February 20, 2001
Appeal of
DALE YATSKO
Under Contract No. HCR 59439
PSBCA Nos. 4252 & 4463
APPEARANCE FOR APPELLANT:
Kenneth R. Olson, Esq.
APPEARANCE FOR RESPONDENT:
Samuel J. Schmidt, Esq.
OPINION OF THE BOARD
Appellant, Dale Yatsko, held a contract to transport mail for Respondent, United States Postal Service. After concluding that Appellant had deliberately damaged mail entrusted to him, Respondent terminated the contract and asserted a claim for reprocurement costs. Appellant appealed these actions. In order to satisfy its reprocurement cost claim, Respondent withheld amounts otherwise due Appellant for work he had performed before the termination and the amount due Appellant under the parties’ settlement of a prior claim. Appellant filed a claim for these amounts and for extra service Appellant claimed to have provided before the termination. Respondent denied the claims, and Appellant appealed.
A hearing was held, and the parties filed briefs. Both entitlement and quantum are at issue (Transcript of Hearing, Page (“Tr.”) 4).
1. On November 8, 1996, Respondent awarded Appellant contract number HCR 59439 for the transportation of mail between the Great Falls Mail Processing Annex and East Glacier Park, Montana, with stops at Brady, Conrad, Valier and Browning, Montana. The term of the contract was from November 9, 1996, to June 30, 1999, at an annual rate of $63,500. (Tr. 34-35, 245, 381; Appeal File, Tab (“AF”) A; Stipulation of Noncontested Facts (“Stip.”) ¶¶ 1, 3, 4).
2. The contract’s Termination for Default clause authorized the contracting officer to terminate the contract, among other reasons, (1) if Appellant failed to perform service according to the terms of the contract, (2) if Appellant was determined to have violated postal or other laws or regulations related to the performance of the service, (3) if Appellant failed to account properly for or deliver mail and (4) if Appellant was not reliable, trustworthy or of good character. (AF A-2, General Provision 16, TERMINATION BY THE POSTAL SERVICE FOR DEFAULT, PS Form 7407, July 1992, subsections (a)(1), (2), (6) and (7)).
“If, after notice of termination of this contract under the provisions of this Clause, it is determined for any reason that [Appellant] was not in default under the provisions of this Clause, . . . the rights and obligations of the parties shall be the same as if the notice of termination has been issued pursuant to Clause 17.” (AF A-2, General Provision 16, TERMINATION BY THE POSTAL SERVICE FOR DEFAULT, PS Form 7407, July 1992, subsection (c); see Tr. 449-450).
4. Clause 17 of the General Provisions, referred to in the Termination for Default clause, above, was the Termination for Convenience clause. That clause provided that in the event of a termination for convenience, Appellant agreed that his full remedy would be recovery of an indemnity at the rate provided in General Provision 12 of the contract. (AF A-2, General Provision 17, TERMINATION FOR CONVENIENCE, PS Form 7407, July 1992).
5. The indemnity authorized in General Provision 12 for a termination for convenience during the first two years of the contract was one-third of the annual rate (AF A-2, General Provision 12, CHANGES, PS Form 7407, July 1992, subsection (d)(1)).
6. In December 1997, three registered mail pouches containing bank deposits of post office daily receipts totaling about $15,000 that Appellant had carried on his route disappeared after he transferred them to the proper Postal Service official at the Great Falls Annex (Tr. 83-84, 138-141; AF B‑3).
7. After satisfying themselves that the employee to whom Appellant had transferred the registered pouches had not stolen them, the two postal inspectors investigating the loss of the registers decided to test Appellant’s trustworthiness by placing a test mailing containing cash in the Brady Post Office in a way that it would come to Appellant’s attention (Tr. 87-92, 141-145, 186, 282).
8. The inspectors placed $1,000 in cash and a miniature radio transmitter in an envelope addressed to a bank in Great Falls. They taped a handwritten note to the envelope that read, “Postmaster. You were closed already. This needs to get to the bank tonight. If you can.” (Tr. 92-98, 127-128, 277-278; AF B-3; Appellant’s Exhibit (“AX”) HH).
9. The transmitter in the envelope had two signals. Once the transmitter was turned on (“active”), so long as the envelope was intact, the transmitter emitted a signal that was picked up as a slow beep on the inspectors’ receiver. Once the envelope had been breached, however, the signal changed to a fast beep. This was referred to as the alarm mode. (Tr. 98-99, 277).
10. Appellant’s afternoon pick up at the Brady Post Office was at about 5:50 p.m., which was after the post office had closed for the day. Appellant picked up the mail left for him in a vestibule at the rear of the post office. He had a key to the outer door to the vestibule, but not to the inner door that went into the post office. (Tr. 40-41, 226-227).
