United States v. Heaton

• Decision Date: 14 July 1961
• Docket Number: Civ. No. 0751.
• Citation: 195 F. Supp. 742
• Parties: UNITED STATES of America, Plaintiff, v. P. J. HEATON, Sr., G. W. Pitman, George W. Barlow and Eugene Malm, d/b/a Heaton and Pitman, Defendants.
• Court: U.S. District Court — District of Nebraska

195 F. Supp. 742

UNITED STATES of America, Plaintiff, v. P. J. HEATON, Sr., G. W. Pitman, George W. Barlow and Eugene Malm, d/b/a Heaton and Pitman, Defendants.

Civ. No. 0751.

United States District Court D. Nebraska.

July 14, 1961.

William C. Spire, U. S. Atty., Ronald D. Raitt, Asst. U. S. Atty., Dist. of Nebraska, Omaha, Neb., for plaintiff.

Milton C. Murphy and Donald W. Pederson, North Platte, Neb., for defendants.

VAN PELT, District Judge.

Defendants leased from the United States 16,000 acres of land located on the Sioux Ordnance Depot, Sidney, Nebraska. The land was to be used for grazing purposes, and the lease was to run from July 1, 1952 until December 31, 1956. Defendants were to pay an annual rental of $12,100 and perform certain farming and land maintenance operations to prevent and control fire hazards.

The contract of lease contained a standard "disputes" clause which provided that the Government's contracting officer should decide disputes arising under the contract concerning questions of fact, and, in addition, gave the defendants the right of appeal to the head of the department whose decision was to be final. Since the disputes clause is in issue here its exact terms are set forth.

"That, except as otherwise specifically provided in this lease, all disputes concerning questions of fact which may arise under this lease, and which are not disposed of by mutual agreement, shall be decided by the said officer, who shall reduce his decision to writing and mail a copy thereof to the lessee at his address shown herein. Within thirty (30) days from said mailing the lessee may appeal to the Secretary of the Army, whose written decision, or that of his designated representative or representatives or board, shall be final and conclusive upon the parties hereto. Pending decision of a dispute hereunder, the lessee shall proceed with the performance of this lease."

After the lease had expired a controversy arose concerning whether defendants had complied with certain of its provisions. The Government's contracting officer made certain findings of fact which were mailed to the defendants in December, 1957 and which determined that defendants had breached the lease provisions. Damages were assessed against defendants. Defendants filed a timely appeal with the Armed Services Board of Contract Appeals, hereinafter referred to as the Board. Thereafter, on July 17, 1958 the Government moved the Board to dismiss the appeal. The motion recited that:

"1. In paragraphs 2 and 25 of the appellant's appeal, the appellant questions the jurisdiction of this Board to consider the dispute.

"2. Paragraphs 29, 30, 31, 32 and 33 of the contracting officer's Finding of Facts dated 26 December 1957 clearly establishes that the contracting officer is attempting to assess damages resulting from the alleged nonperformance by the appellant of certain terms and conditions of the lease.

"3. The conditions or terms of the lease do not authorize the contracting officer to assess damages against the lessee in the event of nonperformance by the lessee of the terms and conditions of said lease.

"4. Absent a contract provision authorizing the contracting officer to assess actual damages, such officer is not authorized to assess such damages. Citations omitted.

"5. The Armed Services Board of Contract Appeals has consistently taken the position that it is without authority to resolve unliquidated damage claims arising from breach of contract. Citations omitted.

"6. When it appears that a claim for unliquidated damages is involved in an appeal, the Board by its charter is authorized to make findings of fact with respect to such claims without expressing an opinion on questions of liability. However, in this instance, it is not believed that such action on the part of the Board would serve any useful purpose.

"7. Even if the Board should decide to consider this appeal and to make a finding of fact, such action probably would not dispose of the dispute. Furthermore, such finding of fact would not be binding on the courts. Volentine and Littleton, a partnership v. United States, 145 F.Supp. 952 136 Ct.Cl. 638.

