Rixon Electronics, Inc. v. United States

• Citation: 536 F.2d 1345
• Decision Date: 16 June 1976
• Docket Number: No. 475-73.,475-73.
• Parties: RIXON ELECTRONICS, INC., and Rixon Liquidating Corp. v. The UNITED STATES.
• Court: U.S. Claims Court

536 F.2d 1345

RIXON ELECTRONICS, INC., and Rixon Liquidating Corp. v. The UNITED STATES.

No. 475-73.

United States Court of Claims.

June 16, 1976.

COPYRIGHT MATERIAL OMITTED

Stephen B. Clarkson, Washington, D. C., for plaintiff. Henry G. Beauregard, Washington, D. C., attorney of record. Thomas J. Touhey and Sullivan, Beauregard & Clarkson, Washington, D. C., of counsel.

Marc J. Fink, Washington, D. C., with whom was Asst. Atty. Gen. Rex E. Lee, Washington, D. C., for defendant.

Before NICHOLS, KUNZIG and BENNETT, Judges.

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

NICHOLS, Judge.

This case is before us on defendant's request for review of a recommended decision of Trial Judge David Schwartz, which he submitted in accordance with Rule 166(c). The case is a contract dispute governed by the Wunderlich Act, 41 U.S.C. Secs. 321, 322. A decision of the Armed Services Board of Contract Appeals (ASBCA), 72-1 BCA ¶ 9323, denied the claim. Trial Judge Schwartz would have us reverse this decision and grant summary judgment to the plaintiff, with remand to the ASBCA for quantum. Though we are greatly aided by his able analysis, we reach the opposite result after careful consideration of the record, briefs and oral arguments of counsel. We conclude that the ASBCA, despite some errors of law, arrived at the right result. Therefore its decision is affirmed, and the petition is dismissed.

Plaintiff, Rixon Electronics, Inc. (here joined by its liquidating successor), was awarded a Navy contract for the manufacture of 153 low-frequency radio transmitters for shipboard use. Under circumstances of great difficulty and stress, it performed the contract. The claim demands an equitable adjustment as provided in the "Government Furnished Property" and "Changes" articles, and, in the second and third counts, reformation of a certain release, to be discussed presently. Certain microfilms, Government furnished, were relied on in preparation of plaintiff's bid, plaintiff says, and for obtaining interchangeability of components with those procured under prior awards. They were not, says plaintiff, "received by the contractor in a condition suitable for the intended use," in the language of the "Government Furnished Property" clause, thus generating a duty in the Contracting Officer to make an equitable adjustment. It seems to be agreed by all concerned that they were grossly defective, to the plaintiff's considerable detriment. The ASBCA, however, denied any such adjustment because, it held, the plaintiff released its claim by Modification No. 2, executed at a time when the subject matter of the claim was in existence and the costs or losses attributable to the deficiency had been incurred. The release reads as follows:

The Contractor further agrees that in consideration of the above modification, the Contractor for itself, its successors and assigns here remises, releases, and forever discharges the Government, its officers, agents, and employees of and from all liabilities, obligations, claims and demands whatsoever arising under or in any manner connected with this contract, the subject matter of which was in existence on or prior to the date of this modification (whether or not asserted by or known to the Contractor and whether costs, losses, and expenses attributable thereto were incurred prior to or after the date of this modification), excepting only claims for payments of amounts due and payable to the Contractor under the terms of this contract.

It is agreed by all that this release, if enforced according to its terms, bars the instant claim. The reasons alleged for not enforcing it are two: first, it was signed under "economic duress", second, it should be "reformed" as signed under "mutual mistake" not reflecting the true agreement of the parties. We deal with these two points in order.

There is much law on the nature of the "economic duress" that will invalidate a government contractor's signed release of liability under a Government contract, or for breach of it. We will assume for present purposes that the trial judge stated correctly that it must be a case where:

1. * * * the Government is responsible for the contractor's financial necessity, in the sense of having brought it about by wrongful or improper conduct, * * *

that is, wrong by the Government must have caused the contractor's distress. Next:

2. * * * the involuntary nature of the victim's assent, given without reasonable alternative, usually to avoid irreparable damage and a coercive or wrongful act by the other party.

