CARTER et al v. USA
Filing
34
ORDER granting in part and denying in part 18 Motion to Dismiss - Rule 12(b)(1) and 12(b)(6). Signed by Senior Judge Eric G. Bruggink. (mc5) Copy to parties.
In the United States Court of Federal Claims
No. 10-48C
(Filed: April 29, 2011)
************************
RICHARD CARTER AND JERRY
GOODWIN, d/b/a R&J FEED,
Plaintiffs,
v.
THE UNITED STATES,
Defendant.
************************
ORDER
In its complaint, plaintiff 1 alleges that the United States breached a
contractual duty to provide plaintiff with dry milk for use as agricultural feed.
Pending is defendant’s motion to dismiss pursuant to Rules 12(b)(1) and
12(b)(6) of the Rules of the Court of Federal Claims (“RCFC”).2 The motion
has been fully briefed and we believe oral argument to be unnecessary. For the
reasons explained below, we grant in part defendant’s motion to dismiss as to
four of the five counts in plaintiff’s complaint.
1
Although two individuals appear as plaintiffs, because they are doing
business as a single entity we refer to them in the singular throughout.
2
Also pending is plaintiff’s motion, styled as a “Notice,” seeking to
withdraw certain exhibits, which are subject to a protective order in litigation
elsewhere, and substitute other exhibits. The government appears to concur
with this request, having requested in one of its briefs that the offending
documents be stricken. Accordingly, we grant the motion and order the clerk
to strike Exhibits E and F attached to Plaintiff’s Supplemental Memorandum
in Opposition to Defendant’s Motion to Dismiss filed January 7, 2011.
BACKGROUND 3
A severe and lengthy drought in 2002–04 caused a shortage of livestock
feed, particularly among the western states. In response to the drought and
pursuant to 7 U.S.C. § 7285, the United States Department of Agriculture
(“USDA”) initiated a series of drought relief programs, one of which gave rise
to this suit. Under the program, the United States agreed to provide various
states with large quantities of powdered skim milk, also known as nonfat dry
milk (“NDM”), which the states could in turn make available to livestock
producers and feed dealers. Mr. Carter and Mr. Goodwin are cattle ranchers
in Wyoming and Utah, respectively, who organized as a feed dealer under the
name R&J Feed (“R&J”) to take advantage of the NDM program.
The NDM program was administered primarily by the Commodity
Credit Corporation (“CCC”), a wholly-owned government corporation
designed to aid and support agricultural producers. Each participating state
entered into a uniform agreement with the CCC, titled “Nonfat Dry Milk Sales
Agreement between the Commodity Credit Corporation and the State of
________.” Pursuant to the sales agreement, the CCC would provide the state
with NDM at a price of $1 per 21-ton truckload. It also set out a formula for
determining the quantity of NDM to which each state was entitled. The CCC
also agreed to pay for transportation costs to deliver the NDM to the states.
The standard sales agreement contained certain terms and conditions
limiting the states’ distribution and the recipients’ use of the NDM. For
example, each participating state agreed that the NDM would be used only for
feeding livestock herds within that state, would not be used for human
consumption, and would not be used as a replacement for whey. In addition
to “purchasing” and distributing the NDM, participating states agreed to take
appropriate action to ensure that only producers of foundation livestock herds
received NDM. The USDA, however, retained the responsibility to enforce the
limits on the use of NDM acquired by “third parties” other than states and
eligible livestock producers.
Each participating state subsequently entered into agreements with feed
dealers and livestock producers for the distribution and use of that state’s share
3
The pertinent facts are not contested and are drawn from the plaintiff’s
second amended complaint and the contract documents. We have not
considered the exhibits that were subsequently withdrawn. See note 2.
2
of the NDM. Here, the agreement between R&J and the Utah Department of
Agriculture and Food contained the same restrictions enumerated above on the
use of NDM. After signing such an agreement, a dealer or producer could fill
out vouchers issued by the state authorizing receipt of a stated quantity of
NDM and requesting a delivery date and location. Such vouchers were issued
by and returned to the state and, like the sales agreement, contained the same
limitations on NDM use discussed above.
