OVERSEAS LEASE GROUP, INC v. USA

Filing 64

PUBLISHED OPINION ( Status Report due by 9/7/2012) denying 43 Motion for Summary Judgment; granting 37 Motion for Summary Judgment. Signed by Sr. Judge Robert H. Hodges, Jr. (sjv) Copy to parties.

In the United States Court of Federal Claims
No. 11-123C
Filed: August 24, 2012
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OVERSEAS LEASE GROUP, INC.,

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Plaintiff,

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v.

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THE UNITED STATES OF AMERICA,

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Defendant.

Contract Disputes Act; RCFC 56(a),
Cross Motions for Summary
Judgment; Breach of Contract;
Contract Interpretation; Ambiguity;
Extrinsic Evidence; FAR 52.217-8,
Option to Extend Services

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Paul Farid Khoury, Wiley Rein, LLP, Washington, DC, for plaintiff.
Michael Paul Goodman, Civil Division, United States Department of Justice, Washington, DC,
for defendant.
ORDER AND OPINION
HODGES, Judge.
Defendant contracted with Overseas Lease Group (OLG) to lease vehicles for Department
of Defense operations in Afghanistan. Plaintiff alleges that the Government breached the contract
by failing to compensate OLG for damage to returned vehicles and by issuing short-term leases that
did not comply with the minimum contract term. The parties filed motions for summary judgment
on Counts I, II, and III. We grant plaintiff’s motions for the reasons stated below.
BACKGROUND
The Government awarded plaintiff Overseas Lease Group an indefinite delivery, indefinite
quantity contract for the lease of vehicles to the United States Army in Afghanistan. The contract
provided for a one-year base period and four one-year options. The Government exercised its option
to extend the contract three times, but did not exercise the fourth option.
Plaintiff alleges in Counts I and II of its Complaint that defendant breached its obligations
under the contract by failing to repair the returned leased vehicles and refusing to pay for damages.
The issues raised by Count I and Count II are substantially similar. Count I applies to vehicles

returned to plaintiff before the parties modified the contract in April 2008 to alter defendant’s
obligations with respect to the condition of the returned vehicles. Count II makes essentially the
same allegations for vehicles returned after the modification. Count III alleges that defendant issued
leases that did not comport with the contract’s twelve-month minimum lease-term requirement.
The contract provision governing return of vehicles is Section 6.1; that is the section
amended by the parties effective May 1, 2008. Thereafter, the Government was no longer liable for
actual repairs, but was required to pay the cost of excess wear and tear damage plus one additional
month’s lease payment for each damaged vehicle returned. After the revision, however, the
Government returned additional vehicles without compensating plaintiff for damages. Defendant
does not dispute that vehicles were returned damaged, but argues that it is not responsible for the
costs according to the language of the contract.
Plaintiff filed a motion for summary judgment on the issue of entitlement as to Counts I and
II. Defendant cross-moved on Counts I and II, then filed a motion for summary judgment on Count
III. Plaintiff responded with a cross-motion for summary judgment on Count III.
Summary judgment is appropriate when “there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” RCFC 56(a). A responding party may
not merely deny that a fact is true or is genuinely disputed, but “must support the assertion by . . .
citing to particular parts of materials in the record, including depositions, documents, . . . affidavits
or declarations, . . . or other materials.” RCFC 56(c)(1); see also Sweats Fashions, Inc. v. Pannill
Knitting Co., 833 F.2d 1560, 1562-63 (Fed. Cir. 1987) (“The non-movant may not rest on its
conclusory pleadings but, . . . must set out . . . what specific evidence could be offered at trial.”).
Normally, a contract ambiguity will not be resolved on summary judgment. See Beta Systems, Inc.
v . United States, 838 F.2d 1179, 1183 (Fed. Cir.1988) (“To the extent that the contract terms are
ambiguous, requiring weighing of external evidence, the matter is not amenable to summary
resolution.”).
DISCUSSION
Count I applies to leased vehicles returned to OLG before the parties modified the contract
effective May 1, 2008, to alter defendant’s obligations with respect to the condition of the returned
vehicles. According to OLG, defendant returned nearly 150 vehicles to plaintiff between September
2007 and April 2008 without first repairing them as the contract required. Count II makes essentially
the same allegations for an additional 160 vehicles returned after May 1, 2008, the date of the
modification. Count III alleges that defendant issued leases that did not comport with the twelvemonth minimum lease term requirement found in the contract.
COUNT I
Plaintiff’s Count I alleges that the Government breached Section 6.1 of the contract as it

