Thursday, April 3, 2008

Rick's Mushroom Service Inc. v. U.S.

Apr 2: In the U.S. Court of Appeals, Federal Circuit, Case No. 07-5137. The case is an appeal from the United States Court of Federal Claims pertaining to a cost-share agreement between the government and Rick’s Mushrooms, Inc. (Rick’s) for implementing conservation practices in a facility for recycling of mushroom waste. Rick’s seeks indemnification from the government for costs incurred in defending and settling claims by a third party for violation of certain State and Federal environmental laws. The Court of Federal Claims dismissed the action for lack of subject matter jurisdiction. The Federal Circuit affirmed that decision.

As noted by the court, mushroom farming is a major economic activity in Chester County, Pennsylvania. Historically, the organic by-product waste of mushroom farming, known as "spent mushroom substrate" (SMS), was dumped in nearby woods or streams, resulting in severe nitrogen pollution. Rick’s operates an SMS transfer facility, which processes SMS by leaching out the excess nitrogen and then recycling it as potting soil or other products. Following a dispute regarding contamination and proper permitting, and an order by the district court, Rick’s agreed to settle the case for $950,000. Thereafter, the Natural Resources Conservation Service (NRCS) drafted a rehabilitation plan and a plan for a roof structure to help eliminate some of the problems with waste discharge. The NRCS did not indemnify Rick’s for its losses in the litigation and did not pay for the new roof structure.
On November 4, 2005, Rick’s submitted a claim under the Contract Disputes Act (CDA) to the contracting officer at the NRCS for $5 million in damages. J.A. 188-89. The claim alleged that the NRCS had breached its implied warranty of the specifications, and, as a consequence, Rick’s had incurred additional costs, including attorneys’ fees in defending the lawsuit; the lost value of its contribution to the original design, its substantial design revisions, and the installation of the new roof structure; and its liability for environmental impact. The court further held that, because the contract between Rick’s and the NRCS was a cooperative agreement and not a procurement contract, and there was no basis for jurisdiction under the CDA for the breach of contract claim. The court, therefore, dismissed the case for lack of subject matter jurisdiction.

The Federal Circuit said that the Court of Federal Claims did not err in concluding that it lacked subject matter jurisdiction to hear the professional negligence claim; it did not err in holding that it lacked subject matter jurisdiction over Rick’s breach of contract claim; did not err in dismissing Rick’s implied warranty claim for lack of subject matter jurisdiction; and found no abuse of discretion by the Court of Federal Claims in its dismissal of the professional negligence claim. It therefore, affirmed the Court of Federal Claim’s dismissal of Rick’s claims for lack of subject matter jurisdiction.

Access the complete opinion (click here).