           ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                                      )
                                                   )
Raytheon Company                                   )      ASBCA Nos. 60448, 60785
                                                   )
Under Contract No. FA8675-13-C-0003                )

APPEARANCES FOR THE APPELLANT:                            Donald G. Featherstun, Esq.
                                                          Giovanna A. Ferrari, Esq.
                                                           Seyfarth Shaw LLP
                                                           San Francisco, CA

APPEARANCES FOR THE GOVERNMENT:                           Jeffrey P. Hildebrant, Esq.
                                                           Air Force Deputy Chief Trial Attorney
                                                          Lawrence M. Anderson, Esq.
                                                          Maj Darren S. Gilkes, USAF
                                                          Jason R. Smith, Esq.
                                                          Caryl A. Potter III, Esq.
                                                          Colby L. Sullins, Esq.
                                                           Trial Attorneys

                OPINION BY ADMINISTRATIVE JUDGE SCOTT
            ON THE GOVERNMENT'S MOTION TO AMEND ANSWER

       Raytheon Company has appealed from the contracting officer's (CO's) denial of its
$48,195,181 claim for extra Systems Engineering and Program Management (SEPM)
services under the subject "Lot 27" contract to provide missiles, telemetry units, other
deliverables and SEPM (ASBCA No. 60448), and from the CO's denial of its supplemental
$48,311,385 claim for additional SEPM services under the contract (ASBCA No. 60785).
On 20 February 2018, about two months before the hearing, which is set to commence on
24 April 2018, the government moved to amend its answer to add the following affirmative
defense:

                       "Unclean Hands" - The firm-fixed-price contract for
                Lot 27 was the latest production contract in a "house of cards"
                knowingly constructed by Raytheon to sell more missiles to
                the United States than otherwise could be paid for by the fund
                amount certified as available to the Air Force for the Lot 27
                contract when signed. Raytheon's complicity in such
                unfunded contract actions, prohibited by the Anti-Deficiency
                Act (31 U.S.C. 1341) and FAR Subpart 32.7 (Contract
               Funding), bars all of Raytheon's claims in this appeal under
               the "unclean hands" doctrine.

(Mot. at 1) Briefing was complete on 2 April 2018, when the Board received appellant's
sur-reply in opposition to the motion.

                             THE PARTIES' CONTENTIONS

       Appellant first contends that the Board does not have jurisdiction to entertain the
government's proposed affirmative defense because the government did not submit it, in
the form of a claim, to the CO. Appellant further alleges that the motion should be denied
as unjust because the government did not justify the defense or its delay in raising it.
Appellant avers that Air Force personnel have consistently claimed that the Lot 27
contract was fully funded. Appellant also alleges that it would be prejudiced if the
amendment were allowed because it has not had the opportunity to conduct discovery on
the defense; it would need to make complex funding and budget inquiries; and it would
require expert evidence on the new defense. However, appellant opposes any extension
of the hearing date or re-opening discovery. Appellant asserts that the prejudice to it
would carry over to multiple contracts and any subsequent proceedings involving the
Anti-Deficiency Act because the doctrine of res judicata would apply to any adverse fact
findings related to the new affirmative defense.

        The government replies that it is not shifting from its consistent position that the
Lot 27 contract was fully funded when the parties entered into it. It alleges that the Board
has jurisdiction to consider the proposed affirmative defense because the government is
not seeking to void the contract or to adjust any of its terms or to obtain any monetary
relief. Rather, the latest round of government depositions of Raytheon personnel revealed
that it had an undisclosed pre-award plan to complete the Lot 27 contract work ·'with
future appropriated funds siphoned away from future missile production contracts that
Raytheon hoped to obtain on an annual basis" (gov't reply at 1-2). The government
alleges that it is seeking to apply its unclean hands defense to force Raytheon to honor the
contract instead of allowing it to implement its undisclosed plan. The government also
asserts that permitting it to amend its answer will not require any more discovery and no
expert evidence is needed. Like appellant, the government does not seek to extend the
hearing date, which has already been extended twice at one or both parties' requests.

        In its sur-reply appellant asserts that the government has not justified its "eleventh
hour" motion, which it brought in bad faith, because the government's own documents,
dating back to 2013, and its own witnesses, in deposition testimony in June 2017,
demonstrate that the COs responsible for awarding the Lot 27 contract were well aware,
prior to contract award, of the bidding practices about which the government claims to
have learned only in late January 2018 (app. sur-reply at 1, 6). Appellant also contends


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that the Board should deny the government's motion to amend on the ground of "futility
of amendment" because the government has not demonstrated how its assertions satisfy
the "unclean hands" doctrine (id. at 10). Appellant alleges that it will be prejudiced by
the lack of discovery on the government's affirmative defense.

                                       DISCUSSION

                                        Jurisdiction

       Appellant's contention that the Board lacks jurisdiction to consider the
government's motion to amend is mistaken because there is no need for the government
to submit a claim to the CO regarding its proposed affirmative defense if, like here, it is
not seeking money or an adjustment of the contract's terms. Securiforce International
America, LLC v. United States, 879 F .3d 13 54, 1362-63 (Fed. Cir. 2018); Laguna
Construction Co. v. Carter, 828 F.3d 1364, 1368 (Fed. Cir. 2016); Kellogg Brown & Root
Services, Inc., ASBCA No. 56358 et al., 17-1 BCA ,r 36,779 at 179,246-47.

