MPG WEST, LLC v. SECRETARY OF DEFENSE

NOTE: This disposition is nonprecedential.

United States Court of Appeals

for the Federal Circuit

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MPG WEST, LLC,

Appellant

SECRETARY OF DEFENSE,

Appellee

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2023-1430

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Appeal from the Armed Services Board of Contract Ap-

peals in Nos. 61100, 61560, 61570, Administrative Judge

J. Reid Prouty, Administrative Judge Kenneth David

Woodrow, Administrative Judge Richard Shackleford.

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Decided: May 17, 2024

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YUKI HARAGUCHI, Holmes Pittman & Haraguchi, LLP,

Chester, MD, argued for appellant.

KELLY GEDDES, Commercial Litigation Branch, Civil

Division, United States Department of Justice, Washing-

ton, DC, argued for appellee. Also represented by BRIAN

M. BOYNTON, WILLIAM JAMES GRIMALDI, PATRICIA M.

MCCARTHY, EVAN WISSER.

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Case: 23-1430 Document: 34 Page: 1 Filed: 05/17/2024

MPG WEST, LLC v. SECRETARY OF DEFENSE

Before DYK, CLEVENGER, and STOLL, Circuit Judges.

PER CURIAM.

MPG West, LLC (“MPG”) appeals the decision of the

Armed Services Board of Contract Appeals (“Board”) re-

garding its contract claims against the Defense Commis-

sary Agency (“DeCA”). The Board erred in failing to

determine whether the contract at issue required MPG to

import bagged salads from the United States. For this rea-

son, this court vacates the Board’s decision and remands

the case to the Board for further proceedings. In other re-

spects, we affirm.

DeCA is an agency of the U.S. Department of Defense

that operates grocery stores for the military. This appeal

concerns the requirements contract HDEC09-15-D-0002

(the “Contract”) which provided for the supply of fresh

fruits and vegetables (“FF&V”) including bagged salads

commissaries in Japan and South Korea. Prior to the Con-

tract, the government subsidized the cost of transporting

FF&V to the Pacific region. Thereby, the transportation

cost was not included in the FF&V prices paid by commis-

sary customers.

On February 3, 2014, DeCA released Solicitation No.

HDEC09-14-R-0002 for providing FF&V to Japan, South

Korea, and Guam. The solicitation required free on board

(“FOB”) destination delivery, which makes the seller re-

sponsible for the cost of shipping the supplies. DeCA was

aware that the prices for FF&V would increase because

DeCA would no longer be subsidizing the cost of transport-

ing FF&V to the Pacific region.

After full review of the parties’ arguments, this

court finds no error in the Board’s decision with respect to

all other aspects of the Contract other than with respect to

bagged salads, as discussed below.

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MPG WEST, LLC v. SECRETARY OF DEFENSE

The solicitation was amended six times which included

published questions and answers. During this process,

DeCA communicated to offerors that the winning contrac-

tor would need to “locally source as much FF&V as possible

from the local market, which would include locally availa-

ble imported items.” J.A. 4 ¶ 10 (quoting J.A. 647).

The solicitation also required the contractor to supply

bagged salads from a list of approved sources

and re-

quested offerors to identify the brand name of their salad

supplier. Several contractors asked questions suggesting

that the bagged salads could not be obtained locally. For

example, in Amendment No. 1, a potential vendor stated

that “[t]here is no local availability or even regional avail-

ability for bagged salad items like this from an approved

source. This will require the product be airlifted.” J.A. 649;

see also J.A. 656. DeCA responded that “[i]t is a potential

offeror’s responsibility to source all products to include

bagged salads locally or as close to locally as practical.”

J.A. 648.

MPG, who was a subcontractor under the prior con-

tract, submitted a bid on the solicitation and selected Fresh

Express from the Worldwide Directory as its preferred

partner to provide bagged salads. On May 22, 2015, the

government awarded the Contract to MPG to become the

“primary source of supply” for FF&V in Japan and South

Korea. J.A. 127. The Contract incorporated the HDEC09-

14-R-0002 solicitation and an Attachment 11 which estab-

lished Fresh Express as the sole source of bagged salads for

the Contract.

With respect to pricing, the Contract said that “[p]rices

shall be firm fixed and inclusive of all costs, overhead and

profit.” J.A. 130. However, the Contract also required

Specifically, the bidder needed to select a company

listed on the Worldwide Directory of Sanitarily Approved

Sources for Armed Forces Procurement (“Worldwide Direc-

tory”).

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MPG WEST, LLC v. SECRETARY OF DEFENSE

MPG to update its prices on a weekly basis. The Contract

also included a provision that the “Government will moni-

tor all other prices provided on the weekly price lists for

being fair and reasonable considering the market condi-

tions at the time.” J.A. 130.

Performance on the Contract began on November 1,

2015. MPG never implemented a local sourcing plan and

sourced most of its produce from the United States and

Mexico. MPG shipped the Fresh Express bagged salads via

airfreight.

During performance, produce items were priced ex-

tremely high and there was concern about the high prices.

At the weekly price reviews, if DeCA determined that a

price for a certain item was “unreasonable,” it would direct

MPG either to reduce the price or remove the item from the

weekly catalog. DeCA monitored social media sites for

complaints and considered those complaints when direct-

ing MPG to reduce prices or remove items. DeCA did not

independently analyze MPG’s profit or overhead when per-

forming the weekly price analysis meetings.

MPG told DeCA that it was having trouble with the

bagged salad requirement and requested assistance be-

cause it was losing so much money on these products.

