LOCKHEED AIRCRAFT CORPORATION v. United States

• Decision Date: 15 May 1970
• Docket Number: No. 46-65.,46-65.
• Citation: 426 F.2d 322,192 Ct. Cl. 36
• Parties: LOCKHEED AIRCRAFT CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

192 Ct. Cl. 36, 426 F.2d 322 (1970)

LOCKHEED AIRCRAFT CORPORATION v. The UNITED STATES.

No. 46-65.

United States Court of Claims.

May 15, 1970.

Numa L. Smith, Jr., Washington, D. C., attorney of record, for plaintiff. Charles D. Woodruff, Burbank, Cal., Clarence T. Kipps, Jr., and Miller & Chevalier, Washington, D. C., of counsel.

M. Morton Weinstein, Washington, D. C., with whom was Asst. Atty. Gen. William D. Ruckelshaus, for defendant. Steven L. Cohen, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

ON PLAINTIFF'S MOTION AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

DAVIS, Judge.

This is a follow-up of Lockheed Aircraft Corp. v. United States, 375 F.2d 786, 179 Ct.Cl. 545 (1967). As recited in that opinion, the Government and Lockheed entered into three fixed-price incentive contracts¹ for the production of a number of F-104 aircraft: Contract AF-27378 in 1954 and contracts AF-33700 and AF-33701 in 1956. The work was done in plaintiff's California plants, and certain political subdivisions of that state levied personal property taxes on Lockheed's non-government inventory and material. Prior to 1959, the Government administratively recognized, as allowable overhead cost, its pro rata share of these California personal property taxes on commercial, non-government material and work-in-process inventories, paid by Lockheed. In January of that year, however, for reasons discussed in our prior decision, the Government determined that it would no longer be responsible for such expenses, and informed the contractor that, while it would pay this cost through 1957, the Air Force's policy was to disallow this particular item as a cost in Government contracts after 1957. Lockheed protested vigorously, and both sides haggled over the effect of the new Air Force policy on the pre-existing 1954 and 1956 contracts. That controversy was settled by our 1967 decision in favor of the contractor.

After this dispute over the state taxes had erupted, Lockheed and the Air Force also entered into a new agreement for further production of the same plane. This is the pact involved in the present case. It began with a letter contract (AF-39027) in March 1959, and the parties then carried on negotiations over the target price for this new agreement. Following the freshly announced policy, the Air Force refused to acknowledge the personal property taxes as costs, but ultimately acquiesced in Lockheed's request to include the following clause in the formal contract, which was signed late in 1959 but made effective as of July 10, 1959:

Excluded from the target cost and target price of this contract are Personal Property Taxes arising as a result of the inclusion of Contractor\'s commercial productive material inventories and commercial work in process in the tax assessment base in the estimated amount of $183,643.00, as determined in accordance with the Contractor\'s established accounting practices and procedures. The Government and the Contractor have failed to agree on recognition of this item of cost and the Contractor reserves the right to demand and receive promptly a written determination under the Disputes Clause of the contract with respect to the disallowance of this item provided he makes such demand by notice in writing to the Contracting Officer within thirty (30) days after receipt of an executed copy of this contract, or at such later date as the Contracting Officer and the Contractor may agree upon. In the event the Contracting Officer determines that these excluded costs are allowable, the contract target cost and target price shall be adjusted accordingly.

Under this provision, plaintiff appealed to the Armed Services Board of Contract Appeals from the refusal to recognize the taxes as allowable costs under this contract. The appeal was later dismissed by the Board upon the parties' agreement.²

Performance on Contract AF-39027 (the one now before us) was completed in 1960. In 1963, Lockheed and the Air Force negotiated the final price on this contract, concurring in all costs with the exception of the state taxes. Acceding again to Lockheed's request, the contracting officer included another savings clause in the supplemental agreement to the contract, re-emphasizing the difference of opinion over the allowability of the personal property taxes.³

Lockheed then brought this action to test its right to inclusion of the disputed taxes under Contract AF-39027. Both contestants have moved for summary judgment on the basis of a stipulation giving us the essential facts as to the parties' positions and the history of their negotiations. It is common ground that the plaintiff has exhausted all administrative remedies and that the suit is ripe for disposition.