R&J filed suit here in January of 2010, alleging that it had a contractual
right to receive NDM and that the United States had breached that agreement.
Specifically, R&J alleges it had “acquired rights to possess and control certain
stores of NDM” and that the United States had deprived R&J of its legal rights
and property “by falsely representing to third parties that Plaintiffs were in
violation of the terms of the Program and by . . . instructing those third parties
not to make delivery of such NDM to Plaintiffs.” Compl. 4-5. The
government has filed a motion to dismiss. Before ruling on that motion, we
allowed plaintiff to amend its complaint. We deemed defendant’s earlier filed
motion as responsive to the amended complaint but permitted a supplemental
reply from defendant and a supplemental response by plaintiff. R&J’s
amended complaint seeks over $21 million in damages.
DISCUSSION
R&J alleges five causes of action: breach of implied-in-fact contract,
breach of a third-party beneficiary contract, breach of written contract, breach
of the covenant of good faith and fair dealing, and equitable estoppel. The
government argues that the first four counts of the complaint should be
dismissed pursuant to RCFC 12(b)(1) for lack of jurisdiction or, alternatively,
RCFC 12(b)(6) for failure to state a claim, because R&J was neither a party to
nor a third-party beneficiary of any contract with the United States and thus
lacks privity of contract with the United States. As to the final count, the
government argues that this court has no jurisdiction over a claim based on
estoppel.
When considering a motion to dismiss, “the allegations of the complaint
should be construed favorably to the pleader.” Scheuer v. Rhodes, 416 U.S.
232, 236 (1974); Hamlet v. United States, 873 F.2d 1414, 1416 (Fed. Cir.
1989). We presume that the undisputed factual allegations in the complaint are
true. Miree v. DeKalb County, 433 U.S. 25, 27 n.2 (1977); Reynolds v. Army
& Air Force Exch. Serv., 846 F.2d 746, 747 (Fed. Cir. 1988).
3
As an initial inquiry, the court must determine the threshold matter of
subject matter jurisdiction. See Steel Co. v. Citizens for a Better Env’t, 523
U.S. 83, 94-95 (1998). If the court lacks jurisdiction, it must dismiss the
complaint or that portion of the complaint over which it lacks jurisdiction. See
RCFC 12(h)(3) (“If the court determines at any time that it lacks subject-matter
jurisdiction, the court must dismiss the action.”).
Here, the government has moved under Rules 12(b)(1) and 12(b)(6).
With respect to the former, plaintiff bears the burden of proving that we have
subject matter jurisdiction, and we may consider evidence outside the
pleadings. Reynolds, 846 F.2d at 747-48. Assuming we find jurisdiction, we
then consider whether plaintiff has stated any claims upon which relief can be
granted. A mere “formulaic recitation of the elements of a cause of action” is
insufficient to survive a motion to dismiss for failure to state a claim. See Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, “the complaint
must allege facts ‘plausibly suggesting (not merely consistent with)’ a showing
of entitlement to relief.” Cary v. United States, 552 F.3d 1373, 1376 (Fed. Cir.
2009) (quoting Twombly, 550 U.S. at 557).
I.
Plaintiff’s Contractual Causes of Action
We turn first to the first four causes of action alleged in plaintiff’s
second amended complaint, all of which are variations on a theme, namely a
breach of contract.4 Because these claims all presuppose the existence of a
contract with the United States—a supposition that, if untrue, vitiates all four
claims—we deal with them together. As explained below, we lack jurisdiction
over three of these claims because, even assuming all the allegations in the
complaint to be true, R&J lacks privity of contract with the United States.5
4
Specifically, the claims are for breach of implied-in-fact contract,
breach of a third party beneficiary contract, breach of written contract, and
breach of the covenant of good faith and fair dealing.
