State of Ohio v. United States ( 2022 )

In the United States Court of Federal Claims
STATE OF OHIO, No. 20-288C
(Filed: October 7, 2022)
Plaintiff,
Contract; Motion to Dismiss;
v. Summary Judgment; Statute of
Limitations; Declaratory
THE UNITED STATES OF AMERICA,
Relief; Implied Covenant of
Defendant. Good Faith; Pre-Judgment
Interest
Ian Gaunt, Office of the Attorney General of the State of Ohio, Columbus, OH, for Plaintiff.
Ioana Cristei, Civil Division, United States Department of Justice, Washington, DC, for
Defendant.
OPINION AND ORDER
LERNER, Judge.
I. Background
A. Factual Background
This case concerns a dispute over a 1970 contract for dam construction, water storage,
and water supply (“the Contract” or “the Water Supply Contract”) between the State of Ohio
(acting through the Ohio Department of Natural Resources (“ODNR”)) and the United States
(acting through the Army Corps of Engineers (“the Corps”)). Pl.’s Ex. 1 (“Water Supply
Contract”) at USA000008, ECF No. 65-1. The Contract provides for the construction of the
Caesar Creek Reservoir (“the Project”) and entitles Ohio to a certain portion of the water supply
and storage that the Project’s dam and reservoir enable. Id. at USA000001. In addition to other
payments not at issue, the Contract dictates that Ohio “shall pay 12.70 percent of the annual
experienced joint-use operation and maintenance costs of the Project.” Id. at USA000004. The
Contract does not define the terms “joint-use” or “operation and maintenance” (“O&M”).
In 1990, Ohio subcontracted with the City of Wilmington, Ohio, to supply the city water
from Caesar Creek Reservoir. Pl.’s Ex. 9 (“the Wilmington Contract”) at OH_000202–231, ECF
No. 65-9. A 2004 amendment to the agreement provided that Wilmington would reimburse Ohio
for all O&M costs that the United States charges Ohio under the Water Supply Contract. Id.
at OH_000224. In 1994, the Project started to supply water, and annual billing began under the
Corps’ contract with Ohio. Pl.’s Mot. for Summ. J. on Liability (“Pl.’s Mot.”) at 5 (citing
Answer ¶ 22, ECF No. 25), ECF No. 65; Pl.’s Ex. 1 (invoices for Caesar Creek O&M, 1994–
2013) at 1, ECF No. 15-1.
In 2017, Wilmington expressed concerns about rising O&M costs. Pl.’s Ex. 10, ECF
No. 65-10 (letter from mayor of Wilmington to Rep. Steve Stivers). Members of Ohio’s
congressional delegation inquired into the cost increases, which led the Corps to conduct an
audit. Pl.’s Ex. 11, ECF No. 65-11 (Rep. Stivers letter to Corps); Pl.’s Ex. 12, ECF No. 65-12
(Sen. Sherrod Brown letter to Corps); Pl.’s Ex. 19 at USA004209–13, ECF No. 65-19 (Corps
audit summary). However, this audit, which reviewed ten years of Caesar Creek billings,
resulted in the United States claiming that Ohio owed an additional $187,150.07. Pl.’s Ex. 19
at USA004210–12; Pl.’s Ex. 16, ECF No. 65-16 (Jan. 24, 2018 adjusted bill for underpayment).
The Corps’ audit summary explained that each purchase made for the Project “is assigned
a work category code,” which “tie[s] each individual cost at the lake to a specific project purpose
or purposes.” Pl.’s Ex. 19 at USA004212. The “four authorized purposes of the lake” through
which the Corps “is able to query and separate the joint costs for billing to the State of Ohio” are
“flood risk management, natural resource management, water storage, and recreation.” Id. But
when the Corps provided Ohio with a list of its expenses following the audit, it did not include
the work category codes or budgetary purposes assigned to those expenses. See Pl.’s Ex. 20,
ECF No. 65-20 (Caesar Creek joint costs detailed breakdown); Alicia Graham Dep. 118:12–14,
17–23, Pl.’s Ex. 15 at 21, ECF No. 65-15 (describing the document, which shows “detailed costs
that [the Corps] ran after the inquiries from the senators” but “does not show” an authorized
purpose for any of the costs); Erin Teives Dep. 32:12–16, Pl.’s Ex. 21 at 3, ECF No. 65-21 (“So
this doesn’t actually show on this printout, but in our system the work item would show . . . a
work category code.”).1
On July 23, 2018, Ohio made a partial payment of the additional fee after it received
funds from Wilmington for this purpose. Def.’s Ex. 17, ECF No. 68-18 (Ohio’s partial payment
and receipt). The State also requested more information about the “policies and procedures the
Contracting Officer uses to determine what costs are included as joint-costs under the Contract.”
Pl.’s Ex. 26, ECF No. 65-26 (Ohio’s second request for information). Eventually, the United
States agreed to credit Ohio $7,906.66 for expenses that it determined were exclusively related to
recreation or the Caesar Creek Visitor Center. Pl.’s Ex. 32, ECF No. 65-32 (email to ODNR
summarizing credits); Pl.’s Ex. 31, ECF No. 65-31 (spreadsheet listing credited items and
amounts).
In November 2019, the United States sent Ohio two notices of delinquency, totaling
$364,965.08, with statements listing an unpaid balance with accrued interest and penalties. Pl.’s
Ex. 33 at OH_007021, OH_007026, ECF No. 65-33 (notices of delinquency). The notices
informed Ohio that failure to pay these outstanding amounts would result in referral to the
Treasury Offset Program. Id. Ohio paid the requested amount under protest. Pl.’s Ex. 34, ECF
1
The Court subsequently ordered the United States to provide these codes for any potential
litigation regarding damages. Order (Apr. 7, 2022), ECF No. 55.
2
No. 65-34 (Ohio letter with payment under protest). Unable to reach a negotiated resolution,
Ohio initiated litigation.
B. Litigation History
1. Ohio I
Ohio filed its original Complaint in this court on March 13, 2020, and the case was
assigned to Judge Lettow. See Compl., ECF No. 1. The Complaint claimed seven causes of
action: three for breach of contract (for unauthorized O&M charges, lump-sum late billing, and
unauthorized interest charges), id. ¶¶ 37–44; one for breach of the covenant of good faith and fair
dealing, id. ¶¶ 45–47; one for declaratory relief, id. ¶¶ 48–50; and two alternative causes of
action under the Fifth Amendment (for a taking under the Just Compensation Clause and for
illegal exaction under the Due Process Clause), id. ¶¶ 51–54. The United States moved to
dismiss, contending that the court lacked subject matter jurisdiction over the illegal exaction
claim and the claim for declaratory relief, and that Ohio failed to state a claim regarding breach
of contract, breach of the covenant of good faith and fair dealing, and the Takings Clause. Def.’s
Mot. to Dismiss at 8–18, ECF No. 9.2 Judge Lettow issued an Opinion and Order on September
24, 2020, denying the Motion to Dismiss in all respects, except with regard to the takings claim.
State of Ohio, et al. v. United States (“Ohio I”), 150 Fed. Cl. 173, 179–81 (2020).
2. Ohio II
On January 21, 2021, while the parties were conducting discovery, ODNR received a
past-due notice from the Corps for charges incurred under the Contract in February 2020, as well
as interest and fees. Pl.’s Mot. for an Emergency Status Conf. at 1, ECF No. 21. Ohio filed an
Amended Complaint on February 25, 2021, to add this charge. Pl.’s Unopposed Mot. for Leave
to File First Am. Compl. at 1, ECF No. 23; see Am. Compl. ¶ 42, ECF No. 23-1.
Ohio followed its Amended Complaint with a Motion for Partial Summary Judgment,
seeking to define “joint-use operation and maintenance” as a matter of law. See Pl.’s Mot.
Partial Summ. J., ECF No. 26. The United States filed a Response and Cross-Motion. Def.’s
Resp. and Cross-Mot., ECF No. 32. It devoted the vast majority of this filing to opposing Ohio’s
Motion, confining its cross-motion to only one paragraph. Compare id. at 7–11 (Government’s
opposition), with id. at 11–13 (Government’s cross-motion).
