325 F.3d 1328 (Fed. Cir. 2003), 01-1630, Rumsfeld v. Applied Companies, Inc.

Docket Nº:01-1630
Citation:325 F.3d 1328
Party Name:Donald H. Rumsfeld, SECRETARY OF DEFENSE, Appellant, v. APPLIED COMPANIES, INC., Appellee.
Case Date:April 02, 2003
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1328

325 F.3d 1328 (Fed. Cir. 2003)

Donald H. Rumsfeld, SECRETARY OF DEFENSE, Appellant,

v.

APPLIED COMPANIES, INC., Appellee.

No. 01-1630

United States Court of Appeals, Federal Circuit

April 2, 2003

Appealed from Armed Services Board of Contract Appeals

Page 1329

COUNSEL

Peter B. Jones, Jones & Donovan, of Newport Beach, California, argued for appellee.

David B. Stinson, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for appellant. With him on the brief were Robert D. McCallum, Jr., Assistant Attorney General; David M. Cohen, Director; and Deborah A. Bynum, Assistant Director. Of counsel on the brief was Donald Tracy, Trial Attorney, Defense Supply Center, Richmond, Defense Logistics Agency, of Richmond, Virginia.

Before SCHALL, DYK, and PROST, Circuit Judges.

Opinion for the Court filed by Circuit JudgeSCHALL. Opinion concurring-in-part and dissenting-in-part filed by Circuit JudgeDYK.

ON PETITION FOR PANEL REHEARING

ORDER

Applied Companies, Inc. (“Applied”) has petitioned for panel rehearing of the court’s December 10, 2002 decision. Rumsfeld v. Applied Companies, Inc., 318 F.3d 1317 (Fed. Cir. 2002) (“ Applied ”).

This suit arises out of a requirements contract between the Defense Logistics Agency (“DLA”), a component of the Department of Defense, and Applied. Under the contract, during the specified period, DLA was to purchase from Applied all of its requirements for two types of refrigerant storage cylinders. After DLA terminated the contract for the convenience of the government, Applied submitted termination settlement and breach of contract claims to the contracting officer. Among other things, Applied alleged that DLA Page 1330

had breached the contract by providing, in the request for proposals (“RFP”) furnished to prospective bidders, faulty estimates of the number of cylinders it would require during the contract period and then failing to inform bidders when it determined the estimates were inaccurate. Following the contracting officer’s denial of its claim for lost profits, Applied appealed to the Armed Services Board of Contract Appeals (“Board”) under the provisions of the Contract Disputes Act, 41 U.S.C. §§ 601-613. Id. at 1319.

Ruling on cross-motions for summary judgment, the Board concluded that DLA had breached the contract by negligently failing to inform Applied that the estimates in the RFP were inaccurate. Applied Cos., Inc., ASBCA Nos. 50,749, 50,896, and 51,662, 01-1 B.C.A. (CCH) ¶ 31,325, at 154,729 (Feb. 26, 2001). The Board also concluded that, during quantum proceedings, Applied could seek to recover the profits it had anticipated making on the total number of cylinders that DLA estimated in the RFP. Id. at 154,734. The Secretary of Defense (“government”) appealed the Board’s decision. In our December 10 decision, we affirmed the Board’s ruling that DLA had breached its contract with Applied. Applied, 318 F.3d at 1323. However, we also stated that, as a matter of law, Applied was not entitled to recover its anticipated profits. Id. at 1324.

In its petition for rehearing, Applied argues first that our decision contains a factual error. Specifically, Applied asserts that we incorrectly state that DLA purchased a total of approximately 11,500 cylinders under the contract. According to Applied, while DLA did order that number of cylinders, the contract was terminated before any deliveries were made. Applied’s second point is that our conclusion that Applied is not entitled to recover its anticipated profits is incorrect as a matter of law. In its response to the petition, the government states that “[t]he record below does not reflect—either way—whether, in fact, Applied delivered any items pursuant to the contract.” As far as Applied’s second point is concerned, the government urges that our decision is free of legal error.

Having considered Applied’s petition and the government’s response, we conclude that, to the extent our decision states in definitive terms that there were deliveries under the contract, the decision is factually incorrect. Accordingly,

IT IS ORDERED THAT:

(1) The Petition for Rehearing is granted for the limited purpose of correcting factual misstatements in the court’s decision issued on December 10, 2002. That decision is hereby withdrawn and the decision attached to this Order is substituted in its place.

(2) In all other respects, the Petition for Rehearing is denied.

OPINION

SCHALL, Circuit Judge.

