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DOE Board of Contract Appeals (March 1999)

ROCKWELL INTERNATIONAL CORPORATION

EBCA Nos. C-9509187, C-9509220, C-9509221

Department of Energy Board of Contract Appeals

Regarding:

ROCKWELL INTERNATIONAL CORPORATION

1999 EBCA LEXIS 1; 99-1 B.C.A. (CCH) P30,345

March 30, 1999


JUDGES:  E. Barclay Van Doren, Chief Administrative Judge. Beryl S. Gilmore, Administrative Judge, R. Anthony McCann, Administrative Judge, concur.

COUNSEL:  Representing Appellant: Richard J. Ney, Esq., William J. Kelley, III, Esq., CHADBOURNE & PARKE LLP, Los Angeles, California.
 
Representing Respondent: C.S. Przybylek, Esq., Wilfred E. Maez, Esq., Office of Chief Counsel, DOE Alburquerque Operations Office, Alburquerque, New Mexico.

OPINION BY: VAN DOREN

Ruling Denying Respondent's Motion for Summary Judgment

This appeal is taken from alleged deemed denials of three certified claims submitted by Rockwell International Corporation (Rockwell) aggregating $ 10,039,511. The first claim, in the approximate amount of $ 1.2 million, is for the costs of outside legal counsel. Allegedly, these costs were incurred by Rockwell between June 6 and December 31, 1989, in the representation of Rockwell in connection with a criminal investigation by the United States Government into possible violations of environmental laws at the Department of Energy's Rocky Flats Plant. The second claim, in the approximate amount of $ 3.7 million, is for the alleged cost of providing independent  [#2]  legal representation for individual employees and former employees of Rockwell incurred in connection with the investigation. The third claim, in the approximate amount of $ 5.2 million, is for costs allegedly incurred by Rockwell in creating a computerized litigation database in connection with the investigation. Respondent Department of Energy (DOE) filed a motion for summary judgment.

Statement of Facts

The following statement of facts is set forth solely for ruling on this motion:

1. On January 8, 1975, DOE, acting through a predecessor agency, and Rockwell entered into a contract under which Rockwell agreed to manage and operate a Government-owned facility known as the Rocky Flats Plant (the "Plant") located near Golden, Colorado. The Plant produced components for nuclear weapons.

2. This contract was periodically modified and renewed. Supplemental Agreement, Modification M087 to Contract No. DE-AC04-76DP03533 (the "1986 Contract"), effective January 1, 1986, extended performance to the period January 1, 1986, through January 1, 1988. Supplemental Agreement, Modification M124 to Contract No. DE-AC04-76DP03533 (the "1989 Contract"), effective January 1, 1989, extended  [#3]  performance to the period January 1, 1989, through December 31, 1993. (The 1986 and 1989 contracts are collectively referred to as the "Contracts.")

3. The Contracts were Management and Operating type contracts ("M&O Contracts"). Part 970 of the Department of Energy Acquisition Regulation (the "DEAR") governs M&O Contracts.

4. On June 6, 1989, the Federal Government conducted a raid on the Plant pursuant to a search warrant. Thereafter, a special grand jury was convened to investigate alleged violations of environmental laws and regulations at the Plant. The grand jury conducted an extensive investigation.

5. By agreement between Rockwell, DOE and EG&G Rocky Flats, Inc., executed December 29, 1989, Rockwell's contract responsibility for management and operation of the Plant ceased on January 1, 1990, and was assumed by EG&G Rocky Flats. Inter alia, this agreement provided for Rockwell to:

Perform the continuing obligations imposed by any provision of the M&O Contract relating to any activity of Rockwell as the Management and Operating Contractor of the RFP from June 30, 1975, until the Transfer Date, including, but not limited to, all actions necessary for the protection of  [#4]  Rockwell's continuing rights and interests and those of its employees and former employees relating to the performance of work under the M&O Contract, and all obligation imposed by Clause 76 "Litigation and Claims" of the M&O Contract.

6. After extensive negotiations, the Department of Justice and Rockwell entered into an agreement entitled "Plea Agreement and Statement of Factual Basis" dated March 26, 1992 (the "Plea Agreement"). In this agreement, Rockwell agreed to plead guilty to ten criminal (five felony and five misdemeanor) violations (collectively, the "Counts of Conviction") of the Resource Conservation & Recovery Act, 42 U.S.C. 901 et seq. ("RCRA"), and the Clean Water Act, 33 U.S.C. 1251 et seq. ("CWA"), and to pay $ 18.5 million in criminal fines. In exchange, the United States agreed not to bring other environmental or related criminal charges against Rockwell concerning the Plant with specified exceptions not apparently relevant to this motion. Several counts list a knowing violation of an environmental law, regulation or permit as an element of the charged crime; however, none  [#5]  listed a knowing violation of a criminal law as an element. Several counts were based on negligence.

