PSBCA Nos. 6430 and 6488


July 16, 2014

Appeals of
TEMPLE CONTRACT STATION LC

PSBCA Nos. 6430 and 6488

APPEARANCE FOR APPELLANT:
Brent Martin
Temple, TX

APPEARANCE FOR RESPONDENT:
Richard Rho, Esq.
Office of the General Counsel
Washington, DC

OPINION OF THE BOARD

Appellant, Temple Contract Station LC, operated a contract postal unit in Temple, Texas under contract with Respondent, United States Postal Service.  Respondent terminated the contract as a result of a collective bargaining agreement  between the Postal Service and its largest union, and denied Appellant’s resulting damages claim.  The Board conducted a two-day hearing in Austin, Texas addressing entitlement and quantum.  We rule in Respondent’s favor.

FINDINGS OF FACT

  1. The Temple CPU Contract
  1. In 1992, the parties1  entered into Contract No. 489990-92-B-0862 for the operation of a contract postal unit in Temple, Texas (Temple CPU) (Stip 1; AF 1).  The contract’s fixed annual price was $220,814 as of the date of contract termination (Supp AF 1 at 111-12; Aug. 14 Tr 23-24). 
  2. The Temple CPU initially operated in the Market Place Shopping Center.  In 2007, the parties agreed to move the CPU to Canyon Creek Road, where it operated at the time of termination.  The Canyon Creek Road location was less than four miles from the Temple Post Office (AF 1 at 40, 44; Exh Z at 555-56; Aug. 13 Tr 174; Aug. 14 Tr 14-15, 61, 102).
  3. The contract required Appellant to provide postal services to the public, and the Temple CPU generated more mail volume than the Temple Post Office (Stip 3; AF 1; Aug. 14 Tr 24-25, 41-45).
  4. The Contract Duration and Termination clause provided:
    a. Duration.  The contract will be for an indefinite term, subject to the rights of termination specified in b below. 
    b. Termination.  This contract may be terminated by either the Postal Service contracting officer or the contractor upon 60 days’ written notice.  The contracting officer may terminate the contract upon one day’s written notice if necessary to protect the Postal Service’s interest.  (AF 1, § C.1(a-b)).

    The collective bargaining agreement
  5. On March 11, 2011, the Postal Service and the American Postal Workers Union (APWU)2  agreed upon a four and one-half-year collective bargaining agreement (CBA) addressing Postal Service-wide labor matters.  Following ratification by the APWU’s membership, the Postmaster General and the APWU’s Chief Executive Officer signed the CBA on May 13, 2011.  (Exh A at 277-78; Aug. 14 Tr 110).
  6. The CBA included, in an appendix, a Memorandum of Understanding (MOU), which stated in relevant part:
    The Postal Service will close or convert to in-house operations as soon as practicable the following full-service Contract Postal Units (CPUs) that solely provide postal services with box sections.  The parties will meet to discuss the precise dates on which these CPUs will be closed or converted.
     (Exh A at 371-72).
  7. The MOU listed twenty CPUs, including “Market Place Ctr., 3100 S. 31st St., Temple, TX,” the former location of the Temple CPU operated by Appellant (Stip 6; Exh A at 371-72; Aug. 13 Tr 64-65, 71-72, 145, 173; Aug. 14 Tr 61, 110).  The Postal Service and the APWU understood that reference as identifying the Temple CPU, although it did not refer to the Temple CPU’s Canyon Creek Road location.  (Exh Z at 564, 581; Exh Binder 8; Aug. 13 Tr 64-65, 71-72; Aug. 14 Tr 109-110).
  8. The APWU had identified the Temple CPU for inclusion in the agreed MOU list (Aug. 13 Tr 40-41, 118, 131; Aug. 14 Tr 109-10).  APWU officials believed that work done by non-union personnel at the Temple CPU should have been performed by Postal Service employees at the nearby Temple Post Office (Aug. 13 Tr 44, 117; Aug. 14 Tr 119-20).
  9. APWU officials contended that the provision of post office boxes at the Temple CPU violated previous collective bargaining agreements.  The APWU previously had filed a grievance, of which Appellant was unaware, challenging the Temple CPU’s continued operation.  The grievance was scheduled for arbitration when the CBA was executed.  (Aug. 13 Tr 118-120, 125-26, 134-35, 172; Aug. 14 Tr 28). Closure of the Temple CPU resolved the pending grievance (Aug. 13 Tr 135).
  10. Once the CBA was ratified, the Postal Service officials that had negotiated the CBA knew that the Temple CPU would have to close to comply with the CBA, absent an intervening event (Aug. 13 Tr 50).  In June and July 2011, those Postal Service officials again negotiated with the APWU, seeking to substitute a different CPU for closure in place of the Temple CPU.  The negotiations were unsuccessful, and the Postal Service ceased substitution efforts in September or October.  (Aug. 13 Tr 25, 32, 46, 53-54, 131; Aug. 14 Tr 97-100, 111-12; Exh 8; Exh Binder 9).
  11. In August, 2011, the Temple Postmaster advised Appellant’s principal and manager that the Temple CPU contract might be in jeopardy due to an unspecified union matter.  When Appellant’s principal asked its Postal Service liaison about the rumor, the liaison told him that she was unaware of a potential termination.  (AF 3 at 52-53; Aug 13 Tr 139, 148; Aug. 14 Tr 31).  Shortly thereafter, Appellant’s manager discovered the CBA and the MOU through an internet search (Aug. 13 Tr 148).
  12. In October and November 2011, Respondent’s local officials were negotiating operational contract changes with Appellant.  Appellant’s officials therefore believed that any concerns raised by the August discussions had been resolved, and they heard nothing further until receiving the termination notice in January 2012 (see Finding of Fact (Finding) 16; Aug. 13 Tr 23, 50-53, 150, 153; Aug. 14 Tr 30, 97-99).

