Motion to strike the government’s affirmation defense of fraud is denied, where the matter before the board requires a determination whether a contract is void ab initio, but does not require the board to find facts about the alleged fraud undermining the formation of the contract.
International Oil Trading Company sought partial judgment or, in the alternative, a renewal of its motion to strike the government’s first affirmative defense alleging that IOTC obtained the contracts at issue through fraud or bribery and therefore they are void ab initio. The board already denied IOTC’s request to strike the defense for lack of jurisdiction. In this motion, IOTC contends that the Federal Circuit’s decision in Laguna Construction Co. v. Carter, abrogates the board’s earlier ruling.
IOTC appealed from the denial of claims for fuel delivered to the government in Iraq under two contracts. Previously, ASBCA granted IOTC partial summary judgment, at which time the government advanced its first affirmative defense, alleging that IOTC principals bribed the head of a Jordanian intelligence agency to assure that IOTC would not have effective competition for the contracts. The government maintained that the contracts were obtained by and tainted by bribery and fraud, and hence were void ab initio, precluding IOTC from recovering on its claims.
IOTC moved to strike the government’s defense, suggesting that the Contract Disputes Act excludes from the board’s jurisdiction consideration of fraud-related claims and therefore barred ASBCA from entertaining the government’s defense. However, the board disagreed, concluding that its statutory bar to considering fraud claims did not extend to an affirmative defense that the contract is void ab initio under the common law for taint of fraud or bribery in its formation.
In its current motion, IOTC argued that Laguna abrogated the board’s prior ruling by forbidding the board from deciding the facts relevant to the defense. IOTC suggests that Laguna requires any determination that fraud or bribery induced the award of a contract be issued by an outside tribunal. According to IOTC, there are no pending judicial decisions where such findings have or could be made.
In Laguna, the court affirmed the board’s finding that the government’s affirmative defense based on fraud was meritorious. The court observed that certain fraud-related claims are outside of the board’s jurisdiction, but held that the government’s affirmative defense of prior material breach premised upon fraudulent conduct did not fall into any of the excluded categories. Furthermore, though the board lacked jurisdiction over the Anti-Kickback Act claim brought by the government against Laguna’s officials, the court approved the board’s practice of entertaining a defense arising from such a claim when it does not have to find facts about the fraud.
Contrary to IOTC’s suggestion, ASBCA found Laguna did not abrogate its prior ruling permitting the government’s affirmative defense to proceed. Laguna said nothing to restrict the board’s power to determine the validity of a contract when the government alleges that it is void ab initio due to fraud or bribery in its acquisition.
According to the board, there is a big difference between whether a contract is void ab initio and whether (as in Laguna) the government is asserting the type of fraud claim that the board does not possess jurisdiction to entertain. Accordingly, the board denied IOTC’s motion to strike.
International Oil Trading Company is represented by Christopher M. Kise and Melissa B. Coffey of Foley & Lardner, LLP, and by Ronald H. Uscher and Donald A. Tobin of Peckar & Abramson, P.C. The government is represented by Daniel K. Poling, DLA Chief Trial Attorney, and by Howard M. Kaufer, David R. Nolte, Kathryn M. Kelley, Trial Attorneys, DLA Energy.
