Savvy contractors know that claims against the Government for acts of bad faith are serious allegations not to be taken lightly and to be pursued only when armed with the most solid of evidence – preferably a videotape. Because bad faith claims against the Government are not often pursued – and rarely successful even when pursued – those few cases where the Government has been found to act in bad faith, such as the recent case of Keeter Trading Co., Inc. v. United States, COFC No. 05-243 C, issued by Judge Lynn J. Bush on February 3, 2009, are noteworthy.

In Wiley Rein’s August 2007 Government Contracts Issue Update, we reported on an earlier decision in this case, Keeter Trading Co., Inc. v. United States, 79 Fed. Cl. 243 (2007), for its significant finding that the conduct of the United States Postal Service (USPS) entitled Keeter to stop performance even though the parties had an ongoing dispute. See "Government’s Material Breach Justifies Contractor’s Refusal to Perform," August 2007 Government Contracts Issue Update (also discussing the prudence of contractors continuing performance while pursuing remedies under the Contract Disputes Act, given contractors’ performance obligations under Federal Acquisition Regulation (FAR) § 33.213, “Obligation to Continue Performance”). In the 2007 Keeter decision, Judge Bush upheld contractor Keeter’s claims against the Government for wrongful breach of contract, but denied USPS’s motion for summary judgment on Keeter’s claims of bad faith for lack of factual development thereby leaving the issue of bad faith open for further litigation.

On February 3, 2009, after a full trial on the bad faith issue, Judge Bush issued an opinion finding that the USPS violated its duty of good faith performance and therefore acted in bad faith, entitling Keeter to an award of damages of over $42,000, plus interest, for breach of contract. See Keeter Trading Co., Inc., COFC No. 05-243 C. In so doing, Judge Bush found that Keeter’s bad faith claims overcame the “strong presumption that government officials exercise their duties in good faith” and that Keeter established by “well nigh irrefragable proof” that the USPS acted in bad faith based on the following facts:

  • Prior to changing the delivery routes of two contractors (Keeter and Hoover), the Administrative Official (AO) did not consult with Keeter but did consult with and receive input from Hoover. Moreover, given the contract’s formula for compensation, which weighted miles substantially more heavily than number of mailboxes, the changes to the delivery route clearly favored Hoover and negatively impacted Keeter. Hoover received additional miles and fewer mailboxes. Keeter received additional mail boxes;
  • Although the AO testified that her changes were not made to help Hoover, the AO’s actions proved otherwise. For example, she emailed another government representative about Hoover’s financial woes and demonstrated concern as to whether the route changes would provide Hoover with additional compensation;
  • The AO’s justification for the changes was not supported by the record;
  • The AO exerted inappropriate pressure on Keeter to comply with the delivery route changes by beginning to issue daily USPS deficiency forms for alleged schedule infractions that the USPS had treated as acceptable for the previous year and a half;
  • The AO lobbied other USPS officials to terminate Keeter’s contract;
  • Contracting officials collaborated with, relied on, and deferred to the AO and otherwise failed to exercise independent and informed judgment on matters of contract administration. They failed to make a good faith effort to negotiate a major change with Keeter, and instead acted to “get rid of him.” Id.

Faced with this evidence, the court determined that “the ‘cumulative and pernicious impact of these individual acts of bad faith exceeded their individual weight,’” such that “‘the conduct of the governmental actors who dealt with [Mr. Keeter] fell far below the standard of good faith that is integral to the Federal procurement system.’” Id. (citing NorthStar Alaska Hous. Corp. v. United States, 76 Fed. Cl. 158, 212 (2007).

Keeter’s attorney, Christopher Carter from Yellville, Arkansas, says “when you read this 38 page opinion, you will see why Keeter Trading was so frustrated [with the Government’s actions]. Keeter feels vindicated after dealing with this for almost 5 years--as does his attorney.” While the Keeter decision does not diminish the seriousness of advancing claims of bad faith against the Government and does not lower the high standard required to prove them, the decision does show that under some fact patterns, a contractor can win a bad faith claim against the Government.