The Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims’ dismissal of a complaint alleging the agency improperly used individual purchase order contracts to obtain personal services, finding that the plaintiffs’ contracts were not voided by the alleged improprieties, that no implied-in-fact contract existed, and that the plaintiffs had failed to demonstrate the government exercised improper control over their performance, such that it converted their status from independent contractor to employee.
Seh Ahn Lee, Irina Ryan, Ahman Nariman, and Mark Peach sued the Broadcasting Board of Governors, arguing that the services they provided to the Voice of America broadcast service should have been retained through personal services contracts, instead of individual purchase order vendor contracts. Alternatively, the plaintiffs argued they should have been appointed to positions in the civil service.
Each of the plaintiffs entered into agreements to provide services to VOA through a series of individual purchase order vendor contracts with the Broadcasting Board of Governors. According to the plaintiffs, had their contracts been classified as personal services contracts or they had been appointed to civil service positions, the plaintiffs alleged, they would have enjoyed enhanced compensation and benefits. Previously, the Court of Federal Claims dismissed the complaint and denied a request to file a second amended complaint. On appeal, the plaintiffs raised several contract-based claims, seeking damages for the loss of the additional compensation and benefits to which they contend they were entitled.
The original action followed a report from the Department of State Office of Inspector General criticizing BBG’s use of POV contracts and concluding that BBG used such contracts in some cases to obtain personal services. The plaintiffs argued the use of POV contracts was improper and that they were entitled to be treated as federal employees. The plaintiffs sought damages based on three theories: breach of express contract, breach of implied-in-fact contract, and quantum meruit.
COFC dismissed the first amended complaint, finding that the plaintiffs’ breach of contract claim was not based on an entitlement to money damages under these express contracts, but instead was based on an implied contract theory under which they alleged they were entitled to additional pay and benefits. COFC also held that the plaintiffs failed to make a nonfrivolous claim of an implied-in-fact contract with the government above and beyond the provisions of their express contracts. Finally, the court explained that it generally lacks jurisdiction over quantum meruit, or implied-in-law, contracts, unless an express contract had been invalidated.
COFC also denied the plaintiff’s motion to amend their complaint, finding they still failed to state a claim for breach of express contract; had not sufficiently alleged a basis for finding that their express contracts were void or that an implied-in-fact contract existed apart from their express contracts; and again failed to plausibly allege that the plaintiffs’ express contracts were void or that the plaintiffs had not been paid the contract rate in full. The plaintiffs appealed both decisions.
First, the plaintiffs argued COFC erred in dismissing the claim for breach of express contract and in denying the leave to amend. In support of the breach of express contract theory, the plaintiffs argued that the scope of their work was “materially limited” by the use of terms such as “independent contracting” and “non-personal services” in their contracts. According to the plaintiffs, the BBG “breached these limits” in its administration of the contracts.
However, the appeals court noted the first amended complaint did not allege that the government breached their contracts by requiring them to provide personal services outside the terms of the contracts. Instead, the complaint alleged BBG breached its contractual obligation to compensate them as if they were either federal employees or had been retained under personal services contracts. As relief, the plaintiffs sought back pay and other damages. The appeals court agreed with COFC that the plaintiffs ignored the fact that their contracts specifically designated them as independent contractors who were not providing personal services and set forth their compensation accordingly. The appeals court held that COFC properly found that BBG had not breached any contractual obligations on their express contracts.
Next, the plaintiffs argued the court erred in finding that its proposed second amended complaint failed to state a claim for breach of express contract, and was therefore futile. The appeals court found the amended complaint took a different approach. Instead of asserting that the contracts required the plaintiffs to perform personal services for which they were not properly compensated, the proposed second amended complaint alleged that the plaintiffs’ express contracts promised to allow them to serve as independent contractors, with a scope of work that was limited to ‘nonpersonal’ services.
The plaintiffs argued independent contractors normally have a high degree of independence in choosing the time, place, and manner of service, and have the right “to work independently of the client’s direct supervision, and to keep charge of their own schedules. According to the complaint, BBG breached the express contracts by denying the plaintiffs virtually every material right and benefit of being an independent contractor, such as working from their own preferred locations, using their own equipment, and working with other clients.
