New York Mail & News. Transp. Co. v. United States

• Decision Date: 31 July 1957
• Docket Number: No. 162-54.,162-54.
• Citation: 154 F. Supp. 271
• Parties: NEW YORK MAIL AND NEWSPAPER TRANSPORTATION COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

154 F. Supp. 271

NEW YORK MAIL AND NEWSPAPER TRANSPORTATION COMPANY v. The UNITED STATES.

No. 162-54.

United States Court of Claims.

July 31, 1957.

William L. Broad, Syracuse, N. Y., for plaintiff. Mackenzie, Smith, Lewis, Michell & Hughes, Syracuse, N. Y., were on the briefs.

John B. Miller, Washington, D. C., with whom was Assistant Attorney General George Cochran Doub, for the defendant. Alfred J. Kovell, Washington, D. C., was on the brief.

Before LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges and Mr. Justice REED (retired), of the Supreme Court of the United States.

REED, Justice (sitting by designation).

The plaintiff, New York Mail and Newspaper Transportation Company, brought this suit in this Court on April 15, 1954, against the United States to recover damages for an alleged breach by the Government of a contract between the United States and plaintiff. Various items, some variable, enter into the total damages claimed aggregating around two million dollars. That contract was for the rental by the Government of pneumatic tubes on Route 507011-A, New York, New York, for the transmission of the mails from January 1, 1951, through December 31, 1960.

On December 29, 1953, defendant, having closed down this Pneumatic Tube Service during that December with notice thereof to plaintiff, advised plaintiff that it considered the contract "null and void." The notice added, "The purported contract if valid is hereby cancelled in the public interest." Plaintiff, on January 23, 1954, notified defendant that the contract was terminated for breach by the Government. The plaintiff had allowed until January 22, 1954, for defendant to consider plaintiff's position that the defendant had no legal right to terminate the contract. In the letter plaintiff explained that on termination of the contract, its employees would be scattered and its property values impaired. Defendant has not used the property since December 1953.

The contract dated December 29, 1950, continued arrangements between the United States and the owners of the pneumatic tube service that had existed, with some intermissions since about 1897. The provisions of law underlying the various contracts and their terms varied substantially.¹ The contract before the one here in question ran from January 1 to December 31, 1950. Like those immediately preceding it, this contract was on a lease or rental basis with the Government operating the tube system and the lessor bearing the cost of repair and maintenance.

In preparation for handling New York mail after 1950, the Post Office Department on April 24, 1950, advertised for proposals for furnishing a pneumatic tube system generally on the same rental basis as the existing contract. The pertinent provisions of the governing statutes at that time required for pneumatic tube contracts a preliminary investigation and a favorable report on the practicalities of such service. "Advertisements shall state in general terms only the requirements of the service" calculated to invite competitive bidding. They were to run for six weeks in not less than five newspapers. The contracts were to be subject to the postal laws and regulations relating to the letting of mail contracts. 39 U.S.C. (1946 ed.) ? 423, 39 U.S.C.A. ? 423. See finding 4.

Furthermore, 39 U.S.C. ? 429, 39 U.S. C.A. ? 429, directed:

"All contracts for carrying the mail shall be in the name of the United States and shall be awarded to the lowest responsible bidder tendering sufficient guaranties for faithful performance in accordance with the terms of the advertisement."

There is no contention that these requirements were not followed in the April 1950 advertisement for bids. However, plaintiff in its proposals to the United States in answer to the advertisement did not make its offer to contract in accordance with the terms of the advertisement. Instead, it submitted a proposal which specifically stated, "Conditions and requirements in your advertisement not specifically included in our proposal are intended to be excluded from our proposal." Finding 13.

