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Government’s motion to dismiss a breach of contract suit for lack of jurisdiction is granted. A hospital that received funds under a disaster relief agreement between the State of Indiana and FEMA sued the government, alleging that (1) it was either party to or beneficiary of the FEMA-Indiana agreement, and (2) the government breached that agreement when it disallowed some of the hospital’s costs. The court found that the hospital was not in privity with the government and thus was not a party to the contract. Moreover, because the FEMA-Indiana agreement was intertwined with a statutory scheme that did not provide a private right of action, the hospital was not a third party beneficiary of the agreement. Because the government did not owe the hospital any contractual duties, the court lacked jurisdiction to hear the case.

After severe flooding, the State of Indiana entered into an agreement with FEMA under the Stafford Act for disaster relief. Under the agreement, FEMA provided grants under the Stafford Act while Indiana agreed to comply with federal laws and regulations that govern federal grants.

An Indiana hospital, the Columbus Regional Hospital, applied for relief under the FEMA-Indiana agreement for funds to repair flood damage. Indiana provided the Hospital with Stafford Act funds. After the repairs had been made, however, FEMA audited the work at the Hospital, finding that payments made to contractors performing the work were improper due to impermissible contract types, inappropriate mark-ups, and missing contract provisions. FEMA disallowed over $10 million of the Hospital’s costs.

Thereafter, the Hospital filed suit against the government in the Court of Federal Claims. The Hospital argued that the Indiana-FEMA agreement was a contract, and that the Hospital was a party to or beneficiary of that contract. The Hospital alleged that FEMA breached that contract when it disallowed the Hospital’s repair costs. The government moved to dismiss, contending the court lacked jurisdiction under the Tucker Act because the government did not owe the Hospital any contractual obligations.

As a threshold matter, the court had to determine whether the FEMA-Indiana agreement was, in fact, a contract. Citing a 50 year-old Court of Claims precedent, State of Texas v. United States, 210 Ct. Cl. 522 (1967), the court held that any arrangement that conditions the receipt of federal funds on compliance with federal regulations is a contract. Here, the FEMA-Indiana agreement provided Indiana with federal assistance conditioned on the state’s compliance with federal grant and procurement requirements. It was a contract.

Although the agreement was a contract, this did not mean that the Hospital was a party to it. The Hospital argued that some Project Worksheets that had been issued to it under the agreement evinced a contract with the government. The court disagreed, noting that the express terms of the agreement provided that only Indiana could receive grants from the government as grantee. The Project Worksheets themselves referred to Indiana on each page, further indicating that the state was the sole grantee. The Project Worksheets were not evidence of an express contract with the government.

The court also found that the Hospital was not in privity with the government as a result of the FEMA-Indiana agreement. To establish privity, a vendor must prove that (1) the prime contractor was acting as a purchasing agent for the government, (2) the agency relationship was established in the agreement, and (3) the contract provides that the government is directly liable to the vendor. Here, Indiana was not a purchasing agent for the government. Indeed, the agreement did not set forth any type of agency relationship. Moreover, FEMA was not directly liable to the Hospital for grant assistance. FEMA was only liable to Indiana.

The Hospital argued in the alternative that it had an implied-in-fact contract with the government. The court rejected this, finding the Hospital was unable to prove several elements of an implied-in-fact contract. For instance, there was no mutuality of intent between the Hospital and FEMA. The Hospital only ever agreed to conditions imposed by Indiana. What’s more, the Hospital had provided no consideration to the government.

Finally, the Hospital argued that it was a third party beneficiary to the FEMA-Indiana agreement. The court, however, reasoned that when a government contract is intertwined with a statutory or regulatory scheme, then there is no private right to enforce the benefits of the contract. And where there is no private right of action, beneficiaries of the regulatory scheme cannot sue as third party beneficiaries of the contract to enforce those benefits.

In this case, the FEMA-Indiana agreement was intertwined with a statutory scheme—namely, the Stafford Act. The agreement incorporated the requirements and restrictions of the Stafford Act. What’s more, the agreement vested responsibility in Indiana for pursuing all remedial measures, including, as relevant to this case, the recoupment of costs. The state was required to comply with all relevant laws, administer subgrants, and recover funds in the event of error or fraud. The FEMA-Indiana agreement did not provide a contractual remedy to any subgrantee, like the Hospital, for disallowance of costs. The Hospital was not a third party beneficiary of the agreement.

Columbus Regional Hospital is represented by Joshua D. Schnell and Christian H. Robertson II of Ice Miller LLP. The government is represented by Mariana Teresa Acevedo of the U.S. Department of Justice and Ramoncito J. deBorja of the Federal Emergency Management Agency.