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United States ex rel. Savage v. Washington Closure Hanford LLC

United States District Court, E.D. Washington

August 24, 2017

UNITED STATES OF AMERICA, ex rel. SALINA SAVAGE, SAVAGE LOGISTICS, LLC, Plaintiffs,
v.
WASHINGTON CLOSURE HANFORD LLC; FEDERAL ENGINEERS AND CONSTRUCTORS, INC.; PHOENIX ENTERPRISES NW, LLC; PHOENIX ABC JOINT VENTURE; and ACQUISITION BUSINESS CONSULTANTS, Defendants.

          ORDER DENYING WASHINGTON CLOSURE HANFORD, LLC'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES

          SALVADOR MENDOZA, JR., United States District Judge

         I. INTRODUCTION

         This case involves the River Corridor Closure Contract (RCC Contract), which the United States Department of Energy (DOE) awarded to Washington Closure Hanford (WCH) in 2005. The RCC Contract is a ten-year, multibillion dollar contract for environmental restoration, cleanup, and closure of a portion of DOE's Hanford Site. Pursuant to the RCC Contract and 48 C.F.R. § 52.219-9, WCH negotiated and submitted a Small Business Subcontracting (SBS) plan with DOE. This plan required WCH to meet certain targets for subcontracting with small businesses, including women-owned small businesses. The relator plaintiff and the United States (the Government) allege that Defendants knowingly misrepresented the status of several subcontractors in breach of the RCC Contract and in violation of the False Claims Act.

         Defendant WCH moves for partial summary judgment on one issue only- the permissible scope of the Government's damages for WCH's alleged violations. WCH argues principally that the Government's damages must be limited to the remedies provided by the RCC Contract. WCH alternatively argues that, if the contract remedies are not exclusive, the Small Business Act's presumption of loss does not apply and the value the Government received by WCH's and the subcontractors' performance must offset any damages.

         Each of WCH's arguments fail. First, the RCC Contract remedies are not exclusive in this case. The RCC Contract provides remedies for failure to meet SBS goals and to make a good faith effort to comply with the SBS plan, but those remedies do not address, and do not adequately compensate the Government for, alleged willful misrepresentation of the small-business or women-owned-business status of certain subcontractors. Second, the Small Business Act's presumption of loss applies to the Government's claims against WCH. Finally, because the harm caused by falsely claiming that a subcontractor is a qualifying small business is the lost value of business and experience going to a qualifying small business, the value of the work performed under the contract is irrelevant and cannot offset the damages for that alleged harm. Accordingly, WCH's motion is denied.

         II. BACKGROUND

         In 2005, the DOE awarded the RCC Contract to WCH. ECF No. 340 at 2. Under the RCC Contract, WCH was responsible for cleanup of a large number of sites and the operation of an environmental restoration disposal facility. Id.; ECF No. 344 at 2. Among other things, the RCC Contract required WCH to negotiate and submit a Small Business Subcontracting (SBS) plan in compliance with 48 C.F.R. § 52.219-9. ECF No. 340 at 2. The SBS plan required WCH to meet certain targets for subcontracting with small businesses, including women-owned small businesses. Id.

         This case involves several subcontracts awarded by WCH between 2009 and 2013 to businesses that were represented to be eligible small businesses or women-owned small businesses. ECF No. 344 at 16-19. In each case, the relator plaintiff, who unsuccessfully bid on these subcontracts, alleges that WCH and the subcontractors misrepresented the size and nature of the businesses that received the subcontracts in order to avoid obligations under the RCC Contract and the Small Business Act in violation of state and federal law. ECF No. 168.

         The Government filed a separate a complaint in partial intervention, alleging that WCH violated the False Claims Act by knowingly misrepresenting the small business and women-owned-business status of subcontractors Phoenix and Sage Tec, falsely claiming small business credit and compliance with its SBS plan, and submitting claims for payment while in noncompliance with the terms of the RCC Contract regarding small business subcontracting. ECF No. 157. The Government alleges violation of the False Claims Act, breach of contract, unjust enrichment, and payment by mistake. ECF No. 157 at 38-46. The Government seeks the following as damages:

1. Damages based on the full value of the improperly awarded and falsely claimed subcontracts to Sage Tec and Phoenix;
2. Damages based on Section H.28 of the River Corridor Closure Contract;
3. Damages based on the liquidated damages provision of the River Corridor Closure Contract and as set forth in 48 C.F.R. § 52.219-1;
4. Damages based on unreasonable and unallowable costs claimed with respect to the Sage Tec subcontracts, including, but not limited to, any amounts claimed corresponding to any fee for Sage Tec; and
5. Penalties for each false statement submitted or caused to be submitted by WCH, and for each false record or statement that WCH made or used, or caused to be made or used, ...

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