    Termination of the Temple CPU contract 
  13. In October 2011, the Postal Service’s program manager, responsible for management of its approximately 3,500 CPUs (CPU program manager), informed the contracting officer that twenty specific CPUs might have to be terminated due to the CBA.  This communication was the first such notification received by the contracting officer.  (Aug. 13 Tr 38, 73-75, 84, 96).
  14. On January 17, 2012, Respondent’s CPU program manager informed the contracting officer that she should move forward with the Temple CPU contract termination (Exhs 6-7; Aug. 13 Tr 87-88). 
  15. Local postal officials were notified about the anticipated termination at that time.  They generally opposed the decision, fearing that the closure would generate a lot of attention and adversely affect customer service (Exhs 9-12; Aug. 13 Tr 50, 102, 104-05, 142).  Postal customers in Temple, Texas also generally opposed the CPU’s closure (Aug. 13 Tr 152; Aug. 14 Tr 33).  Postal officials and the community favorably viewed Appellant’s operation of the Temple CPU (Aug. 13 Tr 142; Aug. 14 Tr 25-26).
  16. On January 23, 2012, as directed by the contracting officer, a Postal Service purchasing specialist sent a letter to Appellant, stating:
    As a result of an agreement with the American Postal Workers Union, this letter is to notify you that the South Temple CPU, Contract Number 489990-92-B-0862, is being terminated effective close of business on March 30, 2012.  The Postal Service hereby exercises its legal right to terminate with 60 days written notice pursuant to Section C – Delivery/Performance, C.1.B of your contract.
    (Stips 5, 7; AF 2, 4).  Respondent’s contracting officer later executed termination paperwork, effective March 30 (Stips 8-9; AF 4). 
  17. The contracting officer based her termination action on direction provided by Respondent’s CPU program manager.  The contracting officer considered the CPU program manager’s explanation that the CBA required closure of the Temple CPU, and his instruction to accomplish that task.  She also reviewed the Temple CPU contract to conclude that she had the contractual right to terminate with sixty days’ written notice, and that such a termination would not result in liability to the Postal Service.  (Aug. 13 Tr 76-77, 80-81, 86-90, 93, 98-100).
  18. Respondent’s purchasing guidelines, which are known as its Supplying Principles and Practices, were not incorporated into the Temple CPU contract (see AF 1).  Section 5-13 of the Supplying Principles and Practices provided:
    Terminate Contract.
    Contracts may be terminated, consistent with the termination provisions in the contract.  No contract priced at or with a potential termination liability exceeding $1 million may be terminated unless the VP [Vice-President], SM [Supply Management], has approved termination.  In addition, no contract regardless of price which is considered sensitive or highly visible may be terminated unless the VP, SM has approved termination.

    (Exh 22).  The contracting officer did not seek approval from Respondent’s Vice President of Supply Management in connection with the Temple CPU contract termination (Stip 10; Aug. 13 Tr 77-79).

    Appellant’s financial commitments
  19. On April 26, 2011, Appellant entered a 48-month lease for mail processing equipment used at the Temple CPU, and as of the date of the hearing continued to make the payments under that lease (Exh I; Aug. 14 Tr 7).  Appellant also purchased other mail equipment on that date (Exh II; Aug. 14 Tr 8).  Appellant would not have entered the lease or purchased the equipment if it had known that its CPU contract would be terminated (Aug. 14 Tr 8-9, 25, 65-66). 
  20. On August 1, 2011, Appellant entered into a five-year lease for the property at which it was operating the Temple CPU, with the new term beginning November 1, 2011.  If Appellant had known that its CPU contract would be terminated, it would not have entered into the lease.  (Exh IV; Aug. 13 Tr 173; Aug. 14 Tr 10, 25). Following the CPU contract termination, the building in which the Temple CPU had been located remained vacant except for some personal storage, although Appellant attempted to sublease it.  As of the date of the hearing, Appellant continued to pay rent under the lease.  (Aug. 14 Tr 15, 19-20, 62-64).

