OPINION
This case is before the court on defendant’s third dispositive motion. Complicating adjudication of this case is the fact that plaintiff has reformulated its complaint three times. The first dispositive motion was filed in the first action; the second was addressed to the first complaint in this action; the third, to the second complaint. After the court dismissed plaintiff’s complaint in the first action, plaintiff reformulated its claims into seven claims for relief in the complaint that initiated this action. That complaint was filed after two counts of the prior action had been dismissed without prejudice and therefore were subject to refiling. Defendant maintained that the first complaint in this action carried forward claims that had been dismissed on the merits, and the court agreed. Plaintiff then took occasion with its next amended complaint to restate these counts and to add a new element to its damages calculation.
FACTS
The facts of this case are more fully set forth in RCS Enterprises v. United States,
On August 23, 1999, plaintiff brought suit in the Court of Federal Claims under the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (2002) (the “CDA”), 1) alleging a breach of contract due to ASC’s failure to cooperate or to accept plaintiff’s recommendations and 2) claiming a reasonable expectation of compensation for the services it rendered. See RCS I,
Plaintiff re-filed, on March 20, 2001, a seven-claim complaint under this docket number that corrected the jurisdictional deficiencies of the complaint addressed by RCS I. All seven claims alleged breach of contract, as follows: 1) ASC was in breach due to its failure to comply with paragraph
This complaint was the subject of RCS Enterprises v. United States,
Plaintiff filed an amended complaint on October 29, 2002, in response to which defendant filed a dispositive motion, which is its third. With one exception the causes of action in first amended complaint are identical to the original complaint in this action (which was the subject of RCS II): In the Fifth, Sixth, and Seventh Claims for Relief in the first amended complaint, plaintiff adds a sentence to its alternative damages calculation which reads: “These damages further include actual time incurred by Accu-Rate Telecom, Inc., as determined by Accu-Rate[ ] in auditing these records ____” First Am. Compl. filed Oct. 29, 2002, 1(1! 66, 74, 81. Plaintiff subcontracted a portion of its contract with ASC to Accu-Rate Telecom, Inc. (“Accu-Rate”). Plaintiff includes AceuRate’s fees as part of the additional costs and expenses that it allegedly incurred as a result of ASC’s alleged breach.
Defendant has moved for summary judgment on four grounds. First, defendant argues that all plaintiffs claims for past savings should be barred by res judicata, in accordance with the court’s decision in RCS II. This ruling, defendant submits, should apply to the First, Second, Third, Fifth, Sixth, and Seventh Claims for Relief. Second, defendant maintains that it is entitled to judgment as a matter of law on all claims relating to future savings, because this portion of the contract violates the Anti-Deficiency Act, 31 U.S.C. § 1341 (2002) (the “ADA”). Third, defendant contends that plaintiff committed a prior material breach, thereby violating the tripartite agreement between plaintiff, ASC, and the SBA. Plaintiff allegedly breached the agreement by allowing its subcontractor, Accu-Rate, to perform the contract in its place; this breach would excuse ASC from its obligations under the contract. Finally, if the court finds that ASC breached the contract, defendant argues that plaintiff had a duty to mitigate damages when it learned that ASC had intermingled private and government telephone lines. The court addresses each of these arguments in turn.
DISCUSSION
Summary judgment is appropriate only when the moving party is entitled to judgment as a matter of law and there are no disputes over material facts that may significantly affect the outcome of the suit. See RCFC 56(c); Anderson v. Liberty Lobby, Inc.,
1. The First and Second Claims for Relief
Plaintiff re-filed the first two claims in its first amended complaint despite the court’s dismissal of those claims in RCS II. See
Issue preclusion attaches when 1) the issues to be decided are identical to those in a prior action, 2) the issues were raised and “actually litigated” in that action, 3) “the determination of those issues in the prior action was necessary and essential to the resulting judgment,” and 4) the precluded party was represented in the previous action. Mother’s Rest., Inc. v. Mama’s Pizza, Inc.,
First, the claims are the same as those presented in RCS I. Second, these issues were litigated in the previous action. The court held that “under the contract plaintiff had the sole responsibility to seek reimbursements directly from the telephone carrier(s). Thus, plaintiff cannot maintain a cause of action against the United States for those amounts.” RCS I,
2. The Third Claim for Relief
In RCS II the court granted partial summary judgment on the Third Claim for Relief to the extent that plaintiff sought to recover damages calculated as commissions on past savings. 53 Fed.CI. at 309. Defendant contends that summary judgment should have been granted in full on the third claim in RCS II, because it pertains to past refunds alone. Indeed, as pleaded in the first amended complaint, the conduct constituting the alleged breach is ASC’s refusal “to seek available refunds and credits associated with the telephone lines listed for audit in the Contract.” First Am. Compl. ¶ 50. Plaintiff makes no allegations regarding the future savings that ASC may have obtained. Accordingly, plaintiffs Third Claim for Relief is barred in its entirety by this court’s ruling in RCS II, which dismissed it on the merits.
3. The Fourth Claim for Relief
The fourth claim of plaintiff’s first amended complaint alleges: “To the extent that the Government has itself obtained available refunds, credits and YE CP’s identified in [plaintiffs] audit, without compensation to [plaintiff], this conduct also constitutes breach.” First Am. Compl. 1154. The refunds and credits components of plaintiffs claim fall under the category of past savings and are therefore precluded under the doctrine of res judicata. See RCS II, 53 Fed.CI. at 309.
In contrast, the VECP’s to which plaintiff alleges entitlement fall under the category of future savings. Defendant argues that the future savings component of plaintiffs first amended complaint violates the ADA and thus is illegal. The ADA provides, in pertinent part, that an “officer or employee of the United States Government ... may not ... involve [the] [Government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law____” 31 U.S.C. § 1341(a)(1)(B). “The Anti-Deficiency Act bars a federal employee or agency from entering into a contract for future payment of money in advance of, or in excess of, an existing appropriation.” Hercules, Inc. v. United States,
Paragraph B.2 of the contract provides:
The Basic contract period is from January 9, 1998, through the completion of the initial audit. Two (2) option years have been included, to provide compensations for future recommendations and cost reduction strategies, to be agreed upon by the parties. These will be exercised by separate contract modifications, if applicable.
Paragraph B.3 of the contract itemizes the supplies and services under the contract, including option year 1999 and option year 2000. The paragraph stipulates: “The option years are included only to provide a schedule for payment of any savings share due the Contractor, No audits are to be performed in the option years, unless the parties agree----”
Defendant maintains that the contract violates the ADA because it provides that the option years will be exercised by separate contract modifications, which would obligate the Government to expend funds beyond a single year, hence involving the Government in a contract or obligation for the payment of money before an appropriation was made. Citing E.I. DuPont De Nemours & Co. v. United States,
DuPont is easily distinguishable from the ease at bar. The parties do not dispute that no statute provided for multi-year payments under the contract. The question is whether the contract obligated the Government to make a payment before money was appropriated for that purpose. The contract in DuPont contained an open-ended indemnity clause that “place[d] the risk of virtually all liabilities and the burden of practically all costs on the [G]overnment. This is, of course, a broad interpretation that provides no cap for indemnification costs.” 54 Fed.Cl at 370. The contract involved in this case, on the other hand, included two options, renewable by the Government, at the termination of the first contract year.
Arguing that the contract does not violate the ADA, plaintiff cites a decision by the Court of Federal Claims stating that “multiyear contracts do not violate the Antideficieney Act as long as they provide that the Government’s obligation terminates at the end of each fiscal year and is renewed by the exercise of the option by the Government.” Cray Research, Inc. v. United States,
[U]nder [Supreme Court precedent in Letter v. United States,271 U.S. 204 ,46 S.Ct. 477 ,70 L.Ed. 906 (1926)], if an agency does not have multi-year contracting authority ... the only authorized course of action (apart from separate fiscal year contracts) is a one-year contract followed by a series of government renewal options. Each renewal option must be (1) contingent on future congressional appropriations, and (2) exercised only by the government’s affirmative action.
Cray Research,
In Cray Research plaintiffs interpretation of the contract would render it invalid because the contract required the Government to pay over the course of multiple years in violation of the ADA. Defendant .contended that the contract contained an option, exercisable by the Government, which saved the contract from invalidation by the Act. The court was guided by the following rule of contract interpretation: “ ‘When a contract is fairly open to two constructions, by one of which it would be lawful and the other unlawful, the former must be adopted.’” Cray Research,
Similar to plaintiff in Cray Research, in the case at bar, defendant argues:
[T]he mandatory language of the contract, as confirmed by [plaintiffs] testimony during the deposition of [Russ C. Simpson, plaintiffs President], required the Government to exercise the two option years, [and therefore] the Government did not “retainf] the option to renew the contract each year after the base year,” and, as a result, pursuant to Cray Research, the contract violated the ADA.
