United States v. Bethlehem Steel Company

• Decision Date: 13 February 1962
• Docket Number: Civ. A. No. 12888.
• Citation: 215 F. Supp. 62
• Parties: UNITED STATES of America v. BETHLEHEM STEEL COMPANY.
• Court: U.S. District Court — District of Maryland

215 F. Supp. 62

UNITED STATES of America v. BETHLEHEM STEEL COMPANY.

Civ. A. No. 12888.

United States District Court D. Maryland.

February 13, 1962.

Joseph D. Tydings, U. S. Atty., and Herbert Pittle, Washington, D. C., for plaintiff.

David R. Owen, and Semmes, Bowen & Semmes, Baltimore, Md., for defendant.

WINTER, District Judge.

The United States of America (Government) seeks a declaratory judgment against Bethlehem Steel Company (Bethlehem) to construe a contract between them executed as of August 15, 1941, but actually signed January 23, 1942 (the Contract), and to determine the legal effect of certain acts of the parties thereunder,¹ The Contract, negotiated and executed contemporaneously with the outbreak of World War II, provided for (a) the construction by Bethlehem of ship-repair facilities for the Navy Department (the Facilities), with reimbursement by the Government, on a site adjacent to Bethlehem's Key Highway Yard, Baltimore, Maryland, to be furnished to Bethlehem by the Government, (b) the use and occupancy of the Facilities by Bethlehem for the performance of private and Government ship-repair contracts, (c) the rent to be paid by Bethlehem, and (d) Bethlehem's right to purchase the Facilities, and the price to be paid therefor.

The controversy between the parties stems from the construction to be afforded "ART. 14. OPTIONS OF CONTRACTOR AND GOVERNMENT," which, so far as relevant, provides:

"(a) At any time, and from time to time, prior to the termination or expiration of the Stand-by Period, the Contractor, if it desires to purchase the Facilities, may request the Department to obtain a determination of the purchase price thereof. Within thirty (30) days after the receipt of any such request by the Department, the Navy Compensation Board shall certify such purchase price to the Department and to the Contractor. The price so certified shall be equal to the Acquisition Costs of the Facilities undiminished by any revision under Article 11(a) (i) hereof less depreciation on each item of the Facilities at the rate of six percent (6%) per annum from the date upon which such item was installed and available for use, to the date of the Contractor's request for the determination made hereunder, and less the costs as determined by said Board of all repairing, reconditioning, rebuilding or replacement of items of the Facilities, or parts thereof, which the Department shall not have authorized or directed to be done under Article 11(a) (i) hereof: Provided, however, That such price shall never be less than fifteen percent (15%) of the Acquisition Costs of the Facilities. The Contractor, for a period of thirty (30) days from the receipt of any such certification, shall have the right to purchase the Facilities at the price so certified, by making a payment to the Government of an amount equal to such price, or by giving notice to the Department of its election to purchase the same at such price and entering into a contract with the Government specifying the terms of such purchase: * * *."²

After abortive negotiations for the purchase of the Facilities in 1952-1953, the Government, by letter dated August 9, 1957, advised Bethlehem of the former's interest in selling the Facilities. Bethlehem, by its letter dated August 15, 1957, replied that it desired to purchase them and requested a determination of the price in accordance with Art. 14. The Government, after first determining that it lacked the authority to perform in accordance with the terms of the option,³ completely reversed its position and, on July 2, 1958, certified to Bethlehem a price of $781,660.72. This price was based upon the depreciated acquisition cost of the Facilities, determined as of May 15, 1958, except land, with the land included at its original acquisition cost. Bethlehem declined to pay this price because it contended that the proper price under the option was depreciated acquisition cost, including the cost of land, determined as of August 15, 1957, the date of Bethlehem's letter stating its desire to purchase. Bethlehem's computation of the correct purchase price was $477,207.00.

Bethlehem paid rent to and including September 14, 1957, but failed and refused to pay rent thereafter,⁴ whereupon the Government, by its letter dated May 1, 1959, purportedly terminated the Contract and asserted its right to recover a fair and reasonable rent, greater than that specified in the Contract.⁵ Indeed, the Government withheld payments to Bethlehem, due it under other and unrelated contracts, as an offset against Bethlehem's alleged liability for unpaid rent, although these funds were released prior to the hearing, so that there no longer exists a justiciable controversy between the parties as to the legality of the Government's withholding, aside from Bethlehem's claim, if any, for interest during the period of withholding. It is conceded that the latter is not now before the Court.