5
Throughout its briefing, the government intermingles its discussion of
privity with the “sovereign act doctrine.” We see these doctrines as distinct,
as does the government. Def. Reply 3 (“The Government is not raising the
sovereign act doctrine described in Winstar . . . . Our defense is more
fundamental. We are asserting, instead, that there was no contract between
R&J and the Federal Government in the first place.”). With respect to counts
(continued...)
4
A.
Privity of Contract
It is well established that “the government consents to be sued only by
those with whom it has privity of contract.” Flexfab, L.L.C. v. United States,
424 F.3d 1254, 1263 (Fed. Cir. 2005) (quoting Erickson Air Crane Co. of
Wash., Inc. v. United States, 731 F.2d 810, 813 (Fed. Cir. 1984)). Stated
differently, for a plaintiff to sue the United States on a contract claim, it must
be in direct privity of contract with the government. See Anderson v. United
States, 344 F.3d 1343, 1351 (Fed. Cir. 2003); see also Cienega Gardens v.
United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998) (“The effect of finding
privity of contract between a party and the United States is to find a waiver of
sovereign immunity.”).
A lack of privity deprives this court of jurisdiction. See Southern Cal.
Fed. Sav. & Loan Ass’n. v. United States, 422 F.3d 1319, 1328 n.3 (Fed. Cir.
2005) (“[S]tanding and privity of contract with the government are questions
of subject matter jurisdiction.”); see also Flexfab, 424 F.3d at 1259 (noting
that the issue of whether plaintiff had privity as a third-party beneficiary raised
issues of standing on which a court must “properly focus[] prior to and
independent of the particular merits of the case”); Katz v. Cisneros, 16 F.3d
1204, 1210 (Fed. Cir. 1994) (“Absent privity between [plaintiffs] and the
government, there is no case.”). In essence, in the absence of privity, the
government has not consented to be sued, and a plaintiff thus lacks standing,
which is, of course, a threshold jurisdictional matter and amenable to a motion
under RCFC 12(b)(1).
Here, there was no direct privity between R&J and the government. The
complaint concedes as much, alleging that the government “contracted with
certain drought-afflicted States for the distribution” of NDM to livestock
producers. Compl. 2 (emphasis added); see also Compl. 3 (“The Program was
administered . . . by and between quasi-government and/or corporations [i.e.
the CCC] . . . and drought-afflicted States and Native American tribes.”). The
documents submitted in support of the complaint confirm this, demonstrating
a contractual relationship between the government and the State of Utah, and
5
(...continued)
1 and 3-5, we do not discuss the sovereign act doctrine nor need we explore
the distinction. It is sufficient that, as explained above, plaintiff lacked privity
with the government. As to count two, which survives this ruling, we reserve
judgment as to whether the government’s argument may be meritorious.
5
in turn, between the state and R&J. There is no indication, however, of any
contractual relationship between the United States and R&J. Rather, R&J’s
dealings were with the Utah Department of Agriculture and Food.
We recognize that, under the terms of the agreement between the
federal government and the participating states, the USDA retained limited
enforcement responsibility with respect to unauthorized use of NDM by third
parties. That, however, does not create a contractual relationship between the
government and R&J. “An agency’s performance of its regulatory or
sovereign functions does not create contractual obligations.” D&N Bank v.
United States, 331 F.3d 1374, 1378-79 (2003) (citing New Era Constr. v.
United States, 890 F.2d 1152, 1155 (Fed. Cir. 1989)). Furthermore, the fact
that the states imposed the same restrictions as the federal government on the
use of NDM did not transform sovereign states into mere intermediary
administrative agents of the federal government, thus establishing privity, as
R&J suggests. See B&G Enter., Ltd. v. United States, 220 F.3d 1318, 1323
(Fed. Cir. 2000) (“[T]he federal government’s conditioning a state or locality’s
receipt of federal funds on the state’s taking a particular action does not make
that state or locality an agent of the federal government.”). Nor does the fact
that the state did not first take delivery of the NDM, which was delivered
directly to R&J, create a contractual relationship between R&J and the federal
government. These deliveries, made at the state’s request, do not create privity
where otherwise there is none. In sum, we see no basis for jurisdiction over
plaintiffs direct contractual claims where there was no privity of contract
between plaintiff and the government.
