American Science and Engineering, Inc. v. Califano

Decision Date23 February 1978
Docket NumberNo. 77-1437,77-1437
Citation571 F.2d 58
Parties24 Cont.Cas.Fed. (CCH) 82,149 AMERICAN SCIENCE AND ENGINEERING, INC., Plaintiff, Appellee, v. Joseph A. CALIFANO, Jr., Secretary of the Department of Health, Education, and Welfare, et al., Defendants, Appellants.
CourtU.S. Court of Appeals — First Circuit

Robert S. Greenspan, Atty., App. Section, Civ. Div., Dept. of Justice, Washington, D. C., with whom Barbara Allen Babcock, Asst. Atty. Gen., Washington, D. C., Edward E. Harrington, U. S. Atty., Richard D. Glovsky, Asst. U. S. Atty., Boston, Mass., and William Kanter, Atty., App. Section, Civ. Div., Dept. of Justice, Washington, D. C., were on brief, for defendants, appellants.

Sylvia J. Cox, Boston, Mass., with whom Alvin S. Hochberg, Gregory J. Englund, Broude & Hochberg, Boston, Mass., and Charles Hieken, Waltham, Mass., were on brief, for plaintiff, appellee.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

COFFIN, Chief Judge.

The Department of Health, Education and Welfare (HEW) appeals an order of the district court preliminarily enjoining it from issuing to manufacturers other than plaintiff licenses to produce a device plaintiff developed under contract with HEW. At issue is whether the district court, or the Court of Claims, had jurisdiction to entertain the cause.

In June, 1975, plaintiff, a scientific research and development corporation, entered into a contract with HEW for the development of a computerized Tomographic X-ray scanner. 1 In exchange for funding plaintiff's work on the scanner, HEW received the exclusive authority to dispose of the device and any patents on it which might be obtained. Pursuant to a provision of the contract, after the scanner had been built, plaintiff petitioned HEW for an exclusive license to manufacture and sell it both in the United States and abroad. HEW's patent counsel instructed plaintiff by letter to apply for patents on the invention, with the understanding that HEW would retain the domestic patent rights regardless of whether the petition was granted. Foreign rights were to be assigned to plaintiff upon its request, after foreign patents had been sought. Plaintiff complied with the instructions and agency review of its petition commenced.

In a letter dated January 21, 1977, the then Assistant Secretary of Health, James F. Dickson, informed plaintiff that a determination had been made that the public interest would be served by granting plaintiff an exclusive license to the domestic rights for five years. 2 HEW waived its interest in the foreign rights. On January 28, 1977, plaintiff signed a license agreement prepared by the agency, endorsed Dickson's letter, and returned both to HEW. In reliance on the belief that it held both foreign and domestic rights to the scanner, plaintiff then expended considerable funds and manpower on marketing it.

HEW did not immediately return an executed copy of the license agreement to plaintiff, as had been promised in Dickson's letter. Instead, on April 7, 1977, it published in the Federal Register a notice of intent to grant plaintiff a license to the domestic rights for a period of five years. After public comments were received and additional review of plaintiff's petition was performed, on June 17, 1977, HEW countersigned the domestic license agreement, but unilaterally reduced the term from five to three years.

Shortly thereafter, a new Assistant Secretary, Julius B. Richmond, assumed office. In a letter dated July 21, 1977, Richmond revoked HEW's waiver of the foreign rights and cancelled the domestic license agreement on the ground that under the governing regulation, asserted to be 41 C.F.R. Sec. 1-9.107-3(a), the agency had not had authority to license plaintiff exclusively. While plaintiff engaged in a feverish campaign to persuade the agency to reverse itself, HEW granted seven non-exclusive worldwide licenses to other developers.

Plaintiff then brought a three count complaint in the district court alleging breach of contract and violations both of the 'applicable Regulations of HEW' and due process of law. It sought injunctive and declaratory relief as well as damages in the amount of $100,000,000. As alternative bases for jurisdiction plaintiff invoked 5 U.S.C. Sec. 701 et seq. (Administrative Procedure Act), 28 U.S.C. Sec. 1331 (federal question); 28 U.S.C. Sec. 1343 (civil rights) and 28 U.S.C. Sec. 1361 (mandamus). The district court entered a preliminary injunction, from which HEW now appeals.

Plaintiff recognizes that under the Tucker Act, the Court of Claims has jurisdiction over any action 'upon any express or implied contract with the United States, or for liquidated or unliquidated damages . . .' 28 U.S.C. Sec. 1491. It seeks to avoid being subjected to that jurisdiction, however, by asserting that the challenged grant of non-exclusive licenses to potential competitors is not an action arising on a contract. Rather, the dispute is characterized as an agency action 'ultra vires' of its authority, in violation of HEW's regulations and due process of law.