The Government requests judgment of the Court, declaring and determining that the option price specified by Art. 14 was the sum of the depreciated acquisition cost of the Facilities, except land, and land at its undepreciated acquisition cost, determined as of May 15, 1958; Bethlehem contends conversely as to the depreciation of land and the date as of which the option price should be determined.⁶ The Government also seeks a declaration that Bethlehem is liable for the rent specified in the Contract from September 15, 1957 until May 1, 1959, and rent based upon "reasonable value of the use and occupancy of the Government's property thereafter," claimed to be $12,000.00 per month, with interest, and, implicit in the latter, a determination that Bethlehem breached the Contract, thus giving the Government the right to terminate it and escape the lesser rent prescribed by Art. 10.

The Contract itself provides a definition of the word "Facilities" in the third recital, preceding a statement of the mutual covenants and agreements between the parties, by defining the word to mean the items specified in Schedules 1 and 2 attached to the Contract.⁷ In turn Schedule 1, designated as the Facilities to be furnished by the Government, lists two items: site (three tracts of land, including two marine railways thereon) and special contingency for acquisition of site. Thus, if the Court's determination is limited to a consideration of the Contract, the conclusion seems inescapable that Art. 14, in prescribing the option price as the acquisition costs of the Facilities, less depreciation, is operative as to each item of the installation, including land.

This surface and apparent meaning of the word "Facilities" as used in Art. 14 is reinforced by a consideration of other portions of the Contract. Art. 1(b) imposed on the Government the obligation to acquire the Schedule 1 Facilities "as soon as practicable" and furnish them to Bethlehem. Since land and improvements thereon were the only items to be furnished by the Government, "Facilities" as used in Art. 1(b) certainly meant land. Art. 5 reserved title to the Schedule 1 Facilities in the Government. The fact of this litigation shows that the Government treats Art. 5 as reserving its title to land. More significantly, Art. 8 (d) required the Government to certify "Acquisition Costs" of the "Facilities" when they had been determined. In compliance, the Government certified land at $365,630.31 and cost of survey at $1,766.31.

Art. 10, which related to Bethlehem's use of the Facilities and its obligation to pay rent therefor, also made it perfectly plain that the word "Facilities" was meant to include land, and that the rent to be paid was for the use of the land, as well as for the structural improvements erected thereon.

When the parties have defined a term in an agreement between them, and have obviously used that term in accordance with the definition in many portions of the agreement, a strong showing is required to establish that a different meaning of the defined term was intended in another portion of the agreement which on its face makes no exception to the general meaning. However, the Government contends that the plain and literal meaning of Art. 14 does not obtain, because the Contract does not "clearly express the intention of the parties," is "ambiguous," and its meaning is "doubtful." To support this argument and to avoid the plain and literal meaning, the Government points to the phrase in Art. 14, which states that depreciation commences from the date "upon which such item was installed and available for use" and argues that land was not "installed and available for use;" hence, there is an ambiguity is Art. 14 apparent on the surface. The latter argument is without merit when some of the interpretive evidence presented to the Court is recited.

It was shown at the hearing that the site furnished Bethlehem by the Government consisted of three privately-owned shipyards, acquired by the Government by condemnation.⁸ These yards were used for building and repairing harbor boats. On one there were several marine railways. On all three yards, the underwater land was gently sloping and the antithesis of the berthing space needed by Bethlehem, i. e., high land and deep water. As a consequence, of the approximately one hundred thousand square feet of fast land, there remained, after construction, approximately forty-five to forty-seven thousand square feet of fast land,⁹ the level of the fast land had been raised, and there were constructed two finger piers. In the light of such extensive dredging and construction, it can hardly be said that the words "installed and available for use" are inapt as applied to the site furnished Bethlehem by the Government.

In an effort to show that the Contract did not reflect the intention of the parties, was ambiguous, and doubtful in meaning, the Government offered evidence of the negotiations leading up to the execution of the Contract. At the outset, it should be...