    Procedural history
  21. By notice dated March 13, 2012, Appellant submitted a notice of appeal to the Board, challenging the contract termination (AF 3).  That notice was docketed by the Board as an appeal and assigned PSBCA No. 6430.
  22. On May 30, 2012, Appellant submitted a certified $4,400,000 damages claim to Respondent’s contracting officer seeking future expected profits for twenty years (Supp AF 3-4).  On February 7, 2013, the contracting officer issued a final decision denying the claim, and Appellant submitted a notice of appeal to the Board on February 13, 2013 (Supp AF 6-8).  That notice was docketed as PSBCA No. 6488, and the cases were consolidated.
  23. Respondent filed a motion for summary judgment on which the Board deferred ruling until after the hearing (April 19, 2013 Order).  The Board conducted a two-day hearing in Austin, Texas.

DECISION

Respondent terminated the Temple CPU contract on sixty days' written notice, pursuant to the Contract Duration and Termination clause (Finding 4), solely because of the CBA between the APWU and the Postal Service.  We must decide whether terminating for that reason represented a legitimate exercise of Respondent's termination rights, or whether it breached the contract.  In addition, we must decide whether Appellant is entitled to recover damages due to Respondent's actions.

Appellant has advanced numerous arguments challenging the propriety of the termination and seeking damages, and Respondent has opposed those arguments.  We separately address each argument.

Changed Circumstances

Equating this termination to a termination for convenience, Appellant argues that such a termination right may be exercised only when a substantial change occurred in the circumstances under which the contract was made or when the parties’ expectations regarding the contract substantially changed.  The Federal Circuit expressly has held that changed circumstances are not necessary before the government may terminate a contract for convenience.  See T & M Distributors, Inc. v. United States, 185 F.3d 1279, 1284 n.4 (Fed. Cir. 1999).  We see no basis for concluding that the law on this point is any different for the termination on notice exercised in the contract before us, particularly since the contract’s otherwise indefinite duration was defined as ending upon such a termination. 

Similarly, relying on its record of profitable performance and the support of local postal officials (Finding 15), Appellant argues that the termination was improper because it was not in the Postal Service’s best interests.  Appellant also cites the Postal Service’s effort to persuade the APWU to substitute a different CPU (Finding 10) as evidence that the Postal Service itself did not believe that its best interests were served by terminating the Temple CPU contract.  However, it is not our role to decide whether termination was the best course for the Postal Service.  See Salsbury Ind. v. United States, 905 F.2d 1518, 1521 (Fed. Cir. 1990).  Furthermore, the termination on notice clause did not require the contracting officer to decide that termination was in the Postal Service’s best interests.  See Stephen Zucker, Packages Services Plus, PSBCA Nos. 3396-98, 94-3 BCA ¶ 27,039 (best interest analysis not required by termination on notice clause).3

Improper Assignment

Appellant argues that by entering into the CBA which required closing the Temple CPU or converting the work performed there to in-house operations, Respondent transferred termination authority to the APWU, which effectively and impermissibly amended the contract between Appellant and the Postal Service.  Appellant argues that the alleged assignment constituted tortious interference with the CPU contract.  Appellant also contends that the decision to terminate its contract was made by the APWU rather than by the Postal Service, as evidenced by the Postal Service's unsuccessful efforts, even after the CBA was signed, to persuade the APWU to agree to close a different CPU in place of the Temple CPU.

We disagree with Appellant that an assignment or transfer occurred.  As part of the negotiations that led to the CBA, the Postal Service agreed to close or convert to in-house operations certain CPUs, including Appellant's.  Respondent fulfilled that agreement by exercising its existing termination right under the CPU contract.  There is no evidence in the record that an assignment of the contract’s termination right was contemplated or attempted.  Moreover, in the context of the CBA, the negotiations that continued over the selection of which CPUs to close (Finding 10) were merely an attempt by the Postal Service to amend the already-agreed-to CBA, and the proposed amendment was rejected by the APWU.  We see no basis for concluding that through the events that led to the CBA or through the later negotiations, the APWU ever became a party to the CPU contract or acquired any direct rights under it.4

Improper Conduct by the Contracting Officer

We discern five related arguments under this heading in Appellant’s brief.  First, Appellant argues that the termination was improper because it was not the product of the contracting officer’s independent judgment, since she terminated the CPU contract at the behest of Respondent's CPU program manager.  Respondent counters that the contracting officer exercised independent judgment when she terminated the contract, and that she was entitled to rely on the information provided to her by the CPU program manager.

Under the terms of this contract, the contracting officer had the right to terminate the contract on sixty days' written notice.  The contract did not contain any express conditions on the exercise of that right, thereby giving the contracting officer wide discretion to terminate.  Indeed, the contract’s indeterminate duration was defined by that mutual termination language.  Appellant argues, however, the contracting officer’s discretion must be based on her independent evaluation of the circumstances existing at the time termination is contemplated.  See Pac. Architects & Eng’rs, Inc. v. United States, 491 F.2d 734, 744 (Ct. Cl. 1974).

