Klein v. United States

Citation152 Ct. Cl. 8,285 F.2d 778
Decision Date07 April 1961
Docket NumberNo. 20-56.,20-56.
PartiesS. Harvey KLEIN, Assignee for the Benefit of Creditors of Beam Radionics Corp. v. UNITED STATES.
CourtCourt of Federal Claims

James H. Heller, Washington, D. C., for plaintiff. Abraham J. Harris and Sher, Oppenheimer & Harris, Washington, D. C., on the briefs.

John F. Wolf, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant.

MADDEN, Judge.

This is a suit for damages for the alleged wrongful termination by the Government of a contract between the Government and the plaintiff's assignor, Beam Radionics Corporation, hereinafter called Beam. The plaintiff is the assignee for the benefit of creditors of Beam. The Government's original answer denied liability, alleged that the plaintiff had failed to exhaust his administrative remedies, and counterclaimed for alleged overpayments to Beam. By amendment to its answer, filed by leave of court, the Government pleaded fraud on the part of Beam, and added two counterclaims for statutory penalties for fraud, one counterclaim relating to the contract in suit and the other relating to another contract which Beam had with the Government.

On June 27, 1951, Beam entered into a negotiated contract with the Army Corps of Engineers for the furnishing of 1,000 electric lighting sets at prescribed prices per set and with prescribed dates for beginning and completing deliveries. The total contract price was $1,675,000. This contract was known as contract 955. Before entering into contract 955 the Government had made an investigation of Beam's ability to perform. Beam had before that time undertaken and completed a dozen or more other military supply contracts.

Beam made subcontracts for the acquisition of the parts for the electric lighting sets. It planned to itself assemble, test, package and ship the completed sets. The rubber-insulated cable which was to be a part of each set had to meet rigid contract specifications for use at very low temperatures. The Government was to test the cable at its engineering and development laboratory at Fort Belvoir, Virginia. At the time contract 955 was made, no cable meeting the contract requirements had been produced, and the Government was aware of that fact. The United States Rubber Company had been conducting research in the development of rubber-insulated cables, including cables of the type needed for contract 955. The Government's officials had informed Beam that United States Rubber's cable came closest to meeting the contract specifications.

Before contract 955 was made, Beam had made another contract, No. 7939, with the Army Corps of Engineers for the furnishing of floodlighting sets which required a somewhat similar cable. For both contracts, Beam had subcontracted the production of the cable assemblies to Brad Harrison Co., and that company had subcontracted the production of the cable itself to United States Rubber. United States Rubber submitted samples of cables to the Corps of Engineers' testing laboratory at Fort Belvoir in August and October 1951. These samples were rejected by the laboratory. Although delivery of the lighting sets was to have commenced on November 20, 1951, and although by that date not even a sample of cable meeting the contract specifications had been produced, the Government on December 4, 1951, and thereafter until the latter part of February 1952 continued to issue change orders, to make plans for inspection of finished parts, and in other ways to show that it still expected and desired performance of the contract.

A new cable sample was prepared for testing in early February 1952. Just before it was submitted, Beam officials had a conference with Mr. Krauss, a representative of the Government's contracting officer. The purpose of the conference was the discussion of Beam's other contract, No. 7939, but Krauss also said he was considering terminating contract 955, or deleting the cable from the contract. Beam's representative said Beam would be happy to be relieved of the troublesome cable problem.

A cable sample had been submitted on February 9. It passed the test for contract 7939 but not the more rigorous test for contract 955. On February 26, a new sample was submitted. Krauss was aware of this submission. The tests were made, but Krauss made no effort to learn how the tests were progressing. The official laboratory report was not issued until the middle of May.

On April 1, 1952, the contracting officer notified Beam of the termination of contract 955

"pursuant to General Provision 11, Default. The reason for this action is your failure to make delivery of the sets as you were obligated to do under the terms of your contract."

The letter also said that it constituted findings of fact from which the contractor could appeal. Beam appealed on April 10, saying it was ready to proceed with the manufacture as soon as the cable submitted for testing had been approved.

On May 21 the contracting officer sent Beam another "Findings of Fact" which said, among other things:

"Contractor has failed to supply satisfactory cable within time when delivery schedule could possibly be met. No definite subcontracts were entered into for cable."

These findings further said that Beam's available space was inadequate for the timely assembling of the lighting sets, and that Beam's financing was not sufficient for the performance of the contract.

On June 4, 1952, Beam appealed the contracting officer's decision. The Armed Services Board of Contract Appeals held a hearing in May 1953 and on October 1 decided that the Government had no right to terminate contract 955 for default. The Board held that the Government had, by its conduct, waived compliance with the delivery dates prescribed in the contract; that the Government did not prove that Beam did not have sufficient space for the timely assembly of the lighting sets; and that Beam's financial position was not different at the time of cancellation than it had been when it was investigated before the award of the contract. The Board found that the cable sample submitted on February 26 complied with the specifications of the contract.

In the course of its discussion the Board said:

"Under the circumstances of this case, we are of the opinion that the proper remedy was that of termination for the convenience of the Government, if termination was desired."

