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Meridian Engineering Company v. United States

United States Court of Appeals, Federal Circuit

March 20, 2018

UNITED STATES, Defendant-Appellee

         Appeal from the United States Court of Federal Claims in No. 1:11-cv-00492-SGB, Chief Judge Susan G. Braden.

          Maria L. Panichelli, Cohen Seglias Pallas Greenhall & Furman PC, Philadelphia, PA, argued for plaintiff-appellant. Also represented by Michael H. Payne.

          Eric Laufgraben, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Chad A. Readler, Robert E. Kirschman, Jr., Allison Kidd-Miller; John Francis Bazan, Sr., United States Army Corps of Engineers, Los Angeles, CA.

          Before Prost, Chief Judge, Reyna and Wallach, Circuit Judges.


         Meridian Engineering Company ("Meridian") appeals two final decisions of the U.S. Court of Federal Claims determining, inter alia, that (1) Meridian did not meet standards of proof to show that the United States ("Government") breached certain contractual obligations and its duty of good faith and fair dealing in a dispute under the Contract Disputes Act, 41 U.S.C. §§ 601-613 (2006) ("CDA") related to the construction of a flood control project in Nogales, Arizona, see Meridian Eng'g Co. v. United States (Meridian I), 122 Fed.Cl. 381, 384, 400 n.25, 426 (2015); J.A. 3000-53 (Second Amended Complaint), and (2) Meridian was owed certain monies for equitable adjustment and interest on the payments running from the date Meridian submitted its claim, January 7, 2014, see Meridian Eng'g Co. v. United States (Meridian II), 130 Fed.Cl. 147, 172 (2016). We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (2012). We affirm-in-part, vacate-in-part, reverse-in-part, and remand.


         In 2007, Meridian entered into a contract with the Government to construct flood control structures, referred to as the Chula Vista Project. Meridian I, 122 Fed.Cl. at 385-86. The Project contemplated construction of several concrete channels, relocation of a sewer line, and dewatering and water diversion. See J.A. 1044-627 (Contract). After commencing the Project, Meridian encountered a series of problems relating primarily to what it deemed "subsurface organic/unsuitable material, " specifically, "a layer of dripping saturated dark clay material under which a clean layer of sand is producing water" that had "the potential for serious structural damage." J.A. 1810; see Meridian I, 122 Fed.Cl. at 388 (describing "softer-than-anticipated soils"), 390-92 (describing modifications pursuant to discovery of "saturated soils"). Meridian notified the Government about these problems, and the Government issued several Contract modifications in response. See Meridian I, 122 Fed.Cl. at 388-90 (describing modifications for increase in allotted funds for larger pipe size, addition of a reinforced concrete access ramp, investigation of soil properties, remediation of saturated soils, and additional sheet piling). Eventually, the Government directed Meridian to suspend work on the Project in January 2009 following a series of structural failures, see J.A. 3127-28, and, while minor work continued, the Government ultimately terminated the Project following a September 2009 final inspection of the Project site, see Meridian I, 122 Fed.Cl. at 394-96.

         Following the parties' disagreements over payment owed to Meridian, Meridian filed suit in the Court of Federal Claims for breach of contract, breach of the duty of good faith and fair dealing, and a violation of the CDA. See J.A. 127, 3000-53. The Government conceded liability for costs relating to three counts of Meridian's Second Amended Complaint (Counts VII-IX), which were the subject of a separate damages trial. See J.A. 3032-36 (Count VII (Suspension of Work), Count VIII (Channel Fill), Count IX (Interim Protection)). See generally Meridian II, 130 Fed.Cl. 147. Because the Government now concedes the only issue with respect to Meridian II, [2] the remainder of this opinion addresses determinations from Meridian I.


         I. Standard of Review

         We review the Court of Federal Claims' legal conclusions de novo and its factual findings for clear error. See John R. Sand & Gravel Co. v. United States, 457 F.3d 1345, 1353 (Fed. Cir. 2006), aff'd 552 U.S. 130 (2008). "A finding may be held clearly erroneous when the appellate court is left with a definite and firm conviction that a mistake has been committed." Ind. Mich. Power Co. v. United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005) (internal quotation marks, ellipsis, and citation omitted).

         II. CDA Claims

         Meridian asserts that the Court of Federal Claims erred when it "reasoned that only Meridian's breach of contract and breach of good faith and fair dealing claims presented a viable cause of action, " because "Meridian's CDA claims should have been analyzed under the framework contemplated by the CDA, and not under the rubric of a 'breach' claim." Appellant's Br. 23, 24 (capitalization modified). However, Meridian does not explain the alternate CDA framework to which it refers, nor does it state how analysis under a different hypothetical framework would result in a finding in its favor. See id. at 22-25 (stating only that the use of the breach of contract standard "skewed" the Court of Federal Claims' analysis).

         "The[] requirements of the CDA are jurisdictional prerequisites to any appeal." M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1328 (Fed. Cir. 2010) (citation omitted); see K-Con Bldg. Sys., Inc. v. United States, 778 F.3d 1000, 1004 (Fed. Cir. 2015) (reviewing de novo whether the Court of Federal Claims had jurisdiction under the CDA). Pursuant to the CDA, a party must submit a "valid claim, " which is defined by regulation as a demand seeking "as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract." M. Maropakis, 609 F.3d at 1327 (quoting 48 C.F.R. § 33.201[3]). Thus, the CDA itself does not provide a cause of action to which money damages may accrue; it is the claim asserted pursuant to the CDA that is the source of potential damages and review by the trier of fact. See Northrop Grumman Computing Sys., Inc. v. United States, 709 F.3d 1107, 1112 (Fed. Cir. 2013) (explaining the prerequisites for a valid claim brought under the CDA, which is a jurisdictional requirement to obtain relief). Therefore, the Court of Federal Claims did not err in finding it had jurisdiction under the CDA to evaluate Meridian's breach of contract claims.