Respondent’s CPU program manager accurately informed the contracting officer of the need to terminate the Temple CPU contract based on the Postal Service’s CBA obligations (Finding 14).  The contracting officer accepted that information, assessed the Postal Service’s contractual rights, and considered the financial consequences (Finding 17).  Inasmuch as this termination was required in order to comply with the provisions of the CBA, and given the wide latitude provided by the termination clause, this was sufficient to constitute an exercise of her personal and independent judgment, and her decision to terminate did not represent an abuse of her discretion.  See PLB Grain Storage Corp. v. Glickman, 113 F.3d 1257, 1997 WL 242179, *2 (Fed. Cir. 1997) (unpublished but persuasive as summarizing long-standing doctrine); Charitable Bingo Assoc., Inc., d/b/a Mr. Bingo, Inc., ASBCA Nos. 53249, 53470, 05-1 BCA ¶ 32,863, aff'd on recon., 05-2 BCA ¶ 33,088 (upholding termination decision even though based on a superior’s policy directive); Mike Gibson & Mike Beardon, Co-Trustees in Dissolution of Delta Prods. Co., AGBCA No. 88-139-1, 93-2 BCA ¶ 25,615 (sufficient for contracting officer to have reviewed termination documents, consulted with others, and agreed with decision despite not having been the primary decision-maker); Melvin R. Kessler, PSBCA Nos.  2820, 2872, 92-2 BCA ¶ 24,857, aff’d on recon., 92-3 BCA ¶ 25,092 (contracting officer’s consideration of and agreement with analysis done by others appropriate so long as contract action involved independent judgment).

Appellant’s reliance on Atkins North America, Inc. v. United States, 106 Fed. Cl. 491 (2012), motion to certify interlocutory appeal denied, 2012 WL 5935924 (Nov. 28, 2012) (see Appellant’s Reply Brief at 2), is misplaced.  Atkins North America held that the court only needed to find that the contracting officer became familiar with the facts and proposed conclusions in the final decision, which had been written by counsel, to conclude that she adopted them as her own in an exercise of independent judgment.  The decision noted that ”familiarity is not a high standard to meet.  It merely requires an acquaintance with the facts and conclusions in the decision.”  Id. at 505.  As in Atkins North America, we believe that Respondent’s contracting officer sufficiently satisfied that familiarity obligation.  Accordingly, we reject Appellant's argument.

Second, Appellant contends that without the prior approval of a Postal Service official with contracting authority, the CBA represents an unauthorized contractual commitment and is unenforceable as applied to this contract action.  The CBA was signed by the Postmaster General (Findings 5-6).  The Postmaster General possesses authority to bind the Postal Service in contract.  See 39 C.F.R. §601.104.  Therefore, even if we were to accept Appellant’s position that the CBA must be agreed upon by a person with contracting authority, a question we need not and do not decide, no such contractual authority problem exists.   
Third, Appellant argues that the termination was improper because the contracting officer did not seek or obtain approval from the Vice President of Supply Management prior to termination, in violation of its Supplying Principles and Practices (SP&Ps) (Finding 18).  Respondent contests application of the section of the SP&Ps at issue, §5-13, to the termination of this contract, arguing that the contract did not meet any of the criteria set out in that section.  However, we need not resolve whether §5-13 applies, because we agree with Respondent’s alternative position that a violation, even if shown, did not provide Appellant with a cause of action.

Initially, we note that the SP&Ps neither were included in the contract nor incorporated into the contract by reference (Finding 18).  See Erol A. Guvenoz, PSBCA Nos. 5150, et al., 06-2 BCA ¶ 33,423, recon. den., 08-2 BCA ¶ 33,960 (violation of non-regulatory postal handbook provision is not a breach where handbook is not part of the contract).  We also note that the SP&Ps as a whole are described as purchasing guidelines rather than as binding regulations.  See Tromel Constr. Corp., PSBCA No. 6303, 13-1 BCA ¶ 35,346.  We address only the section in contention and, assuming without deciding that it applies, conclude that it does not provide Appellant any enforceable contractual rights.5

Although §5-13 is written in mandatory language, Appellant may rely on it to support its breach of contract argument only if the approval requirement existed for the benefit of postal contractors rather than solely for the Postal Service’s benefit.  See Freightliner, Corp. v. Caldera, 225 F.3d 1361, 1365 (Fed. Cir. 2000).

Section 5-13 involves higher-level approval for a contract action that otherwise was within the contracting officer’s authority.  We read this requirement to provide an internal check on a contracting officer’s activities.  It is well settled that such internal approval procedures are intended for the government’s benefit, not that of the contractor.  We see no reason to deviate from that principle here, particularly in the absence of evidence of a contrary intention.  See e.g., Javis Automation & Eng’g, Inc. v. Dept. of the Interior, CBCA No. 938, 09-2 BCA ¶ 34,309, recon. den., 11-1 BCA ¶ 34,603 (higher-level approval requirement not actionable because it does not exist for contractors’ benefit); Charitable Bingo, 05-1 BCA ¶ 32,863 (internal legal review requirement not actionable); Bruce E. Zoeller, ASBCA No. 54205, 04-1 BCA ¶ 32,562 (on recon.), aff’d., Zoeller v. Brownlee, 113 Fed. Appx. 390 (Fed. Cir., Oct. 25, 2004) (level-of-authority regulation not actionable); Cessna Aircraft Co. v. Dalton, 126 F.3d 1442, 1451-52 (Fed. Cir. 1997) (benefit to the contractor must be more than incidental to support a breach of contract argument).  We conclude that despite its mandatory-phrasing and the presence of a deviation procedure which was not pursued, SP&Ps
§5-13 provides internal instructions to postal contracting personnel, and its violation, even if shown, is not actionable.  See Am. Tel. & Tel. Co. v. United States, 307 F.3d 1374, 1380 (Fed. Cir. 2002).6

