Case Information
*1 Before DEMOSS, SOUTHWICK, and HIGGINSON, Circuit Judges. HIGGINSON, Circuit Judge.
This case, which arose out of a government dredging contract, requires us to delimit the scope of a corporate officer’s personal liability under 31 U.S.C. § 3713 (the “Priority Statute”). Specifically, we are called upon to decide (1) whether the decision of a contracting officer rendered pursuant to the Contract Disputes Act of 1978, as amended, 41 U.S.C. § 7101 et seq. (the “CDA”), constitutes a “claim” within the meaning of the Priority Statute, and, if so, (2) whether a debtor’s representative has “notice” of that claim, necessary to trigger personal liability under the Priority Statute, if he has actual knowledge of its existence but relies on the erroneous advice of counsel as to its validity. Answering both questions affirmatively, we AFFIRM.
FACTS AND PROCEEDINGS
In 1998, the United States Army Corps of Engineers (the “Corps”) awarded Contract No. DACW-99-C-0001 (the “Dredging Contract”) to Renda Marine, Inc. (“Renda Marine”), in the estimated amount of $12,526,100, to dredge a portion of the Houston-Galveston navigation channel. As a contract made by an executive agency for the procurement of services, the Dredging Contract was governed by the CDA, which requires, inter alia , that claims by either party “relating to” a government contract be submitted to the contracting officer (“CO”) for a written decision. 41 U.S.C. § 7103(a)(1), (d).
Between January and October 2001, Renda Marine submitted eight claims, including seven “differing site condition” claims and one “constructive contract modification” claim, to Contracting Officer Thomas Benero (“CO Benero”), Chief of the Contracting Division for the Corps in Galveston, Texas. In response, the Corps issued Modification No. P00023, which provided for a $3,083,833 equitable adjustment in contract price for additional dredge work completed by Renda Marine in the “flare” area of the channel. CO Benero did not timely issue a final decision on Renda Marine’s remaining claims and, as a result, they were considered denied. See Renda Marine, Inc. v. United States , 71 Fed. Cl. 782, 784 & n.2 (2006) (referencing a previous version of 41 U.S.C. § 7103(f)(5), which read: “Any failure by the contracting officer to issue a decision on a contract claim within the period required will be deemed to be a decision by the contracting officer denying the claim and will authorize the commencement of the appeal.”). On April 11, 2002, Renda Marine timely appealed the denial of its claims to the Court of Federal Claims. Id.
On November 26, 2002, while Renda Marine’s case was pending before the Court of Federal Claims, CO Benero issued a final decision (the “Final Decision”) on six counterclaims submitted by the government against Renda Marine for incomplete and deficient work. After setting forth the “items determined to be deficient or incomplete or not in accordance with the contract specifications,” the Final Decision “determine[d] that Renda Marine is indebted to the Government in the amount of $11,860,000,” plus interest, for the estimated completion costs, directed the company to submit payment by certified check, and notified the company of the statutory avenues of appeal. The Final Decision was addressed to Oscar Renda (“Renda”), the president and majority shareholder of Renda Marine at the time, who later acknowledged receiving and reading it.
After reviewing the Final Decision, Renda called Brian Erikson, an attorney with Quilling, Selander, Lownds, Winslett & Moser, P.C. (“Quilling Selander”), the firm that was representing Renda Marine in the matter pending before the Court of Federal Claims, to seek legal advice on how Renda Marine should proceed. According to Renda, Erikson advised him that the Final Decision “did not require action by Renda Marine” because “any claim the Government made should be addressed in the pending [litigation] before the Court of Federal Claims, so that Benero’s findings and decision were void.” Consistent with Erikson’s advice, Renda Marine did not timely appeal the Final Decision to the ASBCA or Court of Federal Claims.
