April 21, 1989

Appeal of

MICHAEL N. BECKLOFF

Under Contract No. HCR 44041

PSBCA No. 2249

APPEARANCE FOR APPELLANT:

Michael N. Beckloff

APPEARANCE FOR RESPONDENT:

William R. Gilligan, Jr., Esq.

OPINION OF THE BOARD

This appeal concerns the propriety of a contracting officer's decision terminating for default Appellant's highway transportation contract and assessing damages for trips Appellant did not perform. The parties elected to have the appeal decided on the record without an oral hearing.

FINDINGS OF FACT

1. Michael N. Beckloff (Appellant) and the United States Postal Service (Respondent) entered into highway transportation contract HCR 44041 on June 20, 1985, at a rate of $15,592.52 per annum for a term from July 1, 1985, to June 30, 1989. Under the contract Appellant was to transport mail between the Cleveland Air Mail Facility (AMF) and Amherst, Ohio, and return (with intermediate stops) daily except Sunday and holidays (Appeal File (AF)-EE). After January 17, 1987, the annual rate was adjusted downward to $15,301. The adjusted rate per mile was $.54878 (AF-H).

2. The contract incorporated the "Basic Surface Transportation Services Contract General Provisions" (PS Form 7407, Oct. 1981), with amendments. Those General Provisions included a standard "Claims and Disputes" clause (clause 2). As pertinent here, clause 16, "Termination by the Postal Service for Default," authorized the Contracting Officer to terminate the contractor's right to continue performance under the contract if the contractor failed to perform service according to the contract terms. However, if the default was found to be excusable, the contractor would be entitled to liquidated damages, as prescribed in clause 12, for a termination for convenience under clause 17 (id.).

3. Clause 13 provided that the contractor was "accountable and answerable in damages for the faithful performance" of the contract obligations; specifically, subparagraphs (b) and (c) provided:

"(b) Subject to subparagraph (c) of this Clause, where the Contractor fails to perform a trip, there shall be forfeited from the compensation due him, and the Contracting Officer may deduct from compensation so due, as damages, the compensation due for the trip, but, where the failure is occasioned by the fault of the Contractor, there may be do deducted a sum not to exceed four times the compensation due for the trip.

(c) The amount of damages may be increased in the discretion of the Contracting Officer, according to the nature or frequency of the failure and the importance of the mail." (id.).

4. Under the contract's Payment provision the contractor was to be compensated at the contract rate in installments at the close of each four-week accounting period subject to any adjustment made under the contract (id.).

5. In July 1987, a Creditor's Bill was filed in the Elyria, Ohio Municipal Court by AVCO Financial Services seeking garnishment in the amount of $3,247 from Appellant's contract to satisfy a judgment against Appellant. Respondent was named as a defendant for garnishment purposes. Respondent's Answer of August 21, 1987, advised that Appellant was a contractor with the Postal Service and that the garnishment would be processed upon receipt of a court order directing such action. Appellant was sent a copy of this order directing such action. Appellant was also informed by a Postal Service employee by telephone of the pending garnishment. Appellant advised the employee that the action was invalid because he had never been served in the proceeding (Affidavit of Michael N. Beckloff ¶ 4).

6. On September 14, 1987, Respondent received a "Judgment Entry" from the Elyria Municipal Court ordering it to pay all funds and money due Appellant to and through the Clerk of the Court for distribution to the plaintiff until $3,247 was paid in full. A copy of the "Judgment Entry" was sent to Appellant (AF-S).

7. On or about October 14, 1987, the Contracting Officer, the Manager of the Transportation Management Service Center (TMS) at Columbus, Ohio, issued a Contract Route Service Order, a copy of which was sent to Appellant, directing that $3,247 be deducted from Appellant's contract and sent to the Elyria Municipal Court (AF-R). The amount due Appellant for Accounting Period 1-88 (October 1987) of $1,170.57 thereafter was sent to the court (AF-L).

8. Upon learning of Respondent's compliance with the garnishment action Appellant made telephone calls to the TMSC and to the Postal Data Center (PDC) in St. Louis, Missouri (which issued his payment checks), asserting that the garnishment was invalid and that his payment check should be released only to him (Beckloff Affidavit ¶¶ 5/11).

9. On October 27, 1987, Appellant's attorney filed a motion with the Elyria Court to stay the garnishment until a determination could be made on a companion motion to vacate the judgment against Appellant. A copy of the motion to stay was received by the TMSC on October 29, 1987 (AF-Q).