On June 21, 2021, the court issued an Opinion and Order on the Cross-Motions for
Partial Summary Judgment, denying the United States’ Motion and granting Ohio’s Motion in
part. State of Ohio v. United States (“Ohio II”), 154 Fed. Cl. 233, 241 (2021). The court
concluded that the contract term “joint-use operation and maintenance costs” means those costs
which are “necessary ‘to maintain the Project as an efficient going concern, to operate the Project
2
It is unclear why the United States based its statute of limitations defenses on RCFC 12(b)(6),
as the Court of Federal Claims’ time bar provided in 28 U.S.C. § 2501 is jurisdictional. John R.
Sand & Gravel Co. v. United States, 552 U.S. 130, 133–34 (2008) (describing the Court of
Federal Claims’ statute of limitations as “jurisdictional” and “more absolute” than “[m]ost
statutes of limitations”).
3
effectively’ for water storage, water availability, and flood control, or ‘to remedy injurious
effects resulting from the Project’s subsequent operation,’ that pertain to more than one purpose
of the Project.” Id. (first quoting Nampa & Meridian Irrigation Dist. v. Bond, 268 U.S. 50, 53
(1925); and then quoting Casitas Mun. Water Dist. v. United States, 543 F.3d 1276, 1284 (2008))
(internal citations omitted).
3. Present Motions
After Ohio II, the parties resumed discovery, this case was transferred to the undersigned,
and the parties exchanged Cross-Motions for Summary Judgment as to the Corps’ liability. See
Order (Sept. 22, 2021), ECF No. 44; Pl.’s Mot.; Def.’s Resp. & Cross-Mot. for Summ. J.
(“Def.’s Cross-Mot.”), ECF No. 68; Pl.’s Resp. & Reply Supp. Mot. Summ. J. (“Pl.’s Resp. &
Reply”), ECF No. 69; Def.’s Reply, ECF No. 73. On August 18, 2022, the Court conducted oral
argument on these motions. See Hr’g Tr. (Aug. 18, 2022) (“Tr.”), ECF No. 75.
II. Jurisdiction and Standard of Review
A. Subject Matter Jurisdiction
The Tucker Act grants the Court of Federal Claims jurisdiction over “any claim against
the United States founded either upon the Constitution, or any Act of Congress or any regulation
of an executive department, or upon any express or implied contract with the United States, or
for liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1).
Although the statute waives sovereign immunity, it does not create a substantive cause of action;
“the plaintiff must look beyond the Tucker Act to identify a substantive source of law that
creates the right to recovery of money damages against the United States.” Rick’s Mushroom
Serv., Inc. v. United States, 521 F.3d 1338, 1343 (Fed. Cir. 2008) (citing United States v.
Mitchell, 463 U.S. 206, 216 (1983)); Mitchell, 463 U.S. at 216 (“[T]he Tucker Act ‘does not
create any substantive right enforceable against the United States for money damages.’”).
Subject matter jurisdiction is a threshold issue. Steel Co. v. Citizens for a Better Env’t,
523 U.S. 83, 94–95 (1998). If this Court determines that it lacks subject matter jurisdiction, it
must dismiss the action. Rules of the United States Court of Federal Claims (“RCFC”) 12(h)(3).
B. Standard of Review
Pursuant to RCFC 56(a), “the court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” A fact is material if it “might affect the outcome of the suit under the governing
law,” and a dispute over such a fact is genuine “if the evidence is such that a reasonable [fact
finder] could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986).
The movant bears the burden of demonstrating the absence of a genuine dispute of
material fact and must establish its position by “citing to particular parts of materials in the
record.” RCFC 56(c)(1)(A). The court must consider the evidence cited by the parties but may
also consider other materials in the record. RCFC 56(c)(3). “With respect to cross-motions for
summary judgment, each motion is evaluated on its own merits and reasonable inferences are
4
resolved against the party whose motion is being considered. To the extent there is a genuine
issue of material fact, both motions must be denied.” Marriott Int’l Resorts, L.P. v. United
States, 586 F.3d 962, 968–69 (Fed. Cir. 2009) (mem.) (citing Mingus Constructors, Inc. v.
United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)).
III. Discussion
A. Challenges to Jurisdiction
1. The Court Has Jurisdiction Over Claims Concerning Charges Issued
Before July 1, 2008.
The United States Court of Federal Claims has a six-year statute of limitations. 28U.S.C.
§ 2501. Compliance with the statute of limitations is a jurisdictional issue that cannot be
equitably tolled or waived. John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 133–35
(2008); Reoforce, Inc. v. United States, 853 F.3d 1249, 1264 (Fed. Cir. 2017); Davis v. United
States, 108 Fed. Cl. 331, 339 (2012), aff’d, 550 F. App’x 864 (Fed. Cir. 2013) (“The six-year
time bar on actions against the United States is jurisdictional, because filing within the six-year
period is a condition of the wavier of sovereign immunity in the Court of Federal Claims under
the Tucker Act, 28 U.S.C. § 1491(a)(1).”) (collecting cases).
The United States argues that it “is entitled to summary judgment dismissing claims
related to any invoices with payment due prior to March 13, 2014, based on lack of jurisdiction”
because the invoices before that date are beyond the statute of limitations. Def.’s Cross-Mot.
at 24. This Court construes the motion as a motion to dismiss because it cannot grant summary
judgment on an issue over which it lacks jurisdiction. The Government bases this argument on
the Ohio I court’s finding that the “Ohio’s claims for breach of contract may be broken down
into a ‘series of independent and distinct events,’” and “the application of the six-year statute of
limitations is measured from the date the State of Ohio filed its complaint in this court,
March 13, 2020.” 150 Fed. Cl. at 179–80 (quoting Brown Park Ests.-Fairfield Dev. Co. v.
United States, 127 F.3d 1449, 1456 (Fed. Cir. 1997)). The United States adds, however, that
“the statute of limitations would not bar consideration of the $187,150.07 retroactive billing
adjustment because those charges were due on July 1, 2018.” Id. at 24 n.9 (citing Caesar Creek
Invoices 2014–2020, Def.’s Ex. at 16, ECF 16-1).
Ohio counters that “all of its claims—dating back to the first bill—are timely” because
“Ohio was unaware that the Corps was charging it for costs not allowed by the contract until
2018, when it first received an itemization showing these costs.” Pl.’s Resp. and Reply at 22; see
also Tr. at 60:3–4 (Ohio counsel claiming a “breach of contract dating back to the Corps’ first
bill in the mid-nineties”). It relies on the accrual suspension rule, which provides that “a cause
of action against the government has ‘first accrued’ only when all the events which fix the
government’s alleged liability have occurred and the plaintiff was or should have been aware of
their existence.” Hopland Band of Pomo Indians v. United States, 855 F.2d 1573, 1577 (Fed.
Cir. 1988) (emphasis omitted). The State insists that “[b]ecause Ohio did not know about the
Corps’ breach of the contract until 2018, the statute of limitations period was suspended until
2018, and Ohio’s claims are timely.” Pl.’s Resp. and Reply at 22.
