U.S. v. Murdock Mach. and Engineering Co. of Utah

Decision Date03 April 1996
Docket NumberNo. 95-4071,95-4071
Citation81 F.3d 922
Parties13 Colo. Bankr. Ct. Rep. 133 UNITED STATES of America, Appellant, v. MURDOCK MACHINE AND ENGINEERING COMPANY OF UTAH, Logan A. Bagley, Trustee for Murdock Machine and Engineering Company of Utah, Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Appeal from the United States District Court for the District of Utah (D.C. No. 93-C-0918-S).

Richard P. Nockett, Attorney, Civil Division, Commercial Litigation Branch, United States Department of Justice, Washington, D.C., for Appellant.

Robert H. Koehler, of Patton Boggs, L.L.P., Washington, D.C. (James B. Lee, Craig B. Terry, E. Russell Vetter, of Parsons, Behle & Latimer, Salt Lake City, Utah, with him on the brief), for Appellee.

Before BALDOCK, McWILLIAMS and KELLY, Circuit Judges.

BALDOCK, Circuit Judge.

Cases governed by the Bankruptcy Act of 1898, 11 U.S.C. §§ 1-1103 (1976) (repealed) ("the Act") and the former Bankruptcy Rules, 11 U.S.C. appx. (1976) (superseded in 1983), are, like cowboys, a vanishing breed. We deliver in this case one of the final parting shots under the Act and former Rules. 1 We hold that in proceedings under Chapter VII of the Act, the United States government enjoys sovereign immunity from the automatic stays imposed by former Rules 401 and 601 because Congress did not waive the government's sovereign immunity in the Act. Accordingly, we reverse the decision of the district court and remand.

I. Background
A. Contract Awards & Terminations

In June 1971, the government awarded Murdock Machine and Engineering Company of Utah ("Murdock") a multi-year, $10.6 million, fixed-price contract to supply anti-submarine rocket launchers ("ASROC launchers") to the Department of the Navy ("the ASROC contract"). Murdock did not timely produce the ASROC launchers, however, due to financial and production problems. Concerned with the production delay, the Navy Procuring Command ("NPC") and Naval Sea Systems Command ("NAVSEA") met with Murdock, and agreed to provide Murdock a $2.5 million government-guaranteed loan from the Commercial Security Bank of Ogden, Utah ("Murdock's Bank"). NAVSEA also assured Murdock that it could apply for additional financial assistance under the extraordinary contractual relief provisions of Public Law No. 85-804, 50 U.S.C. §§ 1431-36 ("P.L.85-804") if the $2.5 million guaranteed loan proved to be insufficient. See 50 U.S.C. §§ 1431-36 (granting agency head authority to provide extraordinary relief to a contractor when a contract is deemed essential to the national defense).

The government then awarded Murdock five additional fixed-price contracts--the contracts at issue in this appeal--including an: (1) Army contract for supply of Rocket fin and nozzle assemblies; (2) Army contract for construction of delay plungers; (3) Air Force contract for construction of practice bombs; (4) Navy contract for construction of Zuni launchers; and (5) Navy contract for construction of A/B dispensers (hereinafter collectively referred to as "the Non-ASROC contracts"). Each contract contained a standard "default" clause and "disputes" clause. See 48 C.F.R. §§ 52.249-8, 52.249-2. The default clause provided that if the government's default termination was proper, the government could recover from the contractor its excess costs of reprocurement, unliquidated progress payments, and other damages. The default clause provided further, however, that if the government's default termination was improper, (e.g., if the contractor's default was excusable because it was beyond its control), the government would not be entitled to recover the above and, in turn, the government could potentially be liable to the contractor under the "termination for convenience" clauses of the Non-ASROC contracts. 2 The disputes clause provided that:

(A) Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer.... The decision of the Contracting Officer shall be final and conclusive unless, within thirty days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to the Contracting Officer a written appeal addressed to the Secretary [or his duly authorized representative--the Armed Services Board of Contract Appeals ("ASBCA") ].

With the funds from the guaranteed loan, Murdock continued performance on the ASROC contract and began performance on the Non-ASROC contracts. Murdock again encountered financial and production problems, and in August 1974 submitted a Request for Extraordinary Contractual Relief under P.L. 85-804. In its Request, Murdock explained that its total probable completion costs for the ASROC contract would be $20 million and asked the Navy to convert the $10.6 million fixed-price ASROC contract into a cost-reimbursement contract with a $22 million ceiling. 3 NAVSEA recommended that the Navy Contract Adjustment Board ("NCAB") grant Murdock P.L. 85-804 relief. 4 In April 1975, NCAB granted Murdock P.L. 85-804 relief and converted the ASROC contract to a cost-reimbursement contract with a $22 million ceiling.

Thereafter, NAVSEA learned that it could obtain ASROC launchers from another source. NAVSEA immediately informed Murdock and NCAB that it was withdrawing its recommendation for P.L. 85-804 relief. The Navy then informed Murdock that it would not convert the ASROC contract to a cost-reimbursement contract and that Murdock had ten days to cure its delinquent ASROC delivery schedule or face default termination. Murdock apparently did not cure, and on May 16, 1975, a Navy contract officer terminated the ASROC contract for default. The Navy authorized Murdock's bank to call the guaranteed loan, and cut off progress payments to Murdock.