10. On November 2, 1987, the TMSC received a copy of the Elyria Court's "Judgment Entry" of October 30, 1987, vacating the original judgment against Appellant because there had been no valid service on him. The Court also vacated the garnishment order of September 10, 1987, and released Respondent from any obligation to comply with that order, noting that any funds received by the Court "shall be returned to the party from whom received." In the original proceeding service had been accomplished by certified mail sent to Mr. Beckloff c/o of the United States Post Office, in St. Louis, Missouri. A "G. P. King" had signed the certified mail receipt. The record does not indicate that the court requested restricted delivery service which provides for delivery of the certified or registered mail only to the addresses or his agent. See Domestic Mail Manual section 933. ON November 3, 1987, the TMSC telefaxed a copy of the Judgment Entry to Respondent's Regional Counsel in Philadelphia, PA. His reply of November 4, 1987, which concluded there was no longer a legal basis for withholding funds, was sent by regular mail, and was not received by the TMSC until November 16, 1987 (AF-O).

11. Appellant previously had written a letter to the TMSC, dated October 28, 1987, and received November 2, 1987, requesting release of the funds and advising that he would have to cease operations under his contract if there was further delay (AF-P) Beckloff Affidavit ¶ 12).

12. By letters dated November 10 and 11, 1987, to the PDC and to the Cleveland Ohio Logistics Office located in the General Mail Facility, Appellant advised that the Court had set aside the garnishment order and enclosed copies of the Court action. The letters were received November 19 and 16, 1987, respectively. He demanded immediate release of the funds and warned he had no money to enable him to continue operations. He also made telephone calls to the PDC and TMSC to the same effect during that time period (AF-M, N; Beckloff Affidavit ¶¶ 13, 14).

13. On November 18, 1987, the TMSC issued a service order rescinding the garnishment effective with the next accounting period payment. The PDC did not immediately receive the service order as a check dated November 20, 1987, for Appellant's second contract payment was thereafter sent by the PDC to the Elyria Court. The court returned it to the PDC approximately December 10, 1987 (AF-E, K).

14. On or about November 20, 1987, and again on November 23, Appellant made calls to the PDC. He was advised by personnel there that authorization to release his payments had not yet been received (Beckloff Affidavid ¶¶ 19, 21).

15. On November 25, 1987, the day before Thanksgiving, 10 minutes prior to the scheduled noon departure time, Appellant called the Cleveland AMF and notified personnel there that he was ceasing contract operations because Respondent had breached his contract by not paying him. He did not operate the route that day or thereafter (AF-D, J; Beckloff Affidavit ¶ 22).

16. On November 27, 1987, Appellant received payment for one pay period, apparently from Respondent (Beckloff Affidavit ¶ 23; AF-G).

17. On December 14, 1987, the Contracting Officer terminated Appellant's right to perform service effective close of business December 5, 1987. He also deducted $1,818 from the contract for damages. He calculated the damages on the total round trip miles for nine days (November 25, 27, 28, 30, December 1-5). The total mileage of 828 was based on 92 miles per round trip times the contract rate per mile of $.54878 for a total of $454.38. Citing clause 13(b) of the contract, the Contracting Officer multiplied $454.38 by four ($1,817.52), rounding off the total figure for a damage assessment of $1818 (AF-D). This appeal ensued. Appellant was billed for $20.34, the difference between $1,797.66 owed to Appellant on the contract and the amount of damages assessed ($1,818) (AF-B; Beckloff Affidavit ¶ 24).

DECISION

Respondent contends that Appellant's telephone notice on November 25, 1987, that he was ceasing to operate the route and his subsequent failure to perform service warranted the default termination of the contract. Such an anticipatory repudiation and abandonment of performance under the contract, if not excusable or caused by Respondent's material breach, warrants default termination. Brooks E. Cook, PSBCA No. 1350, 86-3 BCA ¶ 19,073; Lawrence D. Bane, PSBCA Nos. 1440, 1491, 86-2 BCA ¶ 19,997, recon. denied, 86-3 BCA ¶¶ 19,252, 19,276; B & E Mail Transport, Inc., PSBCA Nos. 971, 973, 974, 82-2 BCA ¶ 15, 965.

Appellant contends that his repudiation and abandonment of the contract was either excusable or caused by Respondent's material breach of the contract. Appellant makes three arguments in support of his position. First, Appellant contends the garnishment judgment was entered only because an unauthorized Postal Service employee, "G. F. King," signed for the certified mail which contained the service of process for the original lawsuit. Second, Appellant contends that he informed Postal Service officials of the invalid service and they ignored such information Finally, Appellant argues that the Postal Service was dilatory in rescinding its garnishment payment procedures subsequent to its receipt of the October 30, 1987, Elyria Court's "Judgment Entry," which vacated the garnishment order against Appellant.