11. It was the intention of the inspectors to place the test envelope in the vestibule where Appellant would be sure to notice it when he arrived on May 5, 1998. The inspectors arrived at the post office after closing time on that date and slid the envelope under the vestibule door. The inspectors had difficulty sliding the ½- to ¾-inch thick envelope under the vestibule door because the door fit tightly to the threshold, and it was a tight fit to get the envelope under. They were not able to observe the condition of the envelope once it was inserted under the door. (Tr. 100-102, 151-156, 163, 213, 238-239, 283, 326, 501; AX 00-29, UU).
12. Because of the construction of the vestibule and door, the inspectors could not pick up the transmitter signal beyond 50 feet from the door. When they left the premises, the transmitter was in the active mode (slow beep). From the location they chose to wait for Appellant, they could not pick up the signal from the transmitter, and they also could not see the post office. (Tr. 102-105, 166-167, 284-286, 320).
13. At about 5:50 p.m., Appellant arrived at the post office and unlocked and opened the outer door, which swung into the vestibule. When he entered the vestibule, Appellant noticed the test envelope, which was torn across the back. Money was visible through the tear. The note was still attached to the envelope. Appellant loaded the regular mail left for him, and, after reading the note, he threw it away and put the test envelope in the cab of his truck. He left the post office and started through the village of Brady to the nearby freeway to return to Great Falls. (Tr. 42, 46-51, 300, 467, 498-505, 255; AF B-12; AX HH; Respondent’s Exhibit (“RX”) 4).
14. When the inspectors heard Appellant’s truck leaving town, they returned to their car and followed him. At the freeway entrance outside of town, they were close enough to pick up the signal of the transmitter, which was then in the alarm mode. They did not hear the signal go from active (envelope intact) to alarm mode. (Tr. 106-108, 117, 156, 166-168, 290).
15. Appellant drove to the Great Falls Annex, parked his truck at the loading dock, and walked onto the loading dock, where he encountered a Postal Service supervisor. During a brief conversation and without prompting or inquiry by the supervisor, Appellant took the test envelope out of his back pocket, explained how he had found it in the Brady Post Office and that he believed that it had been torn as he opened the vestibule door. He gave the envelope to the supervisor. Giving an irregular or suspicious piece of mail to the supervisor was the proper way of handling such mail. (Tr. 59-63, 169-172, 248-254, 263-265, 342, 418-419, 421-423, 514-515, 522; RX 5).
16. The inspectors, who had followed Appellant back to the Annex, arrived shortly thereafter and confronted Appellant in the supervisor’s office. Appellant told them that he found the envelope in the Brady Post Office already torn. (Tr. 183, 210, 253). The inspectors then escorted Appellant to their offices in the Annex, where they continued their interrogation. The inspectors understood Appellant to admit during the course of the interview that he found the envelope torn about ¼ inch and then tore the end open to look in it. Appellant denies making such an admission (Tr. 69, 518-519). The interview was not recorded, and Appellant did not give a written statement (Tr. 184). Appellant terminated the interview and refused to talk further with the inspectors, accusing them of twisting his words. (Tr. 64, 66-70, 108-118, 120, 129, 185, 295-298, 336-337, 518-520; RX 5).
17. In their report of the investigation, the inspectors wrote, “During a brief interview, Yatsko admitted rifling the envelope before invoking his right to counsel.” (AF B-3). The difficulties the inspectors had placing the test envelope in the vestibule and observing Appellant’s conduct and tracking the signal (Findings 11, 12, 14) were not stated in the report. (Tr. 196-198, 414-415; AF B‑3).
18. Before Appellant left the Annex that evening, a Postal Service official relieved him of his badge, and Appellant was suspended from driving the route (Tr. 73-74, 120).
19. Appellant’s hired driver performed the contract until May 22, 1998 (Stip. ¶ 6).
20. After reading the investigative report of the inspectors, the contracting officer terminated the contract for default, effective close of business May 22, 1998, for Appellant’s “rifling the mail and failure to protect the security of the mail.” (Tr. 398-401, 413-420; AF B‑1, B‑2; Stip. ¶¶ 3, 6). The sole basis for the termination was the alleged rifling of the test envelope. Appellant’s performance under the contract was otherwise satisfactory. (Tr. 227, 234, 399, 401, 409-411, 432, 435, 458, 479, 509).
21. At the time of the termination, the annual rate of Appellant’s contract was $64,696, and Appellant was within the first two years of contract performance (Stip. ¶ 4).