On July 31, 2003, Renda caused Renda Marine to transfer all of its assets, totaling $8,563,066, to its unsecured creditors in the following amounts: $5,932,900 to Oscar Renda Contracting, Inc.; $484,500 to Renda Environmental, Inc.; $325,000 to Oscar Renda; and $325,000 to Rudolph Renda (the “July 2003 transfer”). On the date of the transfer, Renda Marine’s debts, not including the $11.86 million debt asserted in the Final Decision, exceeded the value of its assets by $7,988,798.
In July 2004, Renda Marine moved for leave to amend its complaint in the
Court of Federal Claims to challenge the Final Decision.
Renda Marine, Inc. v.
United States
,
In 2005, Renda Marine asserted a malpractice claim against Quilling Selander for failing to timely challenge the Final Decision, and ultimately settled the claim for $2 million. Several days after receiving the $2 million settlement, Renda caused Renda Marine to transfer the settlement money to Oscar Renda Contracting, Inc. to repay advances it allegedly had made for Renda Marine’s legal expenses (the “December 2005 transfer”). On the date of the transfer, Renda Marine’s debts exceeded the value of its assets.
In 2008, the government sued Renda Marine in the United States District
Court for the Eastern District of Texas to recoup the $3,083,833 equitable
adjustment and to enforce the $11,860,016 claim asserted in the Final Decision.
United States v. Renda Marine, Inc.
,
In 2009, the government commenced this action, seeking to hold Renda personally liable under the Priority Statute for the amount of the July 2003 and December 2005 transfers he made on behalf of Renda Marine. Renda raised a number of affirmative defenses attacking the merits of the Final Decision, and, through a counterclaim, sought review of the Final Decision under the Administrative Procedure Act (“APA”). The government moved to dismiss Renda’s counterclaim and to strike his affirmative defenses for lack of subject- matter jurisdiction. Adopting the report and recommendation of Magistrate Judge Bush, the district court granted the motion. The parties later filed cross-motions for summary judgment, and Renda moved for reconsideration of the district court’s dismissal of his counterclaim and affirmative defenses. Again adopting the report and recommendation of Magistrate Judge Bush, the district court granted the government’s motion for summary judgment and denied Renda’s motions for summary judgment and reconsideration. On September 30, 2011, the district court entered final judgment in favor of the government in the amount of $12,468,588.94, the combined value of the two transfers, plus interest. Renda timely appealed.
STANDARDS OF REVIEW
We review a district court’s summary judgment
de novo,
applying the same
standard as the district court
. Moss v. BMC Software, Inc.
,
We review a district court’s order denying a party’s motion for
reconsideration, made pursuant to Federal Rule of Civil Procedure 54(b), for abuse
of discretion.
See Swope v. Columbian Chem. Co.
,
We review a district court’s order striking affirmative defenses for abuse of
discretion.
Cambridge Toxicology Grp., Inc. v. Exnicios
,
DISCUSSION
The Priority Statute “is almost as old as the Constitution, and its roots
reach back even further into the English common law.”
United States v. Moore
,
(A) a person[ [5] ] indebted to the Government is insolvent[ [6] ] and-- (I) the debtor without enough property to pay all debts makes a voluntary assignment of property; . . . .
(b) A representative[ [7] ] of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.
31 U.S.C. § 3713.
The representative liability provision, the provision at issue in this case,
gives the Priority Statute “teeth” by making a representative who pays a
non-federal debt on behalf of a corporation before paying a federal claim
personally liable for the amount paid.
Moore
,
Read literally, . . . [subsection (b)] would . . . require the management of a solvent business . . . to act at its peril in paying other debts while federal claims are owing, for if the business should later become unable to pay the federal claims the management could be liable; further, the provision would impose personal liability even on one who pays other debts innocently and with no reason to support that there may be obligations owing to the United States.
