United States v. Taylor

• Decision Date: 14 September 1964
• Docket Number: No. 20516.,20516.
• Citation: 333 F.2d 633
• Parties: UNITED STATES of America, Appellant, v. R. H. TAYLOR et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

333 F.2d 633 (1964)

UNITED STATES of America, Appellant, v. R. H. TAYLOR et al., Appellees.

No. 20516.

United States Court of Appeals Fifth Circuit.

June 22, 1964.

Adhered to on Rehearing September 14, 1964.

Robert E. Hauberg, U. S. Atty., E. R. Holmes, Jr., Asst. U. S. Atty., Jackson, Miss., Alan S. Rosenthal, Stephen B. Swartz, Attys., Dept. of Justice, Washington, D. C., John W. Douglas, Asst. Atty. Gen., for appellant.

Vardeman S. Dunn, Jackson, Miss., Bruce C. Aultman, Hattiesburg, Miss., William H. Cox, Jr., Jackson, Miss., Simrall, Aultman & Pope, Hattiesburg, Miss., Cox, Dunn & Clark, Jackson, Miss., of counsel, for appellees.

Before HUTCHESON and GEWIN, Circuit Judges, and HOOPER, District Judge.

Adhered to on Rehearing September 14, 1964. See 336 F.2d 149.

HUTCHESON, Circuit Judge.

The United States as assignee of its contractor's claims and demands against a subcontractor for contractual overpayments instituted this action for recovery on those claims.¹ An order granting appellee-subcontractor's motion for summary judgment was entered, and the United States appeals that order. The order was in error. The United States' motion for summary judgment should have been granted. On this appeal the primary questions before the court are, what law applies to the interpretation of a disputes clause in a subcontract under a contract to perform work on a government project and how such a clause should be interpreted.

Peter Keiwit Sons contracted with the United States Government acting through the Atomic Energy Commission for the construction of a gaseous diffusion plant near Portsmouth, Ohio. On March 3, 1953, appellee Taylor-Wheless² entered into a subcontract with Keiwit to remove and grade dirt at the plant site. The subcontract required that payment should be made to the subcontractor on the basis of the number of cubic yards of material acceptably excavated. The amount of material excavated was to be determined by measuring it "in original position from cross-sections taken before stripping and after excavation and computed by the average end area method." The parties later orally agreed to substitute the load count method for the average end method of material measurement as a practical way of making periodic quantity determinations upon which to base progress payments.

The work under the subcontract was completed in November, 1953. Keiwit then computed by the average end area method the work performed by Taylor-Wheless. Based on this computation in November, 1954, Keiwit issued Taylor-Wheless a final pay estimate indicating that payments made by the load count method exceeded those due under the average end area method, after subtracting retainage, by approximately $383,000.00. Taylor-Wheless rejected this estimate as inaccurate. Keiwit requested the Atomic Energy Commission to employ an independent survey group to determine if there was an overpayment. Such a group was employed, and they concluded that under the average end area method the overpayment less retainages amounted to $337,973.52. This computation presented to Taylor-Wheless on July 25, 1955, was also refused as inaccurate.

The parties failed to resolve their dispute and Keiwit referred the dispute to the Commission's General Manager of Oak Ridge Operations under the provisions of the subcontract's disputes clause. The clause was subsequently amended by agreement between the parties to provide for disputes determination by the Commission. The dispute was, therefore transferred to the Atomic Energy Commission Advisory Board of Contract Appeals (Board). No hearing had been held prior to this transfer.

The Board, after a hearing, found that after Keiwit's initial submission of the dispute, as prescribed by the disputes clause of the contract, Keiwit and Taylor-Wheless agreed to modify the disputes clause by agreeing to submit disputes to the Commission rather than the Manager of Oak Ridge Operations. They further found that Taylor-Wheless and its attorney suggested times and places of hearing, that the chairman set a hearing, that Taylor-Wheless indicated it was preparing for the hearing, agreed to a postponement of the hearing date, requested further postponements of the hearing, and, after failing to negotiate a settlement with Keiwit in December, 1956, objected to the jurisdiction of the Board and withdrew from the proceedings.

