Sys. Fuels, Inc. v. United States

• Decision Date: 19 January 2012
• Docket Number: 2010–5117.,Nos. 2010–5116,s. 2010–5116
• Citation: 666 F.3d 1306
• Parties: SYSTEM FUELS, INC., System Energy Resources, and South Mississippi Electric Power Association, Plaintiffs–Appellants, v. UNITED STATES, Defendant–Cross Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

666 F.3d 1306

SYSTEM FUELS, INC., System Energy Resources, and South Mississippi Electric Power Association, Plaintiffs–Appellants,

v.UNITED STATES, Defendant–Cross Appellant.

Nos. 2010–5116

2010–5117.

United States Court of Appeals, Federal Circuit.

Jan. 19, 2012.

Alex D. Tomaszczuk, Pillsbury Winthrop Shaw Pittman, LLP, of McLean, VA, argued for plaintiffs-appellants. With him on the brief were Jay E. Silberg, of Washington, DC; and Evan D. Wesser, of McLean, VA. Of counsel on the brief was L. Jager Smith, Jr., Wise Carter Child & Caraway, P.A., of Jackson, MS.

Alan J. Lo Re, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-cross appellant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, Harold D. Lester, Jr., Assistant Director, Sharon A. Snyder, Trial Attorney, Marian E. Sullivan and Andrew P. Averbach, Senior Trial Counsel; and Scott R. Damelin, Trial Attorney. Of counsel on the brief was Jane K. Taylor, Attorney, Office of General Counsel, United States Department of Energy, of Washington, DC.

Before RADER, Chief Judge, NEWMAN and DYK, Circuit Judges.

Opinion for the court filed by Chief Judge RADER. Opinion concurring-in-part, dissenting-in-part filed by Circuit Judge NEWMAN.

RADER, Chief Judge.

On summary judgment, the United States Court of Federal Claims determined that the United States breached its contract with Plaintiffs–Appellants System Fuels, Inc., System Energy Resources, and South Mississippi Electric Power Association (collectively “Plaintiffs”) for the removal of spent nuclear fuel. Sys. Fuels, Inc. v. United States, 66 Fed.Cl. 722, 732–33 (2005) (“ SFI I ”). The trial court also granted summary judgment in favor of the Government regarding the implied covenant of good faith and fair dealing. Id. at 735. The trial court set damages for the breach at $10,014,114 as well as the cost of borrowed funds for financing the construction of the dry fuel storage project. Sys. Fuels, Inc. v. United States, 78 Fed.Cl. 769, 809 (2007) (“ SFI II ”). On reconsideration, the trial court reduced damages to $9,735,634 and denied the cost of borrowed funds. Sys. Fuels, Inc. v. United States, 92 Fed.Cl. 101, 114 (2010) ( “ SFI III ”). This court affirms the trial court's denial of borrowing costs and reverses the denial of overhead costs. On damages, this court affirms the trial court's award.

I.

In 1983, Congress enacted the Nuclear Waste Policy Act of 1982 (“NWPA”), Pub.L. No. 97–425, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101–10270 (2006)), to provide for the Government's collection and disposal of spent nuclear fuel (“SNF”) and high-level radioactive waste (“HLW”). The NWPA authorized the Department of Energy (“DOE”) to contract with the owners of SNF and HLW for disposal. 42 U.S.C. § 10222(a)(1). In return for the payment of fees into the Nuclear Waste Fund, the Standard Contract provided that the DOE would begin to dispose of the SNF and HLW “not later than January 31, 1998.” 42 U.S.C. § 10222(a)(5)(B); 10 C.F.R. § 961.11 (2011). The Standard Contract provides that “[t]he Purchaser shall arrange for, and provide, all preparation, packaging, required inspections, and loading activities necessary for the transportation of SNF and/or HLW to the DOE facility.” 10 C.F.R. § 961.11 (Article IV.A.2). Because collection and disposal of SNF and HLW did not begin on January 31, 1998, this court held in Northern States Power Co. v. United States, 224 F.3d 1361, 1367 (Fed.Cir.2000), and Maine Yankee Atomic Power Co. v. United States, 225 F.3d 1336, 1343 (Fed.Cir.2000), that the DOE had breached the Standard Contract with the nuclear energy industry. This case examines another chapter in the lengthy search for remedies for breach of the Standard Contract.