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appeared before the modification in May 2008.1 Section 6.1 applies to procedures and obligations
of the parties upon return of leased vehicles by the Government to OLG. Section 6.1 reads as
follows:
Returning. Any damages the U.S. Government is responsible for will be repaired to
the condition received before returning the vehicle back to the leasing agent at a fair
and reasonable price. The U.S. Government is only liable for damages and repairs
if the vehicle was in the possession of a government personnel. The Government is
not responsible for damages accepted on the ‘Initial Delivery and Acceptance
Inspection Checklist’ (Attachment A), as these damages existed before the U.S.
Government received the vehicle. A joint contractor/government inspection shall be
performed on the vehicle. The inspection shall be documented on Attachment C,
‘Vehicle Inspection, Returned to Leasing Agent’ checklist with photos (if applicable)
and both parties will retain a copy.
Section 6.1.
Defendant complains that plaintiff required that vehicles be “refurbished” upon return, rather
than repaired. Plaintiff responds that the contract term, “to the condition received,” includes work
that would include repair and refurbishment, and that in any case, defendant’s argument would affect
only the quantum of plaintiff’s judgment, not the question of entitlement at issue in this round of
briefing. Irrespective of the labels either party wishes to place on the costs of repair, the Government
was obligated under the contract to repair the vehicles “to the condition received.” If some of those
repair costs qualify as “refurbishment,” that does not conflict with the language of Section 6.1.
Defendant does not dispute plaintiff’s contention that the Government returned damaged
vehicles without repairing them in violation of Section 6.1. Instead, it asserts that another provision
of the contract limits defendant’s liability for damages to those caused by government negligence.
Section 2.2, Vehicle Acceptance, contains such language. Overseas did not allege negligence on the
part of the Government, and therefore it cannot recover for the Government’s breach, according to
defendant. Section 2.2 reads as follows:
Vehicle Acceptance. The government will only be liable for future damages caused
by negligence of U.S. personnel. A joint contractor/government inspection shall be
performed on all vehicles and equipment before acceptance. The inspection shall be
documented on Attachment A, ‘Vehicle Inspection, Initial Delivery’ checklist with
photos (if applicable) and both parties will retain a copy. A copy of the warranty will
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“To recover for breach of contract, a party must allege and establish: (1) a valid
contract between the parties, (2) an obligation or duty arising out of the contract, (3) a
breach of that duty, and (4) damages caused by the breach.” San Carlos Irrigation & Drainage
Dist. v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989).
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be provided upon delivery of the vehicle. All discrepancies must be fixed prior to
final acceptance. . . .
Section 2.2.
Plaintiff contends that the negligence language does not apply to the return of vehicles, but
that if it does, the provisions of 2.2 and 6.1 create an ambiguity in the contract because 2.2 requires
government negligence for the lessor to recover damages, while 6.1 does not mention negligence.
Therefore, the court must consider extrinsic evidence consisting of the parties’ contemporaneous
interpretation of these provisions; such evidence will demonstrate that a negligence standard was not
intended to apply, plaintiff asserts. Moreover, plaintiff argues that a negligence standard would not
affect defendant’s liability, but only the amount of damages to which plaintiff is entitled. This is
because defendant does not dispute that the Government returned damaged vehicles without
repairing them in violation of Section 6.1. Its only defense is that such damages must be a result of
government negligence.
Defendant’s case law shows that the two provisions must be reconciled if possible, so as to
“give meaning and purpose to every term used in the contract.” Grumman Data Sys. Corp. v.
Widnall, 15 F.3d 1044, 1048 n.4 (Fed. Cir. 1994) (quoting Intel Corp. v. Int’l Trade Comm’n, 946
F.2d 821, 826 (Fed. Cir. 1991). Also, the provisions “should not be interpreted as conflicting with
one another unless there is no other possible reasonable construction of the language.” Int’l
Transducer Corp. v. United States, 30 Fed. Cl. 522, 526 (1994) (citing Hol–Gar Mfg. Corp. v.
United States, 169 Ct.Cl. 384, 395 (1965)). A reasonable interpretation must “assure that no contract
provision is made inconsistent, superfluous, or redundant.” Medlin Constr. Group, Ltd. v. Harvey,
449 F.3d 1195, 1200 (Fed. Cir. 2006) (quoting Lockheed Martin IR Imaging Sys., Inc. v. West, 108
F.3d 319, 322 (Fed. Cir. 1997)).
“Contract interpretation begins with the plain language of the agreement.” Foley Co. v.
United States, 11 F.3d 1032, 1034 (Fed. Cir. 1993) (citing Gould, Inc. v. United States, 935 F.2d
1271, 1274 (Fed. Cir. 1991)). “[E]xtrinsic evidence . . . may not be considered unless an ambiguity
is identified in the contract language.” City of Tacoma, Dep’t of Pub. Utils., 31 F.3d 1130, 1134
(Fed. Cir. 1994) (citing Sylvania Elec. Prods., Inc. v. United States, 198 Ct. Cl. 106 (1972)).
The alleged ambiguity in this case results from an apparent conflict of one term with another,
rather than from a poorly drafted agreement that contains one or more provisions that have more
than one reasonable interpretation. Section 6.1 requires that defendant return leased vehicles to
plaintiff at the end of the lease term, in the same condition as it received them. Section 2.2 applies
to the condition of the vehicles when they are first delivered to the Government at the beginning of
the lease. Read this way, Section 6.1 and Section 2.2 are reasonably clear and entirely consistent
with each other and with the meaning and purpose of the contract.
Section 6.1 addresses the Government’s return of vehicles, stating that defendant was
responsible for repairing damaged vehicles “to the condition received.” The Government was “liable
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for damages and repairs [upon return] if the vehicle was in the possession of a government
personnel.” Section 2.2 is not positioned so that it applies to return of vehicles; it is located several
pages earlier in the contract, where it describes the conditions under which the Government accepts
vehicles initially. The first sentence of Section 2.2 states that defendant “will only be liable for
future damages caused by negligence of U.S. personnel.” This relates to defendant’s acceptance of
the vehicles at the beginning of the lease. Had the parties intended to apply a negligence standard
to the Government’s liability for returning damaged vehicles, 6.1 would have included such
important language. Section 2.2 contains a reference to defendant’s negligence that cannot be
applied to the Section 6.1 requirement that defendant return vehicles in the condition received.
The language in 2.2 whereby defendant accepts liability for future damages that resulted from
government negligence, highlights defendant’s understandable position that it should not have to pay
for damages that were on the vehicle when the Government took possession. Its intention was to pay
only for damages that it added to the vehicle.
The only reasonable interpretation of the contract is one that gives effect to Section 6.1 for
its purpose – to control the conditions under which the Government is liable for the return of
vehicles that were damaged in its possession – and Section 2.2 for its purpose: to control the
conditions under which the Government is liable for damages to vehicles that had occurred before
defendant took possession of them – at the beginning of the lease.
The Government has raised no genuine issue of material fact as to OLG’s entitlement to
recover under Count I. It returned damaged vehicles to OLG for which OLG has not been
compensated as the contract requires. A negligence standard does not apply to valuing OLG’s
damages.
Because of these and other disputes surrounding the lease program, defendant sought a
modification of Section 6.1., to clarify its responsibility for damages to returned vehicles.2 The
opportunity for a clarifying amendment to the contract arose when the Government exercised its
option to extend the contract.
COUNT II
Plaintiff alleges in Count II that the Government refused to pay for necessary repairs to
returned vehicles pursuant to Section 6.1 – this time for returns made after May 1, 2008, when a