5
Ohio insists that the United States “ignores the second half of the accrual rule,
amputating the requirement that a plaintiff know or should have known of its claims before the
statute of limitations starts to run.” Id. But Ohio fails to explain why it should not have known
about a potential claim years ago. The United States observes that “the contract specifically
provides that ‘records of the cost of operation and maintenance of the Project shall be available
for inspection and examination by the State,’” and argues that “Ohio could have requested an
inspection of those project records at any time, but did not choose to do so until its inspection as
part of this litigation.” Def.’s Reply at 11. Because the State could “have discovered the basis of
its claims had it chosen to exercise its inspection rights under the contract,” the Government
asserts that “the statute of limitations is not tolled.” Id. at 12.3
“For the accrual suspension rule to apply, the claimant must either show that the
defendant has concealed its acts with the result that plaintiff was unaware of their existence or it
must show that its injury was inherently unknowable at the accrual date.” Banks v. United
States, 741 F.3d 1268, 1280 (Fed. Cir. 2014) (cleaned up) (quoting Young v. United States, 529
F.3d 1380, 1384 (Fed. Cir. 2008)). Pursuant to Article 5, section (c)(3) of the Water Supply
Contract, the State has the right to inspect and examine records of the cost of O&M of the
Project. It could have conducted an inspection at any time before 2017 but chose not to exercise
this right. “The accrual suspension rule is ‘strictly and narrowly applied.’” Jones v. United
States, 30 F.4th 1094, 1104 (Fed. Cir. 2022) (quoting Martinez v. United States, 333 F.3d 1295,
1319 (Fed. Cir. 2003) (en banc)). Ohio’s rights under the Contract demonstrate that the rule
should not apply in this instance. Ohio cannot extend the Court’s jurisdiction to claims of which
it would have been aware if it had exercised its contractual right earlier. Accordingly, the Court
holds that it lacks jurisdiction over any claim concerning charges issued before July 1, 2008.
Regardless, this finding does not affect the charges that the parties most aggressively
dispute. As the United States acknowledges, “the statute of limitations would not bar
consideration of the $187,150.07 retroactive billing adjustment because those charges were due
on July 1, 2018.” Def.’s Cross-Mot. at 24 n.9 (citing Caesar Creek Invoices 2014–2020 at 16).
That billing adjustment recalculated charges going back to July 1, 2008, see Caesar Creek
Invoices 2014–2020 at 16, meaning that only charges prior to June 30, 2008, are beyond the
Court’s jurisdiction.
2. The Court Does Not Have Jurisdiction Over Claims for Declaratory
Relief.
Ohio seeks declarations that the United States “may not charge the State of Ohio for
charges not authorized by the Water Supply Contract” and “may only charge for expenses
necessary to operate the flood control and water storage project, or relieve any injurious effect of
3
This Court holds in Section III, see infra p. 17, that the United States breached the implied
covenant of good faith and fair dealing by failing to provide adequate recordkeeping and
specificity on the nature of the expenses billed by the Corps. Therefore, any inspection by Ohio
would likely have been incomplete. But that would not have precluded Ohio from requesting an
inspection or raising concerns similar to those at issue in this lawsuit. Though an inspection may
not have “easily” led to discovery of the basis of its claims as the Government argues, Def.’s
Reply at 12, Ohio failed to exercise its contractual rights to inspect the records in the first place.
6
that project.” Am. Compl. ¶¶ 55–56. The United States moves to dismiss, claiming that these
“requests for declaratory relief are forward looking.” Def.’s Cross-Mot. at 48. It requests “a
declaration on future contract charges that are not incident nor collateral to any judgment for
monetary relief in this matter.” Id.The State points out that the Ohio I court denied a Motion to Dismiss that was based on
the same grounds as the Government’s Motion here. Pl.’s Resp. & Reply at 24; see 150 Fed. Cl.
at 180. There, the court explained that Ohio “requested monetary relief as its primary demand”
and that “the court has the ‘authority to issue rulings of law declaring the rights of parties under a
contract where such rulings are necessary to the resolution of a claim for money presently due
and owing.’” Id. (quoting Hydrothermal Energy Corp. v. United States, 26 Cl. Ct. 7, 16 (1992)).
Thus, this Court possesses authority to grant the relief requested. See Pauley Petroleum Corp. v.
United States, 591 F.2d 1308, 1315 (Ct. Cl. 1979) (“[M]erely because the court must make a
ruling of law . . . in order to arrive at a money judgment does not render this court’s decision a
‘declaratory judgment.’”); Gentry v. United States, 546 F.2d 343, 346 (Ct. Cl. 1976) (holding
that the question of a legal interpretation “arises only incidentally, necessitating an answer by the
court in the course of construing the [relevant] statute to determine whether payments is indeed
owing to plaintiff”).
B. Breach of Contract by Billing for Expenses That Are Not for “Joint-Use
Operation and Maintenance”
Following a first round of summary judgment motions in this case, the court defined
“joint-use operation and maintenance costs” as “those necessary ‘to maintain the Project as an
efficient going concern, to operate the Project effectively’ for water storage, water availability,
and flood control, or ‘to remedy injurious effects resulting from the Project’s subsequent
operation,’ that pertain to more than one purpose of the Project.” Ohio II, 154 Fed. Cl. at 241
(internal citations omitted) (first quoting Nampa, 268 U.S. at 53; and then quoting Casitas, 543
F.3d at 1284).
The parties now dispute whether the United States charged Ohio for expenses that do not
meet this definition—although the United States has also claimed it seeks to “revise” or “clarify”
this definition. See Def.’s Cross-Mot. at 24; Def.’s Reply at 7. First, the parties disagree on
whether the United States can charge Ohio for expenses that include recreation as one of
multiple purposes. Compare Pl.’s Mot. 22–23, with Def.’s Cross-Mot. at 29–31. Second, they
question whether the scope of “operation and maintenance” is limited to costs that facilitate “the
physical operation or maintenance of the dam itself” as opposed to another facet of the Project,
Pl.’s Mot. at 24, or if it instead includes costs that “are necessary to avoid adverse environmental
impacts” that “tie back to the loss of habitat and ecological disturbance occasioned by project
construction,” Def.’s Cross-Mot. at 31, 32.
1. Ohio’s Motion
Ohio claims that the United States breached the Contract by “persistently billing Ohio for
a wide swath of expenses that fall outside the definition of ‘joint-use operation and maintenance
costs of the Project.’” Pl.’s Mot. at 21 (quoting Water Supply Contract, Art. 5 § (c)(3)). As the
State explains, this definition “narrows the universe of costs that can be charged under the
7
contract,” but “the Corps ignores these limits.” Tr. at 7:23–25. Specifically, it alleges that the
Corps billed “for expenses that are not necessary for water supply, water storage, or flood
control, and thus are not properly passed on to Ohio” and “for costs that do not pertain to the
Caesar Creek Project.” Pl.’s Mot. at 21, 24; see id. at 26; Pl.’s Resp. & Reply at 10, 12.
The parties agree that the United States cannot bill Ohio for expenses that have a strictly
recreational purpose. Pl.’s Mot. at 22; Def.’s Cross-Mot. at 26. Yet, Plaintiff alleges that the
Corps nevertheless charged Ohio for recreational expenses by either “recharacteriz[ing] expenses
with an obvious recreational purpose as charges related to the Corps’ flood control mission” or
“characterizing them as ‘joint use costs’ related to both recreation and one of the remaining
Project purposes.” Id. The State offers several examples of expenses that it contends are wholly
or substantially recreational and therefore not chargeable to Ohio under the Contract.
A number of these expenses relate to Caesar Creek’s Visitor Center, which Ohio insists
“has no nexus to the physical operation or maintenance of the dam itself.” Id. at 24. The Visitor
Center contains “exhibits that explain the history of the Corps, the Corps’ regional flood control
mission, and the natural and archeological history of the region,” and park rangers are stationed
there to assist recreational visitors. Id. at 6–7. The facility houses a Learning Center where the
Corps, ODNR, and others, including recreational visitors, participate in trainings and educational
programs. Pl.’s Mot. at 23; James O’Boyle Dep. 32:17–34, Def.’s Ex. 29, ECF No. 68-29. The
Visitor Center also houses the regional office for the Corps’ Miami River Area (“the MRA
office”). That office covers five lakes in Ohio and Indiana and employs personnel who “work
under a completely different chain of command from the Project staff and do not report to the
Caesar Creek Park Manager.” Pl.’s Mot. at 7 (citing O’Boyle Dep. 35).
The Visitor Center expenses at issue are wide ranging. For example, they cover exhibit
displays, repairs to a heating and cooling system, bathroom repairs, an American flag set at the
Learning Center, electric utilities, and installation and repair of solar panels that are used both for
conservation and to teach about solar energy. Id. at 23–25. Also at issue are expenses unrelated
to the Visitor Center, such as playground mulch and grills for Caesar Creek Park. Pl.’s Resp. &
Reply at 11.