The facts of the controversy do not support Appellant's contentions, We find the default action was warranted.

The certified letter containing the service of process for the lawsuit was not sent "restricted delivery" by the Court. Thus, it was not improper for the letter to be delivered to an individual at the address shown on the envelope or for the individual, in this case "G. F. King." to sign the mail receipt. It does not appear from the record that there exists any information pertaining to the letter or its whereabouts after its receipt. Additionally, Appellant has not attempted to pursue the matter through any means of discovery. We thus find no impropriety by Respondent in the events pertaining to the matter of the service of process.

Appellant's contention that Postal Service officials were negligent in ignoring his oral representations as to improper service of process upon him is without merit. Once Respondent received notice of the garnishment proceedings in which it was named a defendant it became a party to those proceedings. Thus, it was under the jurisdiction of the Elyria Court and bound by the Court's orders and judgment. Respondent count not unilaterally extricate itself from those proceedings. Rather, it was attendant upon Appellant to challenge the garnishment action, as he ultimately did on October 27, 1987.

Appellant's final argument that the Postal Service breached the contract by not acting promptly to rescind the garnishment payment procedure is likewise not persuasive. The TMSC received the Elyria Court's "Judgment Entry" on November 2, 1987. A copy of the "Judgment Entry" was telefaxed the next day to Respondent's Regional Counsel. On November 4, 1987, the Regional Counsel responded by letter stating that no basis existed to continue the garnishment. The Regional Counsel's response was not received at the TMSC until November 16, 1987. This delay does not support Appellant's breach of contract allegation as we are unable to equate a delay in the Postal Service's mail delivery service to a delay in its contract administrative function. Further, we do not find any obligation existed on the part of the Regional Counsel to respond to the TMSC by telefax. Under the circumstances existing on November 4, 1987, a response by regular mail one day after receipt of the telefax appears reasonable.

After receiving the Regional Counsel's response the TMSC acted with dispatch, issuing a service order on November 18, 1987, which rescinded the garnishment. Considering the distance between the TMSC in Columbus, OH, and the PDC in St. Louis, MO, as well as some reasonable time required to process a service order at the PDC once it was received, it cannot be said that the PDC acted precipitously or negligently on November 20, 1987, when it issued a check for Appellant's contract payment to the Elyria Court. By November 27, 1987, the day after Thanksgiving and two days after Appellant ceased to operate his contract, Appellant received a contract payment, thus indicating that all administrative procedures rescinding the garnishment action had been effectuated. It thus took approximately 25 days after receipt for Respondent to fully implement the Elyria Court's October 30, 1987 "Judgment Entry" and make payment to Appellant. Under the circumstances of this appeal and the fact that three separate Postal Service offices were involved we find such period of time reasonable.

We are unable to find Appellant's actions reasonable, however. This conclusion is supported by a comparison of the time periods with Appellant's actions. Appellant received a copy of Respondent's August 21, 1987, Answer in the garnishment proceeding and took no action to quash or dismiss that proceeding. Appellant likewise received a copy of the Elyria Court's September 14, 1987, "Judgment Entry," which ordered his contract payments garnished. Again Appellant did nothing. On October 14, 1987, Appellant was sent a copy of the Postal Service document which administratively implemented the garnishment. Appellant's attorney did not file a motion in Court to stay the garnishment until October 27, 1987. Thus, from the time Appellant learned of the garnishment proceeding until he took action to oppose it a period of approximately 67 days elapsed, compared to the 25 days it took Respondent to rescind the garnishment payment procedures.

Therefore, no legal basis or excuse existed for the action taken by Appellant on November 25, 1987, when 10 minutes before his scheduled departure for that day he gave notice that he was abandoning his contract. Further, even after receiving his contract payment on November 27, 1987, Appellant made no attempt to contact Respondent to seek continuation of his contract. The default action was properly taken.

The record is insufficient to support the assessment of the $1,818 amount against Appellant, however. The Contracting Officer calculated the assessment based upon 18 trips Appellant did not perform, plus a penalty factor, during the nine-working day period November 25 - December 5, 1987. It is unclear from the record whether the $1,818 amount represented a deduction from Appellant's past earnings or merely a reduction of the contract amount which would otherwise have been paid Appellant had he performed his contract during the nine-day period. Appellant is entitled to payment for the trips he performed until he stopped performing on November 25, 1987, less any assessment for excess reprocurement costs. Of course, he is entitled to no payment for the unperformed trips after that date. Accordingly, the matter is remanded to the Contracting Officer for the calculation and assessment against Appellant of excess costs, if any, incurred by the Postal Service as the result of Appellant's abandonment of his contract.

