United States v. Russell Electric Co.
| Decision Date | 15 November 1965 |
| Parties | UNITED STATES of America, Plaintiff, v. RUSSELL ELECTRIC CO., Defendant. |
| Court | U.S. District Court — Southern District of New York |
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Robert M. Morgenthau, U. S. Atty., New York City, for plaintiff, David E. Montgomery, New York City, of counsel.
Sherman & Goldring, New York City, for defendant, Irving Michael Atkin, Bernard Kahn, New York City, of counsel.
Additional Findings of Fact and Conclusions of Law November 15, 1965.
This is an action for money damages arising from an alleged breach of contract.
Commenced July 6, 1959 by the filing of a complaint, issue was joined by service of an answer on September 4, 1959. The cause was tried before the Court and a jury on February 5, 8, 9 and 10, 1965.
Defendant moved for a directed verdict at the close of plaintiff's case (Tr. 270).1 After argument by both sides, this motion was denied (Tr. 270-296).
At the close of the entire case, plaintiff and defendant agreed to waive jury trial of the fact issues (Tr. 383).
Having rested, both sides moved for directed verdicts. Defendant moved for dismissal of the complaint on the entire record (Tr. 386). Decision on these motions was reserved pending submission of post-trial memoranda and proposed findings of fact and conclusions of law.
In April, 1951, the United States of America, by its agent, the United States Naval Ordnance Plant at Indianapolis, Indiana (hereinafter NOP), solicited bids on Contract N163s-947 (hereinafter Contract 947) relating to gyro motors. These motors were to be used in a sighting unit which was being developed by NOP for use in fighter aircraft (Tr. 231-33).
NOP received bids for Contract 947 as follows (Exs. 2-7):
Unit
Company Price
John Oster Manufacturing
Co. $30.20
Universal Electric Company 23.43
A. C. Gilbert Company 22.31
Redmond Company, Inc. 17.25
Russell Electric Company 14.12
On or about May 14, 1951, NOP awarded Contract 947 to Russell Electric Company (hereinafter Russell). Russell's bid had been signed by William Lightfoot, its General Manager. Commander Lloyd B. Clapham, Jr. was the Contracting Officer for NOP (Ex. 2).
Pursuant to Contract 947, Russell undertook to develop 5 sample motors to NOP's satisfaction before commencing production (Ex. 2, p. 2); furnish NOP manufacturing drawings (Ex. 2, p. 6); produce all special tooling necessary for the production of the motors (Ex. 2, p. 2); deliver the tooling to NOP "upon completion of the Contract" (Ex. 2, p. 5); and deliver 7,100 production motors no later than January 31, 1952 (Ex. 2, p. 6). Delivery of motors was scheduled as follows: 500 by August 15, 1951; 1,000 in September, 1951; and 1,500 per month thereafter until the full 7,100 motors had been delivered (Ex. 2, p. 6).
The United States agreed, under Contract 947, to pay Russell $113,917 for the 7,100 gyro motors ($14.12 each), and $13,665 for the special tooling (Ex. 2, p. 2). As later modified, Contract 947 provided for payment by the United States of $133,881, including special tooling and 7,100 gyro motors ($14.11493 each).
Section 11(a) of the General Provisions of Contract 947 (Ex. 2, pp. 13-14) provides:
On August 13, 1952, Redmond Manufacturing Co., Inc. (hereinafter Redmond) wrote Russell that it would no longer produce motors for Russell under Contract 947 as had been previously arranged2 (Ex. 58). A copy of this letter was sent to NOP.
NOP regarded performance under Contract 947 in danger. The need for motors was pressing (Tr. 135). It appeared delivery would not be forthcoming or, at best, unduly delayed. Accordingly, by letter dated August 22, 1952, the Contracting Officer, Commander Clapham, wrote Russell, advising (Ex. 61):
Deliveries of such supplies shall be cured and acceptable evidence that performance will not be delayed shall be furnished * * * within ten (10) days after receipt of this letter; if such is not done, the contract will be cancelled for default in accordance with Section 11(a) (ii) of the contract.
Russell failed to reply to NOP's "warning" letter. Commander Clapham, under date of September 11, 1962, then wrote Russell (Ex. 62, Tr. 122):
* * * in accordance with Section 11, General Provisions, Contract N163s-947 is terminated for default, with respect to the undelivered balance * * * specifying the items.
