Nager Electric Company v. United States

• Decision Date: 14 June 1968
• Docket Number: No. 348-64.,348-64.
• Citation: 396 F.2d 977,184 Ct. Cl. 390
• Parties: NAGER ELECTRIC COMPANY, Inc. and Keystone Engineering Corporation v. The UNITED STATES.
• Court: U.S. Claims Court

184 Ct. Cl. 390, 396 F.2d 977 (1968)

NAGER ELECTRIC COMPANY, Inc. and Keystone Engineering Corporation v. The UNITED STATES.

No. 348-64.

United States Court of Claims.

June 14, 1968.

Albert Foreman, New York City, attorney of record, for plaintiff, Edwin Efros and M. Carl Levine, Morgulas & Foreman, New York City, of counsel.

Ray Goddard, Washington, D. C., with whom was Asst. Atty. Gen., Edwin L. Weisl, Jr., for defendant.

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

ON DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

DAVIS, Judge.

At an earlier stage of this controversy we rejected the Government's assertion, on its then motion for summary judgment, that plaintiffs' first cause of action (based on an allegedly improper termination-for-default) should be dismissed as barred by the statute of limitations, but specifically reserved the Government's alternative ground that the claim is one arising "under the contract" and the plaintiffs failed to exhaust their administrative remedies. We also withheld decision on plaintiffs' contention that, even if the cause of action is not one for breach of contract, defendant is estopped from so claiming by the conduct of its representative at the administrative level. Nager Elec. Co. v. United States, 368 F.2d 847, 866, 177 Ct.Cl. 234, 263 (1966).

The defendant has now renewed its exhaustion defense as the basis for summary judgment on plaintiffs' first cause of action, and plaintiffs have countered with the estoppel point. The necessary documents are all before us. We hold that the termination claim did arise "under the contract", that plaintiffs adequately pursued their administrative remedy, that defendant is estopped from claiming that the issue must be determined, if at all, by an administrative tribunal, and, therefore, that plaintiffs may have a trial in this court on the cause of action.

The background facts pertinent to the present motion are simple enough. Plaintiffs contracted with the Atomic Energy Commission to build "second phase" facilities at an AEC laboratory in the State of New York. In July and August 1958, the project manager (or contracting officer), relying on the contract's "termination-for-default" article, canceled twenty-five of the items in plaintiffs' contract and later deducted about $18,000 from payments to the contractors as the cost of acquiring substitute performance of the terminated work. Plaintiffs seek recovery of that amount.¹

The first question is whether the claim is one "arising under the contract" or whether it "falls outside the scope of the `disputes' clause" because it "relates to matters which cannot be handled under one or more of the standard adjustment clauses" — in this case the "termination" clauses. Schlesinger v. United States, 383 F.2d 1004, 1007, 181 Ct.Cl. 1004 (1967). We think that the wording of the default clause, as well as the practice of this court and of the boards of contract appeals, make it very clear that this dispute — which centers on the plaintiffs' claim that their default was justified by Government interference — is subject to administrative resolution.² In the absence of a waiver by the parties of the administrative processes, we have always treated such factual questions imbedded in termination-for-default controversies as within the scope of the "disputes" clause,³ and so have the administrative boards.⁴

The stage is therefore set for the argument that the plaintiffs did not properly prosecute their partial-termination claim before the contracting officer and the Commission's hearing examiner, each of whom held — erroneously — that he had no jurisdiction over the claim. The defendant's argument indicates, however, that it expected too much of plaintiffs, so much so that it wanted the contractors to play the Government's role as well as their own.

A contractor's part in presenting a claim to the contracting officer is to "invite a ruling" by putting him "on notice both as to the relief requested and the contract clause on which the request is based." Acme Proc. Equip. Co. v. United States, 347 F.2d 509, 534, 171 Ct.Cl. 324, 366, (1965), reversed on other grounds, 385 U.S. 138, 87 S.Ct. 350, 17 L.Ed.2d 249 (1966). Conversely, "ambiguous requests for adjustments or possible negotiations regarding adjustments as distinguished from demands predicated upon an expressed contractual right" may result in dismissal of the suit for failure to exhaust administrative remedies. Specialty Assembling & Packing Co. v. United States, 298 F.2d 794, 796, 156 Ct.Cl. 252, 255 (1962). The plaintiffs have fulfilled the minimum role defined in those cases.