See
William T. Plumb, Jr.,
The Federal Priority in Insolvency: Proposals for
Reform
, 70 M ICH . L. R EV . 1, 87 (1971). To avoid such a result, the few courts to
have interpreted § 3713(b)
[8]
have read into the provision the additional
requirements that the representative have “knowledge of the debt owed by the
estate to the United States or notice of facts that would lead a reasonably prudent
person to inquire as to [its] existence,”
[9]
and “the corporation [be] insolvent when
the defendant paid the other debts.” Accordingly, a corporate officer is
personally liable if, on behalf of the corporation, he (1) pays a non-federal debt (2)
before paying a claim of the United States (3) at a time when the corporation was
insolvent, (4) if he had knowledge or notice of the claim.
See United States v.
Coppola
,
In the instant case, Renda does not dispute that the first and third elements are satisfied. That is, it is undisputed that Renda, acting as Renda Marine’s representative, caused Renda Marine to make the July 2003 and December 2005 transfers and that, at the time of those transfers, Renda Marine was insolvent. Renda’s personal liability for the amount of the transferred assets therefore hinges on whether, at the time of the transfers, (1) the government had a “claim” against Renda Marine, and, if so, (2) Renda had “knowledge” or “notice” of that claim.
A. The Government Had a Claim Against Renda Marine
The first issue on appeal, which the parties agree is a matter of first
impression, is whether a CO’s determination that a government contractor is
indebted to the government, rendered pursuant to the authority granted by the
CDA, constitutes a “claim” within the meaning of the Priority Statute. Our
starting point is the statute’s plain meaning, ascertained by reference to “the
particular statutory language at issue, as well as the language and design of the
statute as a whole.”
See Frame v. City of Arlington
,
On its face, the statutory definition of “claim”—“any amount of funds or
property that has been determined by an appropriate official of the Federal
is that the liability is not to be imposed unless the fiduciary has actual knowledge of the claim,
or at least possesses such information ‘as would put a reasonably prudent man upon inquiry.’ ”)
(collecting cases).
Lutz
,
Cir. 1932);
Bartlett
,
Government to be owed to the United States by a person, organization, or entity other than another Federal agency”—captures within its scope a CO’s decision on a claim relating to a government contract. 31 U.S.C. § 3701(b)(1). The language of the Final Decision tracks the definition of claim: it includes a determination —“I hereby determine”—that a person, organization, or entity —“Renda Marine, Inc.”—owes an amount of funds to the United States—“is indebted to the Government in the amount of $11,860,000.000.” And, as the official statutorily designated to make decisions with respect to claims relating to government contracts, 41 U.S.C. § 7103, a CO surely qualifies as “an appropriate official of the Federal Government.”
The purpose and design of the Priority Statute likewise prompt the
conclusion that the Final Decision is a “claim.” The Priority Statute was enacted
“to secure an adequate revenue to sustain the public burthens [sic] and
discharge the public debts.”
Moore
,
By recognizing that “claim” has been interpreted expansively, we do not
mean to suggest that the term is boundless in scope. As the Supreme Court
noted, “it is at least doubtful on the statute’s wording that obligations wholly
contingent for ultimate maturity and obligation upon the happening of events
after insolvency” are within the statute’s ambit.
Massachusetts v. United States,
333 U.S. 611, 627–28 (1948). That is, government claims not currently in
existence but which may arise in the future are not entitled to priority.
E.g.
,
United States v. Culburt (In re Metzger)
,
Seizing on that limitation, Renda argues on appeal that the Final Decision
was not a “claim” because it was not truly final at the time of the July 2003
transfer. He references two provisions of the CDA to support his position. First,
he draws a negative inference from § 7103(g) of the CDA, which states: “The
contracting officer’s decision on a claim is final and conclusive and is not subject
to review by any forum, tribunal, or Federal Government agency,
unless an
appeal or action is timely commenced as authorized by this chapter
.” 41 U.S.C.
§ 7103(g) (emphasis added). It follows from the italicized language, Renda
reasons, that until the period to timely commence an appeal or action has
passed, a claim is neither final nor conclusive. Second, he calls to our attention
the
de novo
review provision in § 7104(b)(4), which the Federal Circuit has
interpreted as providing that “once an action is brought following a contracting
officer’s decision, the parties start in court or before the board with a clean
slate.”