B.
Alternatives to Privity of Contract
In lieu of a direct contractual relationship with the government, R&J
seeks to establish jurisdiction through either of two alternative means: an
implied-in-fact contract or third-party beneficiary status. See Maher v. United
States, 314 F.3d 600, 603 n.1 (Fed. Cir. 2002) (“[Plaintiffs] can establish
privity of contract through an implied-in-fact contract with the United States,
or by establishing that they are intended third-party beneficiaries of a contract
with the United States.”) (citing First Hartford Pension Plan & Trust v. United
States, 194 F.3d 1279, 1289 (Fed. Cir. 1999)). As explained below, only under
the latter theory can plaintiff possibly establish jurisdiction.
1.
Implied-in-Fact Contract
The first of the two substitutes for direct privity, an implied-in-fact
6
contract, is simply a judicial recognition of an agreement that was not formally
executed. “An implied-in-fact contract is ‘founded upon a meeting of minds,
which, although not embodied in an express contract, is inferred, as a fact,
from conduct of the parties showing, in the light of the surrounding
circumstances, their tacit understanding.’” Id. (quoting Hercules, Inc. v. United
States, 516 U.S. 417, 424 (1996)).
A court will not, however, imply an agreement between two parties
when there was none, nor can a court imply privity when there was no meeting
of the minds between the particular parties. Rather, the necessary elements of
an implied-in-fact contract are the same as those of an express contract. Id.
(citing Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir.
1997)). A plaintiff must show “(1) mutuality of intent to contract; (2)
consideration; and (3) lack of ambiguity in offer and acceptance.” D&N Bank
v. United States, 331 F.3d 1374, 1377 (2003) (citing Lewis v. United States, 70
F.3d 597, 600 (Fed. Cir. 1995)).6
As already discussed above, there was no agreement between plaintiff
and defendant. Rather, the United States entered into agreements with the
various states, which in turn entered into agreements with producers such as
R&J. That R&J acceded to certain conditions imposed by the State of
Utah—regardless of whether those terms were similar or identical to those
previously imposed by the federal government on the state—does not
constitute a mutuality of intent between R&J and the federal government.
Furthermore, there was no consideration paid by R&J in exchange for the
NDM it received.7 Similarly, despite R&J’s unsupported allegations in its
complaint, we see no evidence of an offer by either party and an acceptance by
the other. See Elliott v. United States, 96 Fed. Cl. 666, 668 (2011) (“‘[I]f
[plaintiff’s] allegations of jurisdictional facts are challenged by his adversary
in any appropriate manner, he must support them by competent proof.’”)
(citing McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189
6
When an implied contract involves the United States, a fourth
requirement is added: “the government representative whose conduct is relied
upon must have actual authority to bind the government in contract.” D&N
Bank, 331 F.3d at 1378. Here, we need not reach the fourth prong, for the first
three are clearly lacking.
7
We are not persuaded by R&J’s argument that the removal of NDM
from the government’s storehouses was a benefit that serves as consideration.
7
(1936)); cf. Twombly, 550 U.S. at 555 (a “formulaic recitation of the elements
of a cause of action” is insufficient to survive a motion to dismiss for failure
to state a claim). We will not imply privity between R&J and the government
when the facts do not permit us to do so.
2.
Third-Party Beneficiary Status
R&J contends that it can establish jurisdiction as an intended third-party
beneficiary of a contract with the United States. See Maher, 314 F.3d at 603
n.1 (“[Plaintiffs] can establish privity of contract . . . by establishing that they
are intended third-party beneficiaries of a contract with the United States.”).
Based on the record before us, we cannot say that plaintiff is not a third-party
beneficiary.
Third-party beneficiary status is an “exceptional privilege,” Glass v.
United States, 258 F.3d 1349, 1354 (Fed. Cir. 2001), that “should not be
liberally granted.” Flexfab, 424 F.3d at 1259. To establish third-party
beneficiary status, “a party must ‘at least show that [the contract] was intended
for his direct benefit.’” Glass, 258 F.3d at 1354 (quoting German Alliance Ins.
