There are so many things a contractor must keep in mind when preparing a claim against the Government that it can sometimes be easy to forget about the fundamentals. One thing you should be careful not to forget, however, is making sure you are a real party in interest. One company recently learned this lesson the hard way, via the decision in Ground Improvement Techniques, Inc.; MK Ferguson Company, for the use and benefit of Ground Improvement Techniques, Inc. v. United States v. PNC Bank, N.A., Fireman’s Fund Insurance Company, R.N. Robinson & Sons, Inc., Secured Creditors Of Ground Improvement Techniques, Inc., No. 2013-5110 (July 29, 2015).
The Federal Circuit Court of Appeals affirmed a decision by the U.S. Court of Federal Claims (COFC) dismissing the firm’s claims in part because it had assigned those claims to other parties in connection with a bankruptcy (the Court also affirmed the COFC’s finding that the claimant, a subcontractor, lacked standing to bring the claims in its own name).
MK-Ferguson Company (MK) was a prime contractor for the DOE on multiple projects across the nation. In connection with that work, MK entered into a subcontract with Ground Improvement Techniques, Inc. (GIT). Six months after entering into the subcontract with GIT, MK, with the DOE’s consent, terminated the subcontract for default.
GIT challenged the default termination by suing MK in the U. S. District Court in Colorado (USDC) (the Litigation). During the course of the Litigation, however, GIT filed for Chapter 11 bankruptcy protection. Pursuant to GIT’s approved plan of reorganization in the bankruptcy proceeding, all claims, causes of action, right, title, and interest in and to the Litigation were assigned to GIT’s secured creditors (the Creditors).
Despite the assignment in bankruptcy, GIT went ahead and submitted a certified claim to DOE (in MK’s name and its own name) and subsequently appealed the Government’s “deemed denial” decision to the COFC. The COFC found that GIT was not the real party in interest to assert the claims since the claims had been unequivocally assigned to the Creditors in GIT’s bankruptcy. On appeal, the Federal Circuit agreed.
Noting that the central question in the case was whether the events during bankruptcy transferred GIT’s claims to the Creditors, the appeals Court found that “the answer is clearly yes.” Central to this conclusion was GIT’s Reorganization Plan, which provided for the assignment of Litigation claims to the Creditors without reserving any power over the assigned claims pursuant to 11 U.S.C. § 1123(b)(3)(B) but instead “specifically passed GIT’s rights in the [Litigation]” over to the Creditors.
Ground Improvement is reminder to parties to carefully consider the ramifications when assigning away claims against the Government even if the goal is to get a bankruptcy plan of reorganization confirmed. As GIT learned, failure to properly address assignment issues can deprive you of potentially valuable claims.
Steve Mulligan is responsible for the contents of this Article.
© Jackson Kelly PLLC 2015