On June 30, 1983, System Fuels, Inc. entered into the DOE's Standard Contract on behalf of itself, System Energy Resources, and South Mississippi Power Association. SFI I, 66 Fed.Cl. at 725. System Energy Resources and South Mississippi Power Association own Grand Gulf Nuclear Station (“Grand Gulf”). System Fuels, Inc. served as the purchaser under the Standard Contract. Id. The Nuclear Regulatory Commission issued a license to System Fuels, Inc. and South Mississippi Power Association to operate Unit 1 of Grand Gulf, whose SNF is stored in a “wet pool.” Id. In 2002, Plaintiffs began preparations to construct an Independent Spent Fuel Storage Installation (“ISFSI”) capable of holding additional dry storage containers of SNF until DOE complied with its removal obligations. Plaintiffs anticipated that the “wet pool” would reach capacity in 2007. Id.; SFI II, 78 Fed.Cl. at 783. The record shows that System Energy Resources and South Mississippi Power Association have paid almost $148 million into the Nuclear Waste Fund in accordance with the terms of the applicable fee schedule of the Standard Contract. The Government has not begun performing its duties and responsibilities under the Standard Contract. SFI I, 66 Fed.Cl. at 725, 730. As of March 4, 2005, Plaintiffs alleged that they had spent approximately $4.75 million to construct the ISFSI. Id. at 732–33. After this court rendered its decision in Indiana Michigan Power Co. v. United States, 422 F.3d 1369 (Fed.Cir.2005), Plaintiffs amended the complaint to allege that they had incurred $12,178,000 in costs to plan and construct the ISFSI at Grand Gulf to mitigate breach damages. SFI II, 78 Fed.Cl. at 771.

Every 18 months, the reactor at Grand Gulf shuts down to facilitate removal of fuel assemblies, which are then placed in two onsite storage facilities for 20 to 25 days during routine maintenance. Id. at 779. In an effort to explore their options for dry fuel storage, Plaintiffs sought guidance from an engineering services firm in the commercial nuclear industry. This firm recommended the “best short-term option for increasing spent fuel storage capacity at Grand Gulf was to recover cells currently inaccessible in the existing [onsite storage facilities].” Id. at 780. Plaintiffs also contracted with a dry cask storage system company and explored long-term options. Plaintiffs undertook construction of dry fuel storage because the core of the Grand Gulf reactor would reach capacity in 2007, and, by their estimates, the Government would not remove waste until 2022. Id. at 781. As a business practice, Plaintiffs maintain a full core reserve—a practice beyond current federal requirements. Id. at 782. Plaintiffs determined that they could maintain this business practice through 2005 and, with cell recovery efforts, accommodate the SNF and HLW discharges through 2007. Id. at 782–83.

In constructing the ISFSI, Plaintiffs created six categories of capital work operations: spent fuel studies, ISFSI design and construction, cask fabrication facility, dry fuel equipment storage building, ISFSI electrical and security systems, and auxiliary building door modification. Plaintiffs recorded and tracked costs associated with the dry fuel storage facility. Id. at 783. Plaintiffs sought damages for the capital work operations, totaling $10,591,000, and cost of capital to finance these operations, totaling $1,587,000. Id. at 783, 785.

The trial court held an eight-day trial on damages. Id. at 773 n. 2. The trial court did not specify an acceptance rate of spent fuel but determined that Plaintiffs should be awarded over $10,014,114 in mitigation damages for their capital work operations. Id. at 794, 809. The award did not include the cost of borrowed funds because, even though the trial court determined that Plaintiffs were entitled to recover this amount, it needed clarification and sought additional expert testimony before making a final decision concerning mitigation damages. Id. at 809–10.

The trial court revisited its causation analysis after this court rendered the following decisions: Yankee Atomic Electric Co. v. United States, 536 F.3d 1268 (Fed.Cir.2008); Pacific Gas & Electric Co. v. United States, 536 F.3d 1282 (Fed.Cir.2008); Sacramento Municipal Utility District v. United States, 293 Fed.Appx. 766 (Fed.Cir.2008). SFI III, 92 Fed.Cl. at 102. The trial court held evidentiary hearings concerning causation and addressed the claim for the costs of borrowed funds. Id. at 103–05. The trial court reduced the amount of damages previously awarded to Plaintiffs for their “cell recovery efforts” and determined that England v. Contel Advanced Systems, Inc., 384 F.3d 1372, 1379 (Fed.Cir.2004), barred the grant of an award for the cost of borrowed funds. 92 Fed.Cl. at 108, 111–12.

Plaintiffs appeal the trial court's refusal to award the cost of borrowed funds and overhead costs as mitigation damages. The Government appeals on the ground that the trial court's causation analysis did not include a comparison of breach and non-breach worlds under the Standard Contract. This court has jurisdiction under 28 U.S.C. § 1295(a)(3).

II.

This court reviews the factual findings of the United States Court of Federal Claims for clear error, Ind. Mich., 422 F.3d at 1373, including “the general types of damages awarded ..., their appropriateness ..., and rates used to calculate them ...,” Home Sav. of Am. v. United States, 399 F.3d 1341, 1347 (Fed.Cir.2005). “A finding may be held clearly erroneous when ... the appellate court is left with a definite and firm conviction that a mistake has been committed.” 422 F.3d at 1373 (quoting In re Mark Indus., 751 F.2d 1219, 1222–23 (Fed.Cir.1984)). This court reviews the trial court's legal conclusions without deference. Yankee Atomic, 536 F.3d at 1272. This court provides the trial court with wide discretion in determining an appropriate quantum of damages. Hi–Shear Tech. Corp. v. United States, 356 F.3d 1372, 1382 (Fed.Cir.2004).

III.

Plaintiffs sought $1,587,000 as damages for the cost of borrowed funds to construct their dry fuel storage facility....