NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
ROBERTO CARABALLO, ALBERT E. MILLER, FOR
THEMSELVES, AND ON BEHALF OF ALL PERSONS
SIMILARLY SITUATED,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2016-1628
______________________
Appeal from the United States Court of Federal
Claims in No. 1:15-cv-00223-SGB, Chief Judge Susan G.
Braden.
______________________
Decided: May 30, 2017
______________________
ADAM HOWARD CHARNES, Kilpatrick Townsend &
Stockton LLP, Dallas, TX, argued for plaintiffs-
appellants. Also represented by THURSTON HOLDERNESS
WEBB, Atlanta, GA.
JOHN HUGH ROBERSON, Commercial Litigation
Branch, Civil Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee.
2 CARABALLO v. US
Also represented by BENJAMIN C. MIZER, ROBERT E.
KIRSCHMAN, JR., SCOTT D. AUSTIN.
______________________
Before PROST, Chief Judge, BRYSON and WALLACH, Circuit
Judges.
PROST, Chief Judge.
Plaintiffs-Appellants Robert Caraballo and Albert E.
Miller, for themselves, and on behalf of all persons simi-
larly situated, appeal from the order of the United States
Court of Federal Claims granting the government’s mo-
tion to dismiss for failure to state a claim upon which
relief can be granted. We affirm.
BACKGROUND
The Court of Federal Claims issued its Memorandum
Opinion and Final Order Regarding the Government’s
Motion to Dismiss based upon the following relevant
facts. 1
I
On March 17, 1997, Roberto Caraballo and other fed-
eral employees brought suit in the United States District
Court of the Virgin Islands against the United States, the
United States Postal Service, and the then-Director of the
United States Office of Personnel Management (“OPM”),
James King (“Caraballo I”). J.A. 103–12. The Caraballo I
Complaint alleged that the government paid the cost of
living adjustment (“COLA”) at rates lower than the levels
required by law and failed to revise the COLA rates, as
required by a prior settlement agreement. Id. COLA
payments were established to provide additional compen-
1 Plaintiffs do not dispute the Court of Federal
Claims’ factual summary. Oral Argument 0:31–56,
http://www.cafc.uscourts.gov/mp2016-1628.mp3.
CARABALLO v. US 3
sation to federal employees working outside the contigu-
ous United States based on those areas’ high cost of
living.
The parties eventually agreed to negotiate a settle-
ment agreement (“Settlement Agreement”) to settle
Caraballo I in 2000. J.A. 125–30, 132. The Settlement
Agreement required the United States to pay $232.5
million to a trustee and mandated that OPM issue new
regulations (“New Regulations”) governing the COLA
program. J.A. 132. Paragraph 4 of the Settlement
Agreement, entitled Procedure for Issuing New COLA
Regulations and Rates Thereunder, states:
The parties have agreed that the United States,
acting primarily through its Office of Personnel
Management (“OPM”), will undertake substantial
revisions of the current regulations set forth at 5
C.F.R. Part 591, subpart 8, in order to conform
them to the Safe Harbor Principles set forth in
Exhibit A. The following steps will be taken by
OPM in promulgating final new COLA regula-
tions (“New Regulations”) and rates thereunder.
J.A. 57.
The Settlement Agreement provided, however, that “it
is expected, but not required by this settlement, that the
New Regulations will be consistent with the Conforming
Methodology.” J.A. 60. Paragraph 10.2.1 defined the
“Conforming Methodology” as the then-current regula-
tions and published methodology, along with any changes
made to them by the New Regulations. Id. The Agree-
ment also provided in Paragraph 10.4.3 that “[i]f, at any
time, OPM determines that it no longer wishes to be
bound by the Conforming Methodology, it will publish
notice to the class members of its decision.” J.A. 63. After
OPM provided notice, it would be free to issue non-
conforming COLA regulations, and “[would] not incur any
liability to the class members, either in damages or for
4 CARABALLO v. US
equitable relief, of any kind or degree solely on the basis
that any regulation or COLA rate at issue is not reasona-
bly consistent with the Conforming Methodology.” Id.
The Settlement Agreement established a Survey Im-
plementation Committee (“SIC”) and a Technical Advisory
Committee (“TAC”). J.A. 58. Paragraph 6 required that:
[t]he development, implementation, and revision
of the New Regulations, and the implementation
of this settlement in all other respects, shall be
undertaken and conducted by OPM in good faith
in accordance with the principles contained in Ex-
hibit A and in cooperation and consultation with
the [SIC] and with any other committees estab-
lished under Safe Harbor Principle 24 of Exhibit A
[e.g., the TAC].
J.A. 57–58.
Exhibit A of the Settlement Agreement explained that
members of the SIC included federal employees who
would “review the plans and methodology for the survey
and provide to the appropriate OPM management offi-
cial(s) advice or comments.” J.A. 82. “The SIC [would]
continue to exist during the period from the date OPM
issue[ed] final regulations to implement the settlement to
the end of the first survey cycle in all COLA areas (i.e.,
during the first 3 years of implementation of the new
regulations).” Id. “At the end of the second phase, the
SIC [would] dissolve and OPM [would] determine the
nature and extent of prospective agency and collective
bargaining representatives’ involvement in the COLA
program by issuing regulations.” Id. The TAC consisted
of up to three members “to advise the SIC and appropri-
ate OPM management official(s) during the First and
Second Phases[,] as needed on economic and statistical
issues relating to the COLA program.” Id. “At the end of
the Second Phase, the TAC [would] dissolve.” Id.
CARABALLO v. US 5
II
After the case settled, according to Plaintiffs, the gov-
ernment initially complied with its obligations under the
Settlement Agreement. For example, on April 5, 2001,
the President signed Executive Order 13,207, which
authorized OPM to implement several portions of the
Settlement Agreement. See Exec. Order No. 13,207, 66
Fed. Reg. 18,399 (Apr. 5, 2001).
Around April 2002, OPM drafted a legislative pro-
posal that would replace COLA over time with locality
pay. Caraballo v. United States, 124 Fed. Cl. 741, 744
(2016). Locality pay is based on the local costs of living as
measured by the local costs of labor, and the COLA is
based on comparative living costs measured through
consumer price surveys. Id. at 744 n.6. The objective of
the legislative proposal was to eliminate the COLA over
time. Id. at 744. Congress did not enact OPM’s 2002
proposed legislation. Id. On May 30, 2007, OPM pro-
posed the “Locality Pay Extension Act of 2007.” Id.
Congress, again, did not enact OPM’s proposed legisla-
tion. Id. at 744–45.
On October 28, 2009, Congress enacted the Non-
Foreign AREA Act of 2009 as part of the National Defense
Authorization Act for Fiscal Year 2010. Id. at 745. The
Act reduced the COLA by 65% of the locality pay received.
Id.
Within a year of enactment, OPM published interim
regulations on the locality pay program (“2010 Interim
Regulations”) in the Federal Register. Id.; see generally
General Schedule of Locality Pay Areas, 75 Fed. Reg.
60285, 60285–87 (OPM Sept. 30, 2010). The Interim
Regulations expressly waived notice and went into effect
November 1, 2010. Caraballo, 124 Fed. Cl. at 745; see
2010 Interim Regulations, 75 Fed. Reg. at 60285–86.
These Regulations placed non-foreign areas in the “Rest of
U.S.” locality pay area (“RUS”), establishing separate
6 CARABALLO v. US
locality pay areas for Hawaii and Alaska. Caraballo, 124
Fed. Cl. at 745; see 2010 Interim Regulations, 75 Fed.
Reg. at 60287. Public comments on the 2010 Interim
Regulations were invited to be submitted by November
29, 2010. Caraballo, 124 Fed. Cl. at 745; see 2010 Interim
Regulations, 75 Fed. Reg. at 60285.
One month later, the Caraballo I class counsel sub-
mitted a comment objecting to the 2010 Interim Regula-
tions, stating that OPM’s actions violated the terms of the
Settlement Agreement. Caraballo, 124 Fed. Cl. at 745.
In a December 29, 2010, letter addressed to Caraballo
I class counsel, a TAC member indicated that the TAC
was available to advise OPM on the 2010 Interim Regula-
tions. J.A. 217. OPM never responded to this letter.
Caraballo, 124 Fed. Cl. at 745. The TAC member’s letter
indicated that he was “selected to assist in the Safe Har-
bor Process leading up to the Caraballo settlement, and
then to participate in the further process of implementing
the settlement, all of which lasted approximately 10 years
and concluded at the end of 2008.” J.A. 217 (emphasis
added).