22. Appellant’s July 7, 1998 appeal of the termination was docketed as PSBCA No. 4252.
23. By final decision dated September 9, 1998, the contracting officer asserted a claim against Appellant for the cost of obtaining service on the route after Appellant was terminated (Tr. 383, 404-408, 447-448, 452-453; AF B-7; AX Q). Respondent included in its Answer a counterclaim for the reprocurement costs set out in the September 9 final decision, and Appellant filed an Answer contesting the counterclaim, the issue becoming a part of PSBCA No. 4252.
24. At the time of the termination, Appellant was due $5,207.50 for service he had performed on the route before termination, but Respondent withheld that amount to apply against its anticipated reprocurement damages (Tr. 450; AF B-6, B‑7; Stip. ¶ 8).
25. During the term of the contract, Appellant had asserted a claim against Respondent for damage to his tires and filed an appeal to the Board when the claim was denied. That appeal was dismissed based on a settlement whereby Respondent agreed to pay Appellant $305. However, Respondent withheld that amount also to apply to its anticipated reprocurement damages, notwithstanding Appellant’s demand that Respondent pay it. (Tr. 380, 450; AX K, N, O, P; Stip. ¶¶ 5, 8).
26. As originally awarded, the contract called for Appellant to provide the service with a minimum 16-foot-long cargo box on his truck. However, Appellant’s truck had a 20-foot-long cargo box, and, with Appellant’s permission, Respondent occasionally used the extra space to transport mail in tall mail carts, known as “cages”, that would not have fit had Appellant had only the contract-specified cargo box. (Tr. 488-489; Stip. ¶ 8).
27. The contract authorized Respondent to order extra trips when necessary and provided for payment to Appellant for making such trips at the rate per mile of his contract or a higher figure if negotiated with the contracting officer. (AF A-2, General Provision 12, CHANGES, PS Form 7407, July 1992, Subsection (b)).
28. Before February 1997, local Postal Service officials in Great Falls had worked out an informal arrangement with Appellant to keep track of the number of trips where they used the extra space in his truck. For every three such trips they would submit paperwork authorizing Appellant to be paid as if he had run one extra trip. (Tr. 380, 439, 443, 446-447, 471, 477, 489-491, 525, 531).
29. Appellant received compensation under the “extra trip” arrangement for the use of the extra space in his truck until February 1997 when Respondent stopped making the payments. Appellant objected, but still made 36 trips in which the extra space was utilized between February and July 1997. Under the local scheme in place before February, he would have received payment for 12 extra trips at $209.52 each, for a total of $2,514.24 for trips run between February and July 1997. (Tr. 10, 463-464, 489-491, 494-495, 525; AX J, J-1; Stip. ¶ 8).
30. In November 1997, Respondent and Appellant entered into a modification to the contract that officially increased the size of the vehicle box from 16 feet in length to 20 feet and increased the per annum rate of the contract by $375. The modification form, signed by Appellant and the contracting officer, recited that the modification was effective February 1, 1997. (Tr. 385-389, 491, 531; AF B‑9; AX AA).
31. On December 5, 1997, Respondent issued a check to Appellant in the amount of $5,199.47. This included Appellant’s regular payment under the contract at the increased rate plus a retroactive payment of $287.67 for the use of Appellant’s larger vehicle under the adjusted rate from February to November 1997. (Tr. 391-393, 454-455, 462, 465, 492; AF B-10; Stip. ¶ 10).
32. The parties agreed to consider Appellant’s Complaint in PSBCA No. 4252 setting forth these claims (for withheld pay, tire damage settlement and extra space) as Appellant’s claim. By final decision dated March 7, 2000, the contracting officer denied the claims (Tr. 382, 454, 476; AF B-11; Stip. ¶ 11). Appellant’s appeal of that denial was docketed as PSBCA No. 4463.
A default termination is a drastic sanction that should be sustained only when based on reasonable grounds and solid evidence, and it is Respondent’s burden to demonstrate by a preponderance of the evidence that the default termination of Appellant’s contract was justified by Appellant’s conduct. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987); J.D. Hedin Constr. Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969); Patricia J. Stevens, PSBCA No. 3272, 94-1 BCA ¶ 26,419 recon. denied, 94-2 BCA ¶ 26,951; Douglas Cremer, PSBCA No. 3108, 93-2 BCA ¶ 25,565. Respondent argues that the termination was justified by Appellant’s rifling of the test mail piece on May 5, 1998. However, the evidence in this case, including the Board’s observation of the demeanor of the witnesses testifying at the hearing and assessment of their credibility, does not demonstrate by a preponderance of the evidence that Appellant rifled the test piece of mail.