7. Incorporated into the Plea Agreement and Statement of Factual Basis was another document, also dated March 26, 1992, that was separately signed by the Department of Justice and Rockwell. This document was entitled simply "Plea Agreement." To distinguish it from the Plea Agreement and Statement of Factual Basis, we refer to this second document as the "Settlement."

8. Paragraph 6 of the Settlement provided that Rockwell could not recover or seek to recover the criminal fines from the DOE pursuant to indemnification provisions in the Contracts or otherwise.

9. Paragraph 7 of the Settlement prohibited Rockwell, "except as provided in paragraph 8," from seeking or recovering from DOE, pursuant to indemnification provisions in the Contracts or otherwise, attorney fees and costs incurred by Rockwell in defending or preparing to defend the Rocky Flats criminal investigation and prosecution concerning seven specified subjects which appear to correspond to the Counts of Conviction.

10. Paragraph 8 of the Settlement ("Paragraph 8") provided:

Rockwell may seek to recover from DOE (and  [#6]  subject to DOE's review and approval in accordance with the relevant contract(s) and applicable law and regulations): (a) attorneys' fees and costs incurred by Rockwell (on behalf of the corporation) prior to January 1,1990 (but not thereafter); (b) attorneys' fees and costs incurred by Rockwell in providing legal representation to past and present Rockwell employees; (c) costs concerning a computer system which is also used in Rocky Flats-related civil litigation.

11. Rockwell and the Department of Justice agreed that the January 1, 1990, cutoff for fees and costs incurred on behalf of Rockwell corporate, specified in clause (a) of Paragraph 8, was a "bright-line" means of allocating Rockwell attorney fees and costs between (i) fees and costs incurred in connection with uncharged conduct and (ii) fees and costs incurred in connection with charged conduct. Costs incurred before January 1, 1990, were to be treated as costs incurred due to uncharged conduct and Rockwell was to be permitted to seek them from DOE. Costs incurred on or after January 1, 1990, were to be treated as costs incurred due to charged conduct and Rockwell was precluded from seeking them from DOE. Rockwell Declaration,  [#7]  Ex. 3 at 46-47

12. On June 1, 1992, the United States District Court of Colorado conducted a sentencing hearing and, pursuant to Rule 11 of the Federal Rules of Criminal Procedure, accepted Rockwell's plea of guilty and the Plea Agreement (which included the Settlement) and imposed sentence as provided in the Plea Agreement. The sentence included agreed fines of $ 18.5 million.

13. Rockwell retained outside counsel to represent it concerning the alleged environmental violations. In its first claim, Cause I of the Complaint ("Cause I"), Rockwell seeks $ 1,157,364 that it asserts it "incurred, and paid, ... for outside counsel costs on its behalf in response to, and defending against, the federal environmental investigation between June 6, 1989 and December 31, 1989." The costs sought by Cause I appear to correspond to the costs which Rockwell is permitted to seek under clause (a) of Paragraph 8.

14. Rockwell provided independent counsel for certain employees and former employees. In its second claim, Cause II of the Complaint ("Cause II"), Rockwell seeks $ 3,725,461 that it asserts it "paid ... to provide independent counsel to employees and former Plant employees who became involved  [#8]  in the grand jury investigation of alleged violations of environmental laws and regulations at the Plant." The costs sought by Count II appear to correspond to the costs which Rockwell is permitted to seek under clause (b) of Paragraph 8.

15. Rockwell retained LSI Corporation to develop and maintain a computerized litigation support system database in connection with the Government investigation of alleged environmental violations. In its third claim, Cause III of the Complaint ("Cause III"), Rockwell seeks $ 5,156,686 that it asserts it "paid LSI for the costs of developing and maintaining a litigation support data base." The costs sought by Cause III appear to correspond to the costs which Rockwell is permitted to seek under clause (c) of Paragraph 8.

