May 17, 2000
Appeal of
DONALD E. SKAGGS
Under Contract Nos. 118925-91-P-0019 and 475630-95-P-2647
PSBCA Nos. 4486 & 4487
APPEARANCE FOR APPELLANT:
Donald E. Skaggs
APPEARANCE FOR RESPONDENT:
Mark E. Dennett, Esq.
Respondent, United States Postal Service, terminated contracts with Appellant, Donald E. Skaggs, under which he operated two contract postal units for Respondent. Appellant filed a claim for damages resulting from the terminations and for a retroactive increase to his contract compensation that he contended was due two years before the terminations. Respondent denied Appellant’s claims and asserted its own claim against Appellant for monetary losses experienced at one of the contract units.
Appellant elected to have his retroactive compensation claim (PSBCA No. 4487) processed under the Board’s accelerated procedures, 39 C.F.R. §955.13. Because of the size of the damages claim in PSBCA No. 4486, it was not eligible for treatment under the accelerated procedures. However, it was determined that because of the similar facts and issues, the two appeals would be processed together to the extent possible. (See Order dated December 6, 1999). Both parties elected to submit the appeals on the written record without an oral hearing. Only entitlement is at issue. (See Order dated February 7, 2000).
FINDINGS OF FACT
1. On October 2, 1990, Respondent awarded Appellant contract number 118925-91-P-0019 to operate a contract postal unit in Venice, Florida known as the South Venice Contract Station. The contract required Appellant to provide postal services, including box rentals, to the public on his premises. Appellant’s annual compensation under the contract was $48,840. (Appeal File for PSBCA No. 4486, Tab (“4486AF”) 11).
2. On September 1, 1995, Respondent awarded Appellant contract number 475630-95-P-2647 to operate another contract station in Venice, known as the Mid Venice Contract Station. The services Appellant provided at the Mid Venice station were about the same as at South Venice, and Appellant’s annual compensation under the Mid Venice contract was $54,000. (Appeal File for PSBCA No. 4487, Tab (“4487AF”) 3 (Exhibit (“Ex.”) 14), 11).
3. The contracts were of indefinite duration, but both 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.” (4486AF 10; 4487AF 11, Paragraph C.1, CONTRACT DURATION AND TERMINATION (CONTRACT POSTAL UNIT) (Clause OB-490) (June 1988)).
4. Both contracts provided that Respondent would supply the stamps and accountable paper to be sold in the contract station (4486AF 10, Contract Attachment 1, Requirements; 4487AF 11, Contract Attachment 1, Requirements). Appellant assumed the risk of and responsibility for loss of the stamps and accountable paper and was accountable to Respondent for the value of the stamps it provided (4486AF 10, Paragraph H.11 (Paragraph H.2 in the Mid Venice contract), POSTAL SERVICE PROPERTY—SHORT FORM (Clause 2-12) (October 1987); 4487AF 11, Paragraph B.8, LIABILITY (Clause OB-807) (June 1993)).
5. The contracts provided for appointment of a contracting officer’s representative (“COR”) to oversee the day-to-day administration of the contracts. The contracting officer’s representative for both contracts was identified in the contracts as the postmaster of the Venice Post Office. (4486AF 10, Paragraph 8; 4487AF 3 (Ex. 14), 11, Paragraph 8). In a September 1, 1995 letter appointing the postmaster as the contracting officer’s representative for Mid Venice, the contracting officer directed him to conduct an annual audit of the Mid Venice Station (4487AF 3 (Ex. 14)).
6. As required by the contracts, Appellant obtained bonds for both of the contract stations (4486AF 10; 4487AF 11, Paragraph J.3 (Paragraph J.2 in the South Venice contract), CONTRACT POSTAL UNIT BOND (Provision OA-509) (June 1988) and Attachment 1, Requirement 8).
