LORAL ELECTRONICS CORPORATION v. United States

• Decision Date: 15 December 1967
• Docket Number: No. 363-64.,363-64.
• Citation: 181 Ct. Cl. 822,387 F.2d 975
• Parties: LORAL ELECTRONICS CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

181 Ct. Cl. 822, 387 F.2d 975 (1967)

LORAL ELECTRONICS CORPORATION v. The UNITED STATES.

No. 363-64.

United States Court of Claims.

December 15, 1967.

Joseph Sachter, New York City, attorney of record, for plaintiff.

James A. Pemberton, Jr., Washington, D. C., with whom was Asst. Atty. Gen. Edwin L. Weisl, Jr., for defendant. John R. Franklin, 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

PER CURIAM:^*

The purpose of the present action is to obtain a review under the Wunderlich Act, 41 U.S.C. §§ 321, 322 (1964), of a decision that was rendered by the Armed Services Board of Contract Appeals on September 30, 1964. Loral Electronics Corp., 1964 BCA ¶ 4439 (1964) (No. 9174). The defendant has answered the allegations in the petition, the administrative record has been filed with the court, and both parties have filed motions for summary judgment.

The petition was filed on October 26, 1964. Three days later, the Armed Services Board of Contract Appeals amended its decision of September 30, 1964 so as to eliminate one aspect of the decision to which the plaintiff had objected in the petition. Consequently, it will not be necessary to discuss the phase of the original administrative decision that was subsequently eliminated from it.

No evidence outside the administrative record has been offered, received, or considered. The summary of the material facts set out in this opinion is based upon uncontradicted evidence found in the administrative record.

It is our opinion, upon reviewing the administrative decision of September 30, 1964, as amended, and the record upon which it was based, that the Armed Services Board of Contract Appeals committed error, and that the plaintiff is entitled to recover in the present action.

The plaintiff is a manufacturer of electronic equipment. During the plaintiff's fiscal years 1958, 1959, and 1960, it was engaged in the performance of five cost-plus-fixed-fee contracts with the defendant, involving the manufacture of electronic equipment by the plaintiff for the Department of the Navy. The several contracts contained figures for estimated costs that aggregated $4,113,521.55, and they prescribed fixed fees which were to be paid by the defendant to the plaintiff and which totaled $287,946.

Paragraph 3(a) of the general provisions of each contract stated as follows:

(a) The Government shall pay the Contractor the Allowable Cost of the performance of this contract determined in accordance with Part 2 of Section XV of the Armed Services Procurement Regulation and the Schedule, plus such fixed fee, if any, as may be provided for in the Schedule.

The provision quoted in the preceding paragraph incorporated in each contract by reference ASPR 15-201, which provided in part as follows:

The total cost of a cost-reimbursement type contract is the sum of the allowable direct costs incident to the performance of the contract, plus the properly allocable portion of allowable indirect costs * * *. The tests used in determining the allowability of costs also include (i) reasonableness, (ii) application of generally accepted accounting principles and practices * * *.

In the performance of the several cost-plus-fixed-fee contracts previously mentioned, the plaintiff occupied and utilized a building on a parcel of land located at 825 Bronx River Avenue in the Bronx section of New York City. In submitting its bills to the Department of the Navy for allowable costs incurred during the fiscal years 1958, 1959, and 1960, the plaintiff claimed for each year the sum of $82,621 as reimbursement for the annual rent paid in connection with the use of the premises just mentioned. A controversy arose between the plaintiff and the audit office which the Navy Department maintained at the plaintiff's plant over the allowability of the plaintiff's rental claims, whereupon the dispute was processed administratively under the identical "Disputes" provisions that were incorporated in the several contracts. The matter ultimately reached the Armed Services Board of Contract Appeals (acting for the Secretary of the Navy) on an appeal taken by the plaintiff from the action of a subordinate official in determining that the plaintiff's yearly claim for $82,621 was excessive to the extent of $34,441.35.

In the proceedings before the Armed Services Board of Contract Appeals, no question was raised by the Government regarding the actual payment by the plaintiff of $82,621 per year for the premises at 825 Bronx River Avenue, or regarding the actual use of these premises by the plaintiff in the performance of the cost-plus-fixed-fee contracts for the Navy Department. Furthermore, the Government conceded that $82,621 would represent a reasonable annual rent for such premises. However, the Government contended that the instruments under which the plaintiff occupied the property provided for the acquisition of the land and building by the plaintiff, and, accordingly, "that the cost reimbursement sought must be reduced to the amount representing the costs of ownership."

