from the Armed Services Board of Contract Appeals in No.
58324, Administrative Judge Jack Del-man, Administrative
Judge Mark N. Stempler, Administrative Judge Richard
Carolyn Callaway, Carolyn Callaway PC, Albuquerque, NM,
argued for appellant.
Domenique Grace Kirchner, Civil Division, Commercial
Litigation Branch, United States Department of Justice,
argued for appellee. Also represented by Benjamin C. Mizer,
Robert E. Kirschman, Jr., Bryant G. Snee.
Prost, Chief Judge, Taranto and Hughes, Circuit Judges.
Hughes, Circuit Judge.
Construction Company was awarded a government contract in
2003 to perform work in Iraq. After the work was completed,
Laguna sought reimbursement of past costs, a portion of which
the government refused to pay. Laguna sued the government for
these costs at the Armed Services Board of Contract Appeals.
The government alleged that it was not liable because Laguna
had committed a prior material breach by accepting
subcontractor kickbacks, thereby excusing the
government's nonperformance. The Board granted the
government's motion for summary judgment on this ground,
and declined to consider the merits of Laguna's motion.
Because we agree that Laguna committed the first material
breach by violating the contract's Allowable Cost and
Payment clause, we affirm.
November 2003, the government awarded Contract No.
FA8903-04-D-8690, one of twenty-seven contracts for Worldwide
Environmental Remediation and Construction (WERC), to Laguna
Construction Company, Inc. (Laguna). The contract is governed
by the Contract Disputes Act (CDA), and incorporates by
reference certain Federal Acquisition Regulation (FAR)
contract clauses. Under the contract, Laguna received sixteen
cost-reimbursable task orders to perform work in Iraq, and
awarded subcontracts to a number of subcontractors. The
physical work under the contract was completed by 2010. The
issue on appeal concerns the government's failure to pay
fourteen vouchers that Laguna submitted in 2011 for taxes
owed to Pueblo of Laguna and other incurred costs, including
$24, 000 of subcontract charges.
February 2009, the Defense Contract Audit Agency (DCAA) began
an audit of Laguna's incurred costs for fiscal year 2006.
In 2011, the DCAA disapproved approximately $17.8 million of
subcontract costs due to insufficient support proving that
the government paid a fair and reasonable price for the
services subcontracted. In April 2012, the DCAA rejected a
portion of these costs, which comprised the fourteen Laguna
vouchers at issue, totaling $3, 031, 925. Laguna submitted a
claim on the rejected vouchers for $2, 874, 081. Laguna
properly submitted a notice of appeal to the Armed Services
Board of Contract Appeals (Board) after the Administrative
Contracting Officer did not issue a decision.
in January 2008, the government had begun investigating
allegations that Laguna's employees were engaged in
kickback schemes with its subcontractors. In October 2010,
Laguna's project manager, Ismael Salinas, pleaded guilty
to conspiracy to pay or receive kickbacks in violation of 18
U.S.C. § 371, to conspiracy to defraud the United
States, and to violations of 41 U.S.C. § 53, the
Anti-Kickback Act. Mr. Salinas admitted that from April 2005
to March 2008, he worked with subcontractors to submit
inflated invoices to Laguna for reimbursement by the
government, and profited from the difference. Additionally,
in February 2012, a federal grand jury in the District of New
Mexico issued a criminal indictment against three principal
officers of Laguna- Neal D. Kasper, Bradley G. Christiansen,
and Tiffany White-alleging that they received kickbacks for
awarding subcontracts. The United States Attorney for the
District of New Mexico filed a separate criminal information
against Mr. Christiansen, the Executive Vice President and
Chief Operating Officer of Laguna, for conspiring to defraud
the United States by participating in a kickback scheme from
December 2004 to February 2009. On July 2, 2013, Mr.
Christiansen pleaded guilty to the indictment.
Mr. Christiansen's guilty plea, the government moved to
amend its answer in the Board appeal to include the
affirmative defense of fraud. The Board granted the
government's motion to amend over Laguna's objection.
Appeal of Laguna Constr. Co., Inc., ASBCA No. 58324,
13 BCA ¶ 35, 464. In the government's amended
answer, the government alleged that it "is not liable
for LCC's claim . . . because of LCC's breach of
Contract No. FA8903-04-D-8690 when its principal officers and
employees solicited and accepted kickbacks for awarding
subcontracts under task orders issued under that contract,
which constituted fraud against the United States."
filed a motion for summary judgment, arguing that the
government is not authorized to withhold funds where it has
accepted the subcontractor prices as reasonable during
contract performance and that any claims are barred by the
statute of limitations. Laguna also alleged that the
government had improperly imposed a monetary penalty for
alleged deficiencies in Laguna's files. The government
filed a cross-motion for summary judgment, arguing that
Laguna's claim should be denied because Laguna committed
the first material breach of contract by the fraud of its
Board agreed with the government and declined to consider the
merits of Laguna's motion. The Board held that the
"well settled principle of antecedent breach" is
articulated in Christopher Village, L.P. v. United
States, 360 F.3d 1319, 1334 (Fed. Cir. 2004), and that
Laguna "committed the first material breach under this
contract, which provided the government with a legal excuse
for not paying [Laguna's] invoices." J.A. 13. The
Board concluded that Laguna breached the duty of good faith
and fair dealing because its employees' criminal acts in
engaging in a kickback scheme were imputed to Laguna. The
Board also found that Laguna breached the Allowable Cost and
Payment clause in the contract because its vouchers were
improperly inflated to include the payment of kickbacks.
Id. The Allowable Cost and Payment clause,
incorporated as FAR 52.216-7, states that a cost is allowable
only when it is reasonable and complies with the terms of the
Board found that the breaches were material because kickbacks
are fraudulent. Id. at 14. Further, "[t]hat the
government has not proven that kickbacks were paid under
every TO [task order] or under every voucher does not render
the fraud any less material." Id. (citing
Joseph Morton Co., Inc. v. United States, 757 F.2d
1273, 1278 (Fed. Cir. 1985)).
appeals the Board's decision, arguing that the Board did
not have jurisdiction over the government's affirmative
defense of fraud, and in the alternative, that the Board
erred in granting the government's summary ...