7. Both contracts authorized Appellant to request in writing an increase to his annual compensation after he had held the contract for two years or after he had operated the station for two years after his last increase. The request was required to justify the increase by reference to increased direct costs of operating the station and increased benefit to the Postal Service (e.g., increased real revenue, increased transactions or other improvements). Such requests were to be submitted to the contracting officer’s representative, who was required to forward them to the contracting officer. The clause provided,
“The contracting officer may accept the request, deny the request, or negotiate with the contractor to reach agreement on a new annual price. . . . If the request is denied or no agreement is reached, the contractor may continue at the same annual price or the contract may be terminated by either party in accordance with the Contract Duration and Termination clause.” (4486AF 10; 4487AF 11, Paragraph G.3 (Paragraph G.2 in South Venice Contract), REQUEST FOR PRICE ADJUSTMENT (CONTRACT POSTAL UNIT) (Clause OB-491) (June 1988)).
8. There had been previous increases to Appellant’s compensation under the South Venice contract: from $48,840 to $54,900 on January 25, 1993, effective retroactively to October 1, 1992; to $59,700 on March 27, 1995, effective March 1, 1995; and to $65,400 on February 24, 1998, retroactive to July 1, 1997. (4486AF 9; 4487AF 3 (Ex. 1), 6).
9. On August 8, 1997, Appellant submitted to the contracting officer’s representative a written request that his compensation for the Mid Venice Contract Station be increased (4486AF 18; 4487AF 3, 8). Respondent took no action on the request, as the Venice Postmaster (the COR), concerned about shortages at Appellant’s South Venice Contract Station, decided not to pass it on to the contracting officer. However, he did submit a recommendation for an increase for the South Venice Station at about the same time. (4486AF 14 (Affidavit of Ronald J. Wozniak)).
10. On October 13, 1998, Appellant submitted another request to the COR for an increase on the Mid Venice Contract. On October 14, the postmaster forwarded the request on to a higher level administrative office (not the contracting officer) with a recommendation that it be approved. However, at the time, Respondent had imposed a region-wide freeze on increases for contract stations causing Appellant’s request to be held without action. (4486AF 12 (Affidavit of Mary Ann Knight), 15 (Affidavit of Terry Paschal), 16 (Affidavit of Raymond A. Bernicchi), 20; 4487AF 3 (Ex. 5), 8).
11. On March 30, 1999, Appellant submitted another written request for a contract increase for the Mid Venice Station, retroactive to September 1997 when he first became eligible for an increase, and he submitted additional supporting information on May 18. On June 1, 1999, the Venice Postmaster and his superiors recommended to the contracting officer that the annual rate at the Mid Venice Station be increased by $7,668 per year, also noting that other contract stations whose increases had been held up by the “freeze” had received increases retroactive to the date of submission. (4486AF 21 (Affidavit of Jack Coleman); 4487AF 3 (Ex. 8), 6, 8).
12. By letter of May 28, 1999, Appellant notified the contracting officer’s representative that unless he received an increase in annual compensation by July 31, 1999, he could not continue to operate the Mid Venice Contract Station beyond that date. (4487AF 3 (Ex. 11), 6).
13. Past audits of Appellant’s Mid Venice Contract Station had revealed shortages as follows: March 9, 1998--$3,620.37 and September 28, 1998--$489.18. Appellant participated in the audits and signed the count sheets indicating his agreement with the counts. (4486AF 13 (Affidavit of Nancy M. Lemonde), 19; 4487AF 3 (Ex. 12), 4, 9).
14. Audits of the South Venice Contract Station revealed shortages as follows: November 21, 1991--$1,983.33; November 13, 1992--$2,600.93; November 8, 1993--$948.59; April 4, 1994--$19,892.93 (a burglary had occurred before this audit); May 21, 1996--$5,094.99; March 6, 1998--$10,202.41 and August 20, 1998--$4,341.13. Appellant participated in the audits and signed the count sheets indicating his agreement with the counts. (4486AF 13 (Affidavit of Nancy M. Lemonde), 17; 4487AF 3 (Ex. 12), 9).