Wilner v. United States
,
Were finality a requirement of the Priority Statute, Renda would have a stronger case. But the word “final” is conspicuously absent from the statutory definition of “claim.” See 31 U.S.C. § 3701(b)(1) (defining “claim” as “any amount of funds or property that has been determined by an appropriate official of the Federal Government to be owed to the United States by a person, organization, or entity other than another Federal agency”); § 3701(b)(1) (clarifying that “claim” includes, without limitation, seven categories of debts, including the catch-all, “other amounts of money or property owed to the Government”). Congress knows how to distinguish “decisions” from “final decisions,” see 28 U.S.C. § 1291 (cabining federal appellate jurisdiction to “final decisions” of district courts), and “determinations” from “final determinations,” see 5 U.S.C. § 8503 (providing for judicial review of federal employee compensation eligibility, but only in the case of a “final determination”).
The Supreme Court’s decision in Moore illustrates that a claim arising out of a government contract need not be final to be accorded priority. That case, like this one, involved a contractor’s breach of a government contract. 423 U.S. at 78. After the government notified the contractor of its intent to terminate the contract but before it filed suit, the contractor, an insolvent company, assigned all of its assets to a third party. Id. at 78–79. The government sued, alleging that the assignment of assets violated an earlier but materially indistinguishable version of the Priority Statute. [12] Id. at 79. Notably, at the time the government sued, no government official or court had made an official determination of indebtedness. Yet the Court ruled that the government’s unliquidated claim was nonetheless entitled to priority, reasoning that “nothing on the face of the statute, and no potential difficulty in administering it, require that a distinction be drawn for this purpose between liquidated and unliquidated debts.” Id. at 83. The Court rejected the argument that the term “debts due,” which has since been revised to read “claim,” [13] should “be read to mean only those obligations that would on the date of the assignment have given rise to a common-law action for debt.” Id. at 83. In response to the argument that the government’s claim was too indefinite to be entitled to priority, the Court responded that the claim “was fixed and independent of events after insolvency,” even though it was not certain in amount or reduced to judgment, because “only the precise amount of that obligation awaited future events.” Id. at 85 (internal quotation marks omitted). It follows that the government’s claim against Renda Marine, which was certain in amount and determined by an appropriate government official, likewise is entitled to priority.
Not only is Renda’s proposed interpretation contrary to Supreme Court
precedent, it would also undermine the purpose of the Priority Statute. The
Priority Statute was designed to induce a debtor and its representatives to pay
the debts of the government first or, at a minimum, to preserve a debtor’s assets
pending resolution of any dispute regarding the government’s claim.
See
Massachusetts,
The Priority Statute “is not to be defeated by unnecessarily restricting the
application of the word ‘[claim]’ within a narrow or technical meaning,”
Moore
,
B. Renda Had Notice of the Claim
The second issue on appeal is whether a corporate officer has notice of a federal claim if he knows of its existence but, in reliance on the advice of the corporation’s attorney, believes it to be invalid. According to Renda, Erikson advised him that “any claim the Government made should be addressed in the pending claim before the Court of Federal Claims,” and, therefore, the Final Decision was “void” and “did not require any action by Renda Marine.” Because he was under a mistaken impression that the claim was invalid, Renda argues, he cannot be charged with notice of it.
We follow the majority of other courts in holding that a representative’s
actual knowledge of a federal claim is sufficient, notwithstanding that
representative’s reliance on the erroneous advice of counsel as to how to address
the claim.
See King v. United States
, 379 U.S. 329, 339–40 (1964) (holding
corporate officer personally liable for distribution where he was aware of the
existence of a government claim, but relied on the erroneous advice of corporate
counsel that the corporation had sufficient assets to pay it);
Coppola
,
A recent case in our circuit is illustrative.
