Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Applied Companies v. United States

May 27, 1998

APPLIED COMPANIES PLAINTIFF-APPELLANT,
v.
UNITED STATES DEFENDANT-APPELLEE



Before Plager, Lourie, and Bryson, Circuit Judges.

The opinion of the court was delivered by: Bryson, Circuit Judge.

Appealed from: United States Court of Federal Claims

Judge Lydon

This case concerns the law of setoffs. The dispute began when the government made two overpayments to Applied Companies, a government contractor. Applied agreed that it was obligated to repay the money, but instead of repaying it directly, Applied sought to set off the debt against obligations the government owed to it on other contracts. The government rejected Applied's proposals and instead discharged Applied's debt by setting it off against the amount the government had agreed to pay Applied pursuant to a termination settlement agreement on another contract. Applied objected to the setoff and sued in the Court of Federal Claims to recover the funds that were withheld from the proceeds of the termination settlement agreement. The Court of Federal Claims rejected Applied's challenge to the government's setoff. Applied Cos. v. United States, 37 Fed. Cl. 749 (1997). We affirm.

I.

This case has a complicated factual background, the details of which are set forth in the thorough opinion prepared by the trial Judge. See Applied Cos., 37 Fed. Cl. at 751-55. Applied entered into several contracts with the government to supply air conditioning units. One of those contracts, Contract No. 0058, was terminated for default by the government. The Armed Services Board of Contract Appeals converted the default termination into a termination for the convenience of the government, and the parties negotiated a termination settlement agreement. Under the terms of the settlement, the government agreed to pay Applied $2,818,931.34 to resolve all claims from the terminated contract.

The government, however, did not pay Applied that sum, but instead paid only $911,604.11. That sum was paid to Comerica Bank, to which Applied had assigned the proceeds of Contract No. 0058 as partial collateral for a loan. The government used the remainder to offset two overpayments that the government had previously made to Applied on another contract, Contract No. C072, three years earlier.

The overpayments on Contract No. C072, which were apparently the product of a computer error, resulted in a total excess payment to Applied of $1,399,005.19. Applied promptly notified the government of the overpayments, but instead of returning the money, Applied proposed several arrangements to discharge the debt by crediting the overpayments against other outstanding government obligations to Applied. The government did not accept any of Applied's proposals, but insisted on direct repayment. Applied did not return the overpayments, and the government ultimately chose to recoup the overpayments by offsetting them against the sum the government agreed to pay Applied in connection with the settlement of Contract No. 0058. Applied protested the setoff, but the contracting officer denied the protest.

Applied sought review of the government's actions in the Court of Federal Claims, arguing that the setoff violated the terms of the settlement agreement on Contract No. 0058 and was improper for other reasons as well. The Court of Federal Claims rejected each of Applied's arguments and granted summary judgment in favor of the government. First, the court held that the termination settlement agreement did not bar the setoff, because nothing in the agreement deprived the government of its common law setoff right. Second, the court rejected Applied's argument that it had previously retired its debt to the government by setting it off against obligations the government owed Applied on other contracts. The court found that Applied had "not established that at the time the government properly exercised its setoff rights [Applied] had previously exercised a valid setoff." Third, the court held that the government's setoff did not have to be predicated on the final decision of a contracting officer, because the government's right to recover the overpayment was not subject to the Contract Disputes Act. Finally, the court rejected Applied's argument that the Assignment of Claims Act of 1940, 31 U.S.C. § 3727 and 41 U.S.C. § 15, barred the government from taking a setoff against the funds in the termination settlement agreement. The "no-setoff" provision of the Assignment of Claims Act, the court explained, was intended to protect assignees and therefore was not enforceable by an assignor such as Applied.

II.

Applied first argues that it retired the overpayment debt well before the government took its setoff, and that it did so by offsetting the overpayment debt against contract obligations the government owed to Applied under Contract No. B013, a separate contract for air conditioning units. The trial court rejected that argument, and we uphold the court's ruling on that issue.

The record of correspondence between Applied and the government concerning the overpayment debt indicates that the matter remained unresolved until the government's setoff of the settlement proceeds. Applied wrote four letters between April 1992 and July 1992 notifying the government of its intention to discharge the overpayment debt by crediting it against the government's obligations on various contracts with Applied. In three of those letters, Applied proposed to credit the overpayments against its claim on Contract No. 0058 and asked for the government's acquiescence in that arrangement. The government responded that it did not agree to Applied's proposed crediting plan and demanded immediate repayment.

In May 1993 the government wrote a letter informing Applied that more than $96,000 in interest had accrued on the overpayments and offering Applied the alternative of entering into an installment plan to discharge the debt. Applied responded by requesting a "Deferred Payment Agreement," which would have allowed the government to offset the overpayments against the settlement of various contract claims that Applied had filed against the government. Again, the government declined Applied's proposal.

On August 28, 1993, Applied sent the government the results of its "payment analysis" of two contracts, Contract No. C072 and Contract No. B013. Applied's analysis showed that the government owed it a balance of $21,905.02 on the two contracts. Applied derived that amount by crediting the government with the original overpayment on Contract No. C072, subtracting unpaid amounts on that contract, and subtracting an additional $1,280,349.19 that Applied claimed was the outstanding balance the government owed on Contract No. B013. In effect, Applied proposed that the overpayment be set off against amounts owed to Applied on the C072 and B013 contracts. In the Court of Federal Claims, Applied also submitted the declaration of its Chief Financial ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.