Murdock Mach. and Engineering Co. of Utah, In re, 92-4022

• Decision Date: 06 April 1993
• Docket Number: No. 92-4022,92-4022
• Citation: 990 F.2d 567
• Parties: Bankr. L. Rep. P 75,218 In re MURDOCK MACHINE AND ENGINEERING COMPANY OF UTAH, Bankrupt. UNITED STATES of America, Appellant, v. Logan A. BAGLEY, Trustee, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 567

990 F.2d 567

Bankr. L. Rep. P 75,218

In re MURDOCK MACHINE AND ENGINEERING COMPANY OF UTAH, Bankrupt.

UNITED STATES of America, Appellant, v. Logan A. BAGLEY, Trustee, Appellee.

No. 92-4022.

United States Court of Appeals, Tenth Circuit.

April 6, 1993.

Katherine S. Gruenheck, Atty., Civ. Div. (Stuart M. Gerson, Asst. Atty. Gen., David J. Jordan, U.S. Atty., Barbara C. Biddle and Bernard J. McKay, Attys., Civ. Div., with her on the brief), Dept. of Justice, Washington, DC, for appellant.

Robert H. Koehler of Patton, Boggs & Blow (James B. Lee, Craig B. Terry, and E. Russell Vetter of Parsons, Behle & Latimer, Salt Lake City, UT, and Jonathan S. Baker, of Patton, Boggs & Blow, with him on the brief), Washington, DC, for appellee.

Before LOGAN and TACHA, Circuit Judges, and CAUTHRON, District Judge. ^*

LOGAN, Circuit Judge.

The United States appeals the district court's affirmance of the bankruptcy court's grant of summary judgment in favor of appellee Logan Bagley, trustee in bankruptcy for Murdock Machine and Engineering Co. of Utah (Murdock). The issues on appeal are whether the district court erred in not deferring to the Armed Services Board of Contract Appeals (ASBCA) for resolution of claims disputes relating to government contracts that apparently comprise the only asset and unresolved liabilities of Murdock in this long-standing bankruptcy case, and, if deferral was unnecessary, whether the court erroneously denied the government's claims against the bankruptcy estate. We must also consider the effect of an ASBCA decision issued after this appeal was briefed.

I

This dispute arises out of a government contract issued in 1971 to Murdock by the Navy for construction of anti-submarine rocket launchers (the ASROC contract). The contract was originally awarded as a fixed-price contract, but Murdock encountered serious financial difficulties almost immediately and asked the Navy for help. The Navy guaranteed a $2.5 million loan to Murdock toward completion of the contract, but when this proved insufficient Murdock petitioned the Navy to have the contract modified from a fixed-price contract to a cost-reimbursement/no fee contract. The Navy initially indicated that it would grant the modification, but subsequently changed its mind, after it found another potential supplier.

In 1975, the Navy terminated for default the ASROC contract and several other non-ASROC defense contracts previously awarded to Murdock, and Murdock filed for bankruptcy protection. ¹ The government filed proofs of claims against Murdock's estate, seeking, inter alia, what it characterized as "unliquidated progress payments," which it contends not only eliminated any governmental liability on the ASROC contract but made the government a net creditor of Murdock's estate.

In 1976, during the pendency of the bankruptcy proceedings, the trustee filed a complaint with the ASBCA, claiming that the Navy wrongfully terminated the ASROC contract. Thereafter, in 1978, Congress passed the Contract Disputes Act (CDA), which increased the jurisdiction of contracting officers and the ASBCA--previously limited to issues relating to the terms of the contract itself--to permit determination of breach of the contract issues, including the award of consequential damages. The trustee then submitted a second claim to the Navy contracting officer, asserting substantial damages from the wrongful termination of the ASROC contract. When the contracting officer failed to issue a timely decision on this claim the trustee filed an appeal with the ASBCA. Soon thereafter, the contracting officer did issue his opinion, denying relief to the trustee, and the trustee again appealed to the ASBCA.