Six months later, OPM published a Notice, “rejecting
all of the comments and suggestions submitted by the
Caraballo Class and others.” Caraballo, 124 Fed. Cl. at
745; see General Schedule Locality Pay Areas, 76 Fed.
Reg. 32859, 32859 (OPM June 7, 2011). The Notice
provided that the 2010 Interim Regulations would be
adopted as a “final rule, with minor changes.” Caraballo,
124 Fed. Cl. at 745; see Notice, 76 Fed. Reg. at 32859.
III
On April 20, 2012, Plaintiffs filed a Motion for Leave
to File Complaint for Breach of Settlement Agreement in
the United States District Court of the Virgin Islands.
Plaintiffs filed this motion with the district court as part
of Caraballo I because, in its final judgment, the district
CARABALLO v. US 7
court expressly retained jurisdiction to interpret and
enforce the Settlement Agreement. The district court
denied the Motion, however, because it already had
entered a final judgment. The district court ordered that
the case be closed on January 30, 2015.
Plaintiffs then filed suit in the Court of Federal
Claims designating Roberto Caraballo and Albert E.
Miller as the potential class representatives. Caraballo,
124 Fed. Cl. at 745. They brought the Complaint on
behalf of themselves, the class of individuals certified by
the district court in Caraballo I, and all other persons
within the definition of the Caraballo I class. Id. at 745–
46. The Complaint contained two counts: (1) breach of the
Settlement Agreement; and (2) breach of the express and
implied covenant of good faith and fair dealing. Id. at
746.
The government filed a Motion to Dismiss, pursuant
to Rules 12(b)(1) and 12(b)(6) of the Rules of the United
States Court of Federal Claims. Id. The government
moved to dismiss Plaintiffs’ claims on the grounds that
(1) the court lacked jurisdiction to hear Plaintiffs’ claims;
(2) Plaintiffs’ claims were barred under the doctrine of res
judicata; and (3) Plaintiffs’ claims failed to state a claim
upon which relief can be granted.
The Court of Federal Claims determined that, alt-
hough it had jurisdiction and res judicata did not bar it
from adjudicating Plaintiffs’ claims, the Complaint failed
to state a claim for breach of the Settlement Agreement
and failed to state a claim for breach of the duty of good
faith and fair dealing. The Court of Federal Claims
therefore granted the government’s Motion to Dismiss.
Id. at 754. Plaintiffs timely appealed.
We have jurisdiction over an appeal from a final deci-
sion of the Court of Federal Claims pursuant to 28 U.S.C.
§ 1295(a)(3).
8 CARABALLO v. US
DISCUSSION
I
Before reaching the merits of Plaintiffs’ appeal, we
must first address the government’s jurisdictional and res
judicata challenges to Plaintiffs’ claims. On appeal, the
government first challenges the Court of Federal Claims’
jurisdiction over the suit, contending that the Settlement
Agreement does not provide for monetary damages in the
event of the United States’ breach. We review de novo the
Court of Federal Claims’ decision that it possessed subject
matter jurisdiction over the Plaintiffs’ claim. Holmes v.
United States, 657 F.3d 1303, 1309 (Fed. Cir. 2011).
The Tucker Act establishes the Court of Federal
Claims’ jurisdiction, providing it with “jurisdiction to
render judgment upon any claim against the United
States founded either upon the Constitution, or any Act of
Congress or any regulation of an executive department, or
upon any express or implied contract with the United
States.” 28 U.S.C. § 1491(a)(1). While a plaintiff general-
ly must identify a money-mandating source of substantive
law to bring a claim under the Tucker Act, “in a contract
case, the money-mandating requirement for Tucker Act
jurisdiction normally is satisfied by the presumption that
money damages are available for breach of contract, with
no further inquiry being necessary.” Holmes, 657 F.3d at
1314. The existence of a contract, however, does not
necessarily mean that Tucker Act jurisdiction exists. Id.
“A contract expressly disavowing money damages would
not give rise to Tucker Act jurisdiction.” Id. The govern-
ment argues that the Court of Federal Claims did not
have jurisdiction over the claim because the Settlement
Agreement disavows money damages.