Five bids were received (between September 8 and October 2) in response to NOP's solicitation of ten companies for price quotations on a replacement contract (Exs. 64-28, Tr. 128-69). Because Redmond offered the best delivery schedule and the Navy's need for the gyro motors was urgent, the Contracting Officer accepted Redmond's bid even though others had submitted lower quotations (Tr. 135). Russell interposes no claim that NOP should have accepted another bid (Tr. 239-42); 243-44; 300-02; see Tr. 135; Ex. 2, Article 11(c).
At the time of termination, September 11, 1952, according to the Government, 6,935 motors remained to be delivered under Contract 947. It contends that as a result of administrative error, the replacement contract (Exhibit 63, Contract 163s-2261) entered into between NOP and Redmond on October 15, 1952, called for delivery of 6,768 gyro motors (Ex. 63, Tr. 126-27, see Exs. 64-68 at a unit price of $39.87.
The United States, in this action, seeks to recover damages resulting from Russell's default under Contract 947 as measured by the difference between the cost under the replacement contract and what would have been the cost under Contract 947 had Russell not defaulted. The excess costs amount to a total of $180,745.96.3
As we see it, Russell contends that during the fall of 1951 it abandoned and repudiated Contract 947; NOP knew of the abandonment; NOP then had a duty to and could have, but completely failed to, mitigate damages; this requires a finding for defendant. Such a result, it is further advanced, would also be reached by the alternative argument that it was the Navy which caused Redmond to cease performing by August, 1952 and any breach of contract attributed to Russell was, at that time, the result of NOP's hindrance of performance and a further failure to mitigate damages. Russell also questions NOP's allocation of motors delivered by Redmond under gyro motor contracts other than 947 and the appropriate measure of damages.
The Government, in brief, says it entered Contract 947 with Russell; Russell did not communicate to NOP any intent to abandon and repudiate the contract; rather, assurances of performance were forthcoming by Redmond, which "acted for Russell"; ultimately, after deliveries had begun, Redmond established itself as Russell's subcontractor, with NOP's consent; after Redmond's refusal to make further deliveries, Russell was given an opportunity to assume performance; absent such assurance, termination for default was proper; and Russell is thus liable for damages under the contract.
At the heart of the controversy is the relationship between the parties and with Redmond. We thus turn to view the evidence (largely undisputed) as it bears on those relationships.
1. May 1951 to February, 1952
Contract 947 was awarded in mid-May, 1951. Russell, an Illinois corporation, was at that time a wholly owned subsidiary of Raytheon Manufacturing Company of Boston, Massachusetts. A manufacturer of fractional horsepower electric motors, Russell maintained a manufacturing plant in Chicago, Illinois (Tr. 83-84).
On May 31, 1951, a Mr. Charles Frost purchased from Raytheon Manufacturing Company Russell's entire outstanding capital stock at a nominal price (Tr. 86). He arranged for an institutional financing company to acquire Russell's indebtedness to Raytheon (Tr. 83-84). This acquisition was secured by a mortgage on Russell's assets.
Throughout 1951 and 1952, Mr. Frost also owned 30 percent, and his children an additional 14 percent, of the outstanding stock of Redmond, a Michigan corporation with offices and a manufacturing facility in Owosso, Michigan. Another 44 percent of Redmond's outstanding stock was owned by its President, Mr. Frank Campbell and his family. Redmond was a manufacturer, like Russell, of fractional horsepower electric motors.
Sometime before September, 1951, Mr. Frost concluded that Russell had an inefficient organization and an incompetent staff. He had decided to discontinue its operations and liquidate certain of its assets (Tr. 96-97).
At his request, Redmond executives during the summer of 1951 had made a study of Russell's business (Ex. 52; Tr. 96-97), Mr. Frost became aware that Russell had two contracts with the Navy, Contract 947 dealing with gyro motors and a two-part contract for development and production of a different motor called a "synchro".
Concerned with completing these contracts, Mr. Frost engaged Colonel Michael Looney, an attorney practicing in Washington, D. C. and familiar with government contracts, to examine them and advise whether they could be performed by other contractors (Tr. 377).
Mr....
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