Def.’s Br. filed Apr. 14, 2003, at 15 (citing Cray Research,
Plaintiff retorts that an alleged violation of the ADA does not shield the Government from liability, noting that an agency faced with a possible ADA violation has an affirmative duty to act to prevent the violation or at least mitigate its consequences. For support plaintiff cites Wetsel-Oviatt Lumber Co. v. United States,
Plaintiff subsequently sued in the Court of Federal Claims. Defendant admitted that, “[u]pon completion of environmental analysis, the Forest Service usually releases timber, modifies the timber sale contracts, and pays the contractors amounts due for replacement value and out of pocket expenses.”
Despite its strong language, the facts of Wetsel-Oviatt are not similar to those in the case at bar. In that case the contract was not illegal from its inception; it conflicted with the ADA only after the environmental analysis. The terms of the contract in this case violate the ADA by placing a requirement on the Government to pay plaintiff over the course of two years. Because the contract terms that require payment of future savings therefore are illegal, the future savings component in plaintiffs first amended complaint is implicated.
Plaintiff also argues that the Government caused any potential violation of the ADA, noting that deposition testimony of Angela F. Coats, Contracting Officer, suggests that ASC primarily wrote the contract. It cites the Restatement to argue that the appropriate form of relief, assuming, arguendo, that ASC made a mistake by drafting a contract that violates the ADA, is “reformation or avoidance with restitution.” Pl.’s Br. filed
Defendant has established that the contract is illegal. Plaintiff cites no precedent to suggest that an illegal contract may be enforceable depending on which party “caused” the contract to contain the illegal terms. The court finds, however, that a material issue of fact is present regarding what damages, if any, are due plaintiff.
The Federal Circuit has held that an agency’s failure to comply with applicable regulations does not render a contract void ab initio. See American Tel. & Tel. Co. v. United States,
4. The Fifth, Sixth and Seventh Claims for Relief
In its Fifth Claim for Relief, plaintiff contends that it audited telephone lines that were not the Government’s. Because of ASC’s “misrepresentation and/or errors” in identifying the telephone lines that belonged to it, plaintiff allegedly incurred “substantial additional costs and expenses.” First Am. Compl. If 63. The Sixth Claim for Relief alleges that ASC represented to plaintiff that its records were maintained in accordance with Army regulations, although that was, in fact, not the case. The Seventh Claim for Relief pleads that ASC did not give plaintiff access to telephone records and personnel, thereby causing plaintiff to incur additional costs and expenses. Ml three claims contain a statement that damages include, but are not limited to, the past savings and future savings components outlined in paragraphs 15 and 16 of the first amended complaint. In the alternative, the three claims allege that damages incurred as a result of ASC’s misconduct include the time that plaintiff and Accu-Rate spent auditing the records, multiplied by plaintiffs and Accu-Rate’s employees’ hourly rates.
These three claims for relief are barred by the doctrine of issue preclusion. The issues to be decided are the same as in RCS I: Ml three claims allege that ASC hindered plaintiff in its work, which is tantamount to an allegation that, absent ASC’s meddling, plaintiff could have identified more past over-billings under the contract. Plaintiff cannot save these claims from preclusion by adding a damages formulation that is based on the future savings calculation outlined in paragraph 16, because the substance of the claim itself is not related to future savings. Ml three claims concern ASC’s actions during the audit and are wholly unrelated to potential future savings. RCS I ruled that plaintiffs claims for past overbillings were barred.
5. Prior material breach
Defendant argues that ASC’s performance and obligations under the contract should be excused because plaintiff committed a prior material breach. Defendant presents three letters signed by plaintiff and the tripartite agreement signed by plaintiff, ASC, and the SBA confirming that plaintiff is a section 8(a) subcontractor, i.e., a disadvantaged business, under the Small Business
Section 1-23 of the contract incorporates 48 C.F.R. (FAR) § 52.219-14 (2002), which states, in part, that “[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.”
Although the parties generally agree on the construction of the provision, material facts regarding Accu-Rate’s role in performing the contract remain in dispute. Plaintiff insists that it did not violate any terms of the contract, as “the arrangement between [plaintiff] and Accu-Rate was fully disclosed and entirely legal” as part of the contract with ASC. Pl.’s Br. filed Mar. 27, 2003, at 22-23. Plaintiff denies there was a prior material breach. According to section B.l of the contract, “[performance will be in accordance with [plaintiffs] proposal, hereby incorporated by reference____” The relevant portion of plaintiffs proposal discussed Accu-Rate’s role and qualifications as part of plaintiffs “team.” According to plaintiff, due to incorporation of plaintiff’s proposal into the contract, ASC agreed to Aecu-Rate’s participation in the audit, and thus AccuRate’s participation cannot be a basis for declaring the contract void.