16. The STATEMENT OF WORK of both contracts included the following paragraphs among others:

a) Engagement of Contractor - Designation of Facilities. The Government expressly engages the Contractor to manage, operate and maintain the Rocky Flats Plant and to perform the work and services described in this contract including Appendix B, "Scope of Work," and including the utilization of information, material, funds, and other  [#9]  property of DOE, the collection of revenues, and the acquisition, sale or other disposal of property for the DOE, subject to the limitations as hereinafter set forth. Appendix B, by this reference, is hereby incorporated into and made a part of this contract. The Contractor undertakes and promises to manage, operate, and maintain the Rocky Flats Plant and to perform said work and services, upon the terms and conditions herein provided and in accordance with such directions and instructions not inconsistent with this contract which the Contracting Officer may deem necessary and give to the Contractor from time to time. In the absence of applicable directions and instructions from the Contracting Officer, the Contractor shall use its best judgment, skill and care in all matters pertaining to the performance of this contract.
 
b) Description of Work and Services.

i) Operating and Management Services. The Contractor shall manage, operate, and maintain the Rocky Flats Plant in accordance with programs approved in writing from time to time by the Contracting Officer.
17. The Scope of Work for both contracts contained the following initial paragraph:

The purpose of this  [#10]  Appendix B is to describe the scope of work which the Contractor shall perform under this contract for the period [specified in each contract], pursuant to the provisions of the clause entitled, "Statement of Work." The Contractor shall, in accordance with the provisions of this contract, use its best efforts to manage, staff, maintain, and operate the Rocky Flats Plant within available funds so as to carry on in an efficient manner all necessary and related services and operations for the purpose of developing and producing (at such rates, and in conformance with such specifications, as the Contracting Officer may direct in writing from tune to time) weapons components, assemblies, and ancillary equipment and for performing related services and operations within the time scales requested by the Contracting Officer. Work to be performed includes: [followed by a list]

18. Both contracts contained DEAR clause 970.5204-2 entitled SAFETY AND HEALTH (GOVERNMENT-OWNED OR LEASED) (Apr 1984) as follows:

The Contractor shall take all reasonable precautions in the performance of the work under this contract to protect the safety and health of employees and of members of the public and  [#11]  shall comply with all applicable safety and health regulations and requirements (including reporting requirements) of DOE. The Contracting Officer shall notify the Contractor, in writing, of any noncompliance with the provisions of the clause and the corrective action to be taken. After receipt of such notice, the Contractor shall immediately take corrective action. The Contractor shall submit a management program and implementation plan to the Contracting Officer for review and approval within 30 days after the date of award of this contract. In the event that the Contractor fails to comply with said regulations or requirements of DOE, the Contracting Officer may, without prejudice to any other legal or contractual rights of DOE, issue an order stopping all or any part of the work; thereafter, a start order for resumption of the work may be issued at the discretion of the Contracting Officer. The Contractor shall make no claim for an extension of time or for compensation or damages by reason of, or in connection with, such work stoppage.

19. Both contracts contained DEAR clause 970.5204-29 entitled PERMITS OR LICENSES (APR 1984) as follows:

Except as otherwise directed by the  [#12]  Contracting officer, the Contractor shall procure all necessary permits or licenses and abide by all applicable laws, regulations, and ordinances of the United States and of the state, territory, and political subdivision in which the work under this contract is performed.

20. Both contracts contained a modified DEAR clause 970.5204-13 entitled ALLOWABLE COSTS, BASE FEE AND AWARD FEE (APR 1984), and portions are quoted immediately below. Paragraph (d)(16) is a modification that was not part of the version of the clause prescribed by the DEAR:

(c) Allowable cost. The allowable cost of performing the work under this contract shall be the costs and expenses that are actually incurred by the Contractor in the performance of the contract work in accordance with its terms, that are necessary or incident thereto, and are determined to be allowable pursuant to this paragraph (c). The determination of the allowability of cost hereunder shall be based on: (1) reasonableness, including the exercise of prudent business judgment; (2) consistent application of generally accepted accounting principles and practices that result in equitable charges to the contract work; and (3) recognition  [#13]  of all exclusions and limitations set forth in this clause or elsewhere in this contract as to types or amounts of items of cost. Allowable cost shall not include the cost of any item described as unallowable in paragraph (e) of this clause except as indicated therein. Failure to mention an item of cost specifically in paragraph (d) or paragraph (e) shall not imply either that it is allowable or that it is unallowable.
 
