386 U.S. 503 (1967), 371, Crown Coat Front Co., Inc. v. United States

Docket Nº:No. 371
Citation:386 U.S. 503, 87 S.Ct. 1177, 18 L.Ed.2d 256
Party Name:Crown Coat Front Co., Inc. v. United States
Case Date:April 10, 1967
Court:United States Supreme Court
 
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Page 503

386 U.S. 503 (1967)

87 S.Ct. 1177, 18 L.Ed.2d 256

Crown Coat Front Co., Inc.

v.

United States

No. 371

United States Supreme Court

April 10, 1967

Argued February 13-14, 1967

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

Petitioner, in May, 1956, agreed to furnish canteen covers to the United States under a contract containing a standard "disputes" clause requiring the contracting officer to decide "any dispute concerning a question of fact arising under [the] contract," and providing for appeal to the department head or his representative, whose decision was to be final unless judicially determined to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessarily to imply bad faith. The Government later tested material samples and rejected them as not meeting contract specifications. Petitioner agreed to a price reduction, and completed the contract in December, 1956. In March, 1959, petitioner allegedly first learned the nature of the Government's tests, and, in October, 1961, demanded an equitable adjustment in the contract price, asserting in the claim filed with the contracting officer that the tests constituted a change in contract specifications. In February, 1963, the board of contract appeals affirmed the contracting officer's rejection of the claim. About five months later, petitioner sued in the District Court on its claim, alleging that the board's decision was capricious, arbitrary, and not supported by substantial evidence. The District Court, without deciding whether the claim arose under the contract within the meaning of the disputes clause, upheld the Government's contention that the cause of action accrued when performance of the contract was completed, and was thus foreclosed by 28 U.S.C. § 2401(a), which bars a civil action against the United States unless the complaint is filed within six years "after the right of action first accrues." The Court of Appeals affirmed.

Held:

1. When administrative proceedings with respect to a contractor's claim subject to the disputes clause in a government contract extend beyond the completion of the contract, his right of action "first accrues" within the meaning of 28 U.S.C. § 2401(a) when the administrative action is final, and not before. Nager Electric Co., Inc. v. United States, 177 Ct.Cl. 234, 368 F.2d 847, followed. Pp. 510-522.

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(a) The "civil action" referred to in § 2401(a) is a civil action in a court of competent jurisdiction. P. 510.

(b) With respect to claims arising under the disputes clause of a government contract, the contractor has, in effect, agreed to convert what might otherwise be claims for breach of contract into claims for equitable adjustment. P. 511.

(c) Adjustment of such claims, as provided in the contract, must be made by the contracting officer subject to appeal to the department head or his representative, here, the board of contract appeals, and not until that board has acted is the contractor's claim subject to court adjudication. P. 511.

(d) The contractor must seek the relief provided for under the contract or be barred from any relief in the courts. P. 512.

(e) The court review, which is not de novo, is focused upon the validity of the administrative decision, pending the making of which the contractor cannot know what his justiciable claim is. Pp. 512-514.

(f) To hold that the six-year limitation period runs from the contract completion date, as the Government urges, would deprive the contractor of judicial review where administrative proceedings extend more than six years beyond that date, a result which would conflict with the policy underlying the Wunderlich Act. P. 514.

(g) Determination of when a "cause of action" first "accrues" must be made with regard to the practical ends to be served by statutes of limitations. McMahon v. United States, 342 U.S. 25, and other cases not involving the Tucker Act, distinguished. Pp. 516-519.

(h) In enacting a general statute limiting suits by the Government to those which are brought within

six years after the right of action accrues or within one year after final decisions . . . in applicable administrative proceedings required by contract or by law

(28 U.S.C. § 2415), Congress manifested no intention to construe § 2401, which governs a private litigant's right to sue the Government. Pp. 519-522.

2. The determination of whether petitioner's claim arose under the contract or involved a breach of contract claim, which accrued no later than the contract completion date, will be open on remand to the District Court. P. 522.

