PSBCA No. 6336, 6374, 6445


February 25, 2016

STOP & MAIL ETC., INC., v. UNITED STATES POSTAL SERVICE

PSBCA Nos. 6336, 6374, 6445

APPEARANCE FOR APPELLANT:
John K. George, Esq.

APPEARANCE FOR RESPONDENT:
Morgan E. Rehrig, Esq.
United States Postal Service Department

OPINION OF THE BOARD 

Stop & Mail Etc., Inc. challenges a decision by the United States Postal Service to terminate its Contract on one day’s notice.  PSBCA No. 6336 involves the propriety of the termination decision, while PSBCA No. 6374 involves Stop & Mail’s $65,000 claim for breach of contract damages resulting from the termination.  PSBCA No. 6445 involves the Postal Service’s claim for $18,300 for a revenue shortage in postage meter sales.  The Board granted the parties’ request to proceed on the record without a hearing.1

We hold that the Postal Service improperly terminated the Contract on one day’s notice.  As stipulated by the parties, Stop & Mail is entitled to recover $2,137 based on a 60-day termination.2  Stop & Mail’s claim for breach damages is denied.  The parties have settled the Postal Service’s claim for the revenue shortage in postage meter sales, and that appeal is dismissed.

FINDINGS OF FACT

  1. Under the terms of Contract No. 483083-99-P-0937, Stop & Mail operated a Contract Postal Unit (CPU) at the annual rate of $13,000 (Appeal File (AF) 1 at 3–4).
  2. A Contract Postal Unit is a contractor-owned and operated facility that provides selected postal services to the public.  Although the facility is owned by the contractor, the CPU is “under the jurisdiction of an administrative post office.”  (AF 1 at 8, ¶ B.2a).
  3. The Contract had an indefinite duration, subject to the termination rights in Section C, which provided that:
    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 at 11, ¶ C.1).
  4. At the time of award in June 1999, the contracting officer designated the Customer Service Manager at the Fleetwood Station in Houston, Texas as the contracting officer’s representative.  The contracting officer’s representative lacked the authority to change the Contract’s duration or price.  (AF 1 at 3).
  5. The Contract required Stop & Mail to provide a CPU bond before award (AF 1 at 23, ¶ J.3).  The Contract required Stop & Mail to notify the contracting officer within five days if the surety cancelled the bond, and stated that failure to do so might be cause for termination (AF 1 at 16, ¶ G.7).
  6. Sometime after May 23, 2009, the Station Manager at the Fleetwood Station learned about problems with the CPU, including the expiration of Stop & Mail’s bond.  In response to those concerns, the Station Manager contacted the United States Postal Service Office of Inspector General.  (AF 4; 5 at 46–47, 52; 15 at 91).
  7. On August 4, 2009, Special Agents from the Office of the Inspector General and the Station Manager conducted cash and stamp stock audits at the CPU (AF 5 at 47, 60).
  8. During the audits, the Special Agents took custody of all Postal Service property at the CPU.  The Special Agents and the Station Manager also told the on-site CPU representative that the CPU Contract was terminated effective that day.  (AF 5 at 47–48, 60).  The record, however, does not include evidence that anyone with contracting authority issued a written termination notice at that time.
  9. On August 27, 2009, the Station Manager notified Stop & Mail that: (1) the CPU bond had expired, and (2) Stop & Mail owed the Postal Service $2,638.01 based on a stamp credit shortage discovered during the August 4 audit.  The letter directed Stop & Mail to submit a bond by August 31, 2009, and to remit the full amount of the stamp credit shortage immediately.  (AF 4).
  10. On September 21, 2009, an insurance agent provided the Postal Service with copies of a bond for Stop & Mail dated August 4, 2009 (AF 6).
  11. On October 19, 2009, the Postal Service’s Financial Control & Support Manager for the Houston District sent a letter to Stop & Mail again notifying it of the $2,638.01 stamp credit shortage and providing payment instructions (AF 8).
  12. In March and April 2010, the Postal Service demanded payment of the stamp credit shortage from two sureties (AF 10, 11, 12).
  13. On April 29, 2010, the contracting officer terminated the Contract effective at the close of business on April 30, 2010.  She stated that “termination of this contract on notice has become necessary to protect the Postal Service’s interests and to prevent any future financial loss.”  The final decision cited the $2,638.01 debt, Stop & Mail’s failure to repay the debt, and the two demand letters that the Postal Service had sent to Stop & Mail in August and October 2009.  (AF 13 at 87; Cooper Decl. ¶ 6).
  14. The Postal Service continued to pay Stop & Mail monthly at the prorated annual rate of $13,000 until the effective date of the termination (Stipulations ¶ 18).
  15. On June 2, 2010, Stop & Mail appealed the final decision terminating the Contract (AF 18).  The appeal was docketed as PSBCA No. 6336.
  16. In December 2010, Stop & Mail filed a $65,000 claim, alleging that the Postal Service had breached the Contract by improperly closing the CPU and failing to follow the termination procedures.  The claim did not provide any detail on how the damages were calculated.  (AF 19).  On January 7, 2011, the contracting officer denied the claim (AF 20).  Stop & Mail appealed that final decision (AF 21).  The appeal was docketed as PSBCA No. 6374.
  17. The Postal Service issued a final decision on November 6, 2011 seeking $18,300.45 for shortages related to Stop & Mail’s use of a postage meter (AF 22 at 104).  Stop & Mail appealed that final decision, and the appeal was docketed as PSBCA No. 6445 (AF 23, 24).
  18. The parties have stipulated that they have settled all entitlement and quantum issues relating to PSBCA No. 6445 (Stipulations ¶ 31).
  19. The parties have also stipulated that Stop & Mail is entitled to $2,137 under a 60-day termination (Stipulations ¶ 11).

