The Court Of Federal Claims' Railway Logistics International Decision Limits Seventh Amendment Right Of Government Contractors To Jury Trial To Contest Fraud-Based Counterclaims

Article by David W. Ogden , Jennifer M. O'Connor , Jonathan G. Cedarbaum , Carl J. Nichols , Joe D. Smith Gregory Petkoff , Natalie Hirt Adams and Carla J. Weiss . On January 17, 2012, the Court of Federal Claims (COFC) issued a decision clarifying that, if a contractor invokes the jurisdiction of the COFC (an Article I court) to pursue its claims, the contractor has no right to a jury trial on any fraud-based counterclaims, including False Claims Act (FCA) counterclaims, but must defend such counterclaims in the proceeding before a trial judge. Ry. Logistics Int'l v. United States, __ Fed.Cl. __, 2012 WL 171895 (Jan. 17, 2012). This case illustrates one way in which forum selection can adversely affect a contractor litigating claims against the Government. Below is a summary of the Railway Logistics decision along with some additional observations about the benefits and drawbacks of forum selection in proceedings against the United States. Summary of the Decision Railway Logistics International (RLI) brought suit in the COFC on claims arising from the termination of its contract to provide goods necessary to rehabilitate the Iraqi Republic Railway. The Government filed counterclaims alleging that RLI had not only failed to perform adequately under the contract, but had also grossly inflated its claim for an equitable adjustment upon termination of the contract. The Government sought damages under both the Contract Disputes Act (CDA), 41 U.S.C. §§7101 et seq., and the FCA, 31 U.S.C. §§3729 et seq., as well as forfeiture of RLI's breach claim under the Forfeiture of Fraudulent Claims Act, 28 U.S.C. §2514. RLI argued that the COFC lacked jurisdiction to hear the Government's counterclaims. RLI contended that, because the counterclaims were based on allegations of fraud, the Seventh Amendment guaranteed RLI the right to try them before a jury (an option that is not available in the COFC). The COFC ruled for the Government, holding that the Seventh Amendment does not protect plaintiffs who exercise their right to sue the Government in an Article I court from countersuits by the Government in the same court. The COFC relied in large part on a 1990 Federal Circuit decision, Seaboard Lumber Co. v. United States, 903 F.2d 1560 (Fed Cir. 1990), which in turn relied on a nineteenth-century Supreme Court decision, McElrath v. United States, 102 U.S. 426 (1880). Implications Under the CDA, government contractors have the right to a de novo trial on...