363 F.2d 407, reversed and remanded.

Page 505

WHITE, J., lead opinion

MR. JUSTICE WHITE delivered the opinion of the Court.

The standard disputes clause in government contracts requires that "any dispute concerning a question of fact [87 S.Ct. 1179] arising under this contract," not disposed of by agreement, shall be decided by the contracting officer, with the right of appeal within 30 days to the department head or his representative (normally a board of contract appeals), whose decision shall be final

unless determined by a court of competent jurisdiction to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessarily to imply bad faith.1

The "arising under" claims

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subject to final administrative determination are those claims asserted under other clauses of the contract calling for equitable adjustment of the purchase price or extensions of time upon the occurrence of certain events.2 One of these clauses is the so-called "changes" clause, which permits the contracting officer to make changes within the scope of the contract, provides that, if any change causes an increase or decrease in the cost of, or the time required for the performance of, the work, "an equitable adjustment shall be made in the contract price or delivery schedule," and states that failure to agree upon an adjustment shall be a question of fact within the meaning of the disputes clause.3

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[87 S.Ct. 1180] This case involves a claim for an equitable adjustment, asserted under the changes clause and rejected by the contracting officer and the Armed Services Board of Contract Appeals. The contractor brought suit in the District Court under 28 U.S.C. 13464 alleging that the decision of the Board was arbitrary, capricious and not supported by substantial evidence. The District Court dismissed the case as barred by 28 U.S.C. § 2401(a), which provides that

Every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues. . . .

The principal question here is whether the "right of action" with respect to a claim within the disputes clause first accrues at the time of the final administrative action or at an earlier date.

The facts are quite simple. On May 14, 1956, petitioner contracted with the United States to furnish a specified number of canteen covers which were to be

Page 508

lined with mildew-resistant felt of certain specifications. The Government, which was authorized to inspect materials to be used under the contract, tested and rejected certain samples of felt purchased by petitioner because they allegedly did not contain the contract quantities of mildew inhibitors. Petitioner agreed to a price reduction, however, and was permitted to complete the contract. Final delivery, originally scheduled for October 11, 1956, was made on December 14, 1966. Allegedly, in March, 1959, petitioner first discovered the nature of the tests which the United States had performed on the felt. Claiming that the use of such tests was not within the contemplation of the contract and constituted a change in contract specifications, petitioner filed a claim with the contracting officer in October, 1961, demanding an equitable adjustment in the contract price in the form of a refund of the price reduction and compensation for increased costs occasioned by substantial delay resulting from the Government's rejection of the felt samples. The contracting officer denied the claim. On February 28, 1963, the Board of Contract Appeals affirmed the contracting officer's decision. On July 31, 1963, more than six years after petitioner had completed performance of the contract, petitioner brought suit in the District Court alleging that the Board's decision was capricious, arbitrary, and not supported by substantial evidence, and that it was entitled to an equitable adjustment as provided in the contract. The United States, among other things, denied that the claim was within the disputes clause, and asserted that the suit was time-barred by § 2401(a). Without deciding whether the claim arose under the contract within the meaning of the disputes clause, the District Court dismissed the suit as barred by the statute of limitations. The Court of Appeals, sitting en banc, affirmed in a five-to-four decision. 363 F.2d 407. Relying on McMahon v. United States, 342 U.S. 25, and its own

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decision in States Marine Corp. of Delaware v. United States, 283 F.2d 776, which arose under the Suits in Admiralty Act, the majority below concluded that the right of action first accrued no later than December 14, 1956, the date of the [87 S.Ct. 1181] final delivery of the disputed canteen covers, and was therefore time-barred by § 2401(a). The court disagreed with the decision of the Court of Appeals for the Third Circuit in Northern Metal Co. v. United States, 350 F.2d 833, which, like States Marine, supra, involved the Suits in Admiralty Act. 41 Stat. 525, as amended. The Court of Appeals for the Third Circuit had agreed with States Marine as to when the time bar...

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