Co. v. Home Water Supply Co., 226 U.S. 220, 230 (1912)); see also Flexfab,
424 F.3d at 1259 (“‘In order to prove third-party beneficiary status, a party
must demonstrate that the contract not only reflects the express or implied
intention to benefit the party, but that it reflects an intention to benefit the party
directly.’”) (quoting Glass, 258 F.3d at 1354).8
The government argues that R&J cannot show it was an individually,
directly intended beneficiary of the contract between Utah and the federal
government. We note, however, that in Sullivan v. United States, the Federal
Circuit made it clear that a party may be a third-party beneficiary if it is a
member of the class intended to benefit from a contract. 625 F.3d 1378, 1380
(Fed. Cir. 2010) (“While the third party does not need to be specifically
identified in the contract, third party beneficiary status can only be bestowed
on those parties that ‘fall within a class clearly intended to be benefited’ by the
contract.”) (quoting Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir.
1997)).
8
Plaintiff’s concern that this rule applies only to shareholder suits is put
to rest by Flexfab, which reiterates and discusses the rule in the context of
government contracting.
8
Here, the wording of the standard sales agreement seems to indicate that
it was intended to benefit entities such as R&J by furnishing them with NDM.
See Def. Mot. to Dismiss App. 1 (“[T]he Commodity Credit Corporation
(CCC) agrees to sell to the State of _____ Nonfat Dry Milk (NDM) for
distribution to livestock producers suffering from drought conditions.”)
(emphasis added). We agree with the government that the exhibits submitted
by R&J do not give any additional support to plaintiff’s argument but merely
indicate that the federal government retained a role in enforcing limits on the
use of the NDM. See Pl. Supp. Rep. App. B-D. Nevertheless, given the state
of the record and the current posture of the litigation, we cannot conclusively
rule that plaintiff is not in the class of third-party beneficiaries contemplated
by the contract.
Ultimately, R&J has been unable to show it was in privity of contract
with the government—either directly or through an implied contract.
Accordingly, we are without jurisdiction over R&J’s first, third, and fourth
causes of action.9 Whether we have jurisdiction over R&J’s second count for
breach of a third-party beneficiary contract is unclear for the present.10
II.
Equitable Estoppel
Finally, we consider whether we have jurisdiction to entertain plaintiff’s
sole remaining claim. In count five of its complaint, R&J alleges that, in
reliance on the government’s conduct, it entered into agreements to receive
and subsequently sell the NDM, and that the government’s repudiation resulted
in damage to R&J. Plaintiff characterizes this count as “equitable estoppel.”
The government, however, disputes whether count five of the complaint is
truly equitable estoppel, over which we have jurisdiction, or whether it is
actually a thinly veiled claim for promissory estoppel, over which we do not
9
Our dismissal of two of them—breach of implied-in-fact contract and
breach of written contract—is self-explanatory on the basis of our reasoning
above. The other, breach of the covenant of good faith and fair dealing, only
arises where there is a contractual relationship. There is none here.
10
Similarly, the current record does not enable us to say whether R&J
has failed to state a claim upon which relief may be granted. We note that it
is not clear what right was vested in R&J by the contract between Utah and the
United States or how the government, which continued to deliver NDM under
that contract, has breached its contract.
9
have jurisdiction. See LaMirage, Inc. v. United States, 44 Fed. Cl. 192, 199200 (1999). For the reasons set out below, we lack jurisdiction over this aspect
of plaintiff’s claim.
