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United States Court of Federal Claims Holds Release Invalid Where Parties Continued Negotiations After Release Executed

On September 23, 2019, the United States Court of Federal Claims issued a published decision invalidating the release of a construction claim because the Government and the contractor continued to negotiate the claim after the parties signed a release.

In Meridian Engineering Company v. United States, 144 Fed. Cl. 667 (2019), Meridian Engineering Company (“Meridian”) entered into a contract with the Army Corps of Engineers (“Corps”) with respect to the construction of a flood control project in Arizona. Meridian submitted numerous claims throughout the course of the project, some of which were approved and others rejected.  Ultimately, the Corps terminated the contract.

Following the termination, Meridian pursued several of its outstanding claims in the Court of Federal Claims, the most notable of which was for flood damage associated with a monsoon that struck the project.  The Government contended, among other things, that Meridian waived its claim to the flood damage by signing several releases, which contained the following language:

It is understood and agreed that pursuant to the above, the contract time is extended the number of calendar days stated, and the contract price is increased as indicated above, which reflects all credits due the Government and all debits due the Contractor. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the Contractor and its Subcontractors and Suppliers for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto, for all extended overhead costs, and for performance of the change within the time frame stated. (emphasis added)

The Government argued that, by signing a contract modification that included this release language, there was an “accord and satisfaction” between the parties.  The Court explained that “the necessary elements for accord and satisfaction are in dispute in this case: (1) what the proper subject matter of the releases are; and (2) whether the parties came to a meeting of the minds on the scope of the releases.”  Ultimately, the Court found that neither elements were met by the Corps, and therefore Meridian was entitled to recover for its flood-related claim.  However, of the two elements of accord and satisfaction, the Court’s analysis of the “meeting of the minds” was particularly significant.

Specifically, the Court reasoned that there was no meeting of the minds between Meridian and the Corps because, after the release at issue was executed, the parties continued to negotiate the flood-related claim.  The Court explained:

Ultimately, the court concludes today that there was no meeting of the minds here because the flood-event damages claim continued to be negotiated after the releases were issued, as evidenced by draft modification R33, the government’s request for and Meridian’s subsequent submission of an REA including a claim for flood events, and the government’s subsequent consideration of that REA.

In this case, there is evidence that both parties considered the merits of the flood-event damages claim after the execution of the modifications . . . Following the execution of the modifications, in June and September 2008 respectively, Meridian sent a letter to the Corps requesting equitable compensation for flood-event damage. . .. The Corps responded to this REA with a letter, dated January 22, 2009, finding that after an initial consideration on the merits, it found no merit. . .. Meridian, still seeking final resolution on its flood-events REA in addition to others, filed a consolidated REA on April 2, 2010 . . . with the Corps, responding to their request to do so . . .. In August 2010, the Corps internally circulated draft modification R33, which noted that the Corps’ initial response to the flood REA came with “a request for additional information” from Meridian, and noted that the flood REA now garnered “partial merit.”. . ..  While this modification was never issued, and although Meridian did not learn of this document until discovery was had in this case, the draft of this document and its internal circulation are enough to show continued consideration by the Corps of Meridian’s claim.

Further in support of this conclusion, the Corps responded to the consolidated REA, which contained the renewed REA for flood events, with a letter on May 20, 2010, acknowledging the receipt of the REAs and committing to issue a final decision by November 30, 2010 on the claims. . . . The record, therefore, contains sufficient evidence that there was no “intent on the part of either party that the release[s] ha[d] [the] effect” of barring the plaintiff’s claims.

The holding in Meridian could have significance to contractors on either side of a release of claims.  The release language in the Meridian case is extremely typical and is oftentimes used in the defense of claims that may be indirectly related to the subject matter of the release.  As the Court of Federal Claims intimated in Meridian, continued negotiation of a claim after a release has been executed is typically inconsistent with the position that the claim being negotiated is within the scope of the release.  Therefore, contractors and subcontractors should be mindful of their respective conduct after a release has been signed, because such conduct could be pivotal in the determination of whether there was a “meeting of the minds” between the parties as to whether certain claims were intended to fall within the scope of a particular release.

Jeffrey S. Rosenfeld

Author Jeffrey S. Rosenfeld

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