The Court of Federal Claims concluded that,
“[a]lthough the court interprets paragraph 11 as relieving
the Government from further monetary liability in the
Caraballo I litigation, paragraph 11 does not disavow
CARABALLO v. US 9
money damages for the Government’s breach of other
Settlement Agreement terms.” Caraballo, 124 Fed. Cl. at
748. We agree. Plaintiffs’ claim for breach of the Settle-
ment Agreement, if proven, provides for money damages
against the government. Although the Settlement
Agreement states that the government would “face[] no
further monetary liability in this case,” J.A. 64, the Court
of Federal Claims correctly held that this language ap-
plied only to the claims that the Settlement Agreement
resolved and not to breaches of the Settlement Agreement
itself. Thus, jurisdiction was proper in the Court of
Federal Claims pursuant to the Tucker Act. 2
The government also challenges the Court of Federal
Claims’ decision that the suit is not barred by res judica-
ta. Under the doctrine of res judicata, “[a] final judgment
on the merits of an action precludes the parties or their
privies from relitigating issues that were or could have
been raised in that action.” Federated Dep’t Stores, Inc. v.
2 The government argued before the district court
that that court also lacked jurisdiction over Plaintiffs’
breach of contract claim because Plaintiffs sought mone-
tary relief in excess of $10,000. United States’ Opposition
to Plaintiffs’ Rule 15 Motion at 6, Caraballo v. United
States, No. 97-0027 (D.V.I. June 5, 2012), ECF No. 131.
“Regrettably, this is not the first case in which the Gov-
ernment urged a district court to dismiss a case on the
ground that jurisdiction belonged in the Court of Federal
Claims and then, after suit was brought in the Court of
Federal Claims, again urged dismissal on the ground that
the Court of Federal Claims lacked jurisdiction.”
VanDesande v. United States, 673 F.3d 1342, 1351 (Fed.
Cir. 2012) (collecting cases). As we have previously noted,
such “shifting positions [lead] to an unnecessary waste of
money and judicial resources, and are manifestly unfair to
the litigant.” Id.
10 CARABALLO v. US
Moitie, 452 U.S. 394, 398 (1981). We review de novo the
court’s finding that a claim is not barred by res judicata.
Ammex, Inc. v. United States, 334 F.3d 1052, 1055 (Fed.
Cir. 2003).
The government argues that Plaintiffs’ claims should
be dismissed because they were barred by res judicata
based on the denial of Plaintiffs’ Motion to Amend in
Caraballo I. The government maintains, among other
things, that the district court’s denial of Plaintiffs’ Motion
to Amend constitutes a final judgment for res judicata
purposes. Denial of a motion to amend can only have res
judicata effect, however, when the proposed amended
claims are claims that could have been alleged when the
plaintiff filed the initial complaint. See, e.g., Legnani v.
Alitalia Linee Aeree Italiane, S.P.A., 400 F.3d 139, 143 (2d
Cir. 2005) (rejecting the argument that res judicata
applied to the denial of a motion to amend to add claims
arising entirely out of conduct postdating the filing of the
first action); Curtis v. Citibank, N.A., 226 F.3d 133, 139–
40 (2d Cir. 2000) (explaining that denial of a motion to
amend will not operate as a judgment on the merits for
claim preclusion purposes when the claims could not have
been brought in the initial complaint). Here, Plaintiffs
could not have raised their breach of settlement agree-
ment claims in Caraballo I before they entered into any
settlement agreement. Accordingly, we conclude that the
district court’s denial of Plaintiff’s Motion to Amend does
not have res judicata effect and, thus, Plaintiffs’ suit is
not barred by res judicata. We next turn to the merits of
Plaintiffs’ issues on appeal.
II
“Whether the Claims Court properly dismissed a
complaint for failure to state a claim upon which relief
could be granted is an issue of law which we review de
novo.” Dimare Fresh, Inc. v. United States, 808 F.3d
1301, 1306 (Fed. Cir. 2015) (quotation marks omitted).
CARABALLO v. US 11
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face.” Bell/Heery v. Unit-
ed States, 739 F.3d 1324, 1330 (Fed. Cir. 2014) (quotation
marks and citations omitted). “In deciding a motion to
dismiss, the court must accept well-pleaded factual alle-
gations as true and must draw all reasonable inferences
in favor of the claimant.” Id.