On March 22, 2016, MPG submitted a certified claim

under the Contracts Disputes Act (“CDA”). MPG made a

number of claims including that DeCA “forced MPG West

to sell its produce at prices below MPG West’s costs of im-

portation, and prevented MPG West from selling produce

it imported.” J.A. 2. In July 2016, two subcontractors ef-

fectively took over all the cost and performance of the con-

tract.

On January 3, 2017, the government issued a contract-

ing officer’s final decision (“COFD”) denying MPG’s claims.

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MPG WEST, LLC v. SECRETARY OF DEFENSE

On March 21, 2017, MPG appealed the COFD to the

Board.

The Board rejected all of MPG’s theories for recovery

because MPG’s “financial losses resulted predominantly

from factors within its control” while noting that MPG

“failed to timely implement a local sourcing plan” and

“sourced most of its produce from overseas.” J.A. 29.

MPG timely appealed the Board decision, and this

court has jurisdiction under 28 U.S.C. § 1295(a)(10).

First, MPG argues that the Board erred by “finding

that FF&V importation was not subject to the SOFA in-

spection process.”

Br. for Appellant at 57 (emphasis re-

moved). Specifically, MPG argues that it was “obligated to

import items under the SOFA process,” and that this ena-

bles it to recover excess costs incurred. Id. at 58. We see

no error in the Board’s analysis. At the outset, we note that

MPG appears to misread the Board’s conclusion that “[t]he

[C]ontract did not require MPG West to import produce un-

der the SOFA. The [C]ontract gave the contractor the dis-

cretion whether to import produce items pursuant to

SOFA.” J.A. 13 ¶ 81 (citations omitted). The Board thus

found that the Contract, with its emphasis on local

MPG later filed two new claims: one for bagged

salad costs on a theory of constructive change, and one for

the same costs based on the government’s termination of

the requirement. The Board consolidated these two claims

with the appeal of the first COFD.

The “SOFA inspection process” refers to importa-

tion requirements under the Status of Forces Agreements

between both the United States and Japan as well as the

United States and Korea. These SOFAs “set[] certain

terms and procedures for produce brought into Japan or

Korea for consumption by U.S. Military personnel.” J.A. 13

¶ 79.

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MPG WEST, LLC v. SECRETARY OF DEFENSE

sourcing, gave MPG discretion whether to import items at

all, and that MPG made a “business decision” to import

goods through the SOFA process. J.A. 47. Even if the Con-

tract required utilization of the SOFA process, the Contract

expressly placed the burden of complying with importation

requirements on the contractor. We see no error in the

Board’s analysis.

Second, MPG argues that DeCA failed to anticipate the

effect on prices that would result from the new contract

model, including by failing to conduct adequate market re-

search, and that the Contract was therefore flawed from

the start. MPG identifies no contract representations by

the government of the feasibility of performing according

to the new contract model, and no authority for the propo-

sition that the government has an affirmative duty to study

the prices or costs that a contractor will incur to perform a

contract before offering a solicitation. We are aware of

none, and this argument is without merit.

Third, MPG argues that DeCA did not act in good faith

during the weekly price review meetings. The Board con-

cluded that DeCA behaved reasonably and “developed and

applied reasonable and consistent criteria to evaluate

weekly prices based on the past history of prices for partic-

ular items.” J.A. 29. Moreover, the Board found that MPG

“failed to timely implement a local sourcing plan,” which

resulted in most of MPG’s financial losses. Id. We see no

error in that fact finding with respect to almost all of the

FF&V products. Indeed, the solicitation made clear that

prospective contractors would need to “locally source as

much FF&V as possible from the local market,” which MPG

failed to do, and MPG makes no showing here that locally

sourcing would not have been feasible for any products ex-

cept possibly for the bagged salads. J.A. 37 (quoting

J.A. 647).

However, we think that remand is required as to the

bagged salad requirement. MPG’s theory is that when it

supplied bagged salads from Fresh Express at a price that

was inclusive of all costs of transportation, customs

Case: 23-1430 Document: 34 Page: 6 Filed: 05/17/2024

MPG WEST, LLC v. SECRETARY OF DEFENSE

clearance, and overhead, the price paid by patrons was

greater than what DeCA would accept, and that DeCA

breached the Contract by refusing to purchase bagged sal-

ads at the offered price. Br. for Appellant at 47; see also

Oral Arg. at 4:28–4:37 (“[T]he assumption, picking Fresh

Express, was that the contractor would be able to recoup

its costs, because this is a fixed-price contract.”).

A question arose during oral argument as to whether

bagged salads needed to be imported because of the re-

quirement to use Fresh Express in the Contract as the sole

source for DeCA’s bagged salad requirements. Oral Arg. at

12:07–15:43, 20:05–20:48, 26:04-27:13. Specifically, MPG

argued that “there were certain items such as the bagged

salad that it was not possible to source Fresh Express salad

locally because it isn’t there.” Oral Arg. at 12:19–12:28.

The parties were unable to point to any fact finding by

the Board on this specific question (Oral Arg at 27:53–

28:44, 38:53–39:05).

Consequently, we vacate the Board’s decision and re-

mand the case for further proceedings. On remand, the

Board is instructed to find, as a matter of fact, whether the

Contract required MPG to import DeCA’s bagged salad re-

quirements, and if so, to determine the effect, if any, of that

requirement on MPG’s claims for relief with regard to the

Contract’s bagged salad requirements.

AFFIRMED IN PART, VACATED AND REMANDED

IN PART

COSTS

No costs.

Case: 23-1430 Document: 34 Page: 7 Filed: 05/17/2024