See United States v. MacIntyre
,
No. H-10-2812,
Id.
As that and other courts have held, and we now reiterate, the reach of the
Priority Statute “is not cabined by the poor advice of attorneys.”
Golden Acres
,
Undergirding our conclusion are two considerations, one springing from
the statute’s text and the other from its purpose. First, the statute does not
provide for an attorney-reliance exception. Over the years, courts have read into
the Priority Statute the “knowledge” and “insolvency” requirements to protect
innocent representatives. We decline to announce a further exception. Second,
a contrary interpretation would create an exception to the Priority Statute that
might swallow the rule. As long as a debtor’s representative were to receive
advice from counsel that the debtor had some basis to contest the government’s
claim, the representative could distribute the debtor’s assets to non-federal
creditors. Such an interpretation would defeat the purpose of § 3713(b) to
ensure that debts of the United States are repaid first.
See Moore
,
COLLATERAL ISSUES
In addition to the two principal issues, discussed above, bearing directly upon his liability under the Priority Statute, Renda raises on appeal several collateral issues, including whether (1) the district court abused its discretion in striking his counterclaim and affirmative defenses, (2) the district court erred by using preclusively against him the Final Decision and the results of prior litigation involving Renda Marine, and (3) the government is judicially estopped from arguing on appeal that its right to payment was “fixed” at the time of the July 2003 and December 2005 transfers. The government argues, and we agree, that such issues are not pertinent to Renda’s liability under the Priority Statute. Because they are interrelated and do not merit extended consideration, we address them together in summary fashion.
First, the district court did not abuse its discretion in striking Renda’s
counterclaim and affirmative defenses attacking the merits of the Final Decision
because the validity of the government’s claim against Renda Marine had been
resolved with finality before the government brought a representative liability
claim against Renda.
Renda Marine, Inc. v. United States
,
Second, the factual findings of the Final Decision were not used
preclusively against Renda in violation of § 7104(e) of the CDA, which states
that if a CO’s decision includes findings of fact, such findings “are not binding
in any subsequent proceeding,” 41 U.S.C. § 7103(e), because the government did
not rely on the Final Decision for its factual findings. To the contrary, the Final
Decision was adduced for the purpose of establishing an essential element of the
government’s case: that the government had a claim, within the meaning of the
Priority Statute, against Renda Marine at the time of the transfers. The cases
Renda marshals in support of his CDA-preclusion theory are inapposite: they
stand for the settled proposition that, in an action brought by a government
contractor in the Court of Federal Claims pursuant to § 7104(b), the factual
findings of a CO are not accorded presumptive weight and a contractor is free to
challenge both them and the legal conclusions they compel.
See Roxco, Ltd. v.
United States
,
Nor was the Final Decision used preclusively against Renda in violation
of the Due Process Clause, U.S. C ONST . amend. V, or the federal common law
doctrine of collateral estoppel, which “bars relitigation of an issue actually and
necessarily decided in a prior action,”
Wolfson v. Baker
,
Third, the government is not judicially estopped from arguing that its
right to payment was “fixed” at the time of the July 2003 and December 2005
transfers and not contingent upon future litigation. The federal common law
doctrine of judicial estoppel “prevents a party from asserting a position in a legal
proceeding that is contrary to a position [it has] previously taken in the same or
some earlier proceeding.”
Hall v. GE Plastic Pac. PTE Ltd.
,
contends that the government is therefore judicially estopped from claiming that its right to payment was “fixed” at the time of the transfers and not contingent upon future litigation. We disagree. It is not inconsistent for the government to assert that (1) a contractor’s challenge to the decision of a CO is untimely and barred by the CDA, and (2) because the contractor was permitted to bring its untimely challenge, the government was not required to bring suit to enforce the decision until the untimely challenge had run its course.
