Contractor Attempts to Broadly Challenge DCAA’s Audit Practices, But ASBCA Dismisses Appeals as Moot; Appeals of L3 Technologies, Inc., ASBCA Nos. 61811, 61813, 61814

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Government’s motion to dismiss appeals as moot is granted. Following DCAA audits, the government filed claims against the contractor seeking to recover overpayments on cost reimbursement contracts. After the contractor appealed, the government withdrew the claims and moved to dismiss the appeals as moot. The contractor opposed dismissal arguing that the government’s claims were part of a pattern of asserting claims that relied on unreliable audit practices. The contractor asserted that exceptions to the mootness applied because the government could easily assert claims relying on the faulty audits again. The board, however, found the exceptions inapplicable. Even if the government ruled on the merits of the case, the appeal did not seek injunctive or declaratory relief, so the decision would not prevent the government from asserting future claims based on its audits. Moreover, an exception to the mootness doctrine only applies when the matter is not capable of review. Here, full review was actually available; indeed, the contractor had appealed. The only reason a decision wasn’t issued was because it was unnecessary.

The Defense Contract Management Agency (DCMA) issued three final decisions asserting claims against L3 Technologies. In the first claim, DCMA sought repayment of over $10 million in other direct costs over several fiscal years. In the two other claims, DCMA claimed that the government had wrongly paid thousands of dollars for premium airfare for L3 employees. All the claims were based on Defense Contract Audit Agency (DCAA) audit reports.

L3 appealed the claims to the ASBCA, where they were consolidated. The board directed DCMA to file a complaint in the appeal. DCMA’s complaint did not seek declaratory or injunctive relief; it simply demanded that L3 reimburse the government for the overpayments.

After filing the complaint, however, DCMA decided it could not defend the appeal. The agency withdrew the final decisions and avowed that it would not re-assert those claims. DCMA then moved to dismiss the appeals as moot.

L3 opposed the motion to dismiss. L3 alleged that the claims in this case were part of a pattern—i.e., that the company had “been here before. Many times. And without resolution.” First, L3 contended that DCAA conducts an audit and finds that the government has overpaid. L3 alleged that these audits, which were based on statistical sampling, were unreliable and yielded false results. L3 further alleged that based on these inaccurate audits, DCMA then issued a final decision demanding repayment. But then DCMA would either withdraw the claim or settle for a nuisance amount. L3 noted that this had happened several times in multiple appeals. Thus, L3 argued that it wanted a decision on the merits in this appeal to put an end to this pattern.

The board, however, found that it was unable to rule on this appeal. Generally, when an agency withdraws a costs claim, there is no longer any case before the board to adjudicate, so the appeal is dismissed as moot. The case is moot because the issues presented are no longer live—events have eradicated the effects of the defendant’s conducts, and the parties have no legally cognizable interest in the outcome of the case.

Here, DCMA’s claims had been withdrawn; they no longer existed. Additionally, DCMA stated that it had no interest in asserting the claims against. Thus, the board found, the claims were moot. There was no relief the board could grant.

But L3 argued two exceptions to the mootness doctrine applied. First, L3 claimed that the voluntary cessation doctrine precluded dismissal. Under that doctrine, the voluntary cessation of a challenged practice does not deprive a tribunal of jurisdiction to determine the legality of a practice. L3 argued that regardless of DCMA’s withdrawal, the board could still consider the propriety of DCMA’s audit/claim/withdraw pattern.

The board, however, noted that the voluntary cessation exception does not apply if there is no reasonable expectation that the alleged violation will recur, and events have completely eradicated the effects of the alleged violation. L3 alleged that the DCAA’s audits based on flawed statistical sampling were likely to recur. The problem with this, the board reasoned, is that this appeal could not actually prevent that wrong from recurring. The appeals did not seek injunctive relief or declaratory judgment on the statistical sampling. Therefore, if the board did not dismiss and found in favor of L3, the remedy it received would be no more than it would have received by withdrawal of the claims. While a victory of the merits would be satisfying to L3, it would not decide the propriety of the audit practice for the future. Because resolution of this case could not actually prevent the audit practice from recurring, there was no reason to apply the voluntary cessation doctrine.

L3 also argued exception to the mootness applied: capable of repetition yet evading review. Under this exception, a tribunal will not dismiss for mootness where (1) the challenged action is in its duration too short to be fully litigated, and (2) there is a reasonable expectation that the complaining part will be subject to the same action again. L3 contended that the government’s own actions —namely, withdrawing its claims—made the duration of the challenged action too short to afford review.

But the board rejected this argument. Cost allowability decisions, like the one at issue, are not the type of actions that end after a given period of time. In fact, they have no expiration date and are simply about who is entitled to money. Additionally, L3 obtained a full remedy. Full review was actually available. L3 appealed. The only reason a decision wasn’t issued was because it was unnecessary. Indeed, the board reasoned that if L3’s argument was correct, it would result in an absurdity: all instances of government withdrawal would then fall into the capable of repetition but evading review category.

One of the judges on the panel, Judge Craig Clarke, dissented. Judge Clarke agreed with the majority that the governments withdrawal rendered the appeals moot. But Judge Clarke believed the “capable of repetition yet evading review” exception applied. The judge believed that DCMA’s decision to withdraw its claims to cut short the appeal was unfair to L3 and had set up the case as capable of repetition. Judge Clarke interpreted L3’s opposition as a request for summary judgment. He opined that he would deny summary judgment at this point because whether costs are allowable raises issues of disputed fact.

L3 is represented by Karen L. Manos, Erin N. Rankin, and Justin P. Accomando of Gibson, Dunn & Crutcher LLP. The government is represented by Arthur M. Taylor and Amelia R. Lister-Sobotkin of the Defense Contract Management Agency.

ASBCA - L3 Technologies