Stock Equipment Co., a Unit of General Signal Corp. v. Tennessee Valley Authority
| Decision Date | 19 July 1990 |
| Docket Number | No. 88-7270,88-7270 |
| Citation | 906 F.2d 583 |
| Parties | , 36 Cont.Cas.Fed. (CCH) 75,990 STOCK EQUIPMENT COMPANY, A UNIT OF GENERAL SIGNAL CORPORATION, Plaintiff-Appellee, v. TENNESSEE VALLEY AUTHORITY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Charles W. Van Beke, Harriet A. Cooper, Philip J. Pfeifer, TVA, Knoxville, Tenn., for defendant-appellant.
James L. Goyer, III, Maynard, Cooper, Frierson & Gale, Birmingham, Ala., Donald J. Mulvihill, Thomas W. Andrews, Eric B. Henry, Cahill, Gordon & Reindel, Washington, D.C., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Alabama.
Before TJOFLAT, Chief Judge, CLARK, Circuit Judge, and RYSKAMP *, District Judge.
The Tennessee Valley Authority (TVA) appeals from a decision of the district court, entered after a bench trial, awarding $2,988,544 to Stock Equipment Co. (Stock) pursuant to a "termination for convenience" clause in a contract between the parties. We affirm. Because the resolution of the parties' dispute hinges on an understanding of the contractual relationship between TVA and Stock, which itself hinges in part on the extent to which the provisions of a separate contract between TVA and a third party were made applicable to the TVA-Stock contract, we set out the facts in some detail. 1
Stock, primarily a manufacturer of equipment for fossil-fueled electric generating plants, began in the 1970's to design and manufacture radioactive waste solidification systems for nuclear power plants. Aerojet Energy Conversion Company (Aerojet) designed and manufactured equipment that reduced the volume of radioactive waste prior to solidification. A successful solidification system must be compatible with the volume-reduction system with which it is paired. Aerojet and Stock cooperated in making their systems compatible and, thereafter, were able to act as a "bidding team" to bid their reduction and solidification systems as a package. In some instances, Aerojet would bid as the prime contractor, and Stock would offer its solidification system as a subcontractor to Aerojet.
The following facts are undisputed. On May 20, 1980, TVA issued a Request for Proposal (RFP) for the design and construction of systems to reduce and solidify radioactive waste produced at TVA's Sequoyah and Watts Bar nuclear facilities. Aerojet responded to the RFP, and on April 2, 1981, TVA and Aerojet entered into a $14,939,602 contract, No. 81K68-827379 (the TVA-Aerojet contract), which named Stock as the proposed subcontractor for the solidification system. The contract incorporated the terms and conditions of the RFP as amended by two formal addenda (dated May 23, 1980 and June 19, 1980), Aerojet's fill-in-the-blank responses to the RFP (relating to price, payment schedules, guaranteed data, technical proposals, etc.), several volumes of technical specifications, and, referenced on the "Acceptance Page," a series of letters and other documents that added to, altered, or clarified terms appearing elsewhere. TVA and Aerojet contemplated that Aerojet would eventually assign its subcontract with Stock to TVA; 2 accordingly, the TVA-Aerojet contract contained separate price and payment schedules for Aerojet's volume-reduction work and for Stock's solidification work. As awarded on April 2, 1981, the contract allocated $8,354,000 of the total price to Aerojet's portion of the work and $6,585,602 to Stock's portion of the work. Of the total price for each portion, the percentage representing "the initial phase of contract (engineering, design, and associated software work)" was stated to be twenty percent for Aerojet and sixteen percent for Stock. This latter information was included in the contract by virtue of two letters plus attachments from TVA to Aerojet, dated December 31, 1980 (12/31/80 letters) and Aerojet's responses, all of which were referenced on the Acceptance Page.
The TVA-Aerojet contract contained an extensive "Termination for Convenience" provision, included in the original RFP, which permitted TVA unilaterally to terminate the contract. 3 Under this provision, TVA was obligated to pay Aerojet any actual costs (including both costs of performance and costs of escaping commitments to third parties made in connection with performance) plus a reasonable profit on work already performed; anticipated profit on the remaining work, however, was not recoverable. Additionally, the contract contained a cancellation clause by virtue of the 12/31/80 letters (plus attachments) incorporated by reference on the Acceptance Page. The cancellation clause acknowledged the two-step nature of the contract--i.e., first design, then build--by providing that TVA could cancel the contract after reviewing Aerojet's designs "without further liability or obligation of TVA" (with the presumable exception of progress payments due and owing for work completed). The clause was added in order to limit TVA's obligation to pay development costs for a system that could not function or that could not be developed in a timely manner.