In summation, Appellant's appeal as to the propriety of the default termination is denied. The matter is remanded to the Contracting Officer for calculation of the proper amount of reprocurement costs, if any, due Respondent.

James D. Finn, Jr.

Administrative Judge

Vice Chairman

I concur

James A. Cohen

Administrative Judge

Chairman

I concur

Joan B. Thompson

Administrative Judge

Board Member

D I S S E N T

I would find the default termination improper and, therefore, dissent from the majority's decision.

The determinative issue concerning the default termination is whether Appellant was justified on November 25, 1987, in abrogating the contract because respondent had materially breached his contract. I conclude Appellant was justified on that date. The material breach of the contract by Respondent gave Appellant a legal right to avoid the contract, discharged his duty to perform, and relieved him of the default termination and its consequences. Malone v. United States, 849 F.2d 1441, 1446 (Fed. Cir. 1988).

The panel majority concludes Respondent's actions were reasonable and did not constitute a material breach. I agree there was no material breach by Respondent in honoring the court order garnishing Appellant's contract earnings as Respondent is subject to state garnishment orders. Beneficial Finance Co. of New York, Inc. v. Dallas, 571 F.2d 125 (2d Cir. 1978). Cf. Paul A. Mason, PSBCA No. 1473, 86-3 BCA ¶ 19,142. Respondent could not disobey the court's order merely because it received telephone calls from Appellant that the garnishment was invalid.

However, the circumstances changed once Respondent received the court order voiding the garnishment and releasing Respondent from any obligations. I disagree that its actions thereafter were reasonable in the circumstances of this case although the time sequences by themselves in ordinary circumstances may not be unreasonably long. Respondent had an implied duty to cooperate with Appellant. Its failure to do so or to act diligently could constitute a material breach of contract. See Malone v. United States, 849 F.2d at 1446. Among actions constituting a material breach are improperly withholding payments due a contractor or delaying payment. DWS, Inc., ASBCA No. 33245, 87-3 BCA ¶ 19,960; Consumers Oil Co., ASBCA No. 24172, 86-1 BCA ¶ 18,647; Sierra West Airlines, PSBCA No.132 (Nov. 24, 1975), and cases cited therein.

Respondent emphasizes that Appellant was on notice of the garnishment but failed to take court action before his earnings were sent to the court. Appellant was a small, owner-operated contractor and receipt of pay for his past-performed service was vital. This was known to Respondent's personnel who were charged with supervising the administration of the contract. That Appellant failed to understand that Respondent would honor the garnishment even though he told Respondent's personnel the garnishment was invalid (a position upheld by the court), and did not take court action until his earnings were sent to the court, does not excuse Respondent's delay after receiving the order rescinding the garnishment.

This is not a case where Appellant slept on his rights once the court rescinded the garnishment. In a letter received by the TMSC on November 2, 1987, he warned that he would have to cease operations if there was further delay in receiving the money owed him. He sent further letters to the TMSC and the PDC and made telephone calls to personnel in both offices to the same effect during November 1987. He asserted that Respondent was breaching the contract by not sending his past due pay.

Knowing then that Appellant was legally entitled to receive his contract earnings and that they were vital to his small business, Respondent should have taken special measures to assure that Appellant would receive the next check due him. However, other than the TMSC telefaxing the copy of the court order to the Regional Counsel, no special measures were taken. Appellant's November 20 check was sent to the court - some 18 days after Respondent received the court's order rescinding the garnishment. As late as November 23, 1987, Appellant could not be assured by PDC personnel when he would receive the pay due him. He had not received his pay for at least two months at that time and did not know when he would receive it. In these circumstances, I conclude Appellant was justified on November 25, 1987, in treating Respondent's delay in effectuating payment as a material breach of the contract.

In view of my conclusion that Appellant was relieved from any consequences arising from the default termination because Respondent materially breached the contract, I believe any assessment of damages would be inappropriate. This would not preclude future consideration of Appellant's short notice on November 25, 1987, as possibly being a breach of Appellant's duty to mitigate damages.

Therefore, I would sustain Appellant's appeal as to the default termination and the assessment of damages, but would dismiss Appellant's request for damages other than those provided by the contract for a convenience termination.

Joan B. Thompson

Administrative Judge

Board Member