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Guarantee Company of North America, USA v. Ikhana, LLC

United States Court of Appeals, Federal Circuit

October 29, 2019

GUARANTEE COMPANY OF NORTH AMERICA, USA, Appellant
v.
IKHANA, LLC, Appellee

          Appeal from the Armed Services Board of Contract Appeals in Nos. 60462, 60463, 60464, 60465, 60466, 61102, Administrative Judge James R. Sweet.

          Patrick Michael Pike, Pike & Gilliss LLC, Towson, MD, argued for appellant.

          William Atkins Scott, Pederson & Scott, P.C., Charleston, SC, argued for appellee.

          Before Dyk, Wallach, and Hughes, Circuit Judges.

          OPINION

          HUGHES, CIRCUIT JUDGE.

         This case involves a government contract dispute. After a contracting officer determined that Ikhana, LLC defaulted on a construction contract with the Army Corps of Engineers, Ikhana filed an appeal to the Armed Services Board of Contract Appeals. Guarantee Company of North America (GCNA), a surety that indemnified Ikhana, moved to intervene because the indemnity agreement authorized it to assume all contractual rights in the event of default. The Board denied GCNA's motion, finding that GCNA lacked standing. Appeals of Ikhana, LLC, ASBCA No. 60462, 17-1 BCA ¶ 36, 871 (Oct. 18, 2017). Because GCNA executed its settlement agreement with the Corps after the claims at issue arose, we affirm.

         I

         In September 2013, the United States Army Corps of Engineers awarded Ikhana a construction contract to build a secured access lane and remote screening facility at the Pentagon by October 12, 2015. The contract required Ikhana to furnish performance and payment bonds. Ikhana procured these bonds from GCNA.

         As a condition for issuing the bonds, GCNA required Ikhana to execute a general indemnity agreement. The indemnity agreement included a provision that assigned GCNA all rights under the contract if Ikhana defaulted or if GCNA made payment on any bond.

         Construction did not go as planned. As Ikhana began working on the project, it encountered multiple problems with the work site that were not in the contract's specification. Each time Ikhana discovered a new problem, it had to halt work until the Corps issued a unilateral change to the contract. These stoppages and contract modifications caused significant delays and cost overruns. One modification required the Corps to schedule a power outage at the Pentagon for the project to continue, but the Corps never scheduled the outage, and by mid-October 2015, construction had stopped.

         Between October 13-27, 2015, Ikhana submitted four claims to the contracting officer seeking additional compensation and an extension of the project deadline. Ikhana argued that the unforeseen site conditions and unilateral changes to the contract significantly altered the scope of the contract. The Corps never issued a final decision on Ikhana's claims.

         Between November 2015 and June 2016, seven of Ikhana's sub-contractors filed claims against GCNA's payment bond. Corps terminated Ikhana for defaulting on the contract and made a claim on the performance bond. On February 25, 2016, Ikhana appealed the termination decision and its four claims for additional compensation to the Armed Services Board of Contract Appeals.

         GCNA sent Ikhana a letter demanding collateral under the indemnity agreement. The letter stated that if Ikhana did not deliver over four million dollars in collateral, "GCNA [would] take all appropriate steps to protect its rights" under the indemnity agreement. J.A. 292. Ikhana responded that the demand for collateral was premature and unreasonably high.

         GCNA and the Corps began to negotiate for GCNA to tender a completion contractor. During the negotiations, Ikhana informed GCNA that it would "not [forgo] its claim against the Corps under any circumstances." J.A. 444. GCNA invoked its powers under the indemnity agreement and entered into a settlement agreement with the Corps on September 30, 2016. As part of the settlement agreement, GCNA agreed to "cause the dismissal, with prejudice, of the current pending appeals before the [Board]." J.A. 365.

         GCNA sued Ikhana for declaratory judgment in the United States District Court for the Eastern District of Virginia. GCNA sought a declaration that the indemnity agreement authorized it to "settle [Ikhana's] dispute with the [Corps] and dismiss the [Board] appeal." Guarantee Co. of N. Am. USA v. Ikhana, LLC, No. 1:16-CV-1484, 2017 WL 1821106, at *2 (E.D. Va. May 4, 2017). The district court stayed GCNA's action pending resolution of Ikhana's Board appeal. Id. at *4.

         GCNA moved to intervene and withdraw Ikhana's appeal before the Board on the grounds that Ikhana had assigned all contractual claims to GCNA. Ikhana opposed the motion. ...


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