Ohio further claims that the United States breached the Contract by billing for expenses
related to water safety education and outreach. Pl.’s Mot. at 25–26. O&M bills include line
items for water safety promotions at off-site events—such as baseball games and boat shows—
and the purchase and cleaning of a costume for “Bobber the Water Safety Dog,” a Corps mascot
akin to Smokey the Bear. Pl.’s Mot. at 25–26; see, e.g., Pl.’s Ex. 37 at USA1779, ECF No.
65-37 (Caesar Creek joint costs detailed breakdown 2017–2018) (charge for “Cincinnati Boat
Show”); Pl.’s Ex. 38 at USA001822, ECF No. 65-38 ($2,415.00 charge for “Bobber the Water
Safety Dog Outfit”); O’Boyle Dep. 100:4–101:2 (explaining the Bobber costume’s use at events
including professional baseball games and events outside of Caesar Creek).
Additionally, the State alleges breach for charges related to environmental stewardship.
Pl.’s Mot. at 26–28. This consists of expenses such as birdseed, bird feeders at the Visitor
Center, flea collars, a water feature at the Visitor Center, and invasive species removal. Id. at 27.
It also includes salaries for natural resource specialists, biologists, and archeologists. Id.
8
In challenging the validity of these charges, Ohio argues that they “have nothing to do
with operating the Caesar Creek Project for water storage, water supply, or flood control.” Id.
at 24. Ohio articulates this contention in a variety of ways, noting that these expenses “do[] not
keep the dam running,” have “no nexus to the physical operation or maintenance of the dam
itself,” or “have no relation to the water supply or flood control purposes of the Project and
therefore are in breach of the Contract.” Id. at 24–26. The State’s main point is that “if any of
these features were eliminated from Caesar Creek, their absence would not prevent the dam itself
from operating.” Id. at 27.
Ohio also alleges that the United States breached the Contract by charging for expenses
“unrelated to the Caesar Creek project.” Id. at 28. The State points to expenses related to the
MRA office and Corps projects at other sites. Id. As Ohio notes, even the Caesar Creek project
manager could not explain why Ohio was billed for a biological study involving another lake in
the district, asphalt maintenance at that lake and another, or travel to yet another lake in the
district. Id. at 30 (first citing O’Boyle Dep. 85, 109, 129–30; and then citing Pl.’s Ex. 20 at
USA001585 (itemized costs and labor breakdown 2006–2017)).
The State attributes these alleged breaches to its claim that “[t]he Corps unlawfully bills
Ohio based on its internal bookkeeping codes, not based on the contract.” Pl.’s Resp. & Reply
at 6; see also Tr. at 7:23–8:11. It contends that “the Corps ignores the plain language of the
contract when deciding what to bill Ohio,” instead relying on the categories established in the
Corps’ business lines, “resulting in unlawful charges.” Pl.’s Resp. & Reply at 7; see also Tr.
at 8:17–19 (Ohio’s counsel stating “nowhere does the Government connect its accounting codes,
its business lines with the language of the contract”).
2. The United States’ Motion
The United States maintains in its Cross-Motion that the Corps’ billing practices are
“authorized by the Contract and the implementing legislation.” Def.’s Cross-Mot. at 24 (cleaned
up). Regarding recreation charges, the United States insists that “[t]he full history and
implementing legislation of the contract necessitate amending the Court’s definition of joint-use
O&M costs.” Id. at 25 (quoting Dalles Irrigation Dist. v. United States, 82 Fed. Cl. 346, 355
(2008) (“[W]here a contract implements or fulfills a statutory requirement, the interpretation of
the contract will be guided by the underlying statute.”); see also Def.’s Reply at 3. It explains
that under the 1958 Water Supply Act, “[s]tate or local interests must agree to pay for an
allocated, equitable share of overall project costs, reflecting the benefits of multipurpose
reservoir construction.” Def.’s Cross-Mot. at 3.
Because a multipurpose project that includes water supply, flood control, and recreation
is cheaper than standalone projects undertaken by a state for each of those purposes, the statute
and the Contract contemplate Ohio paying 12.7 percent of water supply costs as well as costs
that serve both an O&M and a recreational purpose. Tr. at 24:19–21 (“[T]his method of
calculation was used [to] . . . set up this pool of costs, and Ohio is getting the benefit of those
costs.”). Otherwise, the Government argues, the parties would have simply contracted to have
Ohio pay 100 percent of costs related to its share of the water supply. Id. at 24:23–25:3. In
addition to the statutes identified in the Contract, the United States contends that other legislation
providing for recreation or recreational facilities should inform the meaning of the Contract.
9
Def.’s Cross-Mot. at 25 (quoting Dalles Irrigation Dist., 82 Fed. Cl. at 355); see also Def.’s
Reply at 3; Def.’s Cross-Mot. at 2–5 (listing the Flood Control Act of 1944, Water Pollution
Control Act of 1961, and Water Project Recreation Act of 1965).
Further, rather than relying on the definition of “joint-use O&M costs” that the Court
found to apply at partial summary judgment, the United States endorses a theory by which “the
term ‘joint-use O&M costs of the Project’ is based on the contract’s incorporated separable cost-
remaining benefit method of cost allocation. Id. at 25–26. Under this method, “joint-use costs
are defined as total project costs, less all specific costs.” Id.The Government explains that the parties derived Ohio’s 12.7 percent payment rate by
generating estimates for the proportion of Project costs that would benefit Ohio: expenses for the
purposes of flood control, water quality, and water supply. See id. at 10–14 (explaining how the
Corps used the separable cost-remaining benefit (“SCRB”) methodology to establish Project cost
estimates). In segregating recreational costs from Ohio’s share, the estimates removed only
“specific-use” costs that exclusively went toward recreation and included “joint-use” costs that
served both recreational and flood control, water quality, or water supply purposes. See id.at 24–27 (arguing for a revised definition based on the SCRB methodology); see also Tr.
at 16:10–17:12 (explaining methodology). As the Government describes, the “Corps adds up the
costs assigned to the four O&M business lines, subtracts costs related solely to the recreation
purpose, and charges Ohio 12.7 percent of the remaining, joint-use costs of the project.” Id.Next, the United States contends that some expenses are appropriately designated O&M
because they are necessary to ensure compliance with laws and regulations or to mitigate
“adverse environmental harms . . . occasioned by project construction.” Id. at 30, 32. It argues
that many of the Project’s “environmental stewardship activities are necessary to avoid adverse
environmental impacts and were anticipated in pre-construction design documents.” Id. at 31.
To that end, “Ohio actually filed suit and obtained a preliminary injunction against project
construction in 1973, alleging that the loss of tree cover, stream habitat, and other alterations to
the natural environment would have significant, adverse environmental effects that the Corps had
failed to evaluate under the National Environmental Policy Act.” Id. at 31 n.11 (citing State of
Ohio ex rel. Brown v. Callaway, 364 F. Supp. 296, 298-300 (S.D. Ohio 1973), aff’d in part and
rev’d in part, 497 F.2d 1235 (6th Cir. 1974)).
By example, the United States refers to the requirement that every Army installation fly
an American flag outdoors and the need to avoid the “‘lamentable’ adverse effects of the project,
including ‘loss of access to archaeological sites’ and ‘elimination of a free-flowing stream
environment.’” Id. at 32 (quoting Def.’s Ex. 22 at OH_001860, ECF No. 68-23 (Ohio
Environmental Protection Agency memorandum)). One of the Corps’ 30(b)(6) witnesses even
testified that archeologists, biologists, and geologists ensure compliance with various federal
requirements, such as the National Historic Preservation Act, the National Environmental Policy
Act, the Endangered Species Act, and others. Amy Babey 30(b)(6) Dep. 142:9–143:11,
144:23–146:24, Def.’s Ex. 35, ECF No. 68-35.
10
3. The United States Breached the Contract by Issuing Bills for
Unauthorized O&M Costs.
a. The United States’ request for a “revised” definition of “joint-use
O&M costs”
The Court previously clarified that the phrase “joint-use O&M costs” means those costs
which are “necessary ‘to maintain the Project as an efficient going concern,’ ‘to operate the
Project effectively’ for water storage, water availability, and flood control, or ‘to remedy
injurious effects resulting from the Project’s subsequent operation,’ that pertain to more than one
purpose of the Project.” Ohio II, 254 Fed. Cl. at 241 (internal citations omitted) (first quoting
Nampa, 268 U.S. at 53; and then quoting Casitas, 543 F.3d at 1284).
In its Motion, the United States urges the Court to adopt a new interpretation of this key
phrase based on the Corps’ SCRB methodology. Def.’s Cross-Mot. at 25; see also Tr.
at 12:12–17 (“[W]e are asking the Court to reiterate that the prior definition for joint use O&M is
broader than the way Ohio characterizes that definition.”). Ohio argues that the Court should not
entertain this new approach because the Government fails to meet the standard for a motion for
reconsideration, forfeited its argument by failing to raise it at partial summary judgment, and
offers a substantively flawed argument that does not actually change the definition of joint-use
O&M. Pl.’s Resp. & Reply at 3–6. Indeed, the United States had everything it needed to argue
for this interpretation at partial summary judgment in 2021. See Def.’s Cross-Mot. at 10–14
(describing the accounting method the Corps used to estimate Project costs and determine Ohio’s
12.7 percent share), 24–27 (asserting that the statutes and accounting method warrant revision of
the term “joint-use O&M”); see also Pl.’s Resp. & Reply at 4–5 & n.1.
Although the United States should have made this argument earlier, a court may consider
a contention that is “not a new claim . . . but a new argument to support what has been [a party’s]
consistent claim.” Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 379 (1995). It may also
consider new issues that are “inextricably linked” with the issue at hand. City of Sherill v.
Oneida Indian Nation of N.Y., 544 U.S. 197, 214 n.8 (2005); see Melissa M. Devine, When the
Courts Save Parties from Themselves: A Practitioner’s Guide to the Federal Circuit and the
Court of International Trade, 21 Tul. J. Int’l & Comp. L. 329, 337 (2013). Here, both parties
point to the definition given in Ohio II to bolster their interpretation of joint-use O&M costs. See
Tr. at 12:22–13:1 (Government counsel arguing “we’re not really asking for the Court to change
[the definition] . . . we’re simply explaining that the way Ohio reads that decision is reading too
much into that holding as if it was an endorsement of Ohio’s position”); id. at 7:15–24 (Ohio’s
counsel highlighting that Ohio II “narrows the universe of costs that can be charged under the
contract”); id. at 14:24–15:1 (Government counsel stating that “the way Ohio is arguing is that
costs should only apply to water supply, but Judge Lettow determined that joint use applies to
more than one contractually specified use”).
The Court does not find the United States’ interpretation of the definition persuasive.
Neither the Contract nor the design memorandum Defendant cites suggest that Ohio understood
that the SCRB methodology applied when the parties signed the Contract. And even if Ohio
understood this methodology as it applied to generating cost estimates under Exhibit B of the
Contract, it would not necessarily mean that the same accounting decision applies to annual bills.
11
In contrast, Ohio II’s reasoning remains sound. The Contract’s plain language states that Caesar
Creek is “a ‘multi-purpose project’ with the goals of ‘flood control,’ ‘water quality control,’ and
‘water supply.’” Ohio II, 154 Fed. Cl. at 238 (quoting Water Supply Contract Ex. B). In light of
these express purposes, Ohio II held that “[t]he statutory provisions authorizing the parties to
enter into this Contract, combined with Nampa and Casitas, indicate that ‘operation and
maintenance costs’ should be interpretated as those necessary . . . for the Project’s water storage,
water availability, and flood control purposes.” Id. at 239.
For these reasons, the Court will not disturb the definition of “joint-use O&M costs”
articulated in Ohio II. 254 Fed. Cl. at 241. Whether an expense meets that definition determines
whether it establishes liability for breach of contract.
b. Application of the existing definition
The dispute concerns hundreds of line items which the parties have grouped into
categories and descriptors. For example, Ohio argues that “environmental stewardship”
expenses are billed improperly, and that flood control codes are actually for recreation and
therefore violate the Contract. See, e.g., Pl.’s Mot. at 26–27. The United States generally relies
on the same categorization of costs. See Def.’s Cross-Mot. at 31–32.
The Court will not make line-item liability determinations. To assess whether either
party is entitled to summary judgment, the Court considers whether expenses fell outside the
three requirements for expenses under Article 5 of the Contract: “[T]he contracting officer
cannot charge Ohio for costs that are not joint use, not for operation and maintenance, or not
related to the Caesar Creek Project.” Ohio II, 154 Fed. Cl. at 238.
i. Related to the Caesar Creek Project
Pursuant to the Contract, the United States may only bill Ohio for expenses that are
related to the Project. Id. Expenses that are wholly unrelated, or whose relationship to Caesar
Creek is too tenuous, run afoul of this limitation. Expenses incurred at another location, or for
travel to another location, likely do not relate to the Project. For these expenses, the United
States must prove that the costs directly and tangibly benefit one of the Caesar Creek Project’s
O&M purposes.
ii. Operation and maintenance
In addition to the requirement that expenses must relate to the Project, they must also be
for operation and maintenance. Ohio argues that a variety of expenses fail this standard because
they “do[] not keep the dam running.” Pl.’s Mot. at 22, 24. But Ohio II defined operation and
maintenance costs as those “necessary ‘to maintain the Project as an efficient going concern,’ ‘to
operate the Project effectively’ for water storage, water availability, and flood control, or ‘to
remedy injurious effects resulting from the Project’s subsequent operation.” Ohio II, 154 Fed.
Cl. at 241. While these categories include expenses that “make the dam run,” the cases from
which Ohio II derived its definition demonstrate that they are also broader.
In Casitas Municipal Water District v. United States, the plaintiff argued that a fish
ladder installed to facilitate the migration of the endangered West Coast steelhead trout should
12
not count as an O&M cost because it was “not related to the water supply functions” of a
reclamation project. 543 F.3d at 1285. The Federal Circuit disagreed. It held that the fish ladder
“ensur[ed] that the Project could continue to operate without violating [the Endangered Species
Act]” because operating the dam without either installing a fish ladder or obtaining an
“incidental take permit” would have threatened the survival of the fish and subjected the plaintiff
to civil and criminal liability. Id. at 1285.
Casitas relies on Nampa & Meridian Irrigation District v. Bond, which similarly held
that a drainage system designed to mitigate flooding caused by an irrigation system project was
chargeable as an O&M cost. 268 U.S. at 53–54. This drainage system was necessary to operate
the project effectively and “overcom[e] injurious consequences arising from the normal and
ordinary operation” of the irrigation system. Id. These cases clarify that the phrase “operation
and maintenance” goes beyond the basic running of the dam and includes certain costs that
indirectly maintain the Project as an “efficient going concern” or “remedy injurious effects” of
its operation. Ohio II, 154 Fed. Cl. at 241 (first quoting Nampa, 268 U.S. at 53; and then quoting
Casitas, 543 F.3d at 1284).
Furthermore, because such injurious effects are not necessarily confined to the dam’s
physical infrastructure, neither is the scope of O&M necessary to remedy these effects. As one
federal court explained about Caesar Creek, dam construction “convert[ed] a free-flowing stream
into an impounding lake behind a dam and spillway,” which caused “[b]iosystems that flourish
in the former environment [to be] replaced by those that flourish in a stillwater lake.” Ohio ex
rel. Brown v. Callaway, 364 F. Supp. 296, 298 (S.D. Ohio 1973), aff’d in part and rev’d in part,
497 F.2d 1235 (6th Cir. 1974). Accordingly, the Project’s maintenance obligations extend
beyond the dam itself and instead encompass the new ecosystems created by its construction.
In line with Ohio II, the scope of O&M includes costs for purposes intended to:
• “Keep the dam running,” directly serving the purposes of flood risk management, water
supply, and water quality;
• Maintain, repair, or replace equipment that is used in efforts to “keep the dam running” or
train personnel to perform these functions;
• Prevent, mitigate, or correct for negative effects on the physical environment or
biosystems caused by the construction, repair, or O&M of the dam; or
• Ensure that dam operations, the physical premises of the Caesar Creek Project, and
structures that are used for O&M comply with any applicable law or regulation.
