Government Didn’t Cooperate with CRADA Contractor

Judgment on a claim alleging breach of the implied covenant of good faith and fair dealing was granted by the Court of Federal Claims because the government unreasonably frustrated the intended objective of a cooperative research and development agreement. Under the five-year CRADA, the contractor agreed to commercialize the HooAH! energy bar the government provided in soldiers’ rations, and to eventually pay the government royalties. The government’s responsibilities included performing cooperative research and assisting with testing and improving the bars. According to the contractor, the government breached the implied covenant of good faith and fair dealing when it ceased communications with the contractor and changed the name of the bar to First Strike.

Implied Covenant Breached

The court agreed, finding the contractor “was in the dark” for an eight-month period as to how the parties were to work together to commercialize the bar, and the government’s abandonment of the bar’s name undercut the value of the contractor’s license. The government maintained its failure to communicate was reasonable in light of ongoing trademark issues between the parties, but this did not absolve the government from halting communications, particularly since the government knew of the contractor’s trademark plans and never explained the consequences of the plans to the contractor. In effect, the government treated the CRADA as if it were terminated once it decided in the third year of the term not to renew the CRADA. “The government’s complete disregard for the CRADA relationship, even though two years remained in the CRADA term, [was] unreasonable under the circumstances.”

No Damages

The contractor requested reliance damages representing the total costs it incurred in performing the CRADA, plus costs in transitioning from the brand name, less revenue earned. It was undisputed the damages were foreseeable, so the contractor satisfied the first part of the two-part test for determining reliance damages (see 472 F3d 859, 867). However, the second part of the test offset damages by losses the contractor was reasonably certain to sustain if the government had fully performed. The government showed the contractor would have lost the value of its investment, regardless of the government’s actions. The five-year CRADA term allowed the contractor a limited period for recovering its investment, the contractor was experiencing brand recognition problems and declining sales before the breach, and the government’s decision to change the name of the bars had no practical effect on the contractor’s declining commercial sales. The losses were attributable to the contractor’s business decisions, not the government’s actions. ( D’Andrea Brothers LLC v. U.S., FedCl, 57 CCF ¶79,994)