(d) Items of Allowable Cost. Subject to the other provisions of this clause, the following items of cost of work done under this contract shall be allowable to the extent indicated:

* * *

(3) Consulting services (including legal and accounting), and related expenses, as approved by the Contracting Officer, except as made unallowable by Paragraph (e)(16)....
 
(4) Litigation expenses, including payment of third-party claims, judgments and reasonable counsel fees, incurred in accordance with the clause of this contract entitled "Litigation and Claims."
 
(5) Losses and expenses (including settlements made with the consent of the Contracting Officer) sustained by the Contractor in the performance of this contract and certified in writing by the Contracting Officer  [#14]  to be reasonable, except the losses and expenses expressly made unallowable under other provisions of this contract.

* * *
 
(16) All cost incurred by the Contractor with respect to any and all liabilities, claims, demands, damage costs, or penalties (such as civil sanctions including fines), arising out of, or related to environmental, safety and health activities, including costs incurred with respect to investigation, removal, remedial action, ground and surface water or other clean-up of hazardous, toxic or contaminated material(s), except for those costs that result from conduct identified in subparagraph (e)(17)(ii) of the clause entitled, "Allowable Costs, Base Fee, and Award Fee."
(e) Items of Unallowable Cost. The following items of costs are unallowable under this contract to the extent indicated:

* * *

(12) Fines and penalties, including assessed interest, resulting from violations of, or failure of, the Contractor to comply with Federal, state, local or foreign laws and regulations, except when incurred in accordance with the written approval of the Contracting Officer or as a result of compliance with the provisions of this contract.

* * *
 
(16) Legal, accounting,  [#15]  and consulting services and related costs incurred in connection with the preparation and issuance of stock rights, organization or reorganization, prosecution or defense of antitrust suits, prosecution of claims against the United States, contesting actions of [sic] n1 proposed actions of the United States, and prosecution or defense of patent infringement litigation.
 
(17) Losses ... where such losses or expenses:

* * *
 
(ii) result from willful misconduct or lack of good faith on the part of any of the Contractor's managerial personnel, as defined in the clause of this contact entitled "Property;"....

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n1 Both parties acknowledge this as an obvious error occurring in both contracts and, further, that the word should be "or" not "of."

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21. Both contracts contained DEAR clause 970.5204-21, PROPERTY (April 1984) (the "Property Clause"). This clause contains the following:

(f) ... The term "contractor's managerial personnel" ... means the Contractor's directors, officers and any of its managers, superintendents, or other equivalent representatives who have supervision or direction of (1) all or substantially all of the Contractor's business; or (2) all or substantially  [#16]  all of the Contractor's operation at any one plant or separate location at which this contract is being performed; or (3) a separate and complete major industrial operation in connection with the performance of this contract; or (4) a separate and complete major construction, alteration or repair operation in connection with performance of this contract.
Discussion

DOE appears to advance two theories to support its motion. First, it contends that Rockwell's "criminal defense costs are made specifically unallowable in this case by the clear and unambiguous terms of subparagraph (e)(16)" of the ALLOWABLE COSTS clause of the Contracts. Second, it contends that Rockwell's criminal wrongdoing was in breach of the Contracts' terms, arguing that the PERMITS OR LICENSES (APR 1984) clause (DEAR 970.5204-29) and the SAFETY AND HEALTH (GOVERNMENT-OWNED OR LEASED) (APRIL 1984) clause (DEAR 970.5204-2) of the Contracts required compliance with all applicable laws and regulations including environmental laws and regulations. Therefore, it argues that legal fees and costs incurred defending Rockwell against charges of criminal wrongdoing could not be allowable as incident to performance  [#17]  of contract work.

