Cardiosom, L.L.C. v. United States
117 Fed. Cl. 526
Fed. Cl.2014Background
- Cardiosom contracted with CMS on July 1, 2008 to supply DMEPOS in nine metro areas for three years.
- In June 2008, CMS signed Cardiosom’s contract but Congress enacted MIPPA § 154 terminating all Round 1 contracts.
- CMS notified Cardiosom of termination as of June 20, 2008, with formal notice in July 2008 stating termination effective June 20, 2008.
- Cardiosom asserted damages for reliance and lost profits due to the termination; CMS reimbursed some termination expenses administratively.
- Article II.D of the contract states the contract is subject to changes in Medicare statute or regulations; Article III governs breach and remedies.
- The court granted summary judgment for Cardiosom on contract liability, denied CMS’s defense, and directed briefing on damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS’s termination breached the contract | Cardiosom contends breach since termination ignored contract duties. | CMS argues termination was permitted by Article II.D due to regulatory changes. | Yes; CMS breach established. |
| Whether Article II.D is a valid risk-shifting clause | Article II.D is ordinary compliance language, not risk-shifting. | Article II.D shifts risk of regulatory change to Cardiosom. | No; Article II.D is not risk-shifting; treaty interpreted as compliance language. |
| Whether contract interpretation should treat Article II.D as part of ‘Compliance with Laws and Regulations’ | Contract as a whole shows no risk-shifting intent in Article II.D. | Plain language should be read to shift risk. | Contract interpreted to reflect compliance obligations, not risk-shifting. |
| Whether the contract language and surrounding circumstances show intent that Congress could terminate the contract without breach | No reasonable interpretation supports risk-shifting given contemporaneous circumstances. | Premise that statute could terminate program is foreseeable. | Not supported; no intent to shift risk shown. |
| What damages, if any, may Cardiosom recover after breach | Damages for termination expenses and lost profits; CMS reimbursed some amounts administratively. | Damages require independent corroboration; damages must not double-recover. | Damages to be determined; schedule for briefing on damages ordered. |
Key Cases Cited
- Winstar Corp. v. United States, 518 U.S. 839 (U.S. 1996) (government liable for changes in governing regulations relevant to contract)
- Admiral Fin. Corp. v. United States, 378 F.3d 1336 (Fed. Cir. 2004) (risk-shifting clause analysis in Winstar context)
- Mobil Oil Exploration & Producing Se. v. United States, 530 U.S. 604 (U.S. 2000) (contract terms subject to later statutory changes; limited applicability)
- United States v. Testan, 424 U.S. 392 (U.S. 1976) (money damages require a separate legal basis beyond Tucker Act)
- Granite Constr. Co. v. United States, 962 F.2d 998 (Fed. Cir. 1992) (interpretation requires giving effect to whole contract)