June 30, 2015
DONALD MICH v. UNITED STATES POSTAL SERVICE
PSBCA Nos. 6311, 6361
APPEARANCE FOR APPELLANT:
Donald Mich
APPEARANCES FOR RESPONDENT:
Rozann M. Heininger, Esq.
Melissa M. Mortimer, Esq.
United States Postal Service Law Department
OPINION OF THE BOARD
Appellant, Donald Mich, has filed timely appeals from three Contracting Officer’s final decisions, the first of which terminated for default his mail delivery contract with Respondent, United States Postal Service. The second final decision assessed Appellant for unauthorized fuel purchases and denied his request for release of withheld payments for services performed prior to contract termination. The third final decision partially granted additional performance costs and, accordingly, amended the prior assessment against Appellant. The Board granted the parties’ request to decide these appeals on the written record without an oral hearing. Both entitlement and quantum are at issue. We uphold the termination for default and award the Postal Service $104,517.77.
FINDINGS OF FACT
- On February 26, 2005, Respondent awarded Appellant Contract No. HCR 487L1 (Contract) which required that Appellant transport mail between locations in the Michigan cities of Saginaw, Flint, Romulus, and Detroit. The parties renewed the Contract on May 7, 2008. Performance under the renewed Contract began on July 1, 2008 and was scheduled to end on June 30, 2012, at an annual rate of $161,000. (AF 9; Declaration of A. Nerreter (Nerreter Decl.) ¶ 5, Exh. 2 at 3).
- The Contract included a Termination for Default clause and incorporated an Events of Default clause which listed the following circumstances, among others, that could constitute default by Appellant:
a. The supplier’s failure to perform service according to the terms of the contract; . . .
g. [Not being] reliable, trustworthy or of good character; . . .
o. If the supplier materially breaches any other requirement or clause of this contract.
(AF 9, General Clauses 2.3.1 m, s(8); AF 10, Clause B-69, Events of Default (March 2006), subsections a, g, o).
- The Contract prohibited Appellant and his employees “while engaged in contract operations” from being under the influence of alcohol, narcotics, or any substance that “tends to impair judgment” (AF 9, Statement of Work and Specifications (SOW) B.3.e). In the section entitled “Safety Requirements” the Contract further prohibited Appellant’s employees from driving mail transportation vehicles “when under the influence of drugs or intoxicating beverages.” (AF 9, SOW B.6.b.2 (a)).
- The Contract prohibited Appellant from employing anyone lacking the ability to perform properly the duties required under the Contract (AF 9, SOW B.3.i).
- The Contract included a Fuel Management Program (FMP), which required Appellant to purchase fuel necessary to perform contract services from retail servicing facilities (AF 9 at 1, Special Clauses 2.2.8.a).
- The Contract authorized Appellant to purchase up to 16,373 gallons of diesel fuel per year to operate his mail transportation vehicles. The vehicles Appellant used to perform the Contract used only diesel fuel. The Contract did not authorize the purchase of gasoline. (Declaration of B. Manchego (Manchego Decl.) Exh. 1; AF 9).
- Respondent issued Appellant eight credit cards with which to purchase fuel at retail fueling stations along the Contract routes. The credit cards were to be used by Appellant for the purchase of fuel “for its Postal Service HCR contract performance only.” The amount charged to the credit cards for fuel was paid by Respondent directly to the credit card issuer. The FMP required Appellant to “report all unauthorized use, loss, or theft of the [credit cards]” to Respondent and the credit card issuer. (AF 9, Fuel Management Program (FMP) at 4, 5; see also Manchego Decl. ¶ 5, Exh. 2 at 4, 5).
- The FMP stated that Appellant was “liable for all charges resulting from loss, theft, or unauthorized use of the [credit] cards except that [he] shall not be liable” for those charges if he has notified the credit card provider of the loss or theft of the credit card. Unauthorized use included “using cards to purchase unauthorized grades of fuel, . . . using cards to purchase fuel in excess of allowed gallons, . . . [and] using the cards to purchase fuel for vehicles other than those used to perform the HCR contract.” (AF 9, FMP at 5; see also Manchego Decl. Exh. 2 at 5).
- The Contract required that Appellant ensure “that [his] drivers are adequately trained to use the [credit] cards for authorized fuel purchases.” (AF 9, FMP at 4; see also Manchego Decl. Exh. 2 at 4).