Appellant's fourth argument in this section contends that the Postal Service was under no obligation to close the Temple CPU because the MOU listed it at an old address.  We have found that despite Appellant's CPU having been listed in the MOU at its previous address, the parties to the CBA both understood that entry referred to the Temple CPU (Finding 7).  Thus we see no basis for Appellant's argument that Respondent could have declined to close Appellant's CPU.

We also reject Appellant’s fifth argument in this section, that the MOU itself was included illegally in the CBA, and so cannot legitimately form the basis for the resulting contract termination.  See Fibreboard Paper Prod. Corp. v. NLRB, 379 U.S. 203, 215 (1964) (providing that certain functions will be performed by union employees rather than contractors is a permissible CBA provision).  Its argument that the MOU should be disregarded because it was included in the CBA in an appendix following the signature of the Postmaster General (Finding 6) fares no better, as we can find no basis to conclude that the MOU was not a valid part of the CBA and, therefore, binding on the Postal Service.

Superior Knowledge

Citing Helene Curtis Indus., Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963), Appellant argues that Respondent violated the superior knowledge doctrine by failing to disclose information regarding the negotiations and agreement with the APWU.   Appellant does not, however, argue that such alleged violation should lead to any particular result.

We hold that the superior knowledge doctrine does not provide an independent basis for relief in this case.  The doctrine traditionally has been applied to provide relief to a contractor based on certain pre-award information known to the government and not transmitted to the contractor.  See Gulf & W. Indus., Inc., ASBCA No. 21090, 87-2 BCA ¶ 19,881.  Where, as here, the information first arose during performance of the contract, we believe that the matter is more appropriately considered in conjunction with the implied duty of good faith and fair dealing, which we examine below.  Accordingly, we do not separately address the superior knowledge doctrine.

Covenant of Good Faith and Fair Dealing

The covenant of good faith and fair dealing, which is implied in government contracts, obligates the parties not to interfere with each other's contract performance so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.  See Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010); Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005).  The covenant “exists because it is rarely possible to anticipate in contract language every possible action or omission by a party that undermines the bargain . . . .” Metcalf Constr. Co. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014).

Appellant presents several arguments under this section of its brief.7   Appellant challenges the timing of Respondent's actions following execution of the CBA.  Specifically, Appellant complains that Respondent did not inform it promptly that its CPU contract was in jeopardy once the CBA was executed (Finding 5).  It argues that Respondent knew that failing to share such information would prevent Appellant from avoiding or minimizing damages resulting from the termination, and argues that withholding this knowledge breached the contract.

Because the “implied duty of good faith and fair dealing cannot expand a party's contractual duties beyond those in the express contract or create duties inconsistent with the contract's provisions” it is essential that we examine the express contract terms.  Id. at 991, quoting Precision Pine, 596 F.3d at 831.  The contract expressly granted either party the right to terminate the contract on sixty days’ written notice.  Appellant, however, would have us impose a notice requirement on Respondent that would conflict directly with its express rights set forth in the contract.  According to Appellant, and to the dissent, Respondent was required to notify Appellant in May 2011 of the plan, as negotiated by the Postal Service and the APWU, to close the Temple CPU or convert its work to in-house operations.  This argument however, impermissibly would replace the contract’s sixty-day notice provision with a requirement, not included in the contract, that the Postal Service must notify Appellant some undefined time more than sixty days before the actual termination.

In response to similar arguments, the Federal Circuit has held that “an act will not be found to violate the duty (which is implicit in the contract) if such a finding would be at odds with the terms of the original bargain, whether by altering the contract's discernible allocation of risks and benefits or by conflicting with a contract provision.”  Metcalf Constr., 742 F.3d at 991.  Appellant is not permitted “to rely on the implied covenant of good faith and fair dealing to change the [contract] text . . . .”  Century Exploration New Orleans, LLC v. United States, 745 F.3d 1168, 1179 (Fed. Cir. 2014); see also, Lakeshore Eng’g Serv., Inc. v. United States, 748 F.3d 1341, 1349 (Fed. Cir. 2014) (duty of good faith and fair dealing cannot override contract’s specific clauses); Teresa A. McVicker, ASBCA Nos. 57487, 57653, 12-2 BCA ¶ 35,127, aff’d, 522 Fed. Appx. 914 (Fed. Cir. 2013) (contractor’s expectation to provide service for contract‘s duration is reasonable only in the absence of a contract termination right); TigerSwan, Inc. v. United States, 110 Fed. Cl. 336, 346 (2013) (exercise of contract termination right does not breach the duty of good faith and fair dealing).

