112 Fed. Cl. 594
Fed. Cl.2013Background
- Dotcom Associates I, LLC (plaintiff) leased ~26,790 sq ft of the Kress/Payless Building to the United States under a 2005 lease that included Paragraph 12 addressing tax treatment and referenced SFO Paragraph/Section 3.16 (tax adjustments).
- Plaintiff undertook historic-preservation work; the City granted a tax covenant effective Jan 1, 2008, and the Government paid base real estate taxes from 2006–2010.
- In March 2011 the contracting officer stopped paying the $1.60/sq ft base tax prospectively and withheld $145,889.48 from future rent to recoup alleged overpayments for 2007–2010, citing Section 3.16 E.2 of a SFO amendment.
- Plaintiff alleges the Government’s withholding and refusal to acknowledge Paragraph 12’s primacy (and other related contentions) breached the implied covenant of good faith and fair dealing and moved to amend its complaint; the Government moved to dismiss those implied-covenant claims under RCFC 12(b)(6).
- The proposed amended complaint did not quote or attach the text of Paragraph 12 or Section 3.16; plaintiff relied on allegations that the Government ‘‘failed to acknowledge’’ certain contractual facts and that the contracting officer did not obtain legal advice.
- The Court denied leave to amend as futile and granted the Government’s motion to dismiss, holding plaintiff failed to plead sufficient nonconclusory facts to state a plausible implied-covenant claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff stated a claim for breach of the implied covenant of good faith and fair dealing | Withholding rent and government refusal to acknowledge contract provisions (Paragraph 12’s scope and primacy over SFO §3.16) constituted bad faith and breached the covenant | Plaintiff’s allegations are merely a contract-dispute and conclusory; withholding rent alone does not show subterfuge, evasion, or other bad-faith conduct required to plead an implied-covenant breach | Dismissed: allegations are conclusory and fail to show the required facts (e.g., unreasonable interpretation, subterfuge); amendment denied as futile |
| Whether failure to obtain legal advice or insistence on the Government’s position can establish bad faith | Failure to seek counsel and persistently asserting position at meetings shows willfulness and bad faith | Failure to obtain legal advice and disagreement on contract interpretation do not, by themselves, demonstrate bad faith or breach of the implied covenant | Rejected: absence of legal advice and refusal to concede are insufficient to plead bad faith |
| Whether the proposed supplemental lease’s alleged accounting errors support an implied-covenant claim | The supplemental agreement’s flawed accounting shows an improper attempt to recoup overpayments and evidences bad faith | Plaintiff’s allegations are conclusory, lacking specifics on the accounting errors or damages resulting from a proposed (not executed) agreement | Rejected: conclusory assertions about accounting/math are insufficient under Iqbal/Twombly |
| Whether plaintiff’s factual framing (failure-to-acknowledge theory) plausibly alleges an ‘‘interpretation contrary to one’s own understanding’’ or other recognized forms of bad faith | The Government asserted an interpretation contrary to the parties’ expectations and the lease’s negotiated terms, amounting to evasion of the spirit of the bargain | Plaintiff failed to identify the relevant contract language (Paragraph 12 and §3.16) or allege facts showing the Government’s interpretation was unreasonable or contrary to its own prior understanding | Rejected: without the contractual text or nonconclusory factual allegations, plaintiff cannot plausibly plead the type of subterfuge/evasion necessary for an implied-covenant claim |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings and rejection of conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim, not mere labels or conclusions)
- Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (2010) (implied covenant can be implicated when government action is designed to reappropriate contract benefits)
- Centex Corp. v. United States, 395 F.3d 1283 (2005) (description of the implied covenant’s duty not to destroy reasonable contract expectations)
- Essex Electro Eng’rs, Inc. v. Danzig, 224 F.3d 1283 (2000) (implied covenant duties include diligence and cooperation)
- Delta-X Corp. v. Baker Hughes Prod. Tools, Inc., 984 F.2d 410 (1993) (failure to obtain legal advice does not by itself prove willfulness or bad faith)
- Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598 (2010) (application of implied covenant principles to government contracting)