Summary judgment is appropriate where no material facts are genuinely in dispute and the moving party is entitled to judgment as a matter of law. Mingus Constructors, Inc., v. United States, 812 F.2d 1387, 1390 (Fed.Cir. 1987). The moving party (in this case, DOE) must "establish ... that there are no genuine issues of material fact and that it is entitled to a judgment as a matter of law." Kokosing Constr. Co., 91-1 BCA P 23,508, at p. 117,869 (EBCA 1990). A material fact is a fact that will affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). Evidence sufficient to establish the existence of a genuine dispute of a material fact need not be admissible at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 324 (1986). The evidence presented, including all inferences, is construed in favor of the party opposing summary judgment. Automated Services, Inc., 87-3 BCA P 20,157, at 102,027 (EBCA). Facts asserted by the party opposing summary judgment are regarded as true if supported by  [#18]  affidavits or other evidentiary material. Id, at 102,027. Significant doubts are to be resolved in favor of the non-moving party. Golden West Refining Co., 94-3 BCA P 27,184, at 135,486 (EBCA 1997). Contract interpretation is a question of law, P.J. Maffei Bldg. Wrecking Corp. v. United States, 732 F.2d 913, 916 (Fed.Cir. 1984), which may, therefore, be resolved by summary judgment if the criteria for summary judgment are present. If a contract is clear on its face, extrinsic evidence will not be received to change its terms and the interpretation will be rendered as a matter of law. However, where the contract terms are ambiguous, requiring the weighing of external evidence, the matter is not amenable to summary judgment. The question of interpretation of language and conduct is then a question of fact, not law. Beta Systems, Inc. v. United States, 838 F.2d 1179, 1183 (Fed.Cir. 1988).

Theory One: DOE Contends that All of Rockwell's Costs were Incurred in Contesting Actions of the United States and are therefore Unallowable Pursuant to Subparagraph (e)(16) of the Allowable Costs Clause of the Contract.

[#19]  DOE's first theory is based upon a provision common to the Contracts which contain language disallowing the costs of contesting actions or proposed actions of the United States. Subparagraph (e) of the ALLOWABLE COSTS, BASE FEE AND AWARD FEE (APR 1984) clause (DEAR 970.5204-13) of the Contracts (hereinafter "(e)(16)") contains the following among a list of costs which are specifically unallowable:

(16) Legal, accounting, and consulting and related costs incurred in connection with the preparation and issuance of stock rights, organizations or reorganization, prosecution or defense of antitrust suits, prosecution of claims against the United States, contesting actions of [sic] proposed actions of the United States, and prosecution or defense of patent infringement litigation.

(Emphasis added.)

DOE asserts:

The contract clearly and unambiguously states in subparagraph (e)(16) that costs which Rockwell incurs in connection with contesting actions brought by the United States are excluded from reimbursement by DOE. There can be no question that Rockwell was contesting an action or proposed action of the United States in defending itself and its employees  [#20]  during the federal criminal investigation of the claim in this appeal.

DOE also argues that the grand jury investigation was a sovereign act of the United States. Inferentially, we are asked to conclude that "sovereign acts" equates to the term "actions of the United States" as used in clause (e)(16) of the contract. DOE, in addition to contending that (e)(16) renders the costs unallowable, also appears to contend that costs incurred due to a sovereign act of the United States are unallowable as a matter of law. DOE relies on Orlando Helicopter Airways, Inc. v. Widnall, 51 F.3d 258 (Fed.Cir. 1995) as support of its later contentions.

In its response, Rockwell does not contest a conclusion that the grand jury investigation was a sovereign act of the United States. However, we understand it to take the position that such a conclusion does not dispose of cost allowability issues. In opposition, Rockwell advances a two-step argument. First, it contends that criminal defense costs are not unallowable under a cost-reimbursement contract solely by virtue of the fact that they arise from sovereign acts of the Government. Rockwell contends that Orlando  [#21]  simply does not apply to the facts here. Second, it contends that, despite the language of (e)(16), the contract allocates the risk of environmental costs to DOE, which would include criminal defense costs for environmental crimes.

Rockwell points out that Orlando involved a fixed-price contract, not a cost-reimbursement contract such as the contracts here. It refers us to several cases which hold that the Government may contractually obligate itself to pay costs incurred as a result of specific sovereign acts. It then argues that DOE did exactly that here. It claims that Rockwell and DOE specifically negotiated and agreed to include an "environmental indemnity provision" in the 1986 Contract n2. The environmental indemnity provision, which was carried over into the 1989 Contract, lists the following as allowable costs:

All costs incurred by the contractor with respect to any and all liabilities, claims, demands, damage costs, or penalties (such as civil sanctions including fines), arising out of, or related to environmental, safety and health activities.... n3

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n2 In this opinion we employ Rockwell's term "environmental indemnity provision" to avoid confusion between this provision, which is subparagraph (d)(16), and subparagraph (e)(16) relied upon by DOE. Our use is a matter of convenience only and does not carry with it any implication as to the proper interpretation of this provision.  [#22] 

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n3 Rockwell notes that the remainder of the clause carves out an exception to the allowability for costs attributable to the willful misconduct or lack of good faith on the part of senior contractor officials, and it contends that only the manager of the Plant met the contract's definition of a senior contractor official.

