Thursday, April 24, 2008

Split Created: Is Claim-Splitting Permitted By The Contract Disputes Act?

Per Phillips/May Corp. v. United States, 2008 WL 1808548, *5-*9 (Fed. Cir. Apr. 23, 2008)

Now I have truly covered every circuit. Phillips/May was awarded a contract to design and construct a Religious Ministry Facility at a military base. It completed the project over a year and a half late, after various contract modifications were made. A month after completing work, Phillips/May submitted ten claims to the Contracting Officer. The officer failed to act on any of these claims, and this inaction constituted an appealable rejection after sixty days. Phillips appealed nine of the ten claims the Armed Services Board of Contract Appeals Ultimately, the parties entered into a global settlement agreement with respect to the nine claims, and the Board entered judgment to that effect.

Six months later, Phillips/May appealed the denial of the tenth claim to the Court of Federal Claims. After the suit was filed, the Contracting Officer offered a determination that Phillips/May was collaterally estopped from raising this claim separate from the other nine claims which arose out of the same set of transactional facts. The question in this appeal is whether the unique procedures of the Court of Federal Claims and public contract disputes permit claim-splitting without raising issues of res judicata, contrary to the general procedure of civil actions.

41 U.S.C. § 609(d) suggests that claim-splitting is permitted in contract actions: “If two or more suits arising from one contract are filed in the United States Court of Federal Claims and one or more agency boards,” the Court of Federal Claims may consolidate them in the interests of justice. This provision does envision separate suits arising from the same contract, and would seemingly resolve this case.

Judge Dyk, on behalf of a unanimous panel, however, notes that this provision does not clearly state that the splitting of all claims, as opposed to transactionally unrelated claims, is permissible. Relying on this ambiguity, this panel of the Federal Circuit then turns to the drafting and legislative history of the Contracts Dispute Act. Congress specifically included, considered, and finally eliminated statutory language which would have expressly permitted claims-splitting between fora. The panel concludes that this rejection implies that Congress intended for claim preclusion to apply with its normal force. The panel does recognize, in a footnote, that it is creating a circuit split from the CA 6.

I think that the Federal Circuit in this case gets Congress’s intent 100% right, and the language of the statute 100% wrong. The manufactured ambiguity just isn’t there. The statutory section permits separate suits “arising from one contract,” meaning separate suits that arise from similar facts. It will be interesting to see what happens if Phillips/May pursues certiorari – an issue of statutory interpretation on which the circuits are split and that governs the jurisdiction of courts when reviewing public contracts seems important enough... Then again, the split is largely irrelevant because almost all these cases go to the Federal Circuit.