DECISION

PSBCA No. 6336: Challenge to the One-Day Termination

Arguing that the one-day termination was, in effect, a termination for default, the Postal Service acknowledges that it has the burden to proof.  While we agree that the Postal Service has the burden of proof, see The General Store, PSBCA No. 3951, 98-1 BCA ¶ 29,573, our analysis will focus on the language in the termination clause itself rather than deciding whether the one-day termination served as a termination for default. 

Here, the termination clause allowed the Postal Service to terminate the contract on one day’s notice if the termination was “necessary to protect the Postal Service’s interest.”  In a sworn declaration, the contracting officer stated that she terminated the contract on one day’s notice “to protect the Postal Service’s interests and to prevent any future financial loss.”  We agree that the Postal Service has shown a reasonable and legitimate interest it was seeking to protect, i.e., future financial loss.  We do not believe, however, that the Postal Service has explained how or why the one-day termination was necessary to protect that interest, as required by the clause.  As noted, the Postal Service took custody of the equipment necessary to run the CPU, effectively closing it in August 2009.  In that situation, there was no real danger of future financial loss to the Postal Service from the CPU, and the one-day termination issued in April 2010 did not otherwise protect against any further financial loss.  The termination decision also was not necessary to collect the outstanding $2,638.01 debt that had been incurred months earlier, nor did it further the Postal Service’s effort to collect that amount from either Stop & Mail or its sureties.  We thus find that the Postal Service has not met the standard for a one-day termination specified in the contract.

Even though the Postal Service recognizes that it has the burden of proof, it argues that the contracting officer’s decision to issue a one-day termination cannot be overturned in the absence of bad faith or an abuse of discretion.  The cases cited by the Postal Service, Swearingen Servs., Inc., PSBCA No. 3718, 96-2 BCA ¶ 28,398 and Fantastique’ Ultimatique’ Nautique’, PSBCA No. 3652, 96-1 BCA ¶ 28,150, do not support its argument.  Swearingen addressed a 30-day termination notice issued under a termination clause similar to the one in this Contract, i.e., a clause that did not include any express restrictions on the Postal Service’s right to terminate.  Our decision in Swearingen did not address a one-day termination, and thus it does not control here.  See also E. Gerald Hanes, PSBCA No. 3082, 92-3 BCA ¶ 25,127 (applying the bad faith or abuse of discretion standard to a 60-day termination).

