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Sufi Network Services, Inc. v. United States

United States Court of Appeals, Federal Circuit

April 24, 2015

SUFI NETWORK SERVICES, INC., Plaintiff-Cross-Appellant
v.
UNITED STATES, Defendant-Appellant

Page 586

[Copyrighted Material Omitted]

Page 587

Appeals from the United States Court of Federal Claims in No. 1:11-cv-00453-TCW, Judge Thomas C. Wheeler.

BRIAN TULLY MCLAUGHLIN, Crowell & Moring, LLP, Washington, DC, argued for plaintiff-cross-appellant. Also represented bye FREDERICK W. CLAYBROOK, JR.

DOUGLAS T. HOFFMAN, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by STUART F. DELERY, ROBERT E. KIRSCHMAN, JR., STEVEN J. GILLINGHAM.

Before LOURIE, REYNA, and TARANTO, Circuit Judges.

OPINION

Page 588

Reyna, Circuit Judge.

The Air Force Nonappropriated Funds Purchasing Office (" Air Force" ) materially breached a contract with SUFI Network Services, Inc. (" SUFI" ). SUFI submitted claims to the Air Force contracting officer and appealed denied claims to the Armed Services Board of Contract Appeals (" Board" ). SUFI succeeded on several of its claims and subsequently submitted a claim for attorney fees to the contracting officer. The contracting officer did not respond to SUFI's attorney fees claim for more than six months. As a result, SUFI bypassed the Board and sued in the Court of Federal Claims. The trial court awarded attorney fees with interest but denied SUFI's request for overhead and lost profit. The government challenges the trial court's award on the basis that the trial court lacked jurisdiction. SUFI cross-appeals for overhead and lost profit. For the reasons that follow, we affirm in part, vacate in part, and remand.

Background

In 1996, SUFI contracted with the Air Force to install and operate telephone systems in lodging facilities on Air Force bases in Germany.[1] SUFI furnished the necessary supplies, including cabling, wiring, telephone equipment, and other materials, at no cost to the Air Force. In exchange, the Air Force agreed that guests would make long distance calls exclusively through SUFI's network.

Shortly after the parties entered into the contract, the Air Force broke its promise of exclusivity. Dispute first arose when the Air Force refused to disable free communal phones that guests were using to avoid SUFI's long-distance charges. The dispute intensified when the Air Force ordered SUFI to allow guests to access SUFI's network by using calling cards from competing long distance service providers. SUFI initiated administrative proceedings at the Board, alleging that the Air Force materially breached the contract.

In 2004, the Board found that the Air Force was in material breach and that SUFI was entitled to cancel the contract. SUFI cancelled the contract, and the parties entered into a Partial Settlement Agreement in 2005. The parties agreed that the Air Force would pay SUFI $1.2 million for its network and $1.075 million for good will. The parties also agreed that SUFI reserved the right to pursue additional monetary claims arising from the Air Force's material breach. Should SUFI succeed on additional claims, the Air Force agreed to pay SUFI interest from the date the Air Force received the claim, or the date SUFI " actually incurred" damages, whichever date is earlier. J.A. 1980. Thereafter, SUFI submitted claims to the contracting officer pursuant to the contract's disputes clause.

The disputes clause requires that the contracting officer decide " any dispute or claim concerning [the] contract." Id. at 748. The contracting officer must resolve the dispute or claim and " state his decision in writing." Id. Once the contracting officer's decision is received, any appeal to the Board must be made within 90 days. Id. If no appeal is made, the contracting officer's decision is final. Id.

SUFI submitted 28 claims, totaling over $131 million. SUFI Network Servs., Inc., ASBCA No. 55306, 2009-1 B.C.A. (CCH) ¶ 34,018 at 168,217 (Nov. 21, 2008). The contracting officer failed to issue a decision for more

Page 589

than six months, and SUFI appealed to the Board. Id. The Board docketed SUFI's appeal as a " deemed denial," id., but before it decided SUFI's claims, the contracting officer issued a final decision denying all of SUFI's claims except one. Id. at 168,219 ¶ 9. Thereafter, the Board found in SUFI's favor on 22 of the 28 claims.[2]

SUFI requested that the Board award expenses incurred in connection with preparing and submitting the claims to the contracting officer. The Board awarded SUFI certain claim preparation and non-legal consultant expenses. Id. at 168,289-91. SUFI's brief to the Board also discussed attorney fees incurred in connection with its successful claim preparation efforts. Id. at 168,289. At the time, however, SUFI was unable to identify a specific amount of attorney fees because SUFI and its attorneys had agreed to a contingency fee arrangement sometime in 2004. As a result, the Board declined to decide whether SUFI was entitled to attorney fees. Id.

On December 29, 2010, SUFI submitted to the contracting officer a formal claim for attorney fees and requested a decision within 60 days. More than six months passed without a decision by the contracting officer. On July 7, 2011, after numerous inquiries from SUFI about the status of the claim, Air Force counsel informed SUFI that SUFI could consider its claim " deemed denied."

The next day, SUFI sued the Air Force in the trial court, seeking attorney fees and expenses incurred as part of its successful claim preparation efforts, along with interest on those fees and expenses. The government moved to dismiss, arguing that because SUFI did not appeal to the Board, SUFI failed to exhaust the contractual remedy required by the disputes clause. The trial court denied the motion, concluding that SUFI was excused from performance under the disputes clause because the contracting officer's delay rendered the contractual remedy inadequate and unavailable and constituted material breach of the disputes clause. SUFI Network Servs., Inc. v. United States, 102 Fed.Cl. 656, 661-62 (2012) (" SUFI CFC I " ). The trial court then granted summary judgment in SUFI's favor on the issue of liability for attorney fees and expenses. SUFI Network Servs., Inc. v. United States, 105 Fed.Cl. 184, 192-195 (2012) (" SUFI CFC II " ). The case proceeded to trial on the question of fees and liability for interest.

After trial, the court determined the proper amount of damages and interest. First, the trial court determined that SUFI's attorney fee calculations were reasonable and awarded $697,702.50 in fees and $25,486.81 in expenses. SUFI Network Servs., Inc. v. United States, 113 Fed.Cl. 140, 147-48 (2013) (" SUFI CFC III " ). Second, the trial court held that under the Partial Settlement Agreement, SUFI was entitled to interest on attorney fees and expenses starting from the date SUFI's attorneys began the claim preparation work. Id. at 148. The court determined that SUFI was not entitled to overhead and lost profit incurred in connection ...


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