In their Complaint, Plaintiffs alleged two claims.
First, Plaintiffs alleged that the government breached the
express terms of the Settlement Agreement. Second,
Plaintiffs alleged that the government breached the
implied and express covenants of good faith and fair
dealing. The Court of Federal Claims dismissed both of
Plaintiffs’ claims for failing to state a claim upon which
relief could be granted. We address each in turn.
A
Plaintiffs allege that the government breached the
express terms of the Settlement Agreement. Specifically,
they allege that by enacting the Non-Foreign AREA Act
and its corresponding regulations, the government violat-
ed (1) Paragraphs 6 and 7 of the Settlement Agreement by
not consulting the SIC and the TAC; and (2) Paragraph
10.4.3 of the Settlement Agreement by not providing prior
notice to the class. On appeal, Plaintiffs argue that the
Court of Federal Claims erred in dismissing Plaintiffs’
breach of contract claim based on both alleged violations.
We disagree.
1
Plaintiffs first argue that the Court of Federal Claims
erred in dismissing Plaintiffs’ breach of contract claim
based on the government’s failure to consult with the SIC
and the TAC.
Paragraphs 6 and 7 of the Settlement Agreement pro-
vides, in relevant part:
12 CARABALLO v. US
Employee Involvement Structure. The develop-
ment, implementation, and revision of the New
Regulations, and the implementation of this set-
tlement in all other respects, shall be undertaken
and conducted by OPM in good faith in accordance
with the principles contained in Exhibit A and in
cooperation and consultation with the [SIC] and
with any other committees established under Safe
Harbor Principle 24 of Exhibit A [e.g., the TAC].
J.A. 57–58. Paragraph 4 defines the term “New Regula-
tions” as “final new COLA regulations.” J.A. 57. Plain-
tiffs argue that OPM violated this express provision of the
Settlement Agreement by not consulting with the SIC or
the TAC prior to the enactment of the Non-Foreign AREA
Act and its corresponding regulations. The government
concedes that OPM did not consult with either committee
but maintains that it was not required to do so under the
Settlement Agreement.
We conclude that based on the plain language of the
Settlement Agreement, OPM was not required to consult
the SIC or the TAC prior to the enactment of the Non-
Foreign AREA Act and its corresponding regulations.
The Settlement Agreement establishes that the “SIC[]
and the TAC will advise OPM as it prepares both its
proposed and final regulations” to implement the settle-
ment. J.A. 81. The Settlement Agreement continues that
[t]he SIC will continue to exist during the period
from the date OPM issues final regulations to im-
plement the settlement to the end of the first sur-
vey cycle in all COLA areas (i.e., during the first 3
years of implementation of the new regula-
tions). . . . Prior to each survey conducted in this
cycle, the SIC will review the plans and methodol-
ogy for the survey and provide to the appropriate
OPM management official(s) advice or comments.
Following each survey, the SIC will again meet to
CARABALLO v. US 13
review the analysis of the results of the COLA
surveys. . . . At the end of the second phase, the
SIC will dissolve.
Id. The agreement describes the role of the TAC as
follows: “A one to three member TAC will be established
to advise the SIC and the appropriate OPM management
official(s) during the First and Second Phases as needed
on economic and statistical issues relating to the COLA
program.” Id. The TAC also was set to dissolve at the
end of the Second Phase. Id.
It is clear that the Settlement Agreement established
the SIC and TAC to advise OPM on issues pertaining to
preparing the COLA regulations, determining COLA
rates, planning the COLA surveys, and analyzing the
results thereof. Once these activities were complete,
however, the committees were to be dissolved.
Plaintiffs argue that OPM changed the COLA rates by
way of the Non-Foreign AREA Act’s adoption of a yearly
reduction of the existing COLA rates to phase out COLA
payments over time. See 5 U.S.C. § 5941(c). It is this
yearly change to the COLA rate, without consulting the
SIC and TAC, Plaintiffs assert, that breached the Settle-
ment Agreement. We are not persuaded. In reality, the
Non-Foreign AREA Act functions to fix COLA at the 2009
COLA rates and reduce that rate by a pre-determined
amount each year in order to implement the locality pay
system to replace the COLA program. Id. § 5941(c)(2)(B)
(Each adjusted COLA rate “shall be computed by . . .