Plaintiff's arguments notwithstanding, it is clear that this is essentially a contract dispute. The focus of the complaint was the alleged abrogation of the exclusive domestic license agreement and HEW's waiver of the foreign rights, reduced to writing in the January 21, 1977 letter to plaintiff. While HEW's regulations and Fifth Amendment due process were invoked, resolution of those claims was peripheral to the core determination of whether a breach of contract had occurred. That is borne out by the relief plaintiff requested: enforcement of the agreements or monetary damages. 3 Had plaintiff's aim been rectification of an alleged due process deprivation, presumably it would have sought the hearing it claims to have been denied. It did not. Indeed, the district court recognized the contract nature of the dispute and that the remedy for it lay in the Court of Claims. Nevertheless, it enjoined HEW for the purpose of preserving the status quo until plaintiff could file an action in the Court of Claims.

The district court did not set forth the basis on which it asserted jurisdiction. It entered a temporary restraining order, then converted it into the preliminary injunction from which HEW now appeals, evidencing an intent to assert jurisdiction over the entire claim. It appears from the court's comments on the record, however, that it did not intend to entertain the whole case, but only to preserve the positions of the parties while plaintiff took its action to the Court of Claims. To our knowledge, plaintiff did not do so. In any event, were this the court's purpose, it was an exercise of power for which we find authority nowhere in the cases. Nor can it be found in logic. Since the Court of Claims would have been without power to enjoin a contract breach, in a case properly before it, see Glidden Co. v. Zdanok, 370 U.S. 530, 557, 82 S.Ct. 1459, 8 L.Ed.2d 671 (1962), the district court could not have granted that temporary relief pending assertion by the Court of Claims of its exclusive authority over contract disputes in excess of $10,000. See International Engineering Co., Division of A-T-O, Inc. v. Richardson, 167 U.S.App.D.C. 396, 400 n. 4, 512 F.2d 573, 577 n. 4 (1975). The district court would have had the power to enjoin HEW only if it had an independent jurisdictional basis for doing so. Compare id. 167 U.S.App.D.C. at 399 n. 3, 512 F.2d at 576 n. 3 with Virginia Petroleum Jobbers Ass'n v. FPC, 104 U.S.App.D.C. 106, 110, 259 F.2d 921, 925 (1958). As we demonstrate infra, such independent jurisdiction did not exist.

Faced with similar facts, other courts have consistently rejected attempts to cast a contract dispute in different terms so as to subject it to the jurisdiction of the district court. In International Engineering, supra, 167 U.S.App.D.C. at 396, 512 F.2d at 573, a contractor entered into an agreement with the United States Air Force to construct a model of a long-range missile system it had developed. Included in the contract was a surrender to the government of rights in the technical data. When a dispute later arose as to the extent of the rights, the contractor similarly brought it to the district court, characterizing it as 'arbitrary and capricious' agency action and not a complaint in contract. Reversing an order of the district court which enjoined the Air Force from eliminating restricted access to the data, the court of appeals concluded that because the claim that the Air Force had acted arbitrarily could not be resolved without reference to the contract, exclusive jurisdiction lay in the Court of Claims. See also Ove Gustavsson Contracting Co. v. Floete, 278 F.2d 912, 914 (2d Cir. 1960); Aktiebolaget Bofors v. United States, 90 U.S.App.D.C. 92, 95, 194 F.2d 145, 148 (1951).

Similarly, in Alabama Rural Fire Ins. Co. v. Naylor, 530 F.2d 1221 (5th Cir. 1976), the Secretary of the Farmers Home Administration (FmHA) entered into a contract with plaintiff whereby plaintiff would provide 'backup insurance' to applicants for FmHA loans who otherwise would have been unable to obtain the required coverage. When FmHA cancelled the contract on the grounds that the plaintiff had not had the authority to enter into it, plaintiff sued in the district court for injunctive and declaratory relief to prevent rescission of the contract, solicitation of other bids by FmHA, and disclosure of plaintiff's insurance plan, all on the grounds that the agency action had been 'ultra vires' of its authority. 4 Even though the plaintiff had not requested money damages, jurisdiction was held to lie in the Court of Claims. 'Irrespective of the terminology employed . . . the object of the instant suit is clearly to compel appellants [the agency] in their official capacities to specifically perform a contract.' Id. at 1225-26. See also Warner v. Cox, 487 F.2d 1301, 1304 (5th Cir. 1974)....

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