The question devolves to whether the 50 percent cost of contract performance for personnel mandated by the FAR applies to plaintiffs team or to plaintiff individually. If the clause applies to plaintiffs team, which performed the entire contract, plaintiff would not be in breach. If the clause applies to plaintiff individually, the conduct would constitute a breach, as plaintiff itself did not perform the required 50 percent of the cost of contract performance. This is an issue to be explored at trial.
6. Mitigation
In the Fifth, Sixth, and Seventh Claims for Relief, plaintiff alleges that ASC misrepresented information material to completing the audit. First Am. Compl. UK 56-81. The misrepresentations included confusion over which lines were governmental lines to be audited under the contract, and which lines were private, non-governmental lines that should have been excluded from the audit. First Am. Compl. ¶¶ 57-66. Defendant argues that plaintiff would have understood these distinctions had it fulfilled its contractual duties and attended all the required pre-performance meetings. Thus, according to defendant, any breach by ASC would be vitiated by plaintiff’s failure to mitigate damages, thereby rendering plaintiff ineligible to recover damages accrued after the time ASC’s alleged breach was discovered. See Quiman, S.A de C.V. v. United States,
Mr. Simpson, plaintiffs President, testified by deposition that he knew of ASC’s alleged breach on March 19, 1998. Thus, defendant argues, plaintiff should not recover any damages arising after that date. Plaintiff, however, asserts that “the fact of commingling (if true) was either unknown or concealed at least through June 18, 1998 ____” PL’s Br. filed Mar. 27, 2003, at 16. The court is unable to reconcile the support for these contradictory statements regarding the date on which plaintiff became aware of ASC’s alleged breach. Issues of material fact thus exist regarding when an alleged duty to mitigate arose, and whether or not plaintiff carried out that duty.
The parties also dispute whether, if a duty to mitigate did arise, plaintiff made all reasonable efforts to avoid loss. Given the fact that Mr. Simpson testified that plaintiff may have turned down the contract had it known of the difficulties in distinguishing which lines were to be audited, defendant suggests that reasonable mitigation conduct would have been to discontinue the audit. Plaintiff responds that it alerted the contracting officer to a potential problem with performance, and the contracting officer instructed plaintiff to continue with the audit. Had plaintiff refused to follow the contracting officer’s instructions, it may have been held in breach. In any event, neither plaintiff nor defendant presents any case law supporting its respective position regarding what would constitute a reasonable effort to mitigate damages in this situation. Defendant’s motion for summary judgment as to mitigation therefore is denied.
CONCLUSION
Accordingly, based on the foregoing,
IT IS ORDERED, as follows:
1. Defendant’s motion for summary judgment is granted consistent with the foregoing and is otherwise denied. The First, Second, Third, Fifth, Sixth, and Seventh Claims for Relief are dismissed with prejudice. The sole claim to be tried is plaintiffs claim based on future savings for one year’s performance. Defendant substituted new counsel after briefing this third dispositive motion. Defendant is advised that the court will not entertain another dispositive motion.
2. The parties shall file a Joint Status Report by August 27, 2003, with a proposed schedule for all pretrial and trial proceedings under RCFC Appendix A, including place of trial.
Notes
. An order entered April 25, 2003, as amended July 8, 2003, attempted to simplify the references to plaintiff’s complaints in these actions by using successive numbering, although more than one action was involved. This attempt was unsuccessful, and the references in this opinion are to the complaints and amended complaints for each case filed.
. Plaintiff argues that the document on which defendant actually relies to show plaintiff breached the tripartite agreement is the Statement and Certification for Proposal provided to the SBA. Plaintiff contends that this document is not part of the contract; defendant counters that the Certification is incorporated by reference into the tripartite agreement. The court need not address this argument, however, because the requirement that plaintiff perform at least 50 percent of the cost of contract performance appears in section 1-23 of the contract.
. Plaintiff also argues that defendant actually was asserting the affirmative defense of frustration of purpose based on the Statement and Certification for Proposal. This would waive the defense pursuant to RCFC 8(c), because defendant did not raise it in any prior pleading. The court rejects this argument. Defendant pled the affirmative defense of prior material breach in paragraph 86 of its answer based on the same facts.