April 6, 2017

CHAR'S HALLMARK CARDS & GIFTS, INC. v. UNITED STATES POSTAL SERVICE

PSBCA Nos. 6476, 6489

APPEARANCE FOR APPELLANT
Michael Everall

APPEARANCE FOR RESPONDENT
Jessica J. Stringer, Esq.
United States Postal Service Law Department

OPINION OF THE BOARD

Appellant, Char’s Hallmark and Gifts, Inc. (Char’s Hallmark), seeks $3,000,000 from Respondent, United States Postal Service, related to the Postal Service’s termination of a contract postal unit in Palm Harbor, Florida.  We deny the appeals, ruling in favor of the Postal Service.

FINDINGS OF FACT

1. In 1989, the Postal Service and Char’s Hallmark’s predecessor-in-interest entered into Contract No. 118925-90-P-0075 for the operation of a contract postal unit in Palm Harbor, Florida (AF 1).  In July, 2005, the contract was novated to Char’s Hallmark, and the Postal Service executed a contract modification recognizing the novation (AF 2 at 38-41).  
2. The contract was for “an indefinite term, subject to the rights of termination specified” in the contract (AF 1 at 5).
3. The contract’s Termination clause provided:
   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 5).
4. On May 13, 2011, the Postal Service and the American Postal Workers Union (APWU) executed a collective bargaining agreement (CBA) which included
   a Memorandum of Understanding that stated in 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.
   The Char’s Hallmark CPU was among twenty CPUs specifically listed in the CBA for closure or conversion to in-house operations (the closure list).  The Better Letter CPU in Brooklyn, New York, also was included on the closure list.  (AF 7 at 92, 94).
5. The APWU, not the Postal Service, identified the Char’s Hallmark CPU for inclusion on the closure list.  After ratification of the CBA, the Postal Service negotiated with the APWU in an effort to substitute another CPU in place of the Char’s Hallmark CPU for inclusion on the closure list.  Ultimately, however, the Postal Service agreed to close the Char’s Hallmark CPU as provided in the CBA.  (AF 10, 19-22).
6. On January 23, 2012, as directed by the contracting officer, a Postal Service purchasing specialist sent a letter to Char’s Hallmark, stating:
   As a result of an agreement with the American Postal Workers Union, this letter is to notify you that the [Char’s Hallmark] CPU, Contract Number 118925-90-P-0075, 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 General Provisions, Clause 5 of your contract.
   (AF 3).  On March 29, 2012, the Postal Service’s contracting officer signed a contract modification terminating the Char’s Hallmark CPU, effective March 30, 2012 (AF 5).
7. The Better Letter CPU was closed for the same reason.  While the Better Letter CPU subsequently re-opened in another location under a different contract, the Char’s Hallmark CPU was not permitted to re-open.  (M. Everall Declaration (November 28, 2016); Postal Service Interrogatory Response ¶ 2 (November 22, 2016)).
8. On August 31, 2012, Char’s Hallmark filed a notice of appeal with the Board challenging the termination and seeking $3,000,000 in compensation for twenty years’ gross expected profit, which the Board docketed as PSBCA No. 6476 (AF 6).  On January 14, 2013, the contracting officer issued a final decision denying Appellant’s $3,000,000 claim and Appellant filed a notice of appeal on February 25, 2013 (Case File).  The Board docketed the appeal as PSBCA No. 6489, and consolidated the cases (March 4, 2013 Order).
9. At the parties’ request, the Board suspended this case while Temple Contract Station, LC, PSBCA Nos. 6430, 6488, 14 BCA ¶ 35,669, was being decided by the Board, and then considered on appeal by the Federal Circuit (September 6, 2013 Order; August 14, 2014 Order).  After the Federal Circuit dismissed the appeal of Temple Contract Station, LC (No. 14-1662) on April 2, 2015, the Board lifted the suspension of this case (May 5, 2015 Order).  The Board later granted the parties’ joint request to decide the matter based on written submissions in lieu of an oral hearing (September 2, 2016 Order and Memorandum of Telephone Conference). 