subtracting 65 percent of the applicable locality-based
comparability pay percentage” from the fixed 2009 COLA
rate.); see also Oral Argument 24:02–25:05 (THE COURT:
“[T]he 2009 COLA [is] the fixed number that had already
been determined, so it’s not as if there was a new deter-
mination of a COLA each year as you transition from the
old [COLA] system to the new [locality pay system]. Is
that right?” GOVERNMENT: “That is exactly right, your
14 CARABALLO v. US
honor.”). Thus, contrary to Plaintiffs’ contentions, the
COLA rates are not determined anew each year. The
Non-Foreign AREA Act and its corresponding regulations,
therefore, do not involve generating new COLA regula-
tions, determining COLA rates, or conducting COLA
surveys.
Further, Paragraph 4 of the Settlement Agreement
indicates that, at the time of the agreement, OPM was
expected to “undertake substantial revisions of the [then]
current regulations set forth at 5 C.F.R. Part 591, subpart
8, in order to conform them to the Safe Harbor Principles
set forth in Exhibit A.” J.A. 57. These revisions would
become the “final new COLA regulations,” i.e., the New
Regulations. Once “OPM issue[d these] final regulations
to implement the settlement,” J.A. 82, OPM’s obligations
under the Settlement Agreement with respect to generat-
ing new COLA regulations, including the obligation to
consult with SIC and TAC, were complete.
Thus, by neglecting to consult with these commit-
tees—which, under the Settlement Agreement, were to be
dissolved years prior—OPM did not breach the Settle-
ment Agreement. Indeed, the Non-Foreign AREA Act and
its corresponding regulations did not involve generating
new COLA regulations, determining COLA rates, or
conducting COLA surveys.
This is fully consistent with Paragraph 10.4.3 of the
Settlement Agreement, which does not require OPM to
consult with the committees in the process of deciding not
to be bound by the Conforming Methodology. The trial
court also recognized that: “[O]nce OPM provided notice
that it no longer intended to be bound by the Conforming
Methodology, OPM no longer needed to consult with the
SIC and/or TAC.” Caraballo, 124 Fed. Cl. at 754 n.10.
In sum, we conclude that, under the circumstances,
OPM was not required to consult the SIC or the TAC and,
CARABALLO v. US 15
thus, did not breach the Settlement Agreement by failing
to do so. 3
2
Plaintiffs also argue that the Court of Federal Claims
erred in dismissing Plaintiffs’ breach of contract claim
based on the government’s failure to give notice to the
class members that it no longer intended to be bound by
the Conforming Methodology. We disagree.
Paragraph 10.4.3 of the Settlement Agreement re-
quires the government to provide notice to the class before
it stops adhering to the Conforming Methodology. Specif-
ically, the Settlement Agreement requires that:
[i]f, at any time, OPM determines that it no longer
wishes to be bound by the Conforming Methodolo-
gy, it will publish notice to the class members of its
decision. OPM may then revise its regulations or
3 The Court of Federal Claims concluded, in part,
that the government’s failure to consult the SIC and/or
TAC was not a material breach as it did not go to the
“essence of the contract.” Caraballo, 124 Fed. Cl. at 753.
The court also concluded, however, that because the
breach was not material, it could not support a claim for
breach of contract. Id. This is incorrect. A breach need
not be material in order to support a claim for breach of
contract. See, e.g., Restatement (Second) of Contracts
§ 236 (1981) (“[E]very breach gives rise to a claim for
damages[.]”); id. § 241 (“Even if not material, the failure
may be a breach and give rise to a claim for damages for
partial breach.”). Of course, we may still affirm the Court
of Federal Claims’ judgment on this issue as we review
judgments, not opinions, and so we need not focus on the
methodology used by the Court of Federal Claims. Man-
gosoft, Inc. v. Oracle Corp., 525 F.3d 1327, 1330 (Fed. Cir.
2008).
16 CARABALLO v. US
set COLA rates in a manner that is not consistent
with the Conforming Methodology.
J.A. 63 (emphasis added).
Plaintiffs maintain that OPM breached the Settle-
ment Agreement because it did not provide class members
with notice before issuing new regulations that departed
from the Conforming Methodology. Plaintiffs also argue
that it was not sufficient for OPM to give notice to the
public at large or to Plaintiffs’ counsel, but that under
Paragraph 10.4.3, they were required to provide notice “to
the class members.”