The only evidence that Appellant rifled the mail is the inspectors’ statements that he admitted doing so during their interrogation at the Annex on the evening of May 5, 1998 (Findings 16, 17). However, no written statement was obtained, and Appellant has consistently and convincingly denied making such a statement. The inspectors understood Appellant to admit rifling the test mail (Finding 16), but as the interview was not recorded, it is not possible to assess what statements might have led them to that conclusion. On this disputed record, Respondent has not demonstrated by a preponderance of the evidence that Appellant admitted rifling the envelope.
There is no corroboration of Respondent’s version of events because the surveillance of the test piece was imperfect. The inspectors could not observe Appellant’s handling of the test piece (Finding 12), and they could not continuously monitor the transmitter’s signal (Findings 9, 12, 14). They could not determine when the envelope was torn since the transmitter was already in the alarm mode when they caught up with Appellant outside of Brady (Findings 12, 14). The surveillance provided no evidence of wrongdoing, and the results obtained from the operation did not conflict with Appellant’s description of his handling of the test piece.
Additionally, Appellant was a credible witness, and his testimony regarding the events occurring the evening of May 5, 1998, was consistent with other evidence. For example, his testimony that the test envelope was torn when he opened the door was consistent with the difficulty the inspectors had getting it under the door into the vestibule in the first place (Finding 11). Also, promptly and voluntarily turning over the test envelope to the supervisor at the Great Falls Annex (Finding 15) was consistent with his testimony that he did not rifle the mail or intend to steal the cash visible in the torn envelope and was the proper way to handle irregular or suspicious mail (Finding 15).[1]
Respondent has failed to demonstrate by a preponderance of the evidence that Appellant rifled mail—the sole basis for the termination—and, therefore, has failed to carry its burden of demonstrating that the default termination of the contract was justified.
There being no justification shown for the termination, it is converted to a termination for convenience (Findings 3, 4). As the contract was in its second year of performance, Appellant is entitled to recover as an indemnity, $21,565.33, which is one third of the contract annual rate at the time it was terminated (Findings 4, 5, 21). Respondent’s claim for reprocurement costs is denied, and Appellant is entitled to payment of the $5,207.50 and $305 previously withheld (Findings 24, 25).
As to payment for the extra space on his truck, Appellant originally argued that he was entitled to be paid under the agreement that he and local officials had worked out and had been following until February 1997 (Findings 28, 29). However, Appellant now concedes that he is not entitled to recover on his extra space claim (Appellant’s Proposed Findings of Fact, Conclusions of Law and Decision, ¶ 55). [2]
Accordingly, Appellant’s claim related to providing the extra space on his truck after February 1, 1997, is denied.
The appeal of PSBCA No. 4252 is sustained. Appellant is entitled to recover $21,565.33 as the indemnity under the contract. The appeal of PSBCA No. 4463 is sustained to the extent Appellant may recover the $5,207.50 and $305 previously withheld. Appellant’s claim under PSBCA No. 4463 for use of the extra space on his truck is denied. Appellant is entitled to Contract Disputes Act interest on all amounts recovered. Calculation of interest is remanded to the parties.
Appellant’s request for attorney fees is premature. See Computer Power Support, Inc., PSBCA No. 3401, 94-2 BCA ¶ 26,626. Qualified applicants who are prevailing parties in Board proceedings may recover attorney fees pursuant to the Equal Access to Justice Act, as amended, 5 U.S.C. §504, and Postal Service regulations implementing the Act, 39 C.F.R. Part 960. If Appellant qualifies, he may file an application with the Board within the time period specified in the statute and implementing regulations, 5 U.S.C. §504 (a)(2) and 39 C.F.R. §960.12.
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman
[1] Respondent suggested that Appellant, after discovering either in Brady or on his way back to Great Falls that there were transmitter wires in the envelope, knew he was caught and turned over the envelope to the supervisor to try to put the best possible face on his circumstance. This is pure speculation, and, based on our observation of Appellant’s demeanor while testifying and the absence of any evidence to support this suggestion, we reject it.
[2] Had Appellant not conceded, we would have found against him on this claim. The November 8, 1998 modification, in which the parties agreed to a rate of compensation for Appellant’s provision of the extra space of the 20-foot box, explicitly provided that it was effective February 1, 1997 (Finding 30), and Respondent paid Appellant for the period February 1 through November 8, 1997, in a lump sum payment on December 5, 1997 (Finding 31). That payment concluded an accord and satisfaction on the issue. See Joe Garrett, Inc., PSBCA Nos. 3476, 3667, 95-1 BCA ¶ 27,357; Lawrence D. Bane, PSBCA No. 1595, 87-2 BCA ¶ 19,913.