Bethlehem Steel Corporation v. Grace Line, Inc., 21050.

• Decision Date: 06 March 1969
• Docket Number: No. 21050.,21050.
• Citation: 135 US App. DC 81,416 F.2d 1096
• Parties: BETHLEHEM STEEL CORPORATION, and Bethlehem Steel Company, Appellants, v. GRACE LINE, INC., Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

135 US App. DC 81, 416 F.2d 1096 (1969)

BETHLEHEM STEEL CORPORATION, and Bethlehem Steel Company, Appellants, v. GRACE LINE, INC., Appellee.

No. 21050.

United States Court of Appeals District of Columbia Circuit.

Argued January 24, 1968.

Decided March 6, 1969.

Petition for Rehearing Denied April 24, 1969.

Mr. Ezekiel G. Stoddard, Washington, D. C., with whom Messrs. Max O. Truitt, Jr., and James Robertson, Washington, D. C., were on the brief, for appellants.

Mr. J. Alton Boyer, Washington, D. C., with whom Messrs. Odell Kominers and Michael Joseph, Washington, D. C., were on the brief, for appellee.

Before FAHY, Senior Circuit Judge, and McGOWAN and ROBINSON, Circuit Judges.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

Bethlehem Steel Company, an appellant,¹ entered into substantially identical contracts in which it agreed to build four ships for Grace Line, Inc., the appellee. The United States,² through the Federal Maritime Board, made this a tripartite venture by awarding Grace a construction-differential subsidy.³ The contracts required Bethlehem to construct the vessels in accordance with plans and specifications which, among many other things, designated the cubic capacities for each ship's refrigerated holds (reefers) for banana cargoes. The contracts also fixed staggered delivery dates which, however, were extendible to absorb delays beyond Bethlehem's control, and provided for liquidated damages for unexcused tardiness. The contracts further provided for predelivery inspections and trials, and for a guaranty period and a final guarantee survey after delivery.⁴ Additionally, a "disputes clause" in each contract required "any dispute arising under this contract" which the parties did not settle to be submitted to the Maritime Administration for resolution.⁵

During the course of and upon completion of performance, Grace questioned Bethlehem's compliance with certain of its contractual obligations. The initial disagreement arose from delays in deliveries of each of the four ships. Bethlehem asked the Maritime Administration to extend the contract delivery dates for the first three vessels on the ground that it had encountered obstacles beyond its control, and Grace opposed the requested extension. The questions in this regard remained pending before the Maritime Administration when the parties' difficulties reached court.⁶

As each completed ship was handed over to Grace, and again six months thereafter, Grace compiled and presented to Bethlehem and the Maritime Administration lists of alleged defects in material and workmanship. The lists included faulty sea valves and related equipment in the salt water system of each vessel, which Bethlehem thereafter undertook to rectify. Upon each transfer, Grace also noted "an open question" with respect to the cubic capacities of the banana reefers. After the final guarantee surveys of the delivered ships, the Maritime Administration's Survey Board, in each instance, disposed of Grace's statement of "open question" with the comment that it "does not consider this above statement to be a deficiency in workmanship or material as defined by Article 14 the guaranty clause of the subject contract."⁷ Grace subsequently informed Bethlehem that it had verified substantial space shortages in the banana holds in each vessel, from which sizeable losses of revenue to Grace were anticipated.

Grace later brought an action against Bethlehem⁸ in the District Court seeking damages for breach of contract resulting from the alleged banana reefer deficiencies, late deliveries and defective sea valves.⁹ Invoking the disputes clause,¹⁰ Bethlehem then requested the Maritime Administration to add to the pending contest over the belated deliveries the claims respecting the banana reefers and the sea valves. Grace, on the other hand, resisted administrative consideration of these problems insisting that the disputes clause was limited in operation to disputes "arising under" the contracts, and thus to those deferable to adjustment procedures afforded by the contracts, and that it did not apply to the breach of contract bids for damages.