15. In a March 30, 1999 letter, Appellant suggested that past shortages were related to practices that had been corrected and, perhaps, to malfeasance of one employee who had been terminated in October 1998. He assured the COR that through self audits he had confirmed that the shortage problems had been resolved. (4487AF 3 (Ex. 7)).
16. On June 8, 1999, the contracting officer sent Appellant a letter demanding payment of $18,153.09, the sum of the shortages of March 9 and September 28, 1998, at Mid Venice (Finding 13), and March 6 and August 20, 1998, at South Venice (Finding 14). He advised Appellant that a failure to repay the indebtedness by June 18 may result in contract termination. (4486AF 3 (Ex. 12), 8, 21 (Affidavit of Jack Coleman)).
17. Also on June 8, 1999, audits at both stations disclosed a shortage at Mid Venice of $244.86 and a shortage at South Venice Station of $2,589.34 (4486AF 6 (p. 15), 13 (Affidavit of Nancy M. Lemonde)).
18. Appellant responded to the letter of demand in a June 14, 1999 letter to the COR, demanding payment of $21,000 he claimed was due him under the increase that should have been granted for the Mid Venice contract. He also advised that without the retroactive increase he could not continue performing. He gave notice of an intent to terminate on 60 days’ notice effective August 31 for Mid Venice and September 30 for South Venice. (4486AF 3 (Ex. 13)).
19. The contracting officer refused to consider an increase until the shortages were repaid, and he so advised Appellant in a June 18, 1999 telephone conference. Appellant responded that he would be unable to repay the shortages unless he received the requested rate increase. (4486AF 3 (Ex. 13), 6 (pp. 15, 16, 19), 7, 15 (Affidavit of Terry Paschal), 21 (Affidavit of Jack Coleman); 4487AF 7).
20. On June 21, 1999, the contracting officer terminated both the Mid Venice and South Venice Contract Station contracts on one day’s notice, effective June 22, due to the unpaid shortages. (4486AF 6 (p. 9), 9, 21 (Affidavit of Jack Coleman); 4487AF 2, 6, 10).
21. A subsequent shortage in the amount of $482.91 was discovered at the South Venice station when its accounts were closed out on June 22,1999 (4486AF 13 (Affidavit of Nancy M. Lemonde); 4486AF 17). The accounts at the Mid Venice Station were $16.79 over when closed out on June 22, 1999, and Appellant sent Respondent $25.74 in stamps found after the closeout (4486AF 6 (p. 4); 4487AF 3 (Ex. 15)). Additionally, Respondent’s officials took two of Appellant’s rubber stamps at the time South Venice Station was closed out (4486AF 6 (p. 4)).
22. On May 13, 1998, Appellant paid $500 toward the shortages (4487AF 3 (Ex. 4), 9), and in September or October 1999, Respondent received payment from Appellant’s Mid Venice Contract Station bonding company that satisfied all shortages at that station and another $100 payment from Appellant (4487AF 4). Respondent, on September 13, 1999, made demand against Appellant’s surety on the South Venice Contract Station to satisfy the shortages at that station, but the demand was not paid (4486AF 5).
23. By letter dated August 24, 1999, to the contracting officer, Appellant renewed his demand for $21,000 in back pay that he first asserted in his June 14, 1999 letter to the COR (Finding 18). (4486AF 4 (p. 13)).
24. On August 24, 1999, Appellant submitted a claim to the contracting officer for damages resulting from what Appellant contended was the wrongful termination of the contracts. The claim was for $6,492 for leased equipment and alarm systems and lost rent; loss of income of $3,000 per month for two months; and $500,000 for defamation of character. (4486AF 2; 4487AF 2). In an August 25, 1999 letter to the COR, Appellant claimed reimbursement of $21 for rubber stamps he contended Respondent took when closing out the South Venice Station (4487AF 3 (Ex. 15)).