The ASBCA consolidated the three cases and held a trial on the merits of the claims. The ASBCA ruled that the Navy's termination for default had been proper, and denied the trustee's claims for relief. The trustee then took the case to the Federal Circuit, which reversed the ASBCA. Murdock Mach. & Eng'g Co. v. United States, 873 F.2d 1410, 1413 (Fed.Cir.1989). That court held that the ASROC contract had in fact been converted into a cost-reimbursement/no fee contract and for that reason the Navy's termination for default was improper. Consequently, the Federal Circuit remanded to the ASBCA for a recalculation of liability. ²

Not content to await the ASBCA's ruling following the remand, the trustee moved the bankruptcy court to disallow the government's claim for unliquidated progress payments on the ASROC contract on the basis of the Federal Circuit's decision. Although acknowledging the bankruptcy court's jurisdiction over the claim, the government asked the court to abstain from ruling on the merits, given the pendency of exactly the same issue with the ASBCA. The bankruptcy court refused, holding that it had jurisdiction over the issue because of the government's filing of the proofs of claims. It held that the case did not present the proper circumstances for deferral to the ASBCA, relying particularly on the fifteen year pendency of the bankruptcy and the decision of the Federal Circuit. On the merits, the court concluded that the Federal Circuit's holding that the Navy improperly terminated the ASROC contract precluded the United States from any affirmative recovery on the contract. It disallowed the government's claim for affirmative relief, and ruled that "[t]he quantification procedure imposed by the Federal Circuit [remanding to the ASBCA] should be allowed to run its course." App. at 158. The district court affirmed, and this appeal followed.

One of the essential differences between the parties on the merits relates to whether the Federal Circuit meant to require quantification of the amount owing between the parties under the termination for convenience clause of a fixed cost contract, because it referenced that regulation in its opinion, rather than the termination clause of a cost-reimbursement/no fee contract. The other disputes arise out of the different wording of those termination clauses and relate to reimbursable costs and offsets under the termination clause. The government claims entitlement to "unliquidated progress payments," ³ that together with other credits it seeks would cause it to owe Murdock nothing and give it a multi-million dollar claim against the bankruptcy estate. We understand the bankruptcy and district courts (and the trustee) to acknowledge that money the United States actually paid to Murdock as progress payments during the life of the ASROC contract are to be offset against sums the government otherwise would have to pay Murdock. Rather, the major argument between the parties is whether the government is entitled to an "adjustment for loss" to reflect losses the contractor would have sustained had it completed the contract. See Contracting Officer's Final Decision of May 6, 1991 at 6-7, App. 167K-167L; 32 C.F.R. § 8.701(a).

While the appeal was pending before us, on August 17, 1992, the ASBCA issued the opinion the government argues the bankruptcy court should have awaited before ruling. That opinion determined that the United States owes Murdock approximately $4 million, minus a yet undetermined pro rata share of the unpaid principal and interest on the guaranteed loan the Navy made to Murdock. The ASBCA rejected the government's claim to a "loss adjustment" of $7,597,860 that, if allowed, would indeed have wiped out the government's liability to Murdock and made the government Murdock's creditor. Treating the Federal Circuit's decision as "final and binding" on the fixed-price to cost-reimbursement/no fee contract issue, the ASBCA declared,

Under a cost-reimbursement contract, the contractor has no obligation to continue performance after the funding limits are reached, whether the required product has been completed or not. Therefore, it does not appear that Murdock would have sustained a loss on the entire contract had it been completed under the terms of the NCAB decision, and there is no basis for application of a loss adjustment.

ASBCA Op. of Aug. 14, 1992, at 5.

II

We must consider whether the August 1992 ASBCA decision moots the instant appeal. The bankruptcy court's decision, affirmed by the district court, simply denied the government's claims against the bankruptcy estate. This was based upon its interpretation of the Federal Circuit decision, as holding that there could be no net amount owing with respect to the ASROC contract to the government from Murdock. The ruling did not determine the net balance due from the government to Murdock; the court expressly deferred that to the ASBCA proceedings.

Because the government continued to contend, after the Federal Circuit decision, that the net balance from the obligations arising out of the ASROC contract was in the government's favor, it demanded that the bankruptcy court defer to the ASBCA proceedings. Now we have the ASBCA decision, confirming that there can be no net claim in favor of the government on the ASROC contract. ⁴ Of course, the ASBCA opinion is subject to further review, including an appeal to the Federal Circuit; and the government continues to argue that the Federal Circuit's reference to a fixed cost contract termination clause entitled the government to the loss adjustment it claims would make it Murdock's creditor. Also, the final sum due Murdock has not been determined because of the remand to the contracting officer for certain determinations, and the Murdock bankruptcy proceeding is still ongoing. Further, the government makes claims on the non-ASROC contracts that are still pending in that proceeding. It acknowledges that it has no right to appeal with respect to those contracts, but it asks us to assume jurisdiction of them as "pendent" claims and to order the district court to defer to adjudication of those claims also through the ASBCA process. Considering all the circumstances we hold the appeal is not moot.

III

It is...