The contracting officer was well aware that plaintiffs considered the termination and assessment of completion costs an improper application of the "termination-for-default" article and that they wanted him to decide all factual issues under the "disputes" clause. In a September 1958 letter to the AEC manager, counsel for plaintiffs stated the "desire to exhaust all administrative remedies and have a final determination by the contracting officer and the Commission, as provided under the Disputes Article of the Contract, so that we may proceed from that point without any contention being made against us that we failed to exhaust our administrative remedies." In a subsequent letter to the Commission's chief counsel (at the Schenectady regional office), to whom the manager had referred the matter, plaintiffs indicated that their primary objection to the termination was "the fact that the General Electric Company, Agent for the Atomic Energy Commission, was interfering with the contractor's performance."

Despite the regional counsel's constant request that the "issues * * * be delineated" further, we think that plaintiffs' correspondence adequately informed the contracting officer of the nature of their claim.⁵ Further proof that a precise issue was posed for decision is contained in the acting manager's letter to plaintiffs, summarizing the matters left unsettled after an August 1959 conference in his office. He wrote that "it is not clear that Clause 6 `disputes' is applicable to the Government's claim * * * for the actual cost * * * for performing that part of the contract work which was not performed by you because of termination action under the provisions of Clause 5 `termination-for-default'."

The Government emphasizes that the plaintiffs never responded to the acting manager's further statement (in the same letter) that he would "be glad to have an expression of your views * * in this regard." Plaintiffs explain that they did not read this as a demand for briefing and that they had made their position as clear as need be, thus eliminating the necessity for further correspondence at that point. We agree.

After the manager found that "there was no dispute concerning a question of fact" with respect to the termination,⁶ the contractors appealed to the Commission, contending that "the default order was improper and the amount charged * * * excessive." At the hearing before the AEC examiner, plaintiffs' counsel submitted the termination question as "a factual issue, * * subject to AEC review." He added that "to protect our rights for judicial review * * * we must follow our administrative remedies and exhaust these administrative remedies" and that, "if this Board feels it has no jurisdiction, at least we have taken our appeal and have protected the record."

After questioning plaintiffs' attorney as to the reason why he considered the termination unjustified, the hearing examiner expressed the view that the issue "seems to be beyond the scope of the jurisdiction of this type of proceeding" "since it involves, clearly, a breach." With this plaintiffs' counsel agreed "as an attorney to an attorney" and reiterated that his objective was to avoid a failure-to-exhaust defense in any subsequent judicial suit. The examiner then dismissed the witness plaintiffs had brought to testify on the termination and concluded that the appellate tribunal had no jurisdiction over the matter.⁷ The Commission's legal representative, as well as plaintiff's lawyer, explicitly assented to this disposition of the claim.

On the basis of this undisputed evidence, we cannot accept the defendant's contention that plaintiffs have not "pursued" their administrative remedy. The hearing officer was cognizant of the basis for plaintiffs' claim, and the plaintiffs were ready to present their witnesses if the hearing examiner decided he had authority to grant relief. The defendant has cited nothing, including agency regulations, that requires more.⁸ What defendant seems to object to is not that plaintiffs failed to present their claim but that they displayed a notable lack of conviction in doing so, especially before the examiner. If, however, the claim is actually presented on appeal, the strength of the claimant's support of it is irrelevant for the purpose of deciding an issue of exhaustion. See note 7 supra.

In any event, the misinformation of the manager and the hearing examiner is as much (and probably more) attributable to defendant as to plaintiffs. The AEC attorney did not stand idly in the wings. Prior to the manager's initial decision he took the stand — adopted by the manager — that "the question of whether the termination was justified * * * involves a determination of the legal rights and obligations of the parties rather than a determination of factual issues." Later, in his opening remarks at the examiner's hearing, he argued that the Commission "is not the proper forum for consideration of that kind of claim" because "it pertains not to a dispute arising in the performance under the contract, which is the kind of dispute contemplated by the disputes article, but it covers matters arising outside of the contract — work that they plaintiffs did not do"; "I, therefore, reiterate the position of the Contracting Officer...