These categories of expenses fit within the rubric of O&M, although it is not enough
merely to tack an O&M justification onto an otherwise recreational purpose. If the relationship
between an expense and an O&M function is too tenuous, it should not be allocated as an O&M
cost.
13
iii. Joint-use
Finally, O&M costs must be “joint-use” under the Contract. The Court previously
clarified that this means they must “pertain[] to more than one contractually specified use.” Ohio
II, 154 Fed. Cl. at 239. Recreation is, expressly, not a contractually specified use: the Contract
carves it out as a “specific use” that stands in contrast to the “joint-use” costs that further the
purposes of flood control, water quality, and water storage. Water Supply Contract
at USA000011. Thus, to comply with the Contract, an expense may only serve the joint uses of
water quality, water supply, and flood control that were contemplated by the parties. Expenses
that implicate recreation, even if they also address another Project function, violate the Contract.
For the purposes of the Contract, a “cost” is not necessarily coextensive with a purchase
or an item. Rather, a cost is that portion of a monetary transaction that is allocated to a particular
purpose. The parties advocate for competing relationships between joint use and recreation.
See, e.g., Tr. at 15:2–3 (Government counsel arguing that, under joint use, “a cost can apply to
both recreation and water supply or recreation and something else and still be a cost that is
allowed under the contract”); id. at 31:24–32:3 (Ohio counsel advocating the opposite). These
interpretations are too susceptible to gamesmanship. They invite strategic purchasing practices
and battles over the real purpose of a purchase. At the contracting stage, neither party would
have bargained for such an interpretation.
To effectuate the intent of the parties, the Contract must allow the United States to charge
12.7 percent of all O&M costs, and Ohio must be free of any responsibility to pay for non-O&M
costs. This means that the parties need to reconcile items acquired, or labor undertaken, for both
recreational and joint-use O&M purposes, whether through proration, designating a primary
purpose of each expense, or some other method.
c. The United States charged Ohio for unauthorized joint-use O&M
costs.
The Court holds that the United States breached the Contract by charging Ohio for
unauthorized O&M costs and Ohio is entitled to summary judgment on this claim. The record
demonstrates that the United States charged Ohio for two types of expenses that are not related to
the Project.
The first type of unrelated costs are for the MRA office. Although the office shares some
resources with Project staff, it has its own workspace and its own chain of command. MRA staff
supervise, and travel to, other Corps projects and their workspace at Caesar Creek is physically
separated from the “project office” where employees who operate the dam work. The offices
even operate on separate utility meters. O’Boyle Dep. 92:24–93:5. Thus, there should be no
difficulty in billing the entities individually.
Travel and water safety promotion efforts are similarly unrelated expenses. The United
States billed Ohio for costs associated with water safety promotion efforts beyond Caesar Creek,
including at baseball games, boat shows, and parades. The relationship between general water
safety and the specific Caesar Creek Project is too tenuous to fit within the Contract.
14
There is potentially a third type of unrelated expense: charges for other Corps projects.
Ohio points to charges for asphalt maintenance and a water study at other Corps lakes, as well as
visits to other Corps sites. Pl.’s Mot. at 29–30; Pl.’s Resp. & Reply at 13. The United States
asserts that the study was also conducted at Caesar Creek and the other costs might have covered
activities there, but that the Corps may have left out or cut off this explanation on the bills sent to
Ohio. Def.’s Reply at 9–10; Tr. at 20:7–12, 21:19–24. If damages discovery does not bear out
these assertions, such expenses further establish liability, as a more direct link is necessary for an
expense to fall within the parameters of the Contract.
Overall, the Corps breached the Contract by billing for certain charges that are not
sufficiently related to the Project. The parties also dispute several other charges that are related
to Caesar Creek but may or may not fall within the definition of joint-use O&M purposes. As
the parties have contemplated, the Court will allow the parties to address whether these charges
contribute to the United States’ liability at the damages stage of litigation based on the guidance
provided in this Opinion.
Ohio also brought an illegal exaction claim as an alternative to its contract theory.
Because the United States is liable for breach of contract, that claim is moot. See Am. Compl.
¶ 58 (stating that Ohio presents illegal exaction “[i]n the alternative to [its] other Causes of
Action”); Def.’s Cross-Mot. at 49–50. “It has long been the policy of the courts to decide cases
on non-constitutional grounds when that is available, rather than reach out for the constitutional
issue. . . . [W]hen a plaintiff is awarded recovery for the alleged wrong under one theory, there
is no reason to address the other theories.” Stockton E. Water Dist. v. United States, 583 F.3d
1344, 1368 (Fed. Cir. 2009) (citing Nw. Austin Mun. Util. Dist. No. One v. Holder, 557 U.S. 193(2009)).
C. Breach of the Implied Covenant of Good Faith and Fair Dealing
1. The Parties’ Motions
In addition to its claims regarding the express terms of the Contract, Ohio alleges that the
United States violated the implied covenant of good faith and fair dealing. Pl.’s Mot. at 34–39;
Pl.’s Resp. & Reply at 18–22. “Every contract imposes upon each party a duty of good faith and
fair dealing in its performance and enforcement.” Alabama v. North Carolina, 560 U.S. 330,
351 (2010) (quoting Restatement (Second) of Contracts § 205 (1981)). Conduct that may breach
the implied covenant includes “subterfuges and evasions” and “interference with or failure to
cooperate in the other party’s performance.” Metcalf Constr. Co. v. United States, 742 F.3d 984,
991 (Fed. Cir. 2014) (quoting Malone v. United States, 849 F.2d 1441, 1445 (Fed. Cir. 1988)).
“In general, though, ‘what that duty entails depends in part on what that contract promises (or
disclaims).’” Metcalf, 742 F.3d at 991 (quoting Precision Pine & Timber, Inc. v. United States,
596 F.3d 817, 830 (Fed. Cir. 2010)). The implied covenant of good faith and fair dealing does
not expand contractual rights or obligations, and it “is limited by the original bargain: it prevents
a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent
with the contract’s purpose and deprive the other party of the contemplated value.” Id.Ohio claims that the United States violated the duty of good faith and fair dealing in two
ways. First, it argues that the United States’ record-keeping failed “to provide sufficient
15
information and explanation for charges.” Pl.’s Mot. at 35. For example, it notes that bills for
rangers’ salaries do not provide specific information about the tasks they carry out. Id. at 35–37.
Ohio also discusses multiple charges titled “travel order” and “mileage and rental,” that lack any
description of the expense incurred. Id. at 37. Second, Ohio alleges that the Corps maintained
“arbitrary billing practices and fail[ed] to ensure compliance with the Contract.” Pl.’s Mot.
at 3438. The State claims that the Corps’ billing process is “fraught with subjectivity and
completely disregards the Corps’ Contract with Ohio.” Id. It points to testimony from Corps
staff who do not recall receiving any training or guidance on how the Contract applies to
purchasing or coding determinations and refers to a park ranger who did not know that Ohio paid
a percentage of O&M costs. See, e.g., id. at 38–39 (highlighting testimony of Corps employee
who “wasn’t aware of any policy, procedure, or authority” for her decisions on O&M costs).
For the first claim, the United States asserts that “[w]hat Ohio is really arguing . . . is that
the Corps did not cooperate to the level that Ohio is now claiming is proper, despite the fact that
the Corps made every effort to provide Ohio with any necessary information during contract
performance.” Def.’s Cross-Mot. at 43. In the Government’s view, Ohio is attempting to
incorporate into the Contract a duty of specificity that exceeds its actual requirements, even
though the implied covenant “cannot expand a party’s contractual duties beyond those in the
express contract, or create duties inconsistent with the contract’s provisions.” Id. at 43–44 (first
citing CanPro Invs. Ltd. v. United States, 131 Fed. Cl. 528, 531 (2017); and then citing Precision
Pine, 596 F.3d at 831).