CONCLUSION
For the foregoing reasons, we hold as a matter of law that (1) the decision of a CO is a “claim” within the meaning of the Priority Statute, and (2) a debtor’s representative has “notice” of that claim, necessary to trigger personal liability under the Priority Statute, when he has actual knowledge of its existence, whether or not he consults counsel as to its validity. We conclude that no genuine issues of material fact remain, and the government is entitled to judgment as a matter of law. Further, the district court did not abuse its discretion in striking the affirmative defenses and denying the motion for reconsideration. AFFIRMED.
Notes
[1] To timely appeal a CO’s decision, a contractor has the option of (1) filing an appeal with the Armed Services Board of Contract Appeals (“ASBCA”) within ninety days from receipt of the decision, 41 U.S.C. § 7104(a), or (2) bringing an action in the Court of Federal Claims within one year from receipt of the decision, § 7104(b).
[2] For a history of the Priority Statute, including a summary of every Supreme Court case in which it has been interpreted, see Richard H.W. Maloy, The “Priority Statute” – The United States’ “Ace in the Hole” , 39 J. M ARSHALL L. R EV . 1205 (2006).
[3] “Claim” is defined by statute as “any amount of funds or property that has been determined by an appropriate official of the Federal Government to be owed to the United States by a person, organization, or entity other than another Federal agency.” 31 U.S.C. § 3701(b)(1). The term includes, without limitation, “any fines or penalties assessed by an agency” and “other amounts of money or property owed to the Government.” § 3701(b)(1)(F)–(G). The terms “claim” and “debt” are used interchangeably in subchapter II. See § 3701(b)(1).
[4] A “claim of the United States Government” includes claims made by executive
agencies, such as the Army Corps of Engineers,
see Moore
,
[5] The term “person,” as used in the Priority Statute, encompasses corporations.
Beaston
v. Farmers’ Bank of Del
.,
[6] An entity is “insolvent,” within the meaning of the Priority Statute, if its liabilities
exceed its assets.
See Bramwell v. United States
,
[7] The term “representative” has been construed to encompass corporate officers.
See
Lutz
,
[8] Maloy, supra note 3, at 1280 (noting the “scarcity of law pertaining to 31 U.S.C. § 3713(b)”).
[9]
United States v. Coppola
,
[11] Additionally, we note that a CO’s decision fits within the statute’s catch-all definition of “claim.” See 31 U.S.C. § 3701(b)(1) (providing that “A claim includes, without limitation . . . other amounts of money or property owed to the Government”).
[12]
See United States v. Estate of Romani
,
[13] A previous version of the representative liability provision, formerly codified at 31
U.S.C. § 192, imposed personal liability on “[e]very . . . person, who pays, in whole or in part,
any debt due by the person . . . for whom or for which he acts before he satisfies and pays the
debts due to the United States.” In 1982, the term “claim” was substituted for the phrase
“debts due” to maintain internal consistency within the section.
See
31 U.S.C. § 3713, hist. n.
(“In the section, the word ‘claim’ is substituted for ‘debts’ for consistency. The word ‘due’ is
omitted as unnecessary.”). Because “nothing in the statutory scheme indicates that this
substitution was meant to change the law substantively,” courts interpreting the term “claim”
under the current version of the Priority Statute often look for guidance to past decisions in
which courts interpreted the term “debts due.”
See Moriarty
,
[14] See , supra , n.13.
[15] Renda relies on a decision of the United States Tax Court for the proposition that reliance on the advice of an attorney relieves a debtor’s representative from liability under the Priority Statute. See Little v. C.I.R. ,113 T.C. 474 (1999). Notably, the Tax Court reiterated that “[t]he knowledge requirement of [the representative liability provision] may be satisfied by either actual knowledge of the liability or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim of the United States.” Id. at 480. To the extent that the analysis in Little that followed is inconsistent with the weight of authority on this issue, we decline to follow it.
[16] We highlight that our decision does not leave representatives who receive poor advice from counsel without recourse. They may, as Renda Marine did here, sue counsel for malpractice.
[17] In the case on which Renda relies,
United States v. Gottheiner
,