anheuser states, however, that for a product to be substantially transformed in manufacturing, "[t]here m u s t be transformation; a new and different article must emerge, `having a d i stin c tiv e name, character, or use.'" Anheuser, 207 U.S. at 562 (quoting J o se p h Schlitz Brewing Co. v. United States, 181 U.S. 584 (1901)). In Klinge, w e held that Anheuser, not the CBP Advisory Ruling, was the authoritative test to be applied. Klinge, 82 Fed. Cl. at 135. We held that "[t]he proper inquiry is thus at what point the article acquires its distinct name, character, or use. In th is instance, we think that it was plainly China." Id. Defendant argues that because the CBP "is the Federal agency charged w ith interpreting and applying the TAA," and because "the Anheuser test was a n n o u n c ed 71 years before the TAA was enacted, it was reasonable for the d e f en d a n t to rely upon both [tests] . . . ." Def.'s Resp. at 8. Although d e f e n d a n t concedes that the court is "certainly not bound by the CBP's . . . test," it maintains that its position in evaluating and confirming Sea Box's T A A compliance under both tests was reasonable, noting that plaintiff also re lie d on the CBP test in a prior motion. Id. 7

Although we reached the conclusion that substantial transformation of S e a Box's LFRSs occurred in China through the Anheuser analysis, we would h a v e reached the same conclusion using the CBP test because the three p rim a ry factors listed in the aforementioned CBP Advisory Ruling were all a n a lyz e d in Klinge. Regarding the third CBP factor­whether processing w ith in a given country results in a product with a new name, character, or u s e ­ w e held that Sea Box's RUs and containers underwent their most e x te n siv e processing in China, as this manufacturing process converted the tw o separate products into one LFRS (i.e., a product with a new name, ch ara cter, and use). Klinge, 82 Fed. Cl. at 136. Analyzing elements of the s e c o n d CBP factor­the extent of the processing that occurs within a given c o u n try­ w e concluded that the agency's action was arbitrary and capricious in th a t it ignored Sea Box's numerous statements "suggesting that the critical f u n c tio n s of turning the product into an LFRS occurred in China." Id. at 138. W e also analyzed CBP's first factor­the country of origin of the article's c o m p o n e n ts ­ in te rm it te n tly throughout the opinion. See id. at 128. After a n a l yz in g these factors, we held that the award to Sea Box was arbitrary, c a p ric io u s , and not in accordance with the law. Id. at 139. Even an a p p lic a tio n of the CBP Advisory Ruling test therefore should have revealed th a t Sea Box's LFRSs were not TAA compliant. The agency failed to investigate Sea Box's many statements suggesting s u b s ta n tia l transformation of its LFRSs in China. Moreover, the agency relied o n a telephone conversation with Sea Box's counsel (in which Mr. Farber m a ter ially disavowed information from Sea Box's written submissions) to d e te rm in e that Sea Box's LFRSs were substantially transformed in the United S ta te s . We held in Klinge that the agency acted arbitrarily and capriciously in relying upon Sea Box's questionable assurances of its TAA compliance w ith o u t making reasonable further inquiry. Id. at 137-38. We stated that " w h e n . . . the agency has `reason to believe that a firm will not provide c o m p l ia n t products, the agency should go beyond a firm's representation of c o m p l ia n c e.'" Id. at 135 (quoting Leisure-Lift, Inc., 2003 B-291878.3, B2 9 2 4 4 8 .2 , 2003 Comp. Gen. LEXIS 178, at *19 (Comp. Gen. 2003)). Defendant posits that it was reasonable for agency counsel to have re lie d upon the verbal assurances of Mr. Farber regarding Sea Box's TAA c o m p l ia n c e. The government claims that "merely because the Court and the d ef en d an t disagree about whether Sea Box adequately addressed the agency's c o n c ern , does not mean the defendant was not substantially justified in arguing th a t the agency acted reasonably in relying upon Sea Box's assurances." 8

D e f .'s Resp. at 10. The inconsistent oral representations of Mr. Farber, h o w e v e r, were not a reasonable basis for the agency to ignore the prima facie c o m p l ia n c e issues in Sea Box's original written submissions regarding the su b stan tial transformation of its LFRSs in China, particularly when Sea Box's s u b s e q u e n t written explanations continued to create confusion. In sum, the agency did not fulfill its legal duty to reasonably inquire in to Sea Box's TAA compliance. We therefore reject defendant's argument th a t the agency was substantially justified in considering Sea Box's LFRSs T A A compliant. We find that the government's overall litigation position was n o t substantially justified and we grant plaintiff's EAJA motion.