We agree with the Court of Federal Claims and con-
clude that OPM did not act in violation of Paragraph
10.4.3 of the Settlement Agreement. Caraballo, 124 Fed.
Cl. at 752. OPM provided adequate notice to the class
members by publishing the 2010 Interim Regulations in
the Federal Register. See Higashi v. United States, 225
F.3d 1343, 1349 (Fed. Cir. 2000) (“The publication of rules
and regulations in the Federal Register gives legal notice
of their contents and those subject to, or affected by,
them, regardless of actual knowledge of what is in the
[r]egulations or of the hardship resulting from innocent
ignorance.” (internal quotation marks and citation omit-
ted)). Also, the November 26, 2010 comment submitted to
OPM by the Caraballo I class counsel evidences that
Plaintiffs received actual notice. Irwin v. Dep’t of Veter-
ans Affairs, 498 U.S. 92–93 (1990) (“Under our system of
representative litigation, each party is deemed bound by
the acts of his lawyer-agent and is considered to have
notice of all facts, notice of which can be charged upon the
attorney.” (internal quotation marks and citation omit-
ted)).
B
Plaintiffs also allege that the government breached
the implied and express covenants of good faith and fair
CARABALLO v. US 17
dealing by eliminating COLA through the passage of the
Non-Foreign AREA Act and its corresponding regulations
and by implementing the regulations without considering
the terms of the Settlement Agreement. On appeal,
Plaintiffs argue that the Court of Federal Claims erred in
dismissing Plaintiffs’ claim for breach of the covenant of
good faith and fair dealing. Again, we disagree with
Plaintiffs.
“‘Every contract imposes upon each party a duty of
good faith and fair dealing in its performance and en-
forcement.’” Metcalf Const. Co. v. United States, 742 F.3d
984, 990 (Fed. Cir. 2014) (quoting Restatement (Second)
of Contracts § 205 (1981)). This duty prevents a party
from acting in a way that is inconsistent with the con-
tract’s purpose and would deprive the other party of the
contemplated value. Id. at 991. That duty, however,
“‘cannot expand a party’s contractual duties beyond those
in the express contract or create duties inconsistent with
the contract’s provisions.’” Id. (quoting Precision Pine &
Timber, Inc. v. United States, 596 F.3d 817, 829 (Fed. Cir.
2010)). Thus, “an act will not be found to violate the
duty . . . if such a finding would be at odds with the terms
of the original bargain, whether by altering the contract’s
discernible allocation of risks and benefits or by conflict-
ing with a contract provision.” Id.
Plaintiffs maintain that their continued receipt of a
COLA payment was the underlying premise of the entire
Settlement Agreement. Plaintiffs argue that, while the
government could abandon the Conforming Methodology
if it complied with the procedure set forth in the Settle-
ment Agreement, the government did not have discretion
to eliminate COLA altogether. The government, for its
part, contends that the “original bargain” provided OPM
with the right to issue new compensation-related regula-
tions replacing COLA with a locality pay regime.
18 CARABALLO v. US
We agree with the Court of Federal Claims and con-
clude that Plaintiffs did not bargain for the COLA regula-
tory regime to be maintained in perpetuity. Caraballo,
124 Fed. Cl. at 753. Rather, they bargained for a one-
time lump-sum payment to satisfy backpay claims prior to
October 1, 1990 and for a Conforming Methodology that
OPM was “expected, but not required,” to follow when
determining COLA. Id.
It is clear from the language of the Settlement
Agreement that OPM was “not required” to promulgate
regulations consistent with the Conforming Methodology
in the first place, J.A. 60, and, even if it were, that OPM
could subsequently depart from the Conforming Method-
ology “at any time,” J.A. 63. Such a departure, of course,
logically includes eliminating COLA altogether. OPM’s
departure from the Conforming Methodology and enact-
ment of the new locality pay scheme, therefore, were not
inconsistent with the contract’s purpose nor did they
deprive Plaintiffs of the contemplated value of settlement.
Accordingly, OPM’s acts did not violate the duty of good
faith and fair dealing. A holding to the contrary would be
at odds with the terms of the original bargain. Id.
CONCLUSION
For the reasons set forth, we affirm the decision of the
Court of Federal Claims.
AFFIRMED