Further, as the implied duty only protects a party's reasonable contract expectations, see Centex, 395 F.3d at 1304, we do not believe that concerns regarding Respondent’s timing of the termination violated the covenant.  The Temple CPU contract’s duration was indefinite, perpetually at risk of a sixty-day termination.  Appellant could not have had a reasonable expectation of continued performance for more than sixty days, the very period of notice that it received.  Conversely, Respondent was entitled to rely on the express contract terms in making decisions related to its duration.  See James Hovanec, PSBCA No. 4767, 04-2 BCA ¶ 32,805, aff’d, 170 Fed. Appx. 129 (Fed. Cir. 2006).  Because additional notice was not contractually required, a contract breach for not providing it did not occur.

Appellant’s arguments also ignore the contract’s risk allocation provisions.  As previously noted, each party assumed the perpetual risk of termination by the other party on sixty days’ notice.  Therefore, in planning their contract performance, each party should have accounted for that risk.  See Package Plus of S.W. FL Inc., PSBCA No. 3674, 95-2 BCA ¶ 27,762 (contract allocated the risk to Appellant of financial commitments incurred for longer than the contractual period to which the Postal Service was bound).

However, the record establishes that Appellant failed to consider that risk when it executed long-term leases in April and August 2011 based on its expectation that the contract would continue.8   Because each party faced the risk of termination on sixty days’ notice, the Postal Service could not have destroyed Appellant’s reasonable expectations when it terminated the contract by providing that notice.  For this reason as well, Appellant has failed to prove that Respondent breached its duty of good faith and fair dealing by not informing it about termination earlier than the contract required.  See Lakeshore Eng’g., 748 at 1349-50.

Conversely, Appellant argues that under the CBA’s wording – requiring the Postal Service to close or convert the CPUs to in-house operations “as soon as practicable” (Finding 6) – the Postal Service could have continued the Temple CPU contract in operation for years or decades before terminating it.  Appellant concludes that Respondent therefore acted precipitously and breached the contract by terminating it less than a year after the CBA was signed, which violated an implied duty to implement the CBA in the least injurious manner possible.  The CBA obligated Respondent to close the Temple CPU or convert its work to in-house operations, without specific timing, but “as soon as practicable.”  Respondent’s provision of the termination notice eight months after the obligation to do so cannot be construed as having been inappropriately hasty.  We need not decide, therefore, whether closing the Temple CPU as soon as the Postal Service believed it was practicable to do so also could serve to breach the contract’s implied covenant of good faith and fair dealing in other circumstances.  We are unaware of any precedent that would support such a position, and certainly the facts of this case do not compel that conclusion.

Appellant also contends that the Postal Service could have modified the Temple CPU contract to satisfy the APWU’s concerns.  This argument is entirely speculative – Appellant has cited no evidence to support it.  Further, Appellant has not identified a legal duty on the part of Respondent to have done so, and consequently a breach has not been shown.  We conclude that Respondent has not breached the implied covenant of good faith and fair dealing.

Bad Faith

To prove bad faith, Appellant must show that Respondent acted with a specific intent to injure it, see Kalvar Corp., Inc. v. United States, 543 F.2d 1298, 1302 (Ct. Cl. 1976), and must do so by clear and convincing evidence.  See Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1243 (Fed. Cir. 2002).  Appellant argues that the Postal Service knew that the APWU’s interests directly conflicted with and were hostile to Appellant’s interests and, therefore, Respondent’s agreement with that hostile entity to terminate Appellant's contract must have been a bad faith act.  As the contracting party, the Postal Service’s motivation, not that of the APWU, is our proper focus.  It is apparent to us that the Postal Service's motivation in entering into the CBA was not to injure Appellant, although the loss of its contract was undeniably a result of that action.  Rather, in entering into the CBA, the Postal Service primarily was motivated by its desire to reach a comprehensive agreement with a large union, and also to resolve a union grievance (Finding 9).  Further, Respondent's months-long effort to persuade the APWU to substitute a different CPU contract for closure (Finding 10) suggests the antithesis of malice towards Appellant.  When its substitution efforts proved unsuccessful, Respondent was bound to close the Temple CPU under the terms of the CBA.  The termination was an unavoidable, ancillary result of the CBA, not its driver.  We see nothing unusual, and certainly do not discern malicious intent, in Respondent having agreed with its own labor union to bring some work in-house.  See Ralph Constr., Inc. v. United States, 4 Cl. Ct. 727, 733 (1984) (heavy burden to show bad faith or malice where government decides to perform contract work in-house in absence of an express contract limitation against doing so).

