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Insurance Co. of North America v. Dist. of Columbia

May 29, 2008

INSURANCE COMPANY OF NORTH AMERICA, APPELLANT,
v.
DISTRICT OF COLUMBIA, APPELLEE.



Appeal from the Superior Court of the District of Columbia (CA 6951-03) (Hon. Neal E. Kravitz, Trial Judge).

The opinion of the court was delivered by: Fisher, Associate Judge

Argued June 28, 2006

Before REID and FISHER, Associate Judges, and BELSON, Senior Judge.

In 1987 the parties reached a partial settlement of an ongoing dispute over the District of Columbia's termination of a construction contract for the redevelopment of the historic Union Station. In one of the provisions, the District agreed that, if it were later found to have been at fault, it would reimburse the Insurance Company of North America ("INA") for various costs, fees, and expenses. When it later was asked to fulfill that pledge, the District refused, eventually arguing that it could not lawfully comply because the Anti-Deficiency Act forbids government officials to spend or obligate funds that have not been appropriated. Litigation ensued, and the Superior Court granted summary judgment to the District of Columbia. We affirm.

I. The Anti-Deficiency Act in Brief

"In light of the principles now codified at 31 U.S.C. § 1341 [known as the AntiDeficiency Act ("ADA")], the Supreme Court of the United States and other federal courts have explicitly and repeatedly held that all contracts for future payments of money, in advance of or in excess of existing appropriations, are void ab initio."*fn1 Williams v. District of Columbia, 902 A.2d 91, 94 (D.C. 2006) (citing Hercules, Inc. v. United States, 516 U.S. 417, 427 (1996) (other citations omitted)). Under this statute, "[w]ith one peculiar exception that the Comptroller General expressly sanctioned, 'the accounting officers of the Government have never issued a decision sanctioning the incurring of an obligation for an open-ended indemnity in the absence of statutory authority to the contrary.'" Hercules, 516 U.S. at 427 n.10 (quoting In re Assumption by Government of Contractor Liability to Third Persons -- Reconsideration, 62 Comp. Gen. 361, 364-65 (1983)).

II. The Problematic Contract

Congress enacted the Union Station Redevelopment Act of 1981 in order to restore and expand the historic Union Station. Allocating tasks, it "gave the District of Columbia responsibility for completing the parking structure and developing railroad access facilities . . . ." District of Columbia v. Kora & Williams Corp., 743 A.2d 682, 685 (D.C. 1999). Congress authorized the District to spend $40 million for design and construction, and the District's Department of Public Works accepted the bid of the Kora and Williams Corporation ("K&W") to perform the construction work for approximately $25 million.

"From the beginning, . . . the construction work was beset with problems stemming from design." Kora & Williams, 743 A.2d at 685. "Additional problems developed during construction with the installation of the skylights and supporting structures, pile driving operations, AMTRAK's refusal to vacate certain offices, and denial of access to an active track spur that serviced the nearby United States Government Printing Office, all problems which affected the planned overall construction sequence known as the 'critical path.'" Id. As a result, it became impractical to complete the project by the deadlines set in the contract. Id.

On June 19, 1987, the District terminated the contract, citing K&W's failure to make sufficient progress towards timely completion. Id. The District then made a claim against the performance bond issued by INA, which had served as K&W's surety.K&W asserted that the delays were not its fault, and the parties began litigation. Id.

In November 1987, the District and INA executed a partial settlement agreement (the "Repayment Agreement") under which INA agreed to pay the District $12,869,460. In exchange, the District released INA from its obligations under the performance bond. However, if it ultimately were determined that the termination of K&W "was not justified," the District would repay the $12,869,460, plus interest, and would "reimburse INA for all reasonable, necessary and properly documented costs, fees and expenses incurred by INA as a result of or in connection with the termination of [K&W] by the [District.]" Both parties "represent[ed] that they [were] fully authorized and empowered to enter into" the agreement.

On March 7, 1994, the Contract Appeals Board ("CAB") concluded that the District's "default termination decision was arbitrary and capricious and an abuse of discretion and should be converted into one for the convenience of the District." This court affirmed the CAB's decision. Kora & Williams, 743 A.2d at 698. Thereafter, INA demanded that the District honor its obligations by repaying the $12,869,460, plus interest, and reimbursing the "costs, fees and expenses" INA had incurred as a result of the District's improper termination of K&W.The District consented to judgment for $12,869,460, plus interest, but disputed that it owed INA $17,372,716.55 for "costs, fees and expenses."*fn2

INA filed suit against the District, alleging a breach of the Repayment Agreement.

In a thoughtful opinion issued in May 2005, the trial court granted summary judgment in favor of the District, concluding that the reimbursement agreement was void ...


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