Regarding the second claim, the United States asserts that “[n]ot only are Ohio’s
arguments not supported by the facts, but they are also . . . redundant of their breach of contract
arguments.” Id. at 47. Defendant notes that “[w]here a contract provides other avenues for relief
‘that preempt the need to invoke the doctrine of good faith and fair dealing,’ there is ‘no
justification for invoking an extra-contractual duty of good faith that would be redundant of the
duty imposed by that clause.’” Id. at 47 (quoting BGT Holdings LLC v. United States, 984 F.3d
1003, 1016 (Fed. Cir. 2020)).
2. The United States Breached the Duty of Good Faith and Fair Dealing.
The Court holds that the United States breached the implied covenant of good faith and
fair dealing. Accordingly, Plaintiff is entitled to summary judgment on this claim.
First, the United States failed to sufficiently maintain records. Pursuant to the Contract,
the United States is obligated to make “[r]ecords of the cost of operation and maintenance of the
Project . . . available for inspection and examination by the State.” Water Supply Contract,
Art. 5 § (c)(3). Under this Provision, the records must be clear enough to indicate the nature of
the expenses. Otherwise, Ohio’s right to review the records is meaningless.
The United States may be correct that the Contract does not require it to keep records “in
a particular format or include [a] specific justification.” Def.’s Cross-Mot. at 44 (citing Water
Supply Contract, Art. 5 § (c)(3)). But even without specific requirements, records must be
usable. Id. Here, the records are not. Even the park manager, who is responsible for approving
purchase requests, testified that the records are “[c]lear as mud.” O’Boyle Dep. 76:12.
Moreover, the United States is incorrect that “nothing in the contract requires or invites Ohio’s
16
scrutiny of individual costs.” Def.’s Reply at 5. The purpose of the Contract’s inspection and
examination clause is to invite scrutiny, yet the United States maintained ambiguous records that
require reconciliation through group meetings and discussions. As Government counsel
recognized, itemization of the billing costs does not consistently include all information, and the
Corps’ own budget process “obviates the need for doing a line item by line item analysis.” Tr.
at 22:3–6, 17:19–20. Indeed, this litigation required bifurcation into liability and damages
phases, in part because more specific discovery is necessary for the parties and the Court to
know what was billed in each line item.
Second, the United States also violated the implied covenant by maintaining arbitrary
billing practices.4 Two Corps employees explained the process by which the Corps determines
whether a particular expense is categorized as O&M. In a 30(b)(6) deposition, Amy Babey
extrapolated on the Corps’ labyrinthine process: “[t]he staff at the project office as well as the
supervisor at the project office along with that first level program analyst and that second level
resource management reviewer will all ensure that [billing decisions] are consistent with what
was defined in the work package.” Babey 30(b)(6) Dep. 49:8–14. She insisted that “[o]nce a
charge is made—an expenditure is made or a [purchase request] is developed, it will flag or it
will be tied to that work category code, so that is where the decision is. It takes the subjectivity
out of it.” Id. 47:14–18.
But James O’Boyle, the Corps’ Caesar Creek park manager, described a process with
substantial subjectivity. He stated that, “[t]here are times when [employees] do talk about
[coding purchases], and there are times when, in my judgment, they get it wrong, and we try and
correct those.” O’Boyle Dep. 67:9–12. For example, he explained how birdseed exists in a
“gray area” because it can serve a recreational or natural resource purpose. Id. at 67:16–68:15.
He “believe[d] it got charged to natural resources” but acknowledged that “you can make an
argument for both.” Id. at 68:2–3, 11–12. Further, while employees receive fiscal law training,
the issue of what to consider “given this contract” has “never been mentioned, to [O’Boyle’s]
recollection.” Id. at 70:2–13; 72:15–19.
The record demonstrates that the resulting decisions are arbitrary. Mr. O’Boyle could
only “guess” or “speculate” about the appropriate business line for multiple expenses, including
invasive species removal, electric utilities, off-site events to promote water safety, and solar
panels. See, e.g., id. at 90:2–12 (“I would have to guess, but I would say probably most of
[invasive species control] is charged to flood damage reduction.”), 93:9–22 (“[M]y guess would
be [electric billing is] almost exclusively under FRM, flood reduction management.”),
4
At oral argument, Plaintiff’s counsel conceded that this argument includes “substantial
overlap” with its allegations for unauthorized O&M costs. Tr. at 51:23. The Court recognizes
that it should not reach the implied covenant if it would be “redundant” of duties the Contract
expressly creates. See BGT Holdings LLC v. United States, 984 F.3d 1003, 1016 (Fed.
Cir. 2020). Nonetheless, arbitrary billing practices, as opposed to arbitrary application, is better
suited to the claim concerning the implied covenant of good faith and fair dealing. An arbitrary
billing practice may or may not result in charges that violate the express terms of the Contract,
but the lack of a useful standard represents its own failure. Like the charges’ lack of
transparency, their arbitrariness burdens Ohio’s ability to exercise its right to inspect and
examine the contracting officer’s records.
17
118:22–119:9 (“I couldn’t say with certainty [how a boat show is billed]. I mean, I can
speculate.”), 124:1–5 (“[T]here’s two lines on [solar panels], again, I’m going to guess, because
maybe we use two different lines, two different business lines to pay for it, but that would be just
a guess.”).
The Court does not doubt that these employees earnestly apply their best judgment when
faced with “gray area” expenses, but where there is no clear guidance informing that judgment,
the process is arbitrary. It should not require discussion among several employees or “guessing”
to know whether an expense is appropriate. The opacity of the Corps’ records and reasoning
does not allow Ohio to exercise its contractual right to meaningfully inspect them. And the
Corps’ billing process is arbitrary. Accordingly, the United States has violated the implied
covenant of good faith and fair dealing, and Plaintiff is entitled to summary judgment on this
claim.
D. Breach of Contract by Issuing Corrected Bills for Periods Pre-Dating the
Most Recent Billing Year
Ohio claims that the United States breached the Contract “by assessing a lump sum
retroactive charge of $187,150.07 after deciding that its own cumulative billing errors from 2007
to 2017 resulted in a shortfall.” Pl.’s Mot. at 30. The United States insists that the Contract
permits corrections to bills over a several-year period. Def.’s Cross-Mot. at 34–37. The dispute
concerns the proper interpretation of Article 5, section (c)(2), which describes the schedule for
billing O&M costs. The first bill is pro-rated, after which:
Annual payments will be due and payable in advance on the 1st day of July
thereafter. Payments following the first complete fiscal year of operation shall be
increased or decreased in an amount to reflect the difference between the prior
payment for operation and maintenance and the actual experienced joint-use costs
of operation and maintenance for the prior years.
Water Supply Contract, Art. 5 § (c)(2).
Ohio argues that “the Contract only allows adjustments based on the preceding year’s
experienced costs, and only when the current bill is issued,” and it “allows for an adjustment
only to ‘reflect the difference between prior year’s payment and the actual experience joint use
operations and maintenance’ costs.” Pl.’s Mot. at 31 (quoting Water Supply Contract
Art. 5 § (c)(2)); see also Tr. at 36:22–24; 37:14–21. The United States counters that “Ohio’s
reading of the plain language completely ignores the plural word ‘years’ at the very end of the
contract clause.” Def.’s Cross-Mot. at 35. This “indicates that payments will be adjusted to
reflect the difference between the prior year’s payment, and the actual experienced costs for
multiple prior years.” Id. It contends that, “[a]ccordingly, the contract does not limit . . . the
possible retroactive adjustment to just one year (singular), but allows for adjustments based on
actual costs for multiple years.” Id.
The use of the plural word “years” is unambiguous. Ohio discounts its significance by
pointing to “payments,” a different plural word elsewhere in the provision. See Pl.’s Reply at 14.
This is unpersuasive. While Ohio attempts to read ambiguity into the phrase “[p]ayments
18
following the first complete fiscal year,” the meaning is clear: each annual payment following
the first annual payment. The “s” in “payments” does not change the Corps’ ability to bill for
multiple “prior years.” See Water Supply Contract Art. 5 § (c)(2)). The United States did not
breach the Contract by issuing corrected bills covering a multiple-year period. Accordingly, it is
entitled to summary judgment on this claim.
E. Breach of Contract for Charging Interest on Overdue O&M Charges
Ohio claims that the United States also breached the Contract by charging one percent
interest on unpaid O&M charges, plus another six percent for any amount more than 90 days
delinquent. Pl.’s Mot. at 32 (citing Pl.’s Ex. 16 (2018 adjusted bill for underbilling)). These
interest payments were applied to unpaid O&M charges, not the bill resulting from the ten-year
audit. See Tr. at 50:1–4. Ohio argues that including an interest provision for project investment
costs in the Contract, compared to the absence of an equivalent provision in the O&M section,
indicates an intent to apply interest only to the former. Pl.’s Mot. at 32–33. Compare Water
Supply Contract Art. 5 § (a) (project investment costs), with id. § (c)(2) (O&M payments).
The United States cross-moves, contending that, while the Debt Collection Act does not
apply in this case, “states are still required to pay interest pursuant to Federal common law, based
on weighing ‘the competing federal and state interests.’” Def.’s Cross-Mot. at 38 (quoting
United States v. Texas, 507 U.S. 529, 536 (1993)).5 It relies on Royal Indemnity Co. v. United
States for the proposition that “[t]he Supreme Court has long held that the rules governing
whether the United States can collect interest due as a result of unpaid contractual obligations are
to be determined by the Federal courts.” Def.’s Cross-Mot. at 38 (citing 313 U.S. 289, 296
(1941)). It further looks to West Virginia v. United States for the notion that “[t]he United States
is also entitled to collect pre-judgment interest on unpaid debts arising out of a contractual
obligation.” Def.’s Cross-Mot. at 38–39 (citing 479 U.S. 305, 310, 311 (1987)). After
comparing West Virginia to the present case, it contends that “the Corps is entitled to collect pre-
judgment interest on unpaid O&M bills.” Id.6
5
The United States actually misconstrues Ohio as arguing “that the Debt Collection Act of
1982, codified at 31 U.S.C. § 3711 et seq., bars the Corps from collecting interest on any unpaid
bills under contracts executed before October 25, 1982, making the charges [] unlawful.” Def.’s
Cross-Mot. at 38. In fact, Ohio argued that “the text of the Act plainly states that it does not
apply” to the Water Supply Contract. Pl.’s Mot. at 33.
6
Ohio argues that “[t]he Corps’ designated RCFC 30(b)(6) representative could not point to any
legal authority justifying these charges . . . [or] any provision in the Contract authorizing the
charging of interest and penalties.” Pl.’s Mot. at 33 (citing Roxanne Keeling 30(b)(6) Dep. 20–
21, Pl.’s Ex. 41, ECF No. 65-41). The United States requests that the Court strike that part of the
brief because “[i]nformation concerning the Government’s legal positions is beyond the scope of
a 30(b)(6) deposition” and fact witnesses cannot set forth the legal position of the United States
under the Federal Rules of Evidence. Def.’s Cross-Mot. at 41–42 n.16. While Ohio is correct
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But as Ohio explains, the cases the United States cites concern prejudgment interest.
Pl.’s Resp. & Reply at 16. “[P]rejudgment interest requires a judgment” because “[a]fter all, it is
‘interest to be recovered as damages.’” Id. (quoting West Virginia, 479 U.S. at 308); see also
West Virginia, 479 U.S. at 310 n.2 (“Prejudgment interest serves to compensate for the loss of
use of money due as damages from the time the claim accrues until judgment is entered, thereby
achieving full compensation for the injury those damages are intended to redress.”); Seaboard
Lumber Co. v. United States, 48 Fed. Cl. 814, 836 (2001) (stating that “the purpose of awarding
interest” is “compensating the non-breaching party for the loss of the use of money”).
The United States would be within its rights to sue Ohio and seek prejudgment interest
along with damages, but it cannot charge interest when it does not even claim a contract-related
injury and cannot point to any other provision of law by which it would be entitled to interest.
Under West Virginia, “parties owing debts to the Federal Government must pay prejudgment
interest where the underlying claim is a contractual obligation to pay money.” West Virginia,
479 U.S. at 310 (emphasis added). But the United States “has not filed suit (or a counterclaim)
against Ohio, has not obtained a judgment, and has not been awarded prejudgment interest on
that judgment,” Pl.’s Resp. & Reply at 17, nor has it indicated an intent to do so. This key factor
distinguishes the instant case from United States v. Texas.
And while the Government is correct that a judgment had not yet occurred in Texas, see
Tr. at 46:13–21, in that case, the United States had “informed [Texas] that prejudgment interest
would begin to accrue.” 507 U.S. 529, 532 (1993). Rather than demanding immediate payment,
the United States put Texas on notice that it would owe interest in the event of an eventual
lawsuit. In the instant case, the United States demanded that interest and late fees be paid
without any nexus to a potential lawsuit. Instead, the only notice Ohio received was its referral
to the Treasury Offset Program and statement that interest applied on the bill for correction. See
Pl.’s Ex. 16 at USA001583.
With no indication that the United States intended to sue for damages, any right to collect
interest would need a foundation in the Contract itself. The United States does not demonstrate
that any such right exists. By seeking interest unconnected to a monetary judgment, the United
States breached the Contract, and Ohio is entitled to summary judgment on this claim.
IV. Conclusion
As the Court noted at oral argument, the Corps and Ohio have an ongoing relationship,
and the same problems of Contract application are likely to arise again in the future. Tr.
at 33:20–34:6. Given the “vague” nature of the Contract, future conflict seems possible. See,
that some of the United States’ cited authorities are inapplicable because they focus on the
deliberative process privilege, the United States is similarly correct that asking a fact witness to
opine on “legal authority justifying” an action is improper. See Fed. R. Evid. 701(c) (providing
limitations on non-expert witness testimony); Keeling 30(b)(6) Dep. 20–21 (documenting United
States’ objections to deposition questions that call for legal conclusions). Rather than striking
that paragraph of the motion—an action with a high bar under RCFC 12(f)—the Court opts not
to assign the passage any weight.
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e.g., id. at 53:16 (Government counsel describing the Contract as “vague”). As the proceeding
moves into the damages phase, the Court encourages the parties to work together to establish a
dispute resolution process for expenses that are challenged in the future, as well as other issues
that may arise in the course of the contractual relationship. Alternatively, the parties should
consider amending the Contract to clarify its terms.
For the reasons outlined above, the Court issues the following rulings:
1. Defendant’s Motion to Dismiss claims concerning payments due before July 1, 2008, is
GRANTED;
2. Defendant’s Motion to Dismiss claims for declaratory relief is DENIED;
3. Plaintiff’s Motion for Summary Judgment on liability for breach of contract by issuing
unauthorized O&M charges is GRANTED; Defendant’s Motion for Summary Judgment
on liability for breach of contract by issuing unauthorized O&M charges is DENIED;
4. Plaintiff’s claim for illegal exaction is DISMISSED; Defendant’s Motion for Summary
Judgment on liability for illegal exaction is DENIED as moot;
5. Plaintiff’s Motion for Summary Judgment on liability for breach of the implied covenant
of good faith and fair dealing is GRANTED; Defendant’s Motion for Summary
Judgment on liability for breach of the implied covenant of good faith and fair dealing is
DENIED;
6. Plaintiff’s Motion for Summary Judgment on liability for breach of contract by issuing
corrected bills for periods older than the most recent billing year is DENIED;
Defendant’s Motion for Summary Judgment on liability for breach of contract by issuing
corrected bills for periods older than the most recent billing year is GRANTED;
7. Plaintiff’s Motion for Summary Judgment on liability for breach of contract by charging
interest on overdue payments is GRANTED; Defendant’s Motion for Summary
Judgment on liability for breach of contract by charging interest on overdue payments is
DENIED.
IT IS SO ORDERED.
s/ Carolyn N. Lerner
CAROLYN N. LERNER
Judge
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