Appellant also refers to the discussions it was having with Respondent's local officials in the fall of 2011 regarding possible contract changes (Finding 12).  Appellant contends that Respondent elected to terminate the CPU contract rather than change it to one that would not have conflicted with the CBA (such as by removing post office boxes), and thus allowed Appellant to continue operations.  Appellant contends that Respondent consistently opted to take action that would injure it, and that this indicates a "probable intent to injure" Appellant.  Respondent’s discussions to change the Temple CPU contract to alter its operational structure were unrelated to the CBA, and were not meant to mislead Appellant or lull it into complacency (see Findings 11-12).  We see no malicious intent in those efforts, and we hold that Respondent did not act in bad faith in its decision to terminate the contract.

Postal Service's Actions Represent Bad Policy

Appellant offers arguments regarding what it sees as negative public policy implications of the contract termination at the behest of a large organization – the APWU – and the effect of that action on future dealings between the Postal Service and other small businesses.  Debating those arguments here would amount to nothing more than an inappropriate academic exercise.  It is not our prerogative to substitute our judgment for the contracting officer’s as long as Respondent did not breach the contract.  See Franklin Wilborn, PSBCA No. 6260, 10-2 BCA ¶ 34,608.  Because we conclude that Respondent did not breach the contract,9  we need not consider Appellant’s policy arguments.

CONCLUSION

The appeals are denied.

Gary E. Shapiro
Administrative Judge          
Vice-Chairman

I concur: 
William A. Campbell    
Administrative Judge   
Chairman     

DISSENTING OPINION

I agree with the majority’s findings of fact.  I also generally agree with its recitation of the law on the issues of bad faith, and the covenant of good faith and fair dealing.  However, I disagree with the majority’s application of that law to the facts, and therefore dissent.  I would find that the Postal Service breached the Temple CPU contract by (1) acting in bad faith in terminating the contract, and (2) violating the duty of good faith and fair dealing in its failure to have informed Temple of the looming termination.

In Krygoski Construction Company the Federal Circuit explained that a termination “simply to acquire a better bargain from another source” is a bad faith action.  Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1541 (Fed. Cir. 1996); see also Sigal Constr. Corp. v. Gen. Servs. Admin., CBCA 508, 10-1 BCA ¶ 34,442 at 169,971 (“[T]he Government may not terminate simply to get a better price for performing needed work.”).  Bad faith may be shown by a “conspiracy to get rid of the contractor . . . .”  See Apex Int’l Mgmt. Servs. Inc., ASBCA No. 41365, et al., 94-2 BCA ¶ 26,842 (citing Torncello v. United States, 681 F.2d 756, 770-71 (Ct. Cl. 1982)(plurality opinion)).  The Postal Service undisputedly terminated the Temple CPU contract in order to acquire a better bargain from the APWU (Findings 6-10, 13, 16-17).  Additionally, the Postal Service and the APWU specifically targeted Temple in the collective bargaining agreement (Findings 5-7).10   Given the binding precedent, I believe the facts show that the Postal Service terminated the Temple CPU contract in bad faith.

I also believe that the Postal Service violated its duty of good faith and fair dealing by not informing Temple for many months that it had agreed to close the CPU (Findings 5-7, 16), for which damages may be awarded.  See Metcalf Constr. Co. v. United States, 742 F.3d 984, 990 (Fed. Cir. 2014).

Postal Service officials knew no later than May 13, 2011, and likely much earlier11, that the Temple CPU would have to close to comply with the CBA (Findings 5, 10), yet it did not notify Temple until January 23, 2012 (Finding 16).  In the interim, Temple incurred long-term financial obligations that it otherwise would not have incurred had the Postal Service informed it earlier (Findings 19-20).
 
“‘The gravamen of the . . . inquiry in cases involving a breach of the duty of cooperation [part of the duty of good faith and fair dealing] is the reasonableness of the Government’s action considering all of the circumstances.’”  Free & Ben, Inc., ASBCA No. 56129, 09-1 BCA ¶ 34,127 (quoting PBI Elec. Corp. v. United States, 17 Cl. Ct. 128, 135 (1989)); see also Restatement (Second) of Contracts § 205 cmt. d (1981)(“Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified.”).  In my mind, this duty is echoed in the Postal Service’s Supplying Principles and Practices which provide that suppliers should be treated in a “fair, objective, and business-like manner” and that the Postal Service will “work in an integrated and collaborative manner” with suppliers.  See http://about.usps.com/manuals/spp123108/html/pp_sp_002.html#vnameref_1 (last visited July 7, 2014).12

Considering the circumstances presented here, I would find the Postal Service’s failure to have promptly informed Temple about the impending CPU closure was unreasonable.  See Teresa A. McVicker, P.C., ASBCA No. 57487, 12-2 BCA ¶ 35,127, aff’d, 552 Fed. Appx. 914 (Fed. Cir. 2013).  I expect better cooperation by the Postal Service with its contractors, and would conclude that it breached the duty of good faith and fair dealing.  See Raytheon Serv. Co., GSBCA No. 5695, 81-1 BCA ¶ 15,002.