- The Contract provided that Respondent could deduct from contract payments otherwise due Appellant an amount equal to the cost of fuel purchased with credit cards which exceeded the authorized gallons (AF 9, FMP at 6; see also Manchego Decl. Exh. 2 at 6).
- The Contract provided that the contracting officer, on a monthly basis, “should review the usage of all participants using the fuel transaction card to ensure appropriate usage.” (AF 9, FMP at 6; see also Manchego Decl. Exh. 2 at 6).
- Two of Appellant’s sons, Ronnie Mich and Donny Mich, worked for Appellant driving mail transportation vehicles during contract performance. Appellant provided at least one credit card to each of his sons and authorized them to use the credit cards to fuel the vehicles. (AF 6 at 3, 4; Nerreter Decl. Exh. B at 2).
- One or both of Appellant’s sons improperly used the credit cards to purchase gasoline (as opposed to diesel fuel exclusively used by vehicles in contract performance) and sold it for personal gain (Nerreter Decl. ¶ 6, Exh. B).
- Respondent’s Contract Transportation Specialist (Contract Specialist) informed Appellant that a significant amount of fuel in excess of the gallons authorized under the Contract had been purchased with credit cards issued to him. As a result, Appellant obtained from the credit card issuer a list of all fuel purchase transactions. Once he had reviewed the list of gasoline fuel purchases, Appellant concluded that his son, Ronnie Mich, had made those purchases. Thereafter, Appellant retrieved the credit card he had provided to Ronnie Mich and personally purchased any fuel Ronnie Mich needed to operate vehicles used to perform the Contract. (Nerreter Decl. Exhs. A-5 at 2, B at 2; Declaration of R. Carver (Carver Decl.) ¶ 4).
- Ronnie Mich, then, without permission, took a credit card provided by Appellant to another driver under the Contract. On November 28, 2008, Ronnie Mich used the credit card to purchase gasoline for use in vehicles other than Appellant’s mail transportation vehicles. When the driver reported to Appellant that the credit card was missing, Appellant suspected Ronnie Mich had taken it and confronted his son. Ronnie Mich returned the credit card to Appellant after Appellant threatened to report him to the police. Appellant did not report to Respondent any suspected instances of credit card misuse by his son because Respondent’s Contract Specialist told him that he was responsible for repaying the value of the improper charges to Respondent. Thus, Appellant considered the loss to be his. (Nerreter Decl. Exhs. A-3 at 14, A-5 at 2, B at 2).
- In December 2008, Donny Mich advised Appellant that he had lost the credit card given to him by Appellant for the purpose of fueling vehicles used to perform the Contract. Appellant advised the Contract Specialist about the missing card. During this time, Appellant believed Donny Mich was addicted to heroin, which affected his ability to perform his duties properly under the Contract. Because of his addiction, Appellant concluded that Donny Mich should not be driving mail transportation trucks but believed that he had no choice because he did not have another driver available to take his place. Appellant and Donny Mich made plans for Donny Mich to participate in a rehabilitation program to address his heroin addiction. (Nerreter Decl. Exh. A-5 at 3).
- In early to mid-January 2009, the Contract Specialist reviewed the amount of fuel purchased by Appellant from August 2006 through January 2009 using the FMP credit cards. After concluding that Appellant had exceeded his authorized fuel purchase amount in that period by 39,091.13 gallons, the Contract Specialist informed Appellant of the results of her review. (Carver Decl. ¶ 4; Nerreter Decl. ¶ 11).
- On January 13, 2009, the Contracting Officer issued a letter to Appellant in the form of a contracting officer final decision prohibiting Appellant from using the FMP credit cards for the purchase of fuel as of February 1, 2009. The letter stated that this action was based upon Respondent’s determination that at least 16,249.14 gallons - at an average of $2.054 per gallon - of fuel in excess of the amount authorized under the Contract had been purchased during the period from July 2008 through June 2009. Accordingly, effective February 1, 2009, the Contract price was increased by an amount equal to the cost of the amount of fuel authorized under the Contract and Appellant was required to make future purchases of fuel himself. The Contracting Officer so advised the Postal Service’s Office of the Inspector General (OIG). (AF 7, 8; Manchego Decl. ¶ 7, Exh. 4; Carver Decl. ¶ 4, Exh. B).
- On October 19, 2009, an OIG Special Agent forwarded to Respondent the OIG Report of Investigation regarding Appellant’s credit card transactions from August 2006 to January 2009.
The investigation concluded in pertinent part:
a. Appellant failed to notify Respondent once Appellant became aware that his sons had made unauthorized and improper fuel
purchases.
b. Appellant permitted one of his sons to drive mail transportation vehicles after he became aware that he had a “serious narcotics
addiction.”
c. Between August 2006 and January 2009, Appellant exceeded the contractually allocated fuel allowances by 39,091.13 gallons,
valued at $115,291.73.
The report also advised that both of Appellant’s sons hired to transport mail had been indicted for conspiring to defraud the United States based upon the unauthorized fuel purchases. (Nerreter Decl. Exh. A-3).
- After reviewing the OIG report, on November 24, 2009, the Contracting Officer issued a final decision terminating the Contract for default effective November 30, 2009, for “failure to perform service according to the terms of the contract.” Specifically, the final decision cited as support for the default:
a. That Appellant failed to notify Respondent that his sons had made unauthorized purchases of fuel with the credit cards; and
b. That Appellant permitted one of his sons to drive mail transportation vehicles after he had become aware that the latter had a
“serious narcotics addiction” in violation of “B.3.i of the contract Statement of Work.”
The final decision informed Appellant that the Postal Service might seek damages in an amount equal to the “actual excess costs” of the unauthorized fuel purchased with the credit cards. Also on November 24, 2009, the Contracting Officer suspended payments under the Contract, and withheld $16,456.90 which otherwise was due Appellant under the Contract. (AF 4, 5; Manchego Decl. ¶¶ 8, 9).
- On December 3, 2009, the Contracting Officer issued a final decision assessing Appellant $115,291.73, for the cost of fuel purchased by Appellant in excess of that authorized by the Contract. The final decision also denied Appellant’s prior telephonic request for release of contract payments in the amount of $16,456.90 which were withheld previously by the Contracting Officer’s final decision dated November 24, 2009. (AF 3; Manchego Decl. ¶ 15, Exh. 8).
- On February 17, 2010, Appellant timely appealed the final decision terminating the Contract and the final decision assessing $115,291.73. The notice of appeal included a $1,295.03 claim for “uncompensated late slips.” The appeal was forwarded to the Board and docketed as PSBCA No. 6311. (Notice of Appeal).
- On March 12, 2010, Ronnie Mich pleaded guilty to one count of conspiring to defraud the United States (18 U.S.C. § 371) and was sentenced to imprisonment followed by supervised release. As part of his sentence he was also ordered to reimburse $101,199.31 to the Postal Service. (Nerreter Decl. ¶ 13, Exh. C).
- On May 27, 2010, the Contracting Officer issued a final decision which assessed Appellant $105,702.82. The final decision explained that the assessed amount was developed by adding $6,867.99 incurred in securing a replacement contractor to perform services required under the terminated portion of Appellant’s Contract1 to the $115,291.73 he owed Respondent as referenced in the Contracting Officer’s earlier final decision to Appellant, for a total of $122,159.72. The Contracting Officer also offset the previously deducted $16,456.90 that otherwise was due Appellant for his contract performance, thereby resulting in Appellant’s indebtedness in the amount of $105,702.82. Mr. Mich did not appeal the May 27, 2010 final decision. (Manchego Decl. ¶ 16, Exh. 9).
- On September 15, 2010, the Contracting Officer issued a final decision awarding Appellant $1,185.05 of his $1,295.03 claim and denying the remaining $109.98. As a result, the Contracting Officer reduced the assessment against Appellant to $104,517.77. (Manchego Decl. ¶ 24, Exh. 13).
- Appellant’s timely appeal of the September 15, 2010, final decision was docketed as PSBCA No. 6361.
DECISION
Termination for Default
Justifying the default termination requires Respondent to prove that Appellant materially breached the Contract. If Respondent satisfies that burden, the burden shifts to Appellant to prove that the breach was excusable or that the termination represented an abuse of discretion. See William Rios, PSBCA No. 5357, 10-2 BCA ¶ 34,545.
Respondent argues that the Contracting Officer’s default termination of Appellant’s Contract was justified because he permitted his son, Donny Mich, to operate a mail transportation vehicle when he was aware of his son’s heroin addiction. Respondent’s argument is well taken. Appellant knew that his son was addicted to heroin and understood that addiction to be the reason that his son was unable to comply with contract performance requirements. In fact, Appellant and his son made plans for the son to receive treatment for his addiction in a rehabilitation facility. Notwithstanding his knowledge that his son required treatment for his addiction, Appellant permitted him to operate a truck transporting mail in the performance of the Contract. The only justification Appellant offered for this behavior was that he did not have anyone else available to operate the vehicle in his son’s absence (Finding 16). By permitting his son to continue driving a mail transportation vehicle while armed with the knowledge that his heroin addiction adversely impacted his ability to perform in accordance with contract requirements, Appellant materially breached the Contract. These actions amounted to knowingly employing an individual who lacked sufficient ability to perform properly the required duties of the Contract (Finding 4).
Respondent has demonstrated that Appellant failed to comply with this material requirement of the Contract. Accordingly, the burden shifts to Appellant to present evidence showing that his breach was excusable or to show that the termination was an abuse of discretion. See Odessa Brown, PSBCA Nos. 5362, et al., 11-1 BCA ¶ 34,724. Appellant’s assertion that he permitted his son to continue driving because a replacement driver was unavailable does not serve to excuse this material contract breach. Moreover, Appellant has not argued that the termination was an abuse of the Contracting Officer’s discretion and evidence of such an abuse is not apparent in the record. Accordingly, the termination of Appellant’s Contract for default is upheld on this basis.2
Fuel Assessment and Reprocurement Costs
The Contract provides that Appellant is liable to Respondent for the cost of unauthorized purchases of fuel (Finding 8). Further, the Contract gives Respondent specific authority to deduct the costs of those purchases from payments that otherwise may be due Appellant (Finding 10). The evidence supports the Contracting Officer’s conclusion that unauthorized fuel purchases in the amount of $115,291.73 were made using credit cards issued in connection with Appellant’s Contract. Moreover, Appellant has not challenged either the amount or the conclusion that the purchases were unauthorized. Appellant is liable to Respondent for the cost of the unauthorized fuel purchased with the credit cards issued to him. See J.M. Carranza Trucking Co. v. United States Postal Service, PSBCA No. 6354, 14-1 BCA ¶ 35,776.
Accordingly, the appeal of the Contracting Officer’s decision assessing those costs is denied. We note, in addition, that in his May 27, 2010 final decision, the Contracting Officer assessed Appellant with $6,867.99 in excess reprocurement costs and credited him with the $16,456.90 that otherwise was owed him under the Contract (Finding 24). Inasmuch as the May 27, 2010 decision was not appealed (Finding 26), we incorporate the additional assessment and credit into the amount owed by Appellant, finding him liable for $105,702.82.
Claim for Uncompensated Late Slips
In his September 15, 2010 final decision, the Contracting Officer allowed recovery of $1,185.05 of Appellant’s $1,295.03 claim for uncompensated late slips. Appellant has provided no evidence supporting his entitlement to the remaining $109.98. Accordingly, we deny Appellant’s appeal of the final decision. As did the Contracting Officer, we credit Appellant with the $1,185.05 allowed, and reduce his liability to $104,517.77.
CONCLUSION
The appeals are denied. Appellant is liable to Respondent in the amount of $104,517.77.3
William A. Campbell
Administrative Judge
Chairman
I concur:
Gary E. Shapiro
Administrative Judge
Vice Chairman
Peter F. Pontzer
Administrative Judge
Board Member
1 The Contracting Officer claimed $6,142.50 in excess reprocurement costs for a 90 day period, plus $725.49 in administrative costs.
2 Respondent also proffers two additional arguments in support of the default termination. Respondent first argues that Appellant’s failure to report his son’s unauthorized purchase of fuel was a material breach of a contractual obligation. Second, Respondent argues that Appellant breached the Contract by associating with known criminals, to wit, his sons, and by being unreliable, untrustworthy or not of good character. Since we have upheld the default termination on other grounds, we do not address these arguments.
3 That amount, however, is to be reduced by any amounts reimbursed to the Postal Service for unauthorized fuel purchases by Ronnie Mich pursuant to his sentence resulting from his conviction for conspiring to defraud the United States (Finding 23).