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Rockwell contends that by this provision DOE "contracted to assume responsibility for all costs and liabilities arising from or related to Rockwell's environmental activities at the Plant, with no exception for liabilities resulting from the government's sovereign acts." Rockwell Memorandum, at 30 (emphasis in original). Further, it maintains that while clause (e)(16), upon which DOE relies, is standard boilerplate, the environmental indemnity provision was specifically negotiated for inclusion in the 1986 Contract. Rockwell Memorandum, at 30-35; see, Rockwell Declaration, Ex. 12. It states that this clause was negotiated in response to changing policies and conditions regarding environmental risks. As a specifically negotiated provision, Rockwell believes the provision is entitled to precedence over the (e)(16) clause relied upon  [#23]  by DOE under well-established rules of contract interpretation. Moreover, it contends that its reading of the environmental indemnity clause is "completely consistent with the risk-sharing concept of cost-reimbursement contracts in general and with DOE's oft-announced (and relied on) policy of bearing all risks of managing and operating its nuclear weapons facilities in particular." Rockwell Memorandum, at 30. Rockwell substantiates DOE's indemnification policies in support of its contention through public documents and statements by DOE officials. See, Rockwell Declaration, Ex. 15-20.

We begin by considering DOE's contention, based on Orlando, that Rockwell's criminal defense costs were not allowable as a matter of law. At the outset, we conclude that Orlando has little, if any, precedential bearing on this issue since the Contracts at issue here are cost-reimbursement contracts, and the contract in Orlando was a fixed-priced contract. The legal underpinnings for recovery of "costs" under a fixed-priced contract and a cost-reimbursement contract are markedly different. Moreover, Orlando, at 262, recognizes that the Government may assume contractual liability  [#24]  for its sovereign acts. This recognition is consistent with the Court of Appeals for the Federal Circuit's earlier, more extensive discussion in Hughes Communications Galaxy, Inc. v. United States, 998 F.2d 953 (Fed.Cir. 1993), wherein it stated at 958-59:

In its contractual capacity, the government executes countless agreements with private entities to receive and provide services, goods and supplies. These contracts routinely include provisions shifting financial responsibility to the government for events which might occur in the future. That some of these events may be triggered by sovereign government action does not render the relevant contractual provisions any less binding than those which contemplate third party acts, inclement weather and other force majeure.
We conclude that in the absence of specific statutory or regulatory limitations, DOE was not barred from agreeing to reimburse Rockwell for costs incurred due to sovereign acts. No such statutory or regulatory limitations have been brought to our attention.

We also conclude that DOE has not established that its interpretation of the contract is correct. It has focused upon clause  [#25]  (e)(16) to the exclusion of others that cast doubt upon its meaning. It is the contract as a whole which is to be construed, not a single clause. Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1057 (Fed.Cir. 1983); Erickson Air Crane Co. of Washington, Inc., 83-1 BCA P 16,145 at 80,252 (EBCA). At a minimum, there is a patent, facial conflict between (e)(16) and the environmental indemnity clause, which DOE did not even recognize, much less attempt to resolve. Moreover, Rockwell offers extrinsic evidence suggesting that the parties intended to place the risk of costs of the nature sought here on DOE and not on Rockwell. It also offers extrinsic evidence that DOE followed a practice of reimbursing its M&O contractors for all federally imposed fines and penalties, including those imposed by EPA. Rockwell Declaration, Ex. 15-23; 55 Fed. Reg. 2796 (Jan. 26, 1990). (We note that none of the cited instances involved criminal fines and penalties.) It specifically cites to an instance under the 1986 Contract, when, it contends, DOE reimbursed Rockwell's costs of alleged environmental violations  [#26]  charged by the EPA. Rockwell Declaration, Ex. 21-22. It argues that these events are indications of contemporaneous understandings demonstrated by past actions and practice of the parties and are to be given substantial weight in the proper interpretation of contracts and cites cases that it argues support this proposition.

