A recent decision by the Civilian Board of Contract Appeals reminds us that all findings of fact made by a court are not created equal, at least insofar as they are applied in a subsequent proceeding. In VSE Corporation v Department of Justice (December 8, 2017) the CBCA had occasion to address how findings of fact entered in a court decision involving VSE and its subcontractor affected VSE’s claims against the Government.

VSE’s claims arose out of a storage contract with the Government, specifically, that it had incurred compensable costs arising out of the extended storage of fireworks on the Government’s behalf.

While VSE’s claims were pending before the Board, VSE’s storage services subcontractor filed a claim in federal district court for unpaid storage services in the amount of $4,523,542.93. Following trial, the district court issued a decision affirming a jury verdict in favor of the subcontractor, but reducing the damages award to $3,496,086.29 and, in so doing, made extensive findings of fact.

In the Board proceeding, the Government sought to bind VSE to certain findings made by the district court under the doctrine of nonmutual collateral estoppel. The Board discussed the doctrine in some detail and, while noting that nonmutual issue preclusion is not available as a matter of right, held that it should be applied against VSE in the Board appeal.  The Board further noted the case was settled after the decision and the parties could have asked the court to vacate its decision as part of that settlement, but did not do so.

In contrast, the Board rejected VSE’s efforts to utilize some of the district court findings as evidence against the Government, noting that the Government was not bound by the district court findings, because litigants who never appeared in a prior action “may not be collaterally estopped without litigating the issue.”

This Board decision highlights the potential pitfalls to a prime contractor of litigating claims with subcontractors while its own claims are pending against the Government. Towards that end, prime contractors should reexamine their subcontracts to ensure there is sufficient language in the disputes clause to force the subcontractors to: (a) pass through the prime contractor to the Government any claims that may involve Government action or inaction, (b) be bound by the Government’s resolution of those claims, and (c) stay any direct claims pending resolution of the pass-through claims.

If you have questions about the adequacy of your subcontract disputes clause, please don’t hesitate to contact us for advice.