DECISION

This case is substantially similar to the situation before the Board in Temple Contract Station, where we addressed a variety of theories challenging the Postal Service’s termination of a CPU based on the APWU collective bargaining agreement’s closure list.  The Board in Temple Contract Station concluded that the Postal Service did not breach that contract by exercising the termination clause.  Temple Contract Station, 14 BCA ¶ 35,669 at 174,602.  The Board specifically asked Appellant to explain why this case is distinguishable from that precedent.  See September 2, 2016 Order and Memorandum of Telephone Conference. 
In an effort to do so, Appellant argues that the Postal Service violated the implied covenant of good faith and fair dealing when it exercised the contract’s termination clause.  It also argues that the Postal Service impermissibly allowed the APWU to interfere with the Char’s Hallmark CPU contract, resulting in breach of that contract by tortious interference.  Finally, citing the dissent, Appellant contends that the Board’s decision in Temple Contract Station should be reversed.
The implied covenant of good faith and fair dealing prohibits the parties from interfering with each other’s contract performance so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.  See Metcalfe Constr. Co. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014).  The covenant does not expand a party’s contractual duties beyond those expressed in the contract and cannot create duties inconsistent with express contract terms.  See id.  
The Char’s Hallmark CPU contract expressly permitted either party to terminate with sixty days’ written notice, which is precisely what the Postal Service did (Findings 3, 6).  Further, the duration of the contract was indefinite, at perpetual risk of ending upon that 60-days’ notice (Findings 2, 3).  As a result of this express contract term, Appellant could not have had a reasonable expectation of a contract duration longer than that 60-day notice period.  Temple Contract Station, 14 BCA ¶ 35,669 at 174,601. 
As the Board explained in Temple Contract Station, the legitimate exercise of an express contract right cannot breach the implied duty of good faith and fair dealing.  Temple Contract Station, 14 BCA ¶ 35,669 at 174,601.  Here, however, Appellant also argues that it was treated differently than a similarly situated CPU, Better Letter, which was awarded a replacement contract (Finding 7).¹ The Postal Service’s different treatment of another supplier does not demonstrate that its treatment of Appellant violated the covenant of good faith and fair dealing, especially when the Postal Service exercised an express contract right.  We will not read a limitation into the express termination clause that does not exist.  To the extent that Appellant argues that accommodating Better Letter shows that the Postal Service had the discretion not to terminate the Char’s Hallmark CPU, its argument still fails.  Even if the Postal Service was not forced to terminate, the contract gave it the discretion to do so by the termination clause, which was a contract right without express limitation. 
Appellant next argues that the Postal Service ceded control of the Char’s Hallmark CPU contract to the APWU.  We also rejected this argument in Temple Contract Station, 14 BCA ¶ 35,669 at 174,598.  Appellant has not shown any basis for treating this case differently.  The Postal Service cannot tortiously interfere with its own contract, see Temple Contract Station, 14 BCA ¶ 35,669, n. 4, and we cannot entertain a tortious interference claim against the APWU for several reasons, including the APWU not being a party to this litigation.
Finally, Appellant urges the Board to reconsider, and reverse, its holding in Temple Contract Station, and to adopt the dissent’s analysis and conclusion.  We see no reason to do so, and we follow our earlier decision.  We understand Appellant’s disappointment that the Postal Service terminated its CPU contract, which it had been performing without incident since 1989.  That disappointment, though, cannot result in a successful breach of contract claim because the Postal Service terminated the contract based on an express contract right to do so.  The Board’s appropriate role in this case requires us to determine whether the Postal Service acted within its contractual rights.  We have no role to consider, and offer no opinion, whether its actions represented the best business decision.

CONCLUSION

The Postal Service’s exercise of the termination clause of the Char’s Hallmark’s CPU contract did not breach that contract.  The appeals are denied.

Gary E. Shapiro
Administrative Judge
Chairman

I concur:
Alan R. Caramella
Administrative Judge
Vice Chairman

I concur:
Diane M. Mego
Administrative Judge
Board Member