The first thing to note is that each party has, all along, firmly maintained its separate stance on the allowability of these taxes under Contract AF-39027. In the discussions on the target costs and prices, in May and June 1959, the Air Force, through the Air Materiel Command, refused to recognize the taxes, and Lockheed insisted on them. In July 1959, Lockheed asked the Secretary of the Air Force to overturn the Air Materiel Command's treatment of the item. In October 1959 this request was officially rejected by the Assistant Secretary (Philip B. Taylor) with responsibility for procurement decisions at the highest level. After the contract was formally signed and approved in December 1959, the contractor again requested inclusion and the contracting officer again refused. As already pointed out, Lockheed appealed to the ASBCA, and it made other efforts to persuade the Air Force to change its mind. The controversy continued through the negotiation, in 1963, of final costs and prices on this contract. The two savings clauses set out above — one toward the beginning of the negotiations and the other at the end — demonstrate (and formally acknowledge) this consistent difference of opinion, never resolved by the parties.

In another era, a court might have held, in this situation, that the entire contract failed because the parties at no time meshed their positions on the point at issue, subjectively or objectively, but instead left an appreciable gap. Neither side makes that contention here. On the contrary, plaintiff argues that the Government is bound by the entire agreement, including the savings clauses, while the defendant maintains that Lockheed is tied by a contract signed with the knowledge that the Air Force would not pay the tax costs. The personal property taxes for which Lockheed seeks reimbursement are relatively small ($130,999.10) in comparison to the multimillion dollar price of the whole agreement. The problem is essentially peripheral; it does not go to the heart of the agreement or the undertaking. At the same time, as our prior opinion shows, the court is not left wholly at large in resolving it. The general terms and framework of the contract supply a sufficiently articulated design from which to fill in the break. The parties foresaw this possibility. The savings clause in the original contract specifically envisages a resolution of the issue through the "disputes" mechanism. In these circumstances, the persistent preservation of disagreement on the particular item is not enough to void the contract as a whole, or to render it unenforceable. See Purvis v. United States, 344 F.2d 867, 869-870 (C.A. 9, 1965); Beech Aircraft Corp. v. Ross, 155 F.2d 615, 617 (C.A. 10, 1946). The issue must therefore be determined under and within the formal contract.

The answer under the contract has already been prima facie indicated in Lockheed I, supra, 375 F.2d 786, 179 Ct.Cl. 545. The parties have stipulated that the target and final pricing provisions in the fixed-price incentive contracts entered into by the Air Force and Lockheed during the period 1950 through 1959 vary somewhat in language, but in substance and in all respects pertinent to the current dispute are the same as those in the contracts adjudicated in our prior opinion. That decision was specifically made as one of law, on the basis of the contract structure and terms, and not rested on "plaintiff's alternative theory that the parties intended at the time of formation of the earlier contracts to allow these costs." 375 F.2d at 790-791, 179 Ct.Cl. at 553; see also id. at 567, 375 F. 2d at 799.⁴ The defendant expressly disavows any argument that Lockheed I was legally wrong. The ASBCA has followed our decision. The Boeing Co., ASBCA No. 11866, 69-2 BCA para. 7898 (1969). Under the doctrine of collateral estoppel, the defendant may not contend now that, in the absence of any relevant new facts or circumstances, the holding between the parties on the same issue previously determined by this court should be rejected. Ashe v. Swenson, 397 U.S. 436, 90 S.Ct. 1189, 25 L. Ed.2d 469 (1970); Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597-598, 68 S.Ct. 715, 92 L.Ed. 898 (1948); Southern Pacific R.R. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 42 L.Ed. 355 (1897). Even apart from collateral estoppel, we would follow the prior ruling as a precedent — if there is no significant change in the law or the circumstances — since the Government does not challenge its correctness.

The Government does urge, however, that there are important new external factors setting this 1959 contract (AF-39027) apart from the 1954 and 1956 agreements before us in Lockheed I. The principal ground is that the manufacturer accepted this later contract — which was not finally signed until December 1959 — after the defendant had revealed its intention to disallow these precise costs, and, in particular, after the Air Force had made it absolutely clear in Assistant Secretary Taylor's letter of October 26, 1959, that the disputed item would be categorically rejected. Defendant invokes the rule that if one party enters into an...