Calculation of EAJA Award Amount T o qualify for award under the EAJA, a prevailing party must submit a n application to the court "for fees and other expenses . . . including an ite m iz e d statement . . . stating the actual time expended and the rate at which f e e s and other expenses were computed." 28 U.S.C. § 2412(d)(1)(B). Rule 5 4 (d )(2 ) of the Rules of the United States Court of Federal Claims ("RCFC"), m a n d a te s that an EAJA claimant submit its Appendix of Forms 5 ("EAJA F o r m " ), as well as "contemporaneous records of the status and usual billing ra te s of the attorneys who spent time on the case." Loomis v. United States, 7 4 Fed. Cl. 350, 357 (2006) (citing Owen v. United States, 861 F.2d 1273, 1 2 7 5 (1988)). Plaintiff timely filed the EAJA form as an attachment to its original E A J A motion on July 3, 2008. Furthermore, plaintiff submitted extensive d o c u m e n ta tio n of the breakdown of its fees and expenses. Defendant does not c o n te st the adequacy of plaintiff's documentation. We find plaintiff filed s u f f ic ie n t documentation of its fees and expenses and turn to the calculation o f fees. Fees "shall not be awarded in excess of $125 per hour unless the court d e te rm in e s that an increase in the cost of living . . . justifies a higher fee." 28 U .S .C . § 2412(d)(2)(A)(ii). To receive a cost of living adjustment ("COLA"), a prevailing party must "allege[] that the cost of living has increased, as m e a s u re d by the Department of Labor's Consumer Price Index ("CPI")." C a lifo r n ia Marine Cleaning, Inc. v. United States, 43 Fed. Cl. 724, 733 (1999). T h e Federal Circuit has instructed that, instead of providing the court with a 9

C P I fee rate adjustment for every month worked, claimants should choose a m id d le point in the litigation period and use the CPI of that month to calculate th e fee rate. See Chiu, 948 F.2d at 722 n. 10; see also Lion Raisins, 57 Fed. C l. 505, 519 (2003). Plaintiff calculated attorney fees by using April 2008's CPI as its midp o in t for payment of legal services rendered between February 13, 2008, and S e p te m b e r 2, 2008. Plaintiff seeks compensation for 450 hours at a COLAa d ju ste d rate of $172.47 4 per hour. We find that April 2008 is an acceptable m id -p o in t upon which to calculate the COLA and grant plaintiff's request for $ 7 7 ,6 1 1 .4 9 in attorneys' fees. Plaintiff also seeks reimbursement for 4.4 hours of paralegal services a t the COLA-adjusted rate of $172.47 per hour. The United States Supreme C o u rt recently held that "a prevailing party that satisfies EAJA's other re q u ire m e n ts may recover its paralegal fees from the Government at prevailing m a r k e t rates." Richlin Sec. Serv. Co. v. Chertoff, 128 S. Ct. 2007, 2019 ( 2 0 0 8 ) . Plaintiff is a prevailing party that satisfies the EAJA requirements. W e therefore award plaintiff $758.86 in paralegal fees. Finally, plaintiff seeks recovery for miscellaneous expenses in the a m o u n t of $5698.59, for such items as legal research, court filing, p rin tin g /d u p lic a tio n , local travel, delivery, and transcript fees. A successful litig a n t may recover "those reasonable and necessary expenses of an attorney in c u rre d or paid in preparation for trial." Oliveira v. United States, 827 F.2d 7 3 5 , 744 (Fed. Cir. 1987). We find that the expenses documented by plaintiff in this case were all reasonable and necessary expenses incurred in preparation f o r trial. We therefore grant plaintiffs motion for $5698.59 in miscellaneous e x p e n se s. The total amount awarded for attorneys' fees, paralegal fees, and m is c e lla n e o u s expenses is $84,068.94.5

Per the Bureau of Labor Statistics, U.S. Department of Labor, C o n s u m e r Price Index, March 1996's CPI was 155.7 and April 2008's CPI was 2 1 4 .8 2 3 . Available at http://www.bls.gov/data/. Therefore, plaintiff's $172.47 p e r hour rate was calculated by the equation $125 x 214.823/155.70. This amount consists of $77,611.49 in attorneys' fees, $758.86 in p a ra le g a l services, and $5698.59 in miscellaneous expenses. 10
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C O N C L U S IO N T h e government's litigation position was not substantially justified. P la in tif f has demonstrated its entitlement to recover its fees and expenses p u rs u a n t to the EAJA. Accordingly, the Clerk is directed to enter judgment for p la in tif f in the amount of $84,068.94.

s /E ric G. Bruggink E ric G. Bruggink Judge

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