This suit arises from a requirements contract between the Defense Logistics Agency ("DLA"), a component of the Department of Defense, and Applied Companies, Inc. ("Applied"). Under the contract, among other things, DLA was to purchase from Applied all of its requirements for two types of refrigerant storage cylinders during the period from June of 1994 through June of 1995, with an option year. In its request for proposals ("RFP"), DLA estimated its annual requirements for the two types of cylinders at 62,945 and 56,550 units, respectively. Prior to contract award, DLA determined that the estimates in the RFP were greatly overstated. However, this information was not communicated to any of the offerors, including Page 1331

Applied. Applied was awarded the contract, but after ordering only approximately 10% of the estimated quantity of cylinders, DLA terminated the contract for convenience on February 6, 1995.

Following the denial of its termination for convenience settlement proposal and a claim for breach of contract, Applied appealed to the Armed Services Board of Contract Appeals ("Board") under the provisions of the Contract Disputes Act, 41 U.S.C.§§ 601613 ("CDA"). Ruling on cross-motions for summary judgment, the Board concluded that DLA had breached the requirements contract by negligently failing to inform Applied that the estimates of its cylinder requirements in the RFP were inaccurate. Determination of the amount of damages was reserved for further proceedings. In re Applied Cos., Inc., ASBCA Nos. 50,749, 50,896, and 51,662, 01-1 B.C.A. (CCH) ¶ 31,325 (Feb. 26, 2001) (" Applied I "). DLA's subsequent motion for reconsideration was denied. In re Applied Cos., Inc., ASBCA Nos. 50,749, 50,896, and 51,662, 01-2 B.C.A. (CCH) ¶ 31,430 (May 21, 2001) (" Applied II "). The Secretary of Defense ("government") now appeals the Board's decision. Because the Board did not err in holding that DLA had breached its contract with Applied, we affirm.

BACKGROUND

I.

The pertinent facts, which are not in dispute, are set forth in Applied I. They are as follows:

The requirements contract stemmed from a procurement for cylinders to store R-12 and R-114 refrigerants, which are classified as "Class I Ozone Depleting Substances," or "ODSs." Applied I, 01-1 B.C.A. at 154,730. DLA, which was charged with building and maintaining a stockpile of ODSs for the Department of Defense, assessed the existing inventories of ODSs, the amount of ODSs likely to be used and recycled, and the amount of ODSs needed to ensure availability for mission critical uses. In June of 1993, based on its assessment, DLA developed estimates of the amount of R-12 and R-114 refrigerants that it needed to acquire and, by extension, the number of cylinders that would be required to store those refrigerants. Id. On July 14, 1993, DLA issued the RFP for the requirements contract. DLA estimated in the RFP that 62,945 cylinders would be needed for the storage of R-12 refrigerants and that 56,550 cylinders would be needed for the storage of R-114 refrigerants, for a total of approximately 120,000 cylinders during the one year term of the contract.1 Id. The RFP stated that the variation in actual quantity purchased would be "plus 03% minus 03%." The estimated quantities were the same for the option year. Id. On or about August 11, 1993, Applied, among others, responded to the RFP. Applied was the lowest responsive offeror.

In January of 1994, after initiating a pre-award survey, DLA determined that the reserve requirements for R-12 and R-114 refrigerants were considerably lower than previously believed. Id. at 154,731. As a result, DLA established that the number of R-12 and R-114 storage cylinders that would be needed during the upcoming year were 2,555 and 1,037, respectively. Id.

On June 20, 1994, DLA awarded the requirements contract to Applied, accepting its bid of $52.60 per cylinder. Id. In Page 1332

the notice of award, DLA repeated the estimates contained in the RFP. Under the contract, for the period June 20, 1994, to June 14, 1995, DLA was obligated to "order from the contractor all the [cylinders] that are required to be purchased by the Government." The contract also provided that the "quantities of [cylinders] specified in the schedule are estimates only and are not purchased by this contract." The contract incorporated various clauses from the Federal Acquisition Regulations ("FAR").

In August of 1994, DLA informed Applied—for the first time—that it had "discovered that a significant mistake was made in calculating the estimates." Id. In place of the erroneous estimates contained in both the RFP and the contract, DLA provided new estimates of the minimum and maximum quantities of R-12 and R-114 refrigerant cylinders actually purchased that it would require. Id. DLA eventually purchased a total of approximately 11,500 units of R-12 and R-114 cylinders, approximately one-tenth of the total quantity originally estimated. Id.

DLA sought to modify the contract to reflect the new estimates. Applied responded by submitting a revised price of $126.98 per unit for the approximately 11,500 cylinders...

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