25. By final decision dated October 13, 1999, the contracting officer denied Appellant’s $21,000 claim (4487AF 1). The timely appeal of that final decision was docketed as PSBCA No. 4487.
26. By final decision dated October 15, 1999, the contracting officer denied Appellant’s $512,492 claim for loss of lease costs, loss of income and defamation and asserted Respondent’s claim in the amount of $14,543.52 for the unrecovered shortages of March 6, 1998, and August 20, 1998, at the South Venice Contract Station (4486AF 1). Appellant’s timely appeal of the final decision was docketed as PSBCA No. 4486.
DECISION
Appellant is not entitled to recover the increase in compensation for Mid Venice Station that he first requested in September 1997. Appellant, as the party seeking an adjustment under the contract, has the burden of demonstrating by a preponderance of the evidence that he is entitled to the claimed increase to his annual rate. See Jack Swedberg, PSBCA No. 3876, 96-2 BCA ¶ 28,337; David Sahagian, PSBCA Nos. 3385, 3416, 94-2 BCA ¶ 26,688. While it appears that Appellant’s costs of operating the Mid Venice Station had increased, this alone does not require Respondent to grant an increase. See Marvin Watson, PSBCA No. 3716, 96-2 BCA ¶ 28,365. Increased costs of operating the station may be grounds for granting an increase, but such an increase is not guaranteed by the contract. See Fax-Photo-Shipping, Etc., PSBCA Nos. 3916 & 3970, 98-2 BCA ¶ 29,998. In Appellant’s case, business judgments made by Respondent’s officials—the postmaster’s decision to hold the increase request because of shortages (Finding 9), Respondent’s decision to implement a freeze in increases that affected Appellant’s 1998 request (Finding 10), and the contracting officer’s concern about the unpaid shortages in 1999 (Finding 19)—denied him an increase. Appellant has not shown these actions to have breached the implied duty of good faith and fair dealing that exists between the contracting parties or to have been an abuse of discretion by the contracting officer. See Marvin Watson, PSBCA No. 3716, 96-2 BCA ¶ 28,365; Jack Swedberg, PSBCA No. 3876, 96-2 BCA ¶ 28,337. As stated in the Request for Price Adjustment clause (Finding 7), Appellant was not bound to continue the contract when he was not granted the requested increase. If continuing the contract at the existing rate was not in his interest, he was free to exercise his own right to terminate the contracts. See Fax-Photo-Shipping, Etc., PSBCA Nos. 3916 & 3970, 98-2 BCA ¶ 29,998.
Accordingly, the appeal of PSBCA No. 4487 is denied.
Respondent entrusted stamps and stamped envelopes to Appellant, and it was Appellant’s burden to operate the stations in such a manner that he could account fully for all such stock supplied by Respondent (Finding 4). Under the contracts, Appellant was strictly liable to Respondent for any loss suffered by Respondent caused by shortages in the accounts of Appellant’s contract stations. See Ronald K. Stanley, Village East Drugs, PSBCA No. 4156, 99-2 BCA ¶ 30,412; Robert A. and Sandra B. Moura, PSBCA Nos. 3460, 3622, 96-1 BCA ¶ 27,956. Appellant suggests that a dishonest employee may have been responsible for the shortages, but such employee malfeasance does not relieve Appellant of liability. See Robert A. and Sandra B. Moura, PSBCA Nos. 3460, 3622, 96-1 BCA ¶ 27,956.
Appellant has argued that other circumstances mitigate the shortages—a faulty postage meter and IRT terminal and loss of good employees because of Respondent’s failure to grant the September 1997 increase—but he has not shown that any of these circumstances caused the shortages at issue here or that these considerations would relieve him of liability for the shortages.