Equitable estoppel “is a judicial remedy by which a party may be
precluded, by its own acts or omissions, from asserting a right to which it
otherwise would have been entitled.” Am. Airlines, Inc. v. United States, 77
Fed. Cl. 672, 679 (2007) (citations omitted). For example, a party who
acquiesced to certain conduct could not later claim that conduct was
wrongful.11
In contrast, promissory estoppel is essentially an equitable cause of
action whereby one who reasonably relies on another’s promise can
subsequently require that person to make good on his promise. It applies to
situations involving a “promise which the promisor should reasonably expect
to induce action or forbearance on the part of the promisee or a third person
and which does induce such action or forbearance.” Restatement (Second) of
Contracts § 90(1) (1981); see Steinberg v. United States, 90 Fed. Cl. 435, 444
(2009). As with other forms of equitable relief, we have no jurisdiction over
claims of promissory estoppel. See Steinberg, 90 Fed. Cl. at 443 (“[T]his court
has no jurisdiction over promissory estoppel claims.”) (citing Shoshone Indian
Tribe of the Wind River Reservation v. United States, 58 Fed. Cl. 542, 546
(2003)). To put it differently, promissory estoppel—which seeks a judicially
enforced performance of a promise—is no different than an implied-in-law
contract, another type of claim over which we have no jurisdiction. Lawndale
Restoration Ltd. Partnership v. United States, 95 Fed. Cl. 498, 507 (2010)
(“‘Promissory estoppel is another name for an implied-in-law contract
claim.’”) (quoting Hubbs v. United States, 20 Cl. Ct. 423, 427(1990)); see also
Steinberg, 90 Fed. Cl. at 443 (“Promissory estoppel . . . requires the court find
an implied-in-law contract, a claim for which the United States has not waived
11
It is, in fact, an open question whether equitable estoppel is available
as a defense against the government. See Burnside-Ott Aviation Training Ctr.,
Inc. v. United States, 985 F.2d 1574, 1581 (Fed. Cir. 1993) (stating that an
assertion of equitable estoppel against the government was not barred as a
matter of law); JANA, Inc. v. United States, 936 F.2d 1265, 1270 (Fed. Cir.
1991) (“It is also not entirely clear whether the defense of estoppel is still
available against the government.”); see Heckler v. Cmty. Health Servs. of
Crawford County, Inc., 467 U.S. 51, 60-61 (1984) (declining to rule whether
the defense of equitable estoppel could be raised against the United States).
10
its sovereign immunity.”).
Accordingly, we must determine which type of estoppel is pled here,
regardless of how it is labeled in the complaint. A useful distinction when
contrasting the two types of estoppel is to determine whether the claim is
employed offensively or defensively:
[P]romissory estoppel is used to create a cause of action,
whereas equitable estoppel is used to bar a party from raising a
defense or objection it otherwise would have, or from instituting
an action which it is entitled to institute. Promissory estoppel is
a sword, and equitable estoppel is a shield.
Knaub v. United States, 22 Cl. Ct. 268, 276 (1991) (quoting Jablon v. United
States, 657 F.2d 1064, 1068 (9th Cir. 1981)); see also Lawndale, 95 Fed. Cl.
at 507 (“[T]he court repeatedly has held that equitable estoppel is a defensive
doctrine, not the basis of a cause of action.”) (citations omitted).
Here, R&J is attempting to allege estoppel to create a cause of action.
R&J alleges that it relied to its detriment on the government’s conduct and is
thus entitled to monetary damages. Regardless of how R&J labels the claim
in the complaint, this is a claim of promissory estoppel. “This court has no
jurisdiction to hear a claim for promissory estoppel, and to the extent plaintiff
substantively asserts the elements for promissory estoppel, dismissal for lack
of jurisdiction under 12(b)(1) is appropriate.” Steinberg, 90 Fed. Cl. at 444
(internal citations omitted). Accordingly, we grant the government’s motion
to dismiss this aspect of the complaint for lack of jurisdiction.
CONCLUSION
For the reasons stated above, we grant in part defendant’s motion to
dismiss counts 1-4 of plaintiff’s complaint pursuant to RCFC 12(b)(1) for lack
of subject-matter jurisdiction. The parties are ordered to confer and propose
to chambers by May 13, 2011, suggested dates for a telephone status
conference to discuss further proceedings.
s/Eric G. Bruggink
Eric G. Bruggink
Judge
11
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