         III. The Court of Federal Claims Did Not Err in Its Differing Site Conditions Analysis (Counts II and V)

         The Court of Federal Claims found that Meridian did not offer sufficient evidence to satisfy its Type I differing site condition ("DSC") claim alleging that in the channel and sewer line areas of the project the unexpected conditions of "soupy" soil caused delays and imposed unanticipated costs.[4] Meridian I, 122 Fed.Cl. at 403; see id. at 408-09. Meridian posits several errors in the Court of Federal Claims' analysis.[5] See Appellant's Br. 27-40. After articulating the applicable legal standard, we address each argument in turn.

         A. Legal Standard

         "A Type I [DSC claim] arises when the conditions encountered differ from what was indicated in the contract documents." Renda Marine, Inc. v. United States, 509 F.3d 1372, 1376 (Fed. Cir. 2007); see FAR 52.236-2(a)-(b) ("The Contractor shall promptly . . . give a written notice to the [CO] of (1) subsurface or latent physical conditions at the site which differ materially from those indicated in this contract. . . . The [CO] shall investigate the site conditions promptly after receiving the notice. If the conditions do materially so differ and cause an increase or decrease in the Contractor's cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause . . . .").[6] To prevail on a Type I DSC claim, a contractor must prove that: (1) "a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions"; (2) "the actual site conditions were not reasonably foreseeable to the contractor, with the information available to the particular contractor outside the contract documents" (i.e., reasonable foreseeability); (3) "the particular contractor in fact relied on the contract representation"; and (4) "the conditions differed materially from those represented and . . . the contractor suffered damages as a result." Int'l Tech. Corp. v. Winter, 523 F.3d 1341, 1348-49 (Fed. Cir. 2008). "Determining whether a contract contained indications of a particular site condition is a matter of contract interpretation" that we review de novo. Id. at 1350 (internal quotation marks and citation omitted).

         B. Meridian Has Not Shown a Type I Differing Site Condition

         The Court of Federal Claims found in relevant part that Meridian's interpretation of the Contract was not reasonable, and that the existence of subsurface saturated soil conditions was "reasonably foreseeable." Meridian I, 122 Fed.Cl. at 409; see id. at 408-09. Specifically, the Court of Federal Claims first found that the specification stated that "[w]ater in varying quantities may be flowing in natural washes throughout the length of the project, " and "[t]he work site may be inundated because of [water] runoff, " id. (quoting J.A. 1629, 1630), such that "a reasonable contractor would interpret the Specification as representing water as a site condition, " id at 409. As for the second element of reasonable foreseeability, the Court of Federal Claims found that the original drawings in the Contract showed saturated soil and that the worksite was located on a floodplain, and a reasonable contractor would have conducted a site visit which would have alerted the contractor to the subsurface saturated soil conditions, such that "the actual conditions at the site were reasonably foreseeable." Id. (citing J.A. 1664, 1725-26, 1729).

         We see no error in the Court of Federals Claims' findings with respect to the first two elements of a Type I DSC claim.[7] As noted by the Court of Federal Claims, several instances in the Specification and accompanying drawings indicate the potential presence of water and saturated soil. See, e.g., J.A. 1664, 1725-26; see also J.A. 1729, 3274-76, 3286, 3367-68. Boring logs that accompanied the Contract also recorded sub-surface conditions near the boring holes that were "silty clay, with sand, black, wet, medium to high plasticity, [and] soft." J.A. 1652; see J.A. 1653-63 (recording similar descriptions in additional boring hole logs). Further, the boring hole logs stated that "variations may exist in the subsurface between boring locations, " J.A. 1736, and that the logs, which recorded boring log data from nearly two decades prior, "should not be construed as . . . defining construction conditions, " J.A. 1651; see, e.g., J.A. 1664 (dating boring excavations to 1989). Therefore, even though the Contract indicated "hard unyielding material" found at parts of the site, J.A. 1737, a "reasonable and prudent contractor would not have understood the [C]ontract documents as providing an affirmative indication of the subsurface conditions" to be non-saturated at the site, H.B. Mac, Inc. v. United States, 153 F.3d 1338, 1347 (Fed. Cir. 1998); see id. at 1346-47 (finding no representation as to site conditions where both parties acknowledged the site contained highly variable subsurface conditions and finding boring holes taken in proximity to site but not directly in work zone that indicated certain conditions could not be representative of entire site); see also Renda Marine, 509 F.3d at 1378 (similar).

         A reasonable and prudent contractor would have foreseen the saturated soil condition, based on the Contract documents and the fact that the actual conditions at the site indicated such conditions. See H.B. Mac, 153 F.3d at 1346 ("It is well-settled that a contractor is charged with knowledge of the conditions that a pre-bid site visit would have revealed." (citation omitted)); Meridian I, 122 Fed.Cl. at 409 (relying on testimony from the Government's expert). The Government's expert stated not only that "[s]oft saturated soils with challenging groundwater conditions can be, and typically are, encountered when excavating in an active flood channel, " J.A. 442, but also that a large presence of saturated soil was located "100 f[ee]t or so" away from where Meridian worked, J.A. 583. Meridian's President, Mark Sutton, acknowledged that he reviewed the boring logs and understood that certain dewatering efforts would need to take place before construction began. See, e.g., J.A. 259-62. Moreover, Meridian presents nothing but unsworn attorney argument to rebut the Government's testimony that a site visit would have made a reasonable contractor aware of the saturated soil conditions, see Reply Br. ...

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