Appellant also argues that because Respondent failed to audit the South Venice station in May of 1997, when the yearly audit was due, and did not do so until March of 1998, when a shortage in excess of $10,000 was discovered (Finding 14), he should be relieved from liability, at least for that shortage. However, although frequent audits are reasonable and were directed in the contracting officer’s instructions to the COR regarding Mid Venice (Finding 5), there is nothing in the contracts that establishes a requirement that Respondent audit the stations’ accounts annually for the benefit of Appellant. Therefore, any delay in Respondent conducting audits would not excuse Appellant’s shortages. See The General Store, PSBCA No. 3951, 98-1 BCA ¶ 29,573. It was Appellant’s duty to operate the stations and manage the accounts, and nothing prevented him from conducting his own audits if he was concerned about the possibility of shortages.
Appellant is liable to Respondent for the two shortages included in its claim (Finding 26) less the $600 paid by Appellant (Finding 22), the closeout overage at Mid Venice, the value of stamps Appellant returned after closeout and the value of Appellant’s two rubber stamps taken by Respondent from South Venice Station (Finding 21).[1]
Respondent has shown that termination of the two contracts on one day’s notice was justified. There was a history of substantial shortages at both stations (Findings 13, 14), but at the end of March 1999, Appellant assured Respondent that the problems causing the shortages had been corrected (Finding 15). When the past shortages were not repaid, the contracting officer issued a demand on June 8, in response to which Appellant conceded that he was unable to pay the shortages (Findings 16, 19). Then, further audits on June 8, 1999, discovered still more shortages in the accounts-- $244.86 at Mid Venice and $2,589.34 at South Venice (Finding 17). The substantial and continuing shortages were evidence of serious problems with Appellant’s performance of his responsibilities under the contracts, and because the shortages continued in June, there was little reason for confidence in Appellant’s March assurance that the financial management problems at the stations had been corrected. Under these circumstances, the contracting officer’s determination that it was in Respondent’s interest to terminate these contracts on one day’s notice was justified.[2] See The General Store, PSBCA No. 3951, 98-1 BCA ¶ 29,573; Carlos D. Delbrey, PSBCA No. 3892, 97-2 BCA ¶ 29,239; Robert A. and Sandra B. Moura, PSBCA Nos. 3460, 3622, 96-1 BCA ¶ 27,956; Lee D. Shumate, PSBCA No. 3647, 97-2 BCA ¶ 29,117.
As the terminations were justified, Appellant’s claims in PSBCA No. 4486 for equipment lease costs and loss of income (Finding 24) are denied.
Appellant’s $500,000 defamation claim is beyond the jurisdiction of the Board. First, although not raised by Respondent, the defamation claim was not certified even though it exceeded the $100,000 threshold in the Contract Disputes Act requiring certification. 41 U.S.C. §605. Appellant’s failure to submit any certification of the claim precludes the Board from exercising jurisdiction, CDM International, Inc., ASBCA No. 52123, 99-2 BCA ¶ 30,467, and the contracting officer’s issuance of a final decision did not correct this jurisdictional deficiency, see Paul E. Lehman, Inc. v. United States, 230 Ct. Cl. 11, 673 F.2d 352, 356 (1982).
Additionally, Respondent correctly points out that Appellant’s defamation claim seeks damages for alleged tortious conduct of Respondent’s officials, see Marine Constr. & Dredging, Inc., ASBCA Nos. 38412 et al., 95-1 BCA ¶ 27,286 at 136,025; H.H.O., Inc. v. United States, 7 Cl. Ct. 703 (1985), and thus addressing the claim would be beyond the jurisdiction of the Board, even if it had been certified. See Lacie R. McFadden, PSBCA No. 4063, 98-2 BCA ¶ 29,838, recon. denied, 98-2 BCA ¶ 30,015, aff’d McFadden v. Henderson, 194 F.3d 1334 (Fed. Cir. 1999) (Table); Onice Ulmer, PSBCA No. 2938, 91-2 BCA ¶ 23,991, recon. denied, 91-3 BCA ¶ 24,345; F.W.H. Motor Transit, Inc., PSBCA No. 1317, 1985 PSBCA LEXIS 60 (July 30, 1985).
