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United States v. Midwest Transport

November 24, 2008


The opinion of the court was delivered by: Murphy, District Judge


Plaintiff, the United States of America, moves to dismiss the counterclaims filed by Defendant, Midwest Transport, Inc. ("Midwest Transport") (Doc. 19), and Midwest Transport moves to dismiss the claims in the complaint (Doc. 27). Midwest Transport wants the Court to refer this matter to the Postal Service Board of Contract Appeals ("PSBCA") for an advisory opinion pursuant to 41 U.S.C. § 609(f) and to stay the proceedings pending this opinion (Doc. 72).


In this action under the False Claims Act, 31 U.S.C. §§ 3729(a)(1) and (a)(2), the United States contends that Midwest Transport submitted payment certifications to the United States Postal Service ("USPS") which failed to disclose certain discounts it obtained for fuel purchases pursuant to contracts Midwest Transport had with Pilot Corporation. According to the United States, these certifications were submitted knowingly in violation of the False Claims Act. The United States also asserts claims under the common law theories of payment by mistake and unjust enrichment.

Midwest Transport filed four counterclaims along with its answer on November 21, 2007 (Doc. 14). These counterclaims allege 1) breach of the duty of good faith and fair dealing; 2) fraud in the inducement; 3) negligent misrepresentation; and seek 4) a declaratory judgment. Midwest Transport argues that the first three of these claims arise from the United States's conduct in the execution of the novation agreement by which Midwest Transport assumed the hauling contracts previously held by Midwest Transit, Inc. ("Midwest Transit"), and it asks for a declaratory judgment interpreting the hauling contracts.

The Government moves to dismiss for lack of subject matter jurisdiction and failure to state a claim for which relief can be granted pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. According to the United States, counterclaims 2) and 3) are torts, and, therefore, barred by the Federal Tort Claims Act, 28 U.S.C. § 2680(h). Midwest Transport concedes the dismissal of claims 2) and 3), but opposes the dismissal of 1) and 4).


In ruling on a Rule 12(b)(6) motion a court must accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party. See Mid Am. Title Co. v. Kirk, 991 F.2d 417, 419 (7th Cir. 1993). While a court will accept well-pled allegations as true for the purposes of the motion, it will not accept unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See First Ins. Funding Corp. v. Federal Ins. Co., 284 F.3d 799, 804 (7th Cir. 2002). Moreover, the claimant must set forth sufficient information to outline the elements of his or her claims or to permit inferences to be drawn that the elements exist. See Strauss v. City of Chicago, 760 F.2d 765, 767-68 (7th Cir. 1985) (the absence of any facts to support a plaintiff's claim renders the allegations of a complaint mere legal conclusions subject to dismissal).

A. Midwest Transport's Counterclaims

1. Good Faith and Fair Dealing

The Government first argues that the breach of the duty of good faith and fair dealing does not extend to contract negotiation, only to contract performance. In support of this argument, the United States cites the Restatement (Second) of Contracts § 205, which states in part that "[t]his Section . does not deal with good faith in the formation of the contract.remedies for bad faith in the absence of agreement are found in the law of torts or restitution." Further, the United States argues that the sovereign immunity provisions of the Federal Tort Claims Act bar this claim, and finally, the United States argues that exclusive jurisdiction for this counterclaim would rest with the Court of Federal Claims, not this district court.

Midwest Transport argues there is an implied duty of good faith and fair dealing in the formation of a contract with the United States and that this duty extends to the actions of the United States prior to the formation of the contract. In support of this argument, Midwest Transport cites Heyer Products Co. v. United States, 140 F.Supp. 409 (Ct. Cl. 1956). There, the government solicited bids for a defense contract, but, at the time the bids were received, the government intended to only consider one company. Id. at 410. The plaintiffs sued to recover the cost of their bid. Id. The court found that an implied contract existed between the government and all companies who had submitted bids, and that this contract extended a promise that all bids would be considered fairly. Id. at 414.

Midwest Transport also relies on Rumsfeld v. Applied Cos., 325 F.3d 1328 (Fed. Cir. 2003).

In that case the government solicited bids for refrigerant storage cylinders but it knew at the time that its request for bids overstated the number of cylinders required and failed to inform the bidders of this discrepancy. Id. at 1329-30. The district court in Applied held that the government's negligence in failing to inform the bidders about its ...

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