In its decision of September 30, 1964, as amended, the Armed Services Board of Contract Appeals held that the instruments under which the plaintiff occupied the premises at 825 Bronx River Avenue "were intended as an acquisition of realty by the appellant i. e., the present plaintiff," and, therefore, that the plaintiff was entitled to an allowance based upon the costs of ownership, but not to reimbursement for rental payments in the amount of $82,621 per year, as claimed by the plaintiff. The determination of the proper amount of the allowance was reserved for further proceedings.

Prior to 1956, the plaintiff had conducted its manufacturing operations in a building which was located on Bruckner Boulevard in the Bronx and which the plaintiff occupied under a lease. The City and State of New York were planning to build a new expressway on Bruckner Boulevard, and, in that connection, most of the property occupied by the plaintiff was condemned. The small area not affected by the condemnation was completely unusable in so far as the plaintiff was concerned. The plaintiff was compelled to look for other quarters, and one of its vice-presidents was designated to establish contacts with real estate brokers for the purpose of ascertaining what properties might be available for lease by the plaintiff. It became widely known that the plaintiff was looking for new premises to lease, and the plaintiff received letters and telephone calls from real estate brokers in New York City, from Chambers of Commerce in New Jersey, Connecticut, New York State, and some southern States, and from the governors of several States.

Among the persons approaching the plaintiff was Irving Feder, who indicated that he represented a group owning a parcel of vacant land located in the Bronx, and that this group would construct on the land, and lease to the plaintiff, a building that would meet the plaintiff's requirements. The group of persons represented by Mr. Feder utilized a corporation known as Herbco Realty Corporation and a partnership known as Rofe Associates, although the plaintiff was unaware, during the early negotiations with Mr. Feder, of the business entities through which Mr. Feder's group conducted their operations.

The plaintiff preferred to remain in the Bronx, but it had not been able to find any property there that was adequate for its purposes and available for lease. Accordingly, the plaintiff entered into serious negotiations with Mr. Feder. Leon Alpert, who was the plaintiff's president and chairman of the plaintiff's board of directors at the time, was the plaintiff's principal representative in the negotiations with Mr. Feder.

Mr. Alpert examined the vacant land suggested by Mr. Feder. This was the land previously referred to as being located at 825 Bronx River Avenue. It was sufficient in area to accommodate a building of the size needed by the plaintiff, and it otherwise seemed suitable for the sort of manufacturing done by the plaintiff, although it was filledin land within an area that had originally been wet and swampy.

Although Mr. Feder offered to provide the land and a suitable building at a rental figure that was generally favorable in comparison with other proposals that had been made to the plaintiff in connection with the possible leasing of buildings in the Bronx and elsewhere, Mr. Alpert did considerable bargaining with Mr. Feder over the rental figure, and was successful in obtaining from Mr. Feder a reduction in the original figure proposed by Mr. Feder. Mr. Alpert testified that Mr. Feder was anxious to make a deal with the plaintiff concerning the utilization of the vacant land; and in order to induce the plaintiff to enter into a lease agreement, Mr. Feder offered to grant the plaintiff an option to purchase the property during the life of the lease. The offer respecting the inclusion of an option agreement in the transaction appealed to Mr. Alpert as a means whereby the plaintiff could protect itself at the end of the primary term of the lease if the plaintiff should wish to use the property for a further period of time and if the lessor should demand a rent increase for an extension of the lease. Mr. Feder's proposal was accepted by Mr. Alpert on behalf of the plaintiff, and the necessary documents to formalize the understanding were prepared by the attorneys for the parties.

On January 26, 1956, Herbco Realty Corporation, as lessor, leased the land at 825 Bronx River Avenue to Rofe Associates, as lessee, for a term of 16½ years at a rental figure of $8,000 per year.

A lease agreement also was entered into on January 26, 1956 between Rofe Associates, as lessor, and the plaintiff, as lessee. This lease was for a term of 16½ years commencing June 1, 1957. The lease provided that the...