DOE's first theory fails. "To the extent that the contract terms are ambiguous, requiring weighing of external evidence, the matter is not amenable to summary resolution." Beta Systems, Inc., v. United States, 838 F.2d 1179, 1183 (Fed.Cir. 1988). The conflicting terms of the contract create an ambiguity requiring the weighing of external evidence. Rockwell has offered extrinsic evidence supporting the reasonableness of its interpretation of the contract that is contrary to the interpretation espoused by DOE. Giving Rockwell the benefit of all favorable inferences, there are no grounds to grant summary judgment in favor of DOE on this theory. n4

n4 Since DOE's argument fails we need not address here the issue of whether all or any part of causes 1,2, or 3 are costs incurred "in connection with ... contesting actions or proposed actions of the United States."  [#27] 

Theory Two: DOE Contends that the Costs Sought by Rockwell are Unallowable because they were not Incurred in the Performance of Contract Work.

DOE asserts that:
Contract provisions required Rockwell to comply with RCRA which Rockwell admits to having knowingly violated. By its unlawful acts, in violation of RCRA, Rockwell in fact breached its contractual duty to comply with all applicable environmental laws and regulations. The costs claimed in this appeal flow directly from Rockwell's breach of the Contract. A criminal plea by and conviction of Rockwell for violating federal environmental statutes and federal criminal defense costs associated with these convictions are plainly not costs incurred in the performance of the Contract "in accordance with its terms" or "necessary or incident thereto."
Rockwell vigorously contests this prong of DOE's motion. It asserts this argument is wrong both on the facts and the law. First, it rejects the contention that the costs at issue were incurred for defending against charged criminal violations. Second, it contends that it is entitled to recover the costs sought under the terms of the Contracts. It upbraids DOE for "treat[ing] the  [#28]  Contracts as though they were fixed-priced supply contracts where failure to meet a performance specification would be a breach" and "completely ignor[ing] the very nature of a contractor's performance obligations under the cost-reimbursement M&O Contracts at issue." It quotes the portion of the Scope of Work that requires Rockwell to "use its best efforts to manage, staff, maintain and operate the Rocky Flats Plant." It argues that the Contracts' scopes of work encompass activities that are determined, after-the-fact, to be violations of environmental laws and that the costs of such work are reimbursable under the contract. Further, it argues that paragraph (e)(12) of the ALLOWABLE COSTS clause, which addresses the allowability of fines and penalties as costs, demonstrates that a contractor may, as provided therein, violate federal laws and regulations in performing the work of the contract, receive fines and penalties and have these fines and penalties treated as allowable costs. One assumes that, but for the bar contained in the Settlement, Rockwell would contend it was entitled under the contract to recover all its costs arising from the grand jury investigation and resulting  [#29]  prosecution including the costs incurred in connection with the Counts of Conviction.

In our analysis, we assume, arguendo only, that DOE is correct that criminal defense costs flowing from a Rockwell criminal violation of environmental laws or regulations are not allowable, and we initially confine ourselves to consideration of the factual basis for DOE's contentions. It is unnecessary for us to consider DOE's legal contentions unless DOE first establishes the factual predicates for its contentions. In this instance, DOE must establish that the costs that Rockwell seeks "flowed" from its criminal violation of environmental laws or regulations. DOE contends that this is so. But, merely saying that it is so does not make it so. It must establish undisputed facts proving Rockwell's activities in criminal violation of environmental laws or regulations and, additionally, that the costs sought were generated by these activities. It offers the Plea Agreement and Rockwell's convictions as its proof Undeniably, the Plea Agreement and the convictions do establish activities that violated environmental laws and regulations. However, the Plea Agreement and the convictions do not establish  [#30]  whether these activities generated the costs sought here. This is a material fact that must be established for each of the three Rockwell claims.

Each of the three claims presents different fact predicates. Our analysis is made more difficult because DOE did not address the claims on a claim-by-claim basis. Cause I of the Complaint sets forth the first claim, which is for legal representation of Rockwell itself In this cause it seeks approximately $ 1.2 million for outside counsel costs on behalf of the corporation "in response to, and defending against, the federal environmental investigation between June 6, 1989 and December 31, 1989." The Settlement permits Rockwell to seek attorney fees and costs incurred on behalf of the corporation before January 1, 1990, but not thereafter. Rockwell provided evidence that the January 1, 1990, date set by the Settlement, after which Rockwell could not seek costs incurred for its counsel, was a "bright line" date agreed between the Department of Justice and Rockwell as a method of allocating costs between those incurred for defending conduct which was not charged and those costs incurred in connection with conduct resulting in the Counts of  [#31]  Conviction. Rockwell Declaration, Ex. 3 at 46-47. For purposes of the motion, we must accept this evidence as true and must grant the nonmoving party all inferences that may be reasonably drawn from it. Accordingly, it appears for purposes of the motion that Rockwell does not seek under Cause I any attorney fees or costs incurred in connection with the Counts of Conviction. Therefore, DOE has not established that there are no facts in dispute material to Theory II with respect to Cause I. Therefore, we may not grant summary judgment with respect to Cause I.