Thus, while I would find that the circumstances under which the Postal Service exercised the sixty day termination clause breached the contract due to bad faith, I also would find that an additional and separate breach of the duty of good faith and fair dealing occurred before the notice was sent.  I believe that this earlier breach entitles Temple to damages.  See generally Franconia Assocs. v. United States, 536 U.S. 129, 141-42 (quoting 1 C. Corman, Limitations of Actions § 7.2.1, p. 482 (1991)(“The cause of action for breach of contract accrues . . . at the time of the breach . . . .”)).

Because I would find that the Postal Service acted in bad faith in terminating the contract and violated its duty of good faith and fair dealing, I respectfully dissent.
  
Peter F. Pontzer    
Administrative Judge
Board Member 


1 A 1994 modification changed the contractor’s name from John Martin Homes, Inc. to Temple Contract Station LC (Stip 2; Supp AF 1 at 126; Aug. 14 Tr 37).  This Opinion will use the following conventions:  "Stip" refers to the ten pre-trial stipulations (August 5, 2013 Order and Memorandum of Telephone Conference at 1); “AF” refers to the appeal file; “Supp AF” refers to the supplemental appeal file; “Exh” refers to Appellant’s admitted exhibits followed by their designating number, Roman numeral or letter; and “Exh Binder” refers to Respondent’s Hearing Exhibit Binder.  Citations to the hearing transcripts appear as "Tr" preceded, as appropriate, by “Aug. 13” or “Aug. 14” followed by the page number.

2 The Board takes judicial notice (see Notice of Intention to Take Judicial Notice, September 18, 2013) that the APWU is the Postal Service’s largest union, covering more than 220,000 employees and retirees, including postal clerks (www.apwu.org/about/index.htm).

3 Although the Stephen Zucker decision noted that then-applicable postal procurement regulations (the Procurement Manual) may have applied a best-interest determination, the Postal Service subsequently eliminated those regulations.  See 39 C.F.R. §601.102.

4 Because we conclude that an assignment did not occur, we need not address in detail Appellant's tortious interference argument.  We note, however, that a party cannot tortiously interfere with its own contract.  See generally, Nation v. Am. Capital, Ltd., 682 F.3d 648, 652 (7th Cir. 2012) (inability of a party to tortiously interfere with its own contract is settled law); Sterling Nat. Mortgage Co., Inc. v. Mortgage Corner, Inc., 97 F.3d 39, 44 (3d Cir. 1996) (describing conclusion as axiomatic); Ham Marine, Inc. v. Dresser Indus., Inc., 72 F.3d 454, 462 (5th Cir. 1995) (a matter of elementary legal logic).

5 We find no need to perform a similar analysis for Appellant’s argument that the termination violated a different section of the Supplying Principles and Practices addressing the appropriate circumstances for a contracting officer to issue a unilateral modification.  See Appellant’s Post-Hearing Brief at 4-5.  The termination was authorized by the terms of the contract.  It did not unilaterally modify the contract.

6 This conclusion does not suggest that violation of a different provision of the SP&Ps cannot be actionable or considered to establish a standard against which a contracting officer’s conduct could be measured.  Accordingly, we need not address Appellant’s general argument that we should not permit Respondent to “declar[e] itself free from binding purchasing rules … .”  Appellant’s Reply Brief at 8.

7 Appellant intermixes allegations that the Postal Service breached the duty of good faith and fair dealing with allegations that the Postal Service acted in bad faith.  We separately address each issue.

8 The record does not indicate that Respondent had knowledge that Appellant would incur long-term obligations during the period in question.

9 Because we rule in Respondent’s favor, we need not address the parties’ arguments concerning damages and we offer no opinion in that regard.  It also is unnecessary to analyze separately Respondent’s summary judgment motion.

10 Two groups of government employees targeted for termination a profitable (for the government), well-performing, and community-respected contractor so that work performed for at least fifty-nine years (Aug. 13 Tr. 153-55) by a contractor could be given to higher-cost government employees (Aug. 14 Tr. 5-9, 16, 21-25, 41-45, 102).  Ultimately, a large portion of the work did not even go to Postal Service employees.  Uncontroverted in the record is that the 800 customers who rented mailboxes at the Temple CPU began renting mailboxes from UPS and other companies, not the Postal Service (Aug. 14 Tr. 20).  While the Postal Service likely would save a large amount of money ($3.8 billion according to the Postal Service and APWU, Supp AF 5 at 1) by signing a new CBA, the Postal Service still acted in bad faith by targeting Temple.

11 The Postal Service and the APWU reached an agreement in principle on March 11, 2011 (Finding 5).

12 Because the contract was awarded in 1992, the Postal Service’s Procurement Manual may be applicable instead.  See http://about.usps.com/publications/pub41/pub41toc.htm (last visited July 7, 2014); 39 C.F.R. §601.101 (“Solicitations issued and resulting contracts entered into prior to [November 14, 2007] will be governed by the regulations in effect at the time the solicitation was issued.”).  The Procurement Manual provides that the Postal Service will maintain the “standards of fairness and openness . . . .”  Procurement Manual, §1.7.1.b.  Both the Supplying Principles and Practices and the Procurement Manual require fairness and openness; therefore, it is immaterial which one applies to the present dispute.