On November 27, 1953, the contracting officer wrote Beam, referring to the decision of the Armed Services Board of Contract Appeals, and saying:

"In view of said decision the Government deems the above notice of default to have been issued pursuant to Clause 21 of the contract entitled, `Termination for the Convenience of the Government\', for the complete termination thereof, which became effective as of 3 April 1952, the date of the receipt of such notice by the contractor."

The contracting officer thereby sought, a year and a half after the event, to convert the April 1, 1952, termination for default into an April 1, 1952, termination "in the best interests of the Government," commonly called "termination for the convenience of the Government." If that was effectively done, it would mean that the Government's action was not wrongful, because the contract expressly granted the Government the right to so terminate under certain conditions. And it would mean that the Government's contractual liability to Beam would be limited to the items of compensation named in that provision of the contract (see finding 2, contract article 21(e) and (f)), and the liability would, in this and in most cases, be small.

The plaintiff, in response to the contracting officer, asserted, and in this suit asserts, that the Government did not terminate the contract for convenience, but breached it and is liable for the damages resulting from the breach.

On April 19, 1955, the Government advised Beam that it would proceed to make a unilateral determination of its liability to Beam under the contract provisions relating to termination for convenience. It did not make such a unilateral determination. On September 13, 1955, Beam assigned its assets to the plaintiff for the benefit of its creditors. On January 17, 1956, the plaintiff filed the instant suit.

The Government asserts, in bar of the entire claim, that Beam forfeited its rights under its contract, by corruptly practicing or attempting to practice a fraud against the United States in connection with the contract in suit. The statute relied on is 28 U.S.C. § 2514, which provides:

"A claim against the United States shall be forfeited to the United States by any person who corruptly practices or attempts to practice any fraud against the United States in the proof, statement, establishment, or allowance thereof.
"In such cases the Court of Claims shall specifically find such fraud or attempt and render judgment of forfeiture."

The asserted fraudulent conduct was Beam's presentation of requests for and receipt of certain partial payments during the course of the contract. The Government also bases its second counterclaim, for penalties under 41 U.S.C.A. § 119, upon these allegedly fraudulent transactions.

Beam had made a subcontract with The Branchell Co. for the production of parts for the lighting sets. Branchell was to acquire and use, and Beam was to pay for and own, the mold, tools and fixtures needed to produce these parts. Branchell sent Beam a bill for the tools and Beam requested and received a partial payment of 75 percent on the amount of Branchell's bill. At the time it received the partial payment Beam had not paid the Branchell bill. Beam also made a subcontract with Shepard Engineering Co. providing that Shepard would produce parts for the lighting sets, and would manufacture tools to make the parts. This subcontract provided that the tools were not to become the property of Beam until completion of the contract. Shepard billed...

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  • Linan-Faye Const. Co., Inc. v. Housing Authority of City of Camden
    • United States
    • U.S. Court of Appeals — Third Circuit
    • March 13, 1995
    ...did not permit government agencies to use the termination for convenience clauses to escape from a breach. In Klein v. United States, 285 F.2d 778, 152 Ct.Cl. 8 (1961), for example, the Court of Claims rejected the government's argument that, because it had a contractual right to terminate ......
  • US v. Hercules, Inc.
    • United States
    • U.S. District Court — District of Utah
    • May 24, 1996
    ...housing, we have defined willful to mean `conscious that what he was doing was unlawful.' 265 F.2d p. 403. In Klein v. United States, 285 F.2d 778, 152 Ct.Cl. 8 (1961) the court, construing the 1943 FCA and referring to "anyone knowingly making a false claim...." said the "evidence of fraud......
  • Acme Process Equipment Co. v. United States
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    • June 11, 1965
    ...thereby leaving the contractor wholly uncompensated, it must have proper justification for such harsh consequences. Klein v. United States, 285 F.2d 778, 152 Ct.Cl. 8 (1961); Nesbitt v. United States, Ct.Cl., 345 F.2d 583, fn. 2, decided May 14, II. PLAINTIFF'S DAMAGES A. GENERAL STANDARD H......
  • Brown v. United States
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    • January 9, 1976
    ...385 U.S. 138, 87 S.Ct. 350, 17 L.Ed.2d 249 (1966), reh. denied, 385 U.S. 1032, 87 S.Ct. 738, 17 L.Ed.2d 680 (1967); Klein v. United States, 285 F.2d 778, 152 Ct.Cl. 8 (1961); Wagner Iron Works v. United States, 174 F.Supp. 956, 146 Ct.Cl. 334 (1959); Little v. United States, 152 F.Supp. 84,......
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1 books & journal articles
  • Management of Contract Terminations from Multiple Perspectives
    • United States
    • ABA General Library The Construction Lawyer No. 42-1, January 2022
    • January 1, 2022
    ...What Happens if You are Wrong? , the am. coLLege of conStrUction LawyerS J., 13 No. 1 ACCLJ 4 (Winter 2019). 20 Klein v. U.S., 152 Ct. Cl. 8, 285 F.2d 778 (1961). 21 Goldswasser v. U.S., 163 Ct. Cl. 450, 325 F.2d 722 (1963). 22 Roof Systems, Inc. v. Johns Manville Corp ., 130 S.W.3d 430 (Te......

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