Department of the Army v. Blue Fox, Inc.

The Department of the Army (plaintiff) entered into a contract with Verdan Technology, Inc. (Verdan) to install a telephone switching system. Verdan subcontracted with Blue Fox, Inc. (defendant) to construct a building to house the switching system. Because the Army classified Verdan’s contract as a services contract and not a construction contract, it did not require Verdan to post Miller Act performance or payment bonds. Blue Fox performed its obligations under the subcontract; however, Verdan failed to pay Blue Fox approximately $46,000 out of what Blue Fox was owed. Blue Fox notified the Army that Verdan owed Blue Fox $46,000. Regardless, the Army distributed all funds owed to Verdan for work completed as of the time of the payment distribution. Verdan subsequently defaulted. Verdan’s contract was then terminated, and another contractor completed the contract work. Blue Fox obtained a default judgment against Verdan for the $46,000 in tribal court but was unable to collect. Because there was no payment bond from which to recover, Blue Fox sued the Army directly in district court under the Administrative Procedure Act (APA), seeking an equitable lien on contract funds still held by the Army. The district court granted summary judgment to the Army on sovereign-immunity grounds. On appeal, the Ninth Circuit reversed, holding that (1) the APA waived sovereign immunity for equitable actions; and (2) Blue Fox’s equitable lien could attach to funds the Army owed, but had not yet paid out, to Verdan at the time Blue Fox notified the Army that Verdan had failed to pay the $46,000. The Army appealed.