Accordingly, this claim is dismissed.
New Claims
In his brief, Appellant has raised a number of new claims related to the terminations of the contracts. With respect to the Mid Venice contract, Appellant claims the part of his bond premium for 1999 that was unused due to the termination, damages of $25,000 for the impact of the terminations on Appellant’s future social security benefits and damages of $30,000 for two years of lost profits. For South Venice, Appellant claims a refund of the $482.91 allegedly paid by his bonding company for the shortage discovered on June 22, 1999, at the South Venice station, $40,000 for business income losses for two years, $650 for moving his business, $809.71 for a lost rent deposit and $15 for the lost value of a post office box he had rented at the Venice Post Office. Also, in both appeals, Appellant urges the Board to grant punitive damages against Respondent.
There is nothing in the record that indicates that these new claims have ever been presented to the contracting officer. Board consideration of claims for money damages must be preceded by submission of the claims in writing to the contracting officer for a final decision. See 41 U.S.C. § 605(a); Paragon Energy Corp. v. United States, 227 Ct. Cl. 176, 645 F.2d 966, 971 (1981); Jerome Bailey, PSBCA No. 3638, 95-1 BCA ¶ 27,447; James H. Foster, PSBCA No. 3152, 93‑1 BCA ¶ 25,362. Appellant's assertion of these monetary claims, for the first time, in his brief does not suffice to give the Board jurisdiction. See Steven S. Freedman, PSBCA No. 3867, 96-1 BCA ¶ 28,170; James H. Foster, PSBCA No. 3152, 93‑1 BCA ¶ 25,362. Therefore, these claims are not included in the Board’s consideration of these appeals. See Mr. and Mrs. Edward R. Ester, PSBCA No. 1559, 87-2 BCA ¶ 19,719.
Additionally, we note that to the extent the claims are for damages resulting from the terminations, we have held that the terminations were justified, and damages based on Appellant’s claim of improper termination would not be recoverable. Additionally, damages for emotional pain and suffering, damages arising from a tort independent of the contract, remote and speculative damages, and punitive or exemplary damages are generally not recoverable before contract appeals boards. See David Finley, PSBCA No. 3922, 98-2 BCA ¶ 29,989; Computer Power Support, Inc., PSBCA No. 3401, 94-2 BCA ¶ 26,626; Onice Ulmer, PSBCA No. 2938, 91-2 BCA ¶ 23,991, recon. denied, 91-3 BCA ¶ 24,345; Roger Dean Barrett, PSBCA No. 2490, 89-3 BCA ¶ 22,220; Paul A. Mason, PSBCA No. 1473, 86-3 BCA ¶ 19,142; Edward K. Dilworth, ADA Contractors, Inc., PSBCA Nos. 1205, 1248, 84-2 BCA ¶ 17,346.
Except as to the amount of credit allowed Appellant against Respondent’s claim for the shortages, PSBCA No. 4486 is denied. Determination of the amount of the credit is remanded to the parties. The appeal of PSBCA No. 4487 is denied.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman
[1] Appellant has alleged that in 1997, he and the postmaster agreed to a plan whereby payment of the then-existing shortages would be accomplished by making deductions from his contract payments over a period of 24 months. It is not necessary to determine whether such agreement was entered, because it is undisputed that deductions were not made, so such agreement would have no bearing on the Board’s conclusion that Appellant was responsible for paying back the amount of the shortages.
[2] Appellant argues that he could have repaid the shortages if Respondent had timely approved his 1997 request for an increase at Mid Venice. However, we have found Respondent did not breach the contract by denying the increase, and repayment of the shortages would not necessarily excuse these repeated, significant, unexplained shortages in the station accounts Appellant managed.