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A contracting officer’s memorandum to the file explains: “Before exercising Option
Year 2 we needed to open discussions about the current return policy of the vehicles. Under the
original [Statement of Work] it states that we cannot turn the vehicles back into the leasing agent
until they are in the condition we received them in. Essentially the wording was stating that
returned vehicles will be in new condition when returned to OLG. This wording has lead to a
large repair bill of Task Order 0031 which to date is still unresolved.”
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contract modification took effect. OLG obtained estimates for the repairs, and sent them to
defendant in invoice form. The revised version of the Section 6.1 “Returning” provision of the
contract stated that defendant would be liable only for “excess wear and tear” to vehicles. The
Government would make an additional one month’s lease payment upon return of the vehicles, to
compensate for delays.
A government official explained that the reason for the extra month’s lease payment was to
compensate OLG for the time it would take to repair damages before releasing a vehicle –
previously the Government was supposed to return vehicles in that condition.
The modification states as follows:
Returning. Appraisal report 21 days unless delay by shop
Excess Wear and Tear:
6.1a. ‘Excess wear and tear’ includes (a) glass that is damaged or that Lessee has
tinted or altered; (b) damaged body parts, metal work, lights, trim or paint not
covered by an insurance policy; (c) missing Equipment that was in the vehicle when
delivered and has not been replaced with Equipment of equal quality and design; (d)
missing wheel covers, jack or wheel wrench; (e) missing or unsafe wheels or tires
(including spare; snow tires are not acceptable); (f) any tire with less than 1/8 inch
of tread remaining at the shallowest point; (g) torn, damaged, or stained dash, floor
covers, seats, heading, upholstery, interior work, or trunk liners; (h) any mechanical
damage or other condition that causes the vehicle to operate in an improper, unsafe,
or unlawful manner; and (j) any other body damage or missing body parts, whether
or not covered by insurance.
“Excess wear” will be determined upon the vehicle inspection and recorded on
Attachment C at lease end, and compared to the delivery condition report
(Attachment A) completed at lease inception.
Final Invoice: Final invoice shall include 6.1a expenses and an additional one (1) month’s
lease payment amount for each vehicle returned under this Paragraph 6.1.
Changes effective: 01 May 2008
Section 6.1a.
Defendant does not deny that it returned damaged vehicles or that it has not paid plaintiff’s
invoices. However, it argues that the section following 6.1 also applies, and should have been
invoked. The full text of the section follows:
Reimbursement. If a vehicle has been damaged in the Government’s possession and
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the cost of vehicle maintenance and/or collision repair is 75% or more than the actual
value of the vehicle, the contractor(s) will be reimbursed the actual value of the
vehicle minus depreciation. The vehicle’s actual value may be determined by the
Kelly Blue Book . . . or based on the purchase receipt minus depreciation, whichever
is the lowest. The Government will consider the Afghanistan conditions when
depreciating the value of the vehicle. The contractor(s) will be required to provide
the Government the original purchased invoice for the damaged vehicle. Once
reimbursed, the damaged vehicle will be the property of the U.S. Government. The
damage may be caused by act of terrorism, war, or an accident, but not through
normal wear and tear.
Section 6.2.
Plaintiff refused to provide purchase receipts for its vehicles to the Government because it
believed that 6.2 did not apply to its requests for payment. OLG sought recovery under Section 6.1
alone. The purchase receipts became the subject of a motion to compel in this action, and
subsequently they were provided to the Government. Defendant argues that plaintiff waived its right
to invoke 6.2, and is now barred from recovering the “totalled” value of the vehicles at issue.
Plaintiff responds that defendant’s contentions here, even if they are valid, affect only the amount
of damages for which the Government is responsible.
Section 6.2 applies to any vehicle with repair costs of seventy-five percent or more of its
actual value; we cannot agree that plaintiff has somehow waived its right to recover under this
section by not invoking it sooner. Section 6.2 appears immediately after the “Returning” section of
the contract and compliments the method for recovery under 6.1. The two provisions work in
concert. Common sense dictates that a vehicle with repairs exceeding a majority of the vehicle’s
value would give the lessee an option to pay the value instead of the repair costs. Defendant has not
provided a persuasive argument for ignoring that reasonable provision in this case.
Overseas also argued against the applicability of section 6.2, pointing to the last sentence of
the section, which states, “[t]he damage may be caused by act of terrorism, war, or an accident.”
OLG states that the damages for which it seeks recovery were not caused by terrorism, war, or
accident, and therefore, 6.2 does not apply. The Government insists that the damages were from
acts of terrorism or war. The term “accident” is broad enough to encompass almost any cause of
damage to the vehicles at issue. The sentence reads that the damages may be caused by terrorism,
war, or accident.
The Government argues that the sentence, “[o]nce reimbursed, the damaged vehicle will be
the property of the U.S. Government,” in 6.2, renders the provision impossible to apply now. The
parties agree that the Government will not be able to take possession of the vehicles in question, as
OLG has sold or released most of them. However, this reality is not fatal to the application of
Section 6.2. The cost and the value of taking possession of the totalled vehicles can be accounted
for in the valuation of damages phase of this litigation.
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Defendant contends that OLG did not classify its damages as excess wear and tear properly,
and is trying to recover for damages that are not described by the enumerated categories. OLG
insists that all of its damages do qualify as excess wear and tear. This question can be resolved in
the damages phase of this litigation. The Government has raised no genuine issue of material fact
as to OLG’s entitlement to recover under Count II. It returned damaged vehicles to OLG for which
OLG has not been compensated as the contract requires. Count III requires interpretation of a section
that implicates Federal Acquisition Regulations, different from the issues in dispute so far.
COUNT III
Count III of plaintiff’s Complaint involves a section of the contract which provides that all
leases issued under the contract be for a minimum term of twelve months. Plaintiff alleges that the
Government forced OLG to accept lease renewals on sixty-seven vehicles for terms of less than one
year in violation of that term. The parties agree that all leases issued under the contract must be for
a minimum term of twelve months. Defendant issued the short-term leases between June and
November 2009, when nine months of performance and one additional option year remained on the
contract. The Government filed a motion for summary judgment that its issuance of short-term lease
extensions did not breach the contract.
Defendant asserts that the short- term leases were permitted extensions of existing leases
pursuant to an incorporated FAR provision, Option to Extend Services:
The Government may require continued performance of any services within the
limits and at the rates specified in the contract. These rates may be adjusted only as
a result of revisions to prevailing labor rates provided by the Secretary of Labor. The
option provision may be exercised more than once, but the total extension of
performance hereunder shall not exceed 6 months. The Contracting Officer may
exercise the option by written notice to the Contractor within 30 days.
FAR 52.217-8.
The purpose of the FAR clause is to protect contracting agencies from being “forced to
negotiate short extensions” to expiring contracts at potentially higher prices, particularly when
performance of the follow-on contract is delayed. 54 Fed. Reg. 29278-01 (July 11, 1989); see also
Arko Exec. Servs., Inc. v. United States, 553 F.3d 1375 (Fed. Cir. 2009) (holding where the
Government used the same FAR provision to extend a contract for one month beyond the contract’s
expiration to insure continued performance until the follow-on contract was ready was “exactly the
situation FAR 52.217-8 was written to address”).
Plaintiff contends that the provision is not applicable where the contract is still active, as in
this case. Defendant states that nothing in the plain language of the provision limits its operation in
such a way.