Cause II of the Complaint sets forth Rockwell's second claim, which is for legal representation of Rockwell employees. In this cause, Rockwell seeks approximately $ 3.7 million for the costs of independent counsel provided to employees and former Plant employees who became involved in the grand jury investigation. The Settlement permits it to seek attorney fees and costs which it incurred in providing legal representation to past and present Rockwell employees. DOE has provided neither argument nor evidence connecting any of the Rockwell employees for whom it paid legal expenses to the Counts of Conviction, much less connecting  [#32]  these costs to the defense of the Counts of Conviction. Rockwell has provided evidence that none of the Rockwell employees were prosecuted. Rockwell Declaration, Ex. 3 at 41-42, 47, 49. For purposes of the motion, we must accept Rockwell's evidence as true and must grant it, as the non-moving party, all inferences that may be reasonably drawn from it. Therefore, DOE has not established that the costs sought in Cause II were generated in connection with the Counts of Conviction. There are facts in dispute material to Theory II with respect to Cause II. Therefore, we may not grant summary judgment on Theory II with respect to Cause II.

Cause III of the Complaint sets forth Rockwell's third claim, which is for a litigation database. In this cause, Rockwell seeks approximately $ 5.2 million that it allegedly paid to a subcontractor. DOE has provided neither argument nor evidence connecting these costs to the defense of Rockwell against the Counts of Conviction. However, Rockwell acknowledged that the database was used in its defense against the Counts of Conviction. It also asserts that the "database has been used extensively in civil litigation and administrative matters by DOE  [#33]  itself and by DOE contractors other than Rockwell, as well as by Rockwell in both the criminal investigation and civil litigations." It submitted DOE's response to an interrogatory in which DOE states:
Absent a finding of fraud, the costs claimed for data base support associated with civil litigation, and unrelated to the costs and fees incurred in the defense of criminal charges against Rockwell, may be allowable under the contract, but adequate supporting data would be needed in order to determine the allowability and reasonableness of the costs.
Rockwell Declaration, Ex. 24.

The only evidence that some portion of the costs claimed under Cause III were generated in connection with the Counts of Conviction is Rockwell's admission. This admission, while telling, does not enable us to dispose of this entire cause, much less all of Rockwell's claims. Furthermore, DOE's interrogatory response is sufficient to raise an inference, to which Rockwell is entitled, that some portion of the database costs may be allowable. Moreover, DOE has not sought partial summary judgment or, even, provided us with a basis to grant such. Inasmuch as DOE has failed to adduce evidence that all  [#34]  the costs sought by Cause III we were incurred in connection with criminal violations of environmental law, it is unnecessary for us to reach the legal issue whether such violations would be a breach of the contract, whether rendering costs associated therewith are unallowable and other issues raised by the parties. n5 There is no basis to grant DOE summary judgment on Cause III.

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n5 Rockwell's admission that some portion of the costs of the computer system (Rockwell's Cause III) were incurred in connection with its defense of charges to which it plead guilty and was convicted raises the question whether the Board should now address whether such costs may be recovered under the contract. We conclude that we do not have a record sufficient to do so.

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Rockwell raised a number of connected legal and factual issues to which DOE has not replied. DOE was not obligated to reply since our rules do not permit replies without the permission of the Board. DOE did not request such permission. Some of the issues raised are complex and potentially far-reaching. Moreover, they seem likely to lead to additional impasses on material facts, so the wisdom of addressing these issues in the context of a motion for summary judgment is doubtful. We cannot responsibly address these without first giving DOE an additional chance to reply. The time set for trial is close. Under the circumstances, we think it prudent to defer these issues and to allow a full airing of evidence at trial.  [#35] 

DOE failed to establish that it is entitled to summary judgment on any of the three causes based upon its theory that the costs sought were incurred due to Rockwell breaches of the Contracts' terms.

Ruling

DOE's motion for summary judgment is denied.
 
E. Barclay Van Doren
Chief Administrative Judge
 
I concur:
 
Beryl S. Gilmore
Administrative Judge
 
I concur:
 
R. Anthony McCann
Administrative Judge 



End of Opinion.

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