Without detailing in extenso the variations between the invitation to bid and plaintiff's proposal and eventual contract, which appear in findings 12 to 23, inclusive, the conclusion is necessary that the variations were material. There was omitted the advertised requirement that the contract was to be subject to cancellation for failure of plaintiff to change the location of the system by reason of changes by the Government in the tube terminals, findings 12 and 14; that the Postmaster General might terminate the contract when the public interest might require, finding 12; and that the contractor should bear the expense of converting the system from DC to AC electricity, at a cost estimated between $125,000 and $350,000. Contract, variable costs, ? 2, Schedule A of contract, and finding 12. The cost turned out to be $214,870.13. Finding 32. Plaintiff's proposal and contract required the assumption of this cost with interest by the Government through amortization. Instead of a rate per annum for rent, as called for by the advertisement for bids, the contract makes the rental vary from year to year, depending upon operating and general expenses, e. g., operating taxes, wages, amortization of electrical conversion cost. There was a limit to bring total compensation within the statutory authority of the Department on cost. This method of payment appears to assure plaintiff a guaranteed net rental for the system, limited by the overall power of the Department to contract for pneumatic tube service. See Act of 1950, 64 Stat. 1118.

The Government's defense, in accordance with its notice, is two-fold?€”(1) that the contract is void because of its material departure from the terms of the advertised invitation to bid, and (2) that the cancellation "in the public interest" of the contract on December 29, 1953, by the Postmaster General was a valid exercise of a retained power under ? 97.67(b) of the Postal Laws and Regulations, Edition of 1948. As the second defense depends on a regulation that by its terms not only authorizes termination of a contract but settles all problems of damages, it should be considered first.

1. The section, at all times during the advertisement, negotiation and termination of this contract, read as follows:

"(b) The Postmaster General may discontinue or curtail the service on any mail route, in whole or in part, in order to place on the route superior service, or whenever the public interests, in his judgment, shall require such discontinuance or curtailment for any other cause. The contractor shall be allowed, as full indemnity, one month's extra pay, on the amount of service dispensed with and a pro rata compensation for the amount of service retained and continued.²"

The Government contends the section was made applicable to Service by Pneumatic Tubes by ? 95.2. "The general provisions relating to contract service, Part 97 of this chapter, shall apply, so far as pertinent, to the pneumatic-tube service." As reports to the Postmaster General before his discontinuance of the route showed by unchallenged evidence that an annual savings in postal operations of over $700,000 would be made by substituting trucks for the tube system, there was a substantial factual basis for the cancellation, if there was power in the Postmaster General to cancel. Power is the nub of this issue. The regulation, if applicable to this contract, could not, of course, validly be waived by the Postmaster General in this particular instance.³ Actually the contract right to cancel in the public interest called for by the advertisement was omitted from the contract. We do not speculate on the reason, for the contract was finally made pursuant to the authority of the Act of 1950. The section here applicable reads:

"Sec. 2. Contracts for the transmission of mail by pneumatic tubes or other mechanical devices shall be subject to the provisions of laws relating to the letting of mail contracts, except as otherwise provided in this Act. Advertisements shall state in general terms only the requirements of the service and shall be in the form best calculated to invite competitive bidding. The Postmaster General may reject any and all bids. No contract shall be awarded except to the lowest responsible bidder tendering full and sufficient guaranties to the satisfaction of the Postmaster General of his ability to perform satisfactory service." 64 Stat. 1118.

Section 97.67(b) does not appertain to a "letting of mail contracts" but to their "discontinuance." Although the phrase "letting of mail contracts" has appeared in the statutes relating to pneumatic tube operation since 1902 (32 Stat. 114), we do not think that the regulation, ? 97.67(b), should be read as authorizing the cancellation attempted in the notice of December 29, 1953. It is a harsh regulation when applied to a long term contract, requiring such a heavy investment by the other contracting party, largely useless for other activities. We recognize that the power retained by the Postmaster General to cancel a star route contract has been enforced by the Supreme Court in Garfielde v. United States, 3 Otto. 242, 93 U.S. 242, 23 L.Ed. 779. There the contractor's proposals followed the advertisement and "instructions attached," which contained a regulation authorizing discontinuance in the public interest. See also Slavens v. United States, 196 U.S. 229, 232, 25 S.Ct. 229, 49 L.Ed. 457, upholding the power to cancel a mail contract containing a clause providing for such a discontinuance as was attempted in the present case. The contract now under consideration did not contain such a clause. We would need more specific words than the uncertainty of ? 95.2, supra, that the "general provisions, relating to contract service, Part 97 * * * shall apply, so far as pertinent," to the tubes, to hold that ? 97.67(b) controlled this contract. The cancellation...