Bethlehem thereafter filed a motion in the District Court to dismiss the counts incorporating the banana reefer and sea valve claims and three of the counts based on overdue deliveries,¹¹ without prejudice to their litigation after the completion of administrative proceedings thereon. As grounds for the motion, Bethlehem urged that the court lacked subject matter jurisdiction and that Grace had failed to exhaust the administrative remedies provided by the disputes clause. In opposition, Grace contended that the banana reefer issue was not subject to the disputes clause procedure. Grace added that it would not object to administrative consideration of the late delivery and sea valve questions, and urged that the suit as to them should be stayed, rather than dismissed, pending the outcome of such proceedings.¹² Bethlehem then modified its motion so as to request a stay, instead of a dismissal, of all three controversies pending their administrative resolution.

The District Court accepted the motion as an application for a stay. With Grace's acquiescence, it stayed the action as to the delayed delivery and sea valve counts, but denied a stay with respect to the banana reefer controversy. The court held that "as a matter of law" Grace's claims of undersized banana reefers "are not subject to the `disputes clause' of the contracts in suit or to administrative proceedings thereunder." This appeal by Bethlehem contests the validity of that ruling, and presents for our decision the question whether the disputes clause encompasses Grace's demand for damages on account of the asserted deficiencies in the banana reefers.¹³

I

In United States v. Utah Construction and Mining Company,¹⁴ the Supreme Court had occasion to delineate the scope of the fact-disputes clause constituting Article 15 of the standard government-wide construction contract. That clause requires "all disputes concerning questions of fact arising under this contract" to be submitted to the government's contracting officer, and provides that the officer's decision, subject to a departmental appeal, "shall be final and conclusive upon the parties thereo."¹⁵ In Utah Construction, a contractor who, by the standard contract, had undertaken the construction of a facility for the Atomic Energy Commission, subjected several demands to the administrative proceedings contemplated by Article 15. After adverse determinations, the contractor framed a breach of contract action in the Court of Claims against the Government predicated upon those demands. The Court of Claims construed Article 15 as confined to "disputes concerning questions of fact arising under this contract," meaning "a dispute over the rights of the parties given by the contract," and not "a dispute over a violation of the contract."¹⁶ In other cases, to which the Supreme Court in Utah Construction referred,¹⁷ the Court of Claims had held¹⁸ "that to the extent complete relief is available under a specific contract adjustment provision, * * * the controversy falls within the disputes clause,"¹⁹ but "that when only partial relief is available under the contract * * * the remedies under the contract are not exclusive and the contractor may secure damages in breach of contract if the Government's conduct has been unreasonable."²⁰

In the Supreme Court, the Government argued,²¹ as it had done previously in the Court of Claims, that "the disputes clause authorizes and compels administrative action in connection with all disputes arising between the parties in the course of completing the contract,"²² and that the clause "is not limited to those disputes arising under other provisions of the contract * * * that contemplate equitable adjustment in price and time upon the occurrence of the specified contingencies."²³ Alternatively, the Government urged "that even if it be accepted that the Boards of Contract Appeals are without jurisdiction to grant relief for breach of contract they are nevertheless authorized by the disputes clause to make binding findings of fact respecting all disputes."²⁴

The Supreme Court, however, rejected the Government's position and affirmed the Court of Claims' interpretation as to the breadth of the Article 15 disputes clause. It examined exhaustively the "uniform, continuous, and longstanding judicial and administrative construction of the disputes clause,"²⁵ and concluded that the test to be employed in distinguishing claims within the disputes clause procedure from those outside that procedure is whether the controversy is fully redressable under a provision of the contract other than the disputes clause itself.²⁶ It affirmed the Court of Claims' interpretation that "to the extent complete relief is available under a specific contract adjustment provision, * * the controversy falls within the disputes clause * * *."²⁷

And so it is now settled that the fact-disputes clause extends only to controversies redressable by specific provisions in the contract.²⁸ Stated differently, a fact-dispute is one "arising under this contract" only when the disputed fact is capable of complete resolution by a procedure specified in the contract. In consequence, claims which are adjustable under contractual provisions must be submitted for the administrative determinations prescribed by the contract, while claims for breach of contract — those not adjustable in that fashion — may be litigated in a court of competent jurisdiction without previous resort to that procedure.

II

In 1958, prior to execution of the contracts now before us, the Maritime Administration eliminated from its contract form the standard fact-disputes clause²⁹ and substituted therefor the version in suit.³⁰ There was added, as the first sentence, a specification that "any action, omission, direction, decision or determination of the Board, the Owner or...