The U.S. Court of Federal Claims recently found the federal government liable for breach of contract under which, in exchange for the Landowners’ grant of a right-of-way, the Government would construct a $1.7 million paved road over private industrial land located in East Otay Mesa (Southen California) on the border with Mexico.  For years, the Landowners and the U.S. Border Patrol had wrangled over whether Border Patrol agents had the right to continuously cross the parcel as they patrolled the border, and the contract had been seen as a great step forward in resolving their dispute.  The concept of the contract was that the Border Patrol would stay on the paved road (rather than cutting across the property), and the Landowners would have a paved road to access and develop the valuable commercial property.

The breach of contract lawsuit was not the first dispute between the Landowners and the Border Patrol.  Previously, the Landowners had sued the Border Patrol over its continuous use and occupancy of their land, without payment of any compensation for that use. That suit, also filed in the U.S. Court of Federal Claims, sought just compensation for the physical taking of an easement over their property.  Last year the court found a taking and awarded the Landowners $4 million plus costs and attorneys’ fees.

In fact, it was while preparing the takings case for trial that the parties began to discuss the possibility of the Landowners granting to the Government an easement in exchange for the construction of an improved road in order to resolve one source of friction between the parties. The land in question lies between two existing public roads, and a new access road would allow Border Patrol agents safer access to a truck trail used in their patrolling activities and could be incorporated into the Landowners’ development plans. In the contract entered into by the Landowners and the Government, the Landowners agreed to transfer an existing easement that the Border Patrol was no longer using to a new, mutually agreed on location. In return, the Government agreed to construct a new road to County standards.

But as soon as the contract was signed, a disagreement arose over how the road was to be constructed and how much the Government was willing to spend constructing it.  Finally, a year after the contract had been executed, the Government informed the Landowners that it would not build the road.  So, the Landowners filed a second suit in the U.S. Court of Federal Claims—-  this time for breach of the contract to construct the road.

International Industrial Park v. United States

In response, the Government first challenged the U.S. Court of Federal Claims jurisdiction over the claims, arguing that the Contract Disputes Act (41 U.S.C. §§ 601-613), applied to the road construction contract and that the Landowners had not complied with the Contract Disputes Act’s jurisdictional prerequisites.  But the trial court rejected that argument and denied the Government’s motion to dismiss, holding that the Contract Disputes Act did not apply to the contract because it was not a procurement contract.

At trial, the Government unsuccessfully contended that the contract created no road construction obligation and that the contract was too ambiguous to be enforceable.  The Government also argued that the Landowners had rescinded the contract and waived their right to performance.

In its judgment, however, the court rejected the Government’s arguments, holding that “there was a sufficient meeting of the minds” to form an enforceable contract.  The court also rejected the Government’s claim that the Landowners had rescinded or abandoned the contract.  The court held that “to establish abandonment the evidence must… point positively and unequivocally to an intention on the part of both parties to abandon it.”

The court further held that the contract was enforceable because the Federal Circuit has held that “ambiguities in a contract are to be resolved against the drafter of the contract.”  Here, the Government prepared every draft (including the final draft and exhibits) and could hardly claim ambiguities it created as a contract defense.

So, the court ruled again in favor of the Landowners, this time on its contract claim, finding that “the record does not support [the Government’s] contentions in its efforts to avoid contractual liability.” The Government was ordered to pay the Landowners $1.7 million in damages.  The Landowners’ claim for attorneys’ fees and costs, based on a contract provision, is still pending.  The Government has not announced whether it will appeal.