Seven days after the Navy terminated the ASROC contract, on May 23, 1975, Murdock filed a voluntary petition for relief under Chapter VII of the Act in the District of Utah. 5 By operation of law, the automatic stay provisions of Rules 401(a) and 601(a) immediately went into effect. See Bankruptcy Rules 401(a), 601(a) ("The filing of a petition shall operate as a stay."). After the bankruptcy court adjudicated Murdock a bankrupt, but prior to the running of the sixty-day period allowed under § 70(b) of the Act for the Trustee to assume or reject executory contracts, the Army, Air Force, and Navy unilaterally terminated the Non-ASROC contracts for default. See Bankruptcy Act of 1898, § 70(b) ("The trustee shall assume or reject an executory contract ... within sixty days after the adjudication."). Murdock timely appealed the Navy's default termination of the ASROC contract to the ASBCA. Murdock did not, however, appeal the government's terminations of the Non-ASROC contracts to the ASBCA.

While Murdock's appeal of the Navy's default termination of the ASROC contract was pending before the ASBCA, between September and November 1975, the government filed proofs of claim against Murdock's bankruptcy estate. Claim 559A sought $3,865,673.65 for unliquidated progress payments and excess reprocurement costs under the Non-ASROC contracts. Claim 764A sought $7,933,291.71 for unliquidated progress payments under the ASROC contract, $1,867,792.27 for unliquidated progress payments and excess reprocurement costs under the Non-ASROC contracts, and $1,927,758 for amounts owing on a government loan, for a total of $11,728,841.98.

The Trustee took no immediate action on the government's proofs of claim. Six years later, in October 1981, the Trustee asserted an $11.6 million claim against the Navy under the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-13, alleging that the government breached the ASROC contract. A contracting officer denied the Trustee's claim. The Trustee appealed to the ASBCA.

The ASBCA consolidated the Trustee's appeal of the claim denial with Murdock's appeal of the Navy's May 1975 default termination of the ASROC contract. Following a lengthy trial on the merits, in November 1987, the ASBCA determined that the Navy's default termination of the ASROC contract was proper, and denied the Trustee's breach of contract claim. Murdock Mach. & Eng'g Co., ASBCA No. 20,354, 88-1 BCA p 20,354, at 102,936-37, 1987 WL 46273. On appeal, the United States Court of Appeals for the Federal Circuit reversed. Murdock Mach. & Eng'g Co. v. United States, 873 F.2d 1410, 1413 (Fed.Cir.1989). The Federal Circuit held that the NCAB's April 1975 decision on Murdock's P.L. 85-804 Request was final and converted Murdock's fixed-price ASROC contract into a cost-reimbursement contract. Id. Accordingly, the government was obligated to compensate Murdock for its incurred performance costs. Because the government failed to reimburse Murdock its costs, it materially breached the ASROC contract, and thereby "relieved Murdock of the default termination and its consequences." The Federal Circuit converted Murdock's wrongful default termination into a termination for the convenience of the government. Id.

B. Bankruptcy Court ASROC Litigation

Based on the Federal Circuit's decision, on July 26, 1990, the Trustee filed an objection to the portion of the government's claim 764A that sought unliquidated progress payments under the ASROC contract and moved for summary judgment. In its motion for summary judgment, the Trustee argued that under the ASROC contract, the government was entitled to progress payments only upon a proper default termination. Because the Federal Circuit held that the government materially breached the ASROC contract, resulting in a termination for convenience of the government (instead of a proper default termination), the Trustee maintained that the portion of the government's claim 764A seeking progress payments under the ASROC contract was invalid.

The bankruptcy court agreed and concluded that the Federal Circuit's decision eliminated the government's...

To continue reading

Request your trial
104 cases
  • Tolbert v. Gallup Indian Med. Ctr.
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 17 Agosto 2021
    ...23 L.Ed.2d 52 (1969) ). See United States v. Nordic Vill., Inc., 503 U.S. at 33-34, 112 S.Ct. 1011 ; United States v. Murdock Mach. & Eng'g Co. of Utah, 81 F.3d 922, 930 (10th Cir. 1996).The Tenth Circuit has emphasized that all dismissals for lack of jurisdiction, including those for a fai......
  • Tolbert v. Gallup Indian Med. Ctr.
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 17 Agosto 2021
    ...See United States v. Nordic Vill., Inc., 503 U.S. 30, 33-34, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992) ; United States v. Murdock Mach. & Eng'g Co. of Utah, 81 F.3d 922, 930 (10th Cir. 1996).The Tenth Circuit has emphasized that all dismissals for lack of jurisdiction, including those for a fa......
  • Simmat v. U.S. Bureau of Prisons
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 1 Julio 2005
    ...("The APA's waiver of sovereign immunity applies to any suit whether under the APA or not."); see also United States v. Murdock Mach. & Engr. Co., 81 F.3d 922, 930 n. 8 (10th Cir.1996) (describing § 702 as "a general waiver of the government's sovereign immunity from injunctive relief"). So......
  • Cheromiah v. U.S.
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 29 Junio 1999
    ...181 (1992); United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 1368, 108 L.Ed.2d 548 (1990); United States v. Murdock Mach. & Eng. Co., 81 F.3d 922, 929 (10th Cir.1996); James v. United States, 970 F.2d 750, 753 (10th Cir.1992). "The policy behind this rule is that the government sho......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT