January 13, 2020

U.S. Court of Federal Claims Rejects Contractors' Pleas to Enforce Implied-in-Fact Contract

4 min

A recent decision from the U.S. Court of Federal Claims highlights the pitfalls that can arise when government contractors rely on individuals who lack authority to bind the government. In Panther Brands, LLC v. United States, No. 16-1157C, 2019 WL 6873623 (Fed. Cl. Dec. 17, 2019), plaintiffs, Panther Brands, LLC and Panther Racing, LLC (collectively "Panther"), alleged that the Army National Guard ("the Guard") breached implied-in-fact contracts under which 1) the Guard agreed to sponsor Panther's race team in the IndyCar Series for an additional option year in exchange for Panther's promotion of the Guard through advertising and marketing; and 2) Panther agreed to implement an expanded version of its "Boss Lift" program, which provided the Guard with services designed to encourage recruitment and retention of Guardsmen. Panther sought to recover its costs of performance on the implied-in-fact contracts following what it characterized as the government's termination of the contracts for convenience, as well as damages associated with the alleged breach of the implied-in-fact contracts.

From 2008 through the time of the events giving rise to this action, the Guard annually sponsored Panther racing teams in the IndyCar series to market and advertise itself, and recruit new soldiers. However, the Guard and Panther never entered into an express contract. The Guard had contracted with an advertising contractor which received a task order under an IDIQ contract with the Guard for advertising services. Document and Packaging Brokers, Inc., acting as subcontractor to the advertising subcontractor, then entered into a sponsorship agreement with Panther Brands, LLC in October 2012. It was through this subcontractor sponsorship arrangement that Panther began promoting the Guard through its IndyCar Series race team. Notwithstanding the lack of privity, however, the Guard and Panther routinely communicated directly, with Panther often relying on verbal confirmation directly from the Guard with respect to the sponsorship relationship, including even the exercise of options.

The Guard's contracting officer representative (COR) orally informed Panther's CEO that the Guard was going to renew its IndyCar contract for 2014 and instructed Panther to prepare for the 2014 season, even though the COR's delegation memorandum expressly precluded the COR from awarding, agreeing to, or signing any contract modification or obligating the government to pay money. Relying on the COR's apparent authority, Panther hired new personnel and a driver for the 2014 racing season, incurred millions of dollars in costs to its Boss Lift program, and did not seek any other major sponsors for the season. The Guard ultimately did not exercise its option to use Panther in 2014, despite the COR's oral instructions and, in fact, chose another racing company to sponsor for the season.

Panther sought to recover the cost it incurred in reliance on the Guard's representations with respect to the 2014 season. First, Panther argued that the Guard breached an implied-in-fact contract that allegedly arose regarding the Guard's sponsorship of Panther's racing team for the 2014 season. The Court was unpersuaded by this argument, finding no implied-in-fact contract existed where the parties differed as to their characterizations of the terms of such agreement. Furthermore, the Court held that the COR with whom Panther had interacted did not have actual authority to bind the government in a contract; thus his statements could not form an enforceable implied-in-fact contract. Panther also argued that the doctrine of equitable estoppel precluded the Guard from claiming that the COR lacked authority after affirmatively representing that the COR was the sole authorized representative regarding the contract. The Court rejected this argument, emphasizing that any party that enters into an arrangement with the government takes the risk that the government official they interact with may act outside the bounds of their authority.

Panther also sought recovery under a theory that it had an implied-in-fact contract for the money it expended on its Boss Lift program. The Court rejected this claim as well, because Panther's allegations regarding the terms of the supposed implied-in-fact contract were vague, leading the Court to find that Panther had failed to demonstrate facts sufficient to establish the existence of an implied-in-fact agreement regarding its Boss Lift program.

This decision should serve as a reminder to contractors regarding the risk of misplaced reliance on government officials lacking the authority necessary to create contractually binding relationships. Contractors should be especially cautious when incurring costs in reliance on asserted implied-in-fact contracts with the government, as the contractor has the burden of establishing that all elements of an enforceable, implied-in-fact contract arose, including actual authority of the government representative.