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FAR 52.217-8 does not apply to the facts of this case. Defendant did not require “continued
performance of . . . services within the limits and at the rates specified in the contract.” The shortterm leases it demanded occurred within the confines of the original contract. The Government had
exercised a one-year option only three months before. Leases issued pursuant to the FAR clause
would have been executed for additional twelve-month terms, the limits specified in the contract,
at contract rates.
Defendant argues in the alternative that the short-term leases were “new procurements.” See
AT&T Commc’ns, Inc.v. Wiltel, Inc., 1 F.3d 1201 (Fed. Cir. 1993). However, the disputed task
orders were not sufficiently different from the original contract to constitute a material departure
from the original contract and therefore new procurements. A new contract or procurement must
constitute a material departure from the original scope, or a “cardinal change.” See id. at 1205. The
lease renewals were not different from previous contract leases except in their shorter terms.
Because they do not qualify as material departures, the leases should have been made subject to the
limits and other terms of the contract in place.
COUNT III – DAMAGES
Plaintiff contends that the Government should pay its damages based on the difference
between the value of the short-term leases and the value of those leases had they been issued for
twelve months. According to defendant, such a measure of damages would be illegal, citing another
FAR provision, also incorporated into the contract, for support:
(a) Upon the submission of proper invoices or vouchers, the Government shall pay
rent for each vehicle at the rate(s) specified in this contract.
(b) Rent shall accrue from the beginning of this contract, or from the date each
vehicle is delivered to the Government, whichever is later, and shall continue until
the expiration of the contract term or the termination of this contract. However, rent
shall accrue only for the period that each vehicle is in the possession of the
Government.
FAR 52.208-4 VEHICLE LEASE PAYMENTS (emphasis added).
Plaintiff’s and defendant’s comments on means of calculating damages for the Government’s
breach are distinct from current issues of entitlement; we are addressing their disputes on how the
parties should have conducted their performance of the contract. This is a ruling solely on
entitlement; the court will assess resulting damages in a separate proceeding.
CONCLUSION
We urge counsel to consider settling this case on an equitable basis, in light of the
reasonable claims on both sides. Plaintiff’s and defendant’s arguments have merit, and attributing
values to each may not be a routine matter. The court has constraints in determining such values for
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entry of judgments, while the parties have no such limitations in crafting a fair settlement.
Plaintiff’s motions for summary judgment on entitlement as to Counts I and II are
GRANTED. Defendant’s cross motions on Counts I and II are DENIED. Defendant’s motion for
summary judgment on Count III is DENIED; plaintiff’s cross motion is GRANTED. Counsel will
file a status report no later than September 7 advising the court how they propose to proceed.
IT IS SO ORDERED.
s/Robert H. Hodges, Jr.
Robert H. Hodges, Jr.
Judge

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