The following facts are undisputed unless otherwise noted. During its negotiations with TVA, Aerojet was simultaneously negotiating its anticipated subcontract with Stock. In January 1981, Stock received from Aerojet a copy of the 12/31/80 TVA letters, which included the request for an estimate on "initial phase" (design) costs and the cancellation provision. Stock claimed at trial that, in keeping with its longstanding policy of not selling engineering without the accompanying construction, Stock informed Aerojet that it could not enter into a contract containing that type of cancellation clause. In any event, the parties stipulated that the issue of whether the clause would be part of the Aerojet-Stock contract was not explicitly discussed after January or February 1981.
On May 20, 1981, Aerojet and Stock entered into a contract, Purchase Order L-821205 (Purchase Order) 4, for the design and construction of the waste solidification systems. In an introductory section, the Purchase Order stated that "Stock Equipment Company agrees to supply the following equipment in accordance with Contract 81K68-827379 dated 4/2/81 incorporated herein." The Purchase Order also contained the following provision: "The requirements of this order shall be fulfilled in accordance with the terms and conditions of [the] TVA RFP ... except as modified below." The Purchase Order was amended by a change order, effective July 9, 1981, which, in a section entitled "Reference" (Reference 4), expressly incorporated seven letters from Aerojet to TVA--dealing primarily with technical specifications, price revisions, and revisions in delivery and payment schedules--into the Aerojet-Stock contract. The referenced letters were among those listed on the Acceptance Page of the TVA-Aerojet contract; the 12/31/80 letters from TVA to Aerojet containing the cancellation clause, however, were not included in Reference 4. Nothing in the change order expressly relieved Stock of any obligations it may have undertaken in the Purchase Order to comply with the commercial terms and conditions of the TVA RFP or with the TVA-Aerojet contract.
Aerojet assigned the Aerojet-Stock contract to TVA by an agreement, entitled "Agreement of Assignment," to take effect on July 9, 1981. Under the terms of this agreement, (1) TVA agreed to be bound by all the terms and conditions of the Aerojet-Stock contract, (2) assumed all obligations of Aerojet as if TVA were the original contracting party, and (3) ratified and confirmed all actions taken by Aerojet with respect to the Aerojet-Stock contract. Nothing in the agreement purported to modify the Aerojet-Stock contract in any way. The document recited that Stock recognized TVA as Aerojet's "successor in interest in and to the assigned Contract" 5 and bore Stock's signature, as well as those of Aerojet and TVA. Thus, the existing Aerojet-Stock contract, in its entirety, became the TVA-Stock contract.
Between April 7, 1981 and November 18, 1983, Stock and Aerojet performed under their respective contracts with TVA. In October 1983, however, before TVA had approved Stock's design and authorized fabrication, TVA's Board of Directors voted to terminate the TVA-Aerojet and the TVA-Stock contracts. On November 3, 1983, TVA's Chief of the Nuclear Engineering Support Branch ordered the agent supervising the two contracts, David Marks, to "immediately terminate the [Aerojet] and [Stock] contracts in accordance with the Termination for Convenience provisions of the contract." (Emphasis added.) Possibly in an effort to save money for TVA by invoking the more favorable cancellation clause, Marks notified Stock by letter dated November 18, 1983 that TVA had "decided to cancel" the TVA-Stock contract "as provided by the cancellation provisions of the subject contract (which are incorporated in the subject contract as a part of Contract 81K68-827379 with [Aerojet]." 6 (Emphasis added.)
Stock notified Marks that it would be submitting to TVA's Disputes Contracting Officer a termination for convenience claim. Marks replied that he considered the contract "cancelled," rather than "terminated for convenience," and that the cancellation clause applied because the 12/31/80 letters had been incorporated into the TVA-Aerojet contract and then into the Aerojet-Stock/TVA-Stock contract. Stock took the position that the termination for convenience provision had been incorporated into the Aerojet-Stock contract and established the same contractual rights and obligations between Aerojet (with TVA as its successor) and Stock as between TVA and Aerojet, but Stock denied that the 12/31/80 letters had been incorporated. Stock then submitted a termination for convenience claim...
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