Government Contracts Monitor
Contractors Need More Than A Mere Factual Coincidence To Win A Breach Of Contract Case Against The Government
September 28, 2012
You are a subcontractor on a federal prime contract. You complain about the prime contractor to the federal agency under an alleged promise of confidentiality. You then get terminated by the prime contractor within hours of complaining to the federal agency. What do you do? You sue the federal government for breach of contract, of course. And with nothing more than the coincidence of timing to support your case, you lose miserably at trial.
This is exactly what happened in Lublin Corp. t/a Century 21 Advantage Gold v. United States, No. 07-206C (Ct. Cl. Sept. 19, 2012). Hooks Van Holm, Inc. (HVH) was the Department of Housing and Urban Development’s (HUD) prime contractor for managing, marketing, and overseeing the sale of HUD-owned single family homes in Pennsylvania. Lublin Corp. subcontracted to provide HVH with broad listing broker services on HVH’s HUD contract. After a year into the subcontract, HVH attempted to renegotiate a lower listing fee for each property sold. Lublin Corp. refused to renegotiate, and as a result, HVH internally prepared to terminate its subcontract with Lublin Corp.
Before HVH sent its termination notice to Lublin Corp. and unrelated to any yet undisclosed termination plans, Lublin Corp. officials appeared at a Quality Management Review (QMR) meeting with a HUD site coordinator. The QMR was designed to identify and correct problems in HUD’s field operations and assess the effectiveness of prime real estate contractors in implementing HUD’s Property Disposition Program. Prior to the start of the QMR, Lublin Corp. officials asked the HUD site coordinator for assurances of confidentiality. HUD’s only assurance was that any comments made by Lublin Corp. during the QMR will not be attributed to that company. Based on this alleged assurance, Lublin Corp. then proceeded to tell HUD that HVH had pressured Lublin Corp. to reduce its listing fee “because HUD had mandated that HVH be more profitable.” HUD responded that it never mandates profitability and would investigate the matter.
Two hours after the QMR meeting, HVH sent Lublin Corp. an e-mail unilaterally terminating Lublin Corp.’s subcontract. Lublin Corp. assumed, based on the timing of the termination, that HUD had breached its alleged promises of confidentiality and had told HVH what Lublin Corp. had said during the QMR meeting. HUD denied making any promises of confidentiality or inappropriately disclosing any information to HVH at any time prior to HVH sending Lublin Corp. the termination notice. Lublin Corp. sued the United States for breach of contract – based on an alleged implied contract of confidentiality. The case went to trial.
The Court of Federal Claims (COFC) made quick work of the case. It ruled that no HUD site coordinator had the express or implied authority to enter into any confidentiality agreement. Hence, there never was a contract between Lublin Corp. and HUD.
More importantly, the COFC ruled that, even if there was a contract, there was no breach. Lublin Corp. had no evidence that HUD and HVH communicated with each other after Lublin Corp.’s QMR meeting and before HVH issued the termination notice two hours later. Both HUD and HVH testified that no such communications took place. The final nail in the coffin was unrebutted evidence at trial that HVH had internally set the termination process in motion weeks before Lublin Corp.’s QMR meeting.
Waxing philosophic in his decision in this case, Judge Allegra opined: “Plaintiff attempts to pile a Pelion of conjecture upon an Ossa of speculation in relying on a single, lonesome fact – the timing of its termination – to prove that HUD officials breached an alleged confidentiality agreement. But like the Greeks of old, whose stone pile atop Mt. Olympus failed to reach the heavens, plaintiff’s efforts fall far short of its goals, dashed, inter alia, by evidence proving that HVH’s decision to terminate Lublin predated Lublin’s meeting with HUD.” Whenever judges cite Greek or Roman legends or myths in their rulings, you know someone is going to lose big.
There are three takeaways from this case: (1) unless there is some specific statutory or regulatory basis providing for it, contractors should not assume that they can make enforceable “confidentiality agreements” with mid-level agency personnel; (2) a mere two hour gap between disclosure to a federal agency and termination by a prime contractor – with nothing more - is insufficient to establish there was any causal connection between the two events or a breach of any alleged confidentiality agreement; and (3) do not waste your time and money litigating a breach of contract case against the federal government if you do not have a contract and evidence of a breach of that contract involving more than circumstantial evidence of a two hour timing gap. Otherwise, you might want to brush up on your Greek and Roman myths before you read the court’s decision.
Michael J. Schrier is responsible for this article.