"8. The Government respectfully requests that a decision on the motion be rendered prior to any hearing on the merits. In the event this motion is denied, the Government reserves the right to answer specifically the allegations contained in the appellant's complaint."

This motion was joined in by the defendants, and the Board dismissed the appeal on September 30, 1958. On December 23, 1958 the Government filed the complaint in this action alleging that defendants had failed to comply with certain provisions of the lease, and praying for judgment for $113,366.12. The complaint alleges that the findings of fact made by the contracting officer are binding in this action. This is denied by defendants' answer.

The matter is now before the court upon the plaintiff's motion for a partial summary judgment. Plaintiff takes the position that the "Findings of Fact" are final and binding in this action and show that plaintiff is entitled to judgment as a matter of law. Only the measure of damages would be left for consideration by the court. Defendants deny that such findings are binding. The issue involved may be stated thus: Whether the Findings of Fact Made by the Contracting Officer Are Binding upon the Parties in This Action.

At the outset it will be helpful to summarize generally the respective contentions of the parties. The crux of plaintiff's argument is that the findings of fact are binding because the defendants failed to exhaust their administrative remedies which precludes them from now assailing the facts as found by the contracting officer. Defendants primarily contend that the disputes clause had no application to the controversy over the alleged breach since it arose after the expiration of the lease.

The initial inquiry is whether the disputes clause was applicable to this controversy. The court thinks that it was not. In United States v. Duggan, 8 Cir., 1954, 210 F.2d 926, the Government asserted certain claims against a contractor in a reorganization proceeding. The contractor had a contract to build gliders for the United States, which was terminated for default by the contractor. The disputes clause provided that all disputes concerning questions of fact arising under the contract were to be decided by the contracting officer subject to written appeal by the contractor to the head of the department concerned or his duly authorized representative, whose decision was to be final and conclusive on the parties. In the meantime the contractor was to proceed with the work. The Court of Appeals had this to say:

"Obviously, we think, this Article provided for nothing more than an administrative determination of questions of fact which might arise during the course of the performance of the contract and prior to its termination." 210 F.2d 926, at page 932 (emphasis added).

It was held that the district court was in error in concluding it had no jurisdiction to entertain the Government's claim because no administrative determination had been made as to the amount owed by the contractor upon the termination of the contract.

This decision by the Court of Appeals for the Eighth Circuit is controlling. The disputes clause involved here is identical in legal import. There is likewise a claim by the Government arising after the termination of the contract. Since the disputes clause did not govern this dispute the findings of fact made pursuant thereto are not binding in this action.

Available authority supports this position. In E. I. Du Pont De Nemours & Co. v. Lyles & Lang Const. Co., 4 Cir., 1955, 219 F.2d 328, 333, it was said:

"The disputes clause was evidently intended to furnish a ready means of administrative settlement of questions arising during the performance of the contract which might delay or interfere with performance, not to provide for unilateral determination of the amount due under the contract upon its termination." 219 F.2d 328, at page 333.

See, also, Lundstrom v. United States, D.C.Or.1941, 53 F.Supp. 709.

In addition, the court agrees with the argument of defendants that the disputes clause has no application to actions for breach of contract. There can be little question but that this is a breach of contract action. The gist of the complaint is that defendants failed to comply with the terms of the lease. The prayer is for damages. In Silberblatt & Lasker Inc. v. United States, 1944, 101 Ct.Cl. 54, at page 81, the court said:

"Such a dispute breach of contract the contracting officer is not authorized to decide finally; his authority is limited to disputes `arising under the contract'; it does not extend to disputes over a breach of the contract * * *."

And in Boomer v. Abbett, 1953, 121 Cal. App.2d 449, 263 P.2d 476, the court held that a disputes clause was not applicable to questions arising out of a breach of contract. Citing numerous cases the court said:

"The cases interpreting federal contracts have clearly established that actions that amount to an actual breach of the contract are not covered by the `disputes' article." 263 P.2d 476, at page 484.

For the reasons that the disputes clause applies neither to controversies arising after the termination of the contract nor to actions for breach of contract the court holds that the findings of fact made...