We hold that Fantastique’ is not controlling for two reasons.  First, the facts in Fantastique’ are distinguishable from the facts in these appeals.  There, the one-day termination was justified based on a long list of problems at the CPU not found in these appeals and the fact that the CPU was still an on-going concern when the contract was terminated.  In contrast, Stop & Mail did not have a long list of problems and its CPU had been shut down months before the termination.  Second, we agree that Fantastique’ can be read as giving the contracting officer the same broad level of discretion when issuing either a one-day or a 60-day termination (i.e., the termination will be upheld in the absence of bad faith or an abuse of discretion).  Nonetheless, while we agree with the result, to the extent that Fantastique’ improperly applied the standard for a 60-day termination to a one-day termination, we decline to follow it here.  Instead, as discussed above, we look to the language in the termination clause to determine whether the one-day termination was justified. 

Finally, the Postal Service suggests that the mere existence of a financial shortage at a CPU justifies a one-day termination.  That argument misreads the decisions it cites for support.3  For example, in The General Store, PSBCA No. 3951, 98-1 BCA ¶ 29,573 and Donald E. Skaggs, PSBCA No. 4486, 00-2 BCA ¶ 30,933, which both involved termination clauses identical to Stop & Mail’s, the Postal Service identified an interest it was seeking to protect and explained how its one-day termination was necessary to protect that interest.  Those decisions did not uphold the one-day terminations merely because there was a shortage.  The Board decided Carlos D. Delbrey, PSBCA No. 3892, 97-2  BCA ¶ 29,239 and Robert A. and Sandra B. Moura, PSBCA No. 3460, 96-1 BCA ¶ 27,956 using a similar analysis, albeit under different termination clauses.4  We thus reject this argument.

Even though the one-day termination notice was not justified, the termination clause in Stop & Mail’s contract did not include any express limitations on the Postal Service’s right to issue a 60-day termination notice.  In the absence of bad faith or an abuse of discretion, we will uphold such a decision.  The Green Shack Marketplace, PSBCA No. 4557, 01-2 BCA ¶ 31,595 at 156,155; Clinical Pharmacy, Inc., PSBCA No. 3585, 95-1 BCA ¶ 27,449 at 136,749.  Here, the record does not include any such evidence, and thus the termination decision issued on April 29, 2010, was effective as notice of a 60-day termination.  The parties have stipulated that Stop & Mail is entitled to $2,137 under a 60-day termination, and we so hold.

PSBCA No. 6374: Breach of Contract Damages

Stop & Mail’s claim does not provide any detail on how it calculated its alleged damages of $65,000.  Its complaint, however, states that the amount is based on the assumption that the Contract was still ongoing and would have continued for at least five years at the annual rate of $13,000 (Complaint at ¶ 10).

As stipulated by the parties, and as we have held, Stop & Mail is entitled to receive $2,137 for 60 days payment under the contract—which is all it would have received following a 60-day termination.  Thus, Stop & Mail is not entitled to damages beyond that amount, and this appeal is denied.  See Temple Contract Station, LC, PSBCA No. 6430, 2014 WL 3535068 (July 18, 2014).

PSBCA No. 6445: Postage Meter Sales

As noted above (Finding 18), the parties have settled all entitlement and quantum issues related to this appeal.  Accordingly, the appeal is dismissed.

ORDER

PSBCA No. 6335 is granted.  The one-day termination notice was not justified, but it was effective as a 60-day termination notice.  As stipulated by the parties, Stop & Mail is entitled to $2,137 based on a 60-day termination.  PSBCA No. 6374 is denied.  PSBCA No. 6445 is dismissed based on the parties’ settlement.

Alan R. Caramella
Administrative Judge
Board Member

I concur:

Gary E. Shapiro
Administrative Judge
Chairman

I concur:

Peter F. Pontzer
Administrative Judge
Board Member

 

1 After the record closed, Stop & Mail filed a brief and an unsworn statement from its owner.  We grant the Postal Service’s motion to strike the brief and unsworn statement.  We did not consider either the brief or the unsworn statement in reaching our decision.

2 The parties provided 31 stipulations of uncontested facts dated July 5, 2013.

3 The Postal Service also cited Brunswick Elecs., PSBCA No. 4942, 04-1 BCA ¶ 32,597.  That case, however, did not address the termination itself, but rather focused on the Postal Service’s claim for shortages in the CPU’s accounts. (Findings of Fact at ¶ 11–12 at 161,296).  Thus, that decision is not relevant to the issues now before us.

4 Those contracts provided for a one-day termination if the contracting officer determined the contractor was in default.