COFC found the contractual language contradicted the plaintiffs’ assertion that they were entitled to certain rights and benefits as independent contractors. The contracts expressly required the plaintiffs to perform their services on-site using government equipment; stated that the plaintiffs would be subject to regular review of their work; and asserted the government’s right to inspect, accept, or reject the work. COFC found the plaintiffs had not plausibly alleged that the government’s supervision was so pervasive that it constituted supervision or control to the extent that it breached the contract. Rather, the court concluded that the allegations fell within the scope of review and compliance commensurate with the government’s right and obligation to inspect and accept or reject contractors’ work.
The appeals court found no error in this reasoning. On appeal, the plaintiffs failed to identify any specific provision of the contracts that was breached, but instead relied on general allegations regarding the rights normally enjoyed by independent contractors. Those allegations, however, were not tied to the rights and obligations of the parties defined by the contracts.
Next, the plaintiffs appealed COFC’s rejection of their argument that they served under implied-in-fact contracts and that BBG was liable to them under the implied-in-fact contract theory of quantum meruit for the value of the personal services they provided. In the proposed second amended complaint, the plaintiffs set out their breach of implied contract and quantum meruit theories as separate claims. They alleged that the contracts violated a legal prohibition on acquiring personal services by contract, and that the contracts were therefore void or voidable. Under their implied-in-fact and quantum meruit theories of relief, the plaintiffs alleged that in place of the void contracts the court should provide implied terms, including a term that would compensate them for the fair market value of their services.
The plaintiffs also alleged that at various points one of the plaintiffs’ contracts would lapse before a subsequent contract was executed, and that the plaintiffs should be compensated under an implied-in-fact contract theory or in quantum meruit for services they provided during those gap periods between contracts.
COFC concluded that the implied contract and quantum meruit claims could not survive a motion to dismiss. The court ruled that the express contracts between the parties were not void, and that the terms of the express contracts covered the same subject matter as the alleged implied-in-fact contracts. The court therefore concluded that the respective rights of the parties were defined not by any implied-in-fact contracts or the principles of quantum meruit, but by the terms of their express contracts. The court also held that the terms of the express contracts continued to control during the gap periods.
Again, the appeals court agreed, finding that the alleged implied-in-fact contracts were not separate from and unrelated to the valid express contracts. Because the plaintiffs had express contracts with the government to provide the services they rendered, and because the plaintiffs have not alleged that they performed additional work entirely unrelated to their express contracts, there is no force to their theory that they had implied-in-fact contracts to perform the same work that was the subject of their express POV contracts. Further, the plaintiffs did not show their express contracts were void.
The plaintiffs insisted that their express contracts were illegal because they were contracts to provide personal services, in violation of the FAR, but both courts disagreed. The appeals court explained that the principal ground on which a contract will be found to be a personal services contract is the degree of supervision to which the contracting employees were subject under the contract. According to the plaintiffs, they were subject to close supervision by government employees under their POV contracts, but the court found the express terms of the contract did not provide for such close supervision, but placed the responsibility for performance on the plaintiffs.
While the plaintiffs complain that the nature and degree of supervision to which they were subjected exceeded what was provided for in the contracts, the court explained that contention goes to whether the express contracts were breached, not to whether those contracts were valid.
The plaintiffs also complained that they were required to work at government-designated sites and use government-supplied equipment, but the court found those factors were not definitive. For example, the court noted that a contractor retained to complete building repairs would by necessity be required to work at the government’s site, but this factor would not be sufficient to convert the contractor into an employee. The appeals court found the plaintiffs’ arguments likewise failed. Further, the court noted the FAR does not require a contract to be voided simply because the degree of government supervision has blurred the line between employee and independent contractor. The fact that a contract may be inconsistent with a statutory or regulatory requirement does not ipso facto render the contract void.
Further, the court noted the plaintiffs have each contracted with the government over several years, through multiple contracts and contract renewals, most of which have been fully performed and fully paid at the contract rate. This factor also weighed against invalidation of the plaintiffs’ express contracts and precludes recovery under an implied-in-fact contract theory.
Seh Ahn Lee, Irina Ryan, Ahman Nariman, and Mark Peach are represented by David Leo Engelhardt of Themis PLLC, with whom were John Pierce and Michael Cone. The government is represented by Hillary Stern, Commercial Litigation Branch, Civil Division, Department of Justice, with whom were Chad A. Readler, Robert E. Kirschman Jr., and Reginald T. Blades Jr.