That is, the Government must have exploited the distress it had itself created, to obtain an unjustified release of a good and valid claim. Urban Plumbing & Heating Co. v. United States, 408 F.2d 382, 389-92, 187 Ct.Cl. 15, 28-33 (1969), cert. denied, 398 U.S. 958, 90 S.Ct. 2164, 26 L.Ed.2d 542 (1970); Fruhauf Southwest Garment Co. v. United States, 111 F.Supp. 945, 951-52, 126 Ct.Cl. 51, 61-63 (1953). Some wrongful conduct must be shown to shift to defendant the responsibility for bargains made by plaintiff under the stress of financial necessity. The mere stress of business conditions will not support duress contentions when the Government is not responsible for the underlying circumstances. Fidelity & Casualty Co. v. United States, 490 F.2d 960, 966, 203 Ct.Cl. 486, 497 (1974); La Crosse Garment Mfg. Co. v. United States, 432 F.2d 1377, 1382-83, 193 Ct.Cl. 168, 177 (1970). See 13 Williston On Contracts, Secs. 1601-03, 1624 (3d ed. 1970); J. Dalzell, Duress by Economic Pressure, 20 N.C.L.Rev. 237, 341 (1942).

Let us weigh the trial judge's conclusions by the above criteria, calling them tests 1. and 2.

As to 1. this case is remarkable among Wunderlich cases, in the extraordinary language used by the Government to warn how risky the deal was, that it was offering. A cynic might say the Government was happy with its previous sole source procurement of the item and did not want to deal with anyone else. Never have the small craft warning pennants been larger, redder, or more numerous! It may well be that the Government should pay small contractors the cost of their efforts in performing unusually difficult tasks, for which they are unqualified, regardless of what self-exculpatory language the Government writes into its proposals. But we can neither legislate such an end, nor reach the same result by ignoring the self-exculpatory language and making for the parties a contract other than the one they signed.

The language in the Government proposals, with the inherent difficulty of the task, must be credited with deterring anyone from bidding on the IFB, except the previous sole source and the plaintiff. The former, Westinghouse, bid $17,758.52 per unit to plaintiff's $11,888.45, or $870,550.11 higher for the 153 units to be supplied.

The Government IFB recited that the Radio Transmitting Set called for was a:

* * * highly specialized, complex radio communication device having extreme accuracy, reliability, stability and long life under the rugged environmental conditions encountered in Navy shipboard service, such as heat, humidity, shock and vibration. They are high quality articles the production of which requires a high order of workmanship and quality controls as well as careful selection of quality parts. To date only one concern has previously produced substantially the same articles as called for herein and had them approved and accepted by the Navy.

The IFB then spelled out that the required delivery schedule was much shorter than in the previous procurement and that delivery times were of paramount importance:

* * * This Schedule is considered to be extremely tight for firms, even ones highly qualified for the work, who have not previously produced substantially similar articles and had them approved or accepted by the Navy. * * *

The IFB then warns that the time schedule requires that it would be necessary to order parts and materials and commence production before Government approval of the pre-production equipment and:

* * * the successful bidder must assume all risks associated with production equipment and supplies in advance of notice of approval * * * The bidder represents that he understands the existence and nature of such risks and that he has taken them into consideration in formulating his bid.

Unless the successful bidder were the previous sole source, under these threats he would naturally hope for full cooperation by the Government in supplying information as to exactly what was to be produced. Though facially specifications were "essentially of the performance type," it did not suffice that the sets should work: by the contract they had to be interchangeable part by part with a set previously procured. However, the Government also gave assurance that its information as to previously procured sets would be entirely undependable. Microfilms of parts would be available for examination before bidding, and would be furnished to the successful bidder. But they were accepted under previous contracts whose specifications:

* * * may not be identical to the requirements of this contract !

They were provided only for:

* * * such information and assistance as they may provide the Contractor with respect to the general nature of the equipments and repair parts to be delivered under this contract. * * *

As will appear, a clause used in other contracts, that the microfilms would also be useful in obtaining interchangeability, was conspicuously missing here. In addition, a model set of the type to be procured was to be furnished, and this was to be used in meeting interchangeability requirements, but incredible as it may seem, the Government did not:

* * * represent that the * * * Set meets the requirements of this contract in every respect * * *

It might have been, and in fact was, obtained under a prior contract with different specifications. The Government also, if repetitiously,...