       Thus, the Board has jurisdiction to entertain the government's proposed
affirmative defense.

                            Criteria for Amendment of Answer

       Board Rule 6(d) provides that "[t]he Board may permit either party to amend its
pleading upon conditions fair to both parties." The Rule does not contain any time limit
for amendment of a pleading.* We may also look to the Federal Rules for guidance. FED.
R. Crv. P. 15(a)( 1) provides for pleading amendments as a matter of course before trial,
with various 21-day time limits. Under FED. R. Crv. P. 15(a)(2), when the time for
amending a pleading as a matter of course has passed, a party may amend its pleading
with the opposing party's consent or the court's leave. The Rule advises that "[t]he court
should freely give leave when justice so requires." The United States Supreme Court has
instructed that "this mandate is to be heeded." Foman v. Davis, 371 U.S. 178, 182
(1962). The Court elaborated:

              In the absence of any apparent or declared reason - such as
              undue delay, bad faith or dilatory motive on the part of the
              movant, repeated failure to cure deficiencies by amendments
              previously allowed, undue prejudice to the opposing party by

• Rule 6( d) also provides that, if a party objects to evidence at a hearing on the
       ground that it is not within the issues raised by the pleadings, it may be admitted
       within the proper scope of the appeal, provided that the objecting party may be
       granted an opportunity to meet the evidence

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              virtue of allowance of the amendment, futility of amendment,
              etc. - the leave sought should, as the rules require, be "freely
              given." Of course, the grant or denial of an opportunity to
              amend is within the discretion of the [Court].

Id.

         Undue Delay, Bad Faith, Futility of Amendment, Prejudice to Appellant

       The parties dispute when the government had enough information to assert its
proposed affirmative defense. Although the government's motion to amend, regrettably,
comes close to the commencement of the hearing, there is insufficient information for the
Board to conclude that the government delayed unduly in raising the defense. There is
also insufficient evidence to establish bad faith on the part of the government, which
appellant bears the burden to prove. See Am-Pro Protective Agency, Inc. v. United States,
281 F.3d 1234, 1239 (Fed. Cir. 2002) (presumption that government officials act in good
faith may only be overcome by clear and convincing evidence).

        Similarly, there is insufficient information for the Board to decide whether the
amendment would be futile on the ground that the government has not established a basis
for its assertion that appellant's claims are barred under the doctrine of unclean hands.
That doctrine arises in equity and has been described by the Board as follows:

             "[O]ne who seeks equity must do equity." Shockley v. Arcan.
             Inc., 248 F.3d 1349, 1361 (Fed. Cir. 2001) quoting
             Manufacturer's Finance Co. v. McKey, 294 U.S. 442 (1935).
             Thus, the unclean hands doctrine "closes the door of a court
             of equity to one tainted with inequitableness or bad faith
             relative to the matter in which he seeks relief." ABF Freight
             System, Inc. v. NLRB, 510 U.S. 317,329 (1994).

Eurasia Heavy Industries. Inc., ASBCA No. 52878, 01-2 BCA ,i 31,574 at 155.916. In
other words, to prove '·unclean hands'· requires a showing of inequitable conduct involving
the subject matter of the claims at issue. Id. at 155.917 (citing Ciba-Geigy Corp. v. !Jolar
Pharmaceutical Co., 747 F.2d 844,855 (3d Cir. 1984). cert. denied, 471 U.S. 1137 (1985)).

       Lastly, to resolve any prejudice to appellant due to its stated need for expert
evidence and more discovery in view of the government's new affirmative defense, while
the Board will not extend the hearing commencement date, it will afford appellant the
opportunity for further discovery and/or record submissions both before and after the
current scheduled hearing. At the conclusion of the hearing, if appellant requires more
discovery, the Board will keep the record open for both parties for a period of time upon


                                             4
which they agree, or which the Board sets, in order that they can conduct discovery on the
issues raised in the government's new affirmative defense. If further testimony is required
as a result of the discovery, the Board will set a date(s) and place for it to be heard.

                                       DECISION

        The government's motion to amend its answer is granted. The government is to
serve its amended answer upon appellant by email, and to file it with the Board, as
promptly as possible, but no later than 16 April 2018.

       Dated: 9 April 2018



                                                  dministrative Judge
                                                 Armed Services Board
                                                 of Contract Appeals

I concur                                         I concur




~KLEFORD                                         J. REID PROUTY
Administrative Judge                             Administrative Judge
Acting Chairman                                  Vice Chairman
Armed Services Board                             Armed Services Board
of Contract Appeals                              of Contract Appeals

       I certify that the foregoing is a true copy of the Opinion and Decision of the Armed
Services Board of Contract Appeals in ASBCA Nos. 60448, 60785, Appeals of Raytheon
Company, rendered in conformance with the Board's Charter.

       Dated:



                                                 JEFFREY D. GARDIN
                                                 Recorder, Armed Services
                                                 Board of Contract Appeals




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