The Board proceeded to determine the issue as to overpayment under the average end area method of computation. Taylor-Wheless did not participate in the hearing. The Board did consider a document previously presented Keiwit by Taylor-Wheless entitled "Statement in Support of Taylor-Wheless Co.'s Final Estimate". The document attempted to justify accuracy of the load count computations and attacked the accuracy of the average end area computations made by Keiwit prior to the independent survey. After considering oral and documentary evidence and Keiwit's brief, the Board found an overpayment in the amount determined by the independent surveyors. They relied on this survey since they found that there was no showing that the final figures reflected inaccurate application of the computation principle called for in the contract,³ and there was adequate basis in the record for finding that the computations were accurate. This fact finding of an overpayment of $337,973.52 was adopted by the Deputy General Manager of the Atomic Energy Commission on April 8, 1958.

On August 4, 1958, the Commission's Portsmouth Area Manager, as Contracting Officer, determined Keiwit's overpayment to Taylor-Wheless was an allowable cost and discharged Keiwit from any obligation with respect to government funds advanced for these payments. On August 19, 1958, Keiwit assigned its claims for overpayment against Taylor-Wheless to the United States. The United States instituted this action in the district court praying for judgment in the amount of the disputes award on both the decision of the Board and the underlying claim. Taylor-Wheless moved to dismiss, then moved for summary judgment on the grounds that: withdrawal from the disputes procedure invalidated the award; the Atomic Energy Commission and not the Board was the proper hearing agency; the assignment was invalid and unenforceable; and, finally, the suit constituted a suit on an implied contract and was, therefore, barred by the Mississippi Three Year Statute of Limitations.⁴ The United States moved for summary judgment on the grounds that the award and the underlying claim were valid, viable, and enforceable. The court granted the motion of Taylor-Wheless and denied that of the United States.

The court held that: the parties had entered into an arbitration agreement; this was a remedial rather than a substantive matter; and the law of Mississippi would apply to the enforcement of the agreement in a suit such as this in which the government claimed as assignee. Under Mississippi law the court held that "a party has a complete right to withdraw from arbitration proceedings any time prior to the making of an award". Therefore, the court reasoned the award was invalid. Both parties admit that this is an accurate statement of the law of Mississippi. They both rely on McClendon v. Shutt, 237 Miss. 703, 115 So.2d 740 (1959) and Machine Prod. Co. v. Prairie Local No. 1538, 230 Miss. 809, 94 So.2d 344, 95 So.2d 763 (1957).

The government insists, however, that federal law applied to the interpretation of subcontracts executed under government contracts and that, under such law, administrative remedies must be exhausted before resort is made to the courts. They rely on American Pipe & Steel Corp. v. Firestone Tire & Rubber Co., 292 F.2d 640 (9th Cir. 1961). Here the court applied federal law to the interpretation of a subcontract under a federal contract since the area was one dominated by the sweep of federal statutes, the contracts were connected with national security, and, in this instance, a possible increase in the cost of national security was involved. The government is correct. The subcontract in this case would be interpreted by federal law under the sweeping command of the Firestone decision. It is not necessary, however, to paint with such a broad brush.

The trial court erred in treating the disputes clause as an agreement to arbitrate which ousted the court of jurisdiction and was historically viewed with a jealous eye by the courts. The clause is an ordinary disputes clause and so far as possible should be treated as similar clauses in contracts between the government and its contractors. The subcontract disputes clause reads as follows:

"ARTICLE VIII — DISPUTES

"Except as otherwise specifically provided in this subcontract any and all questions, issues, and disputes arising under this subcontract shall be settled if possible by negotiations and mutual agreement of the parties hereto, but in the event of their inability to agree, shall be decided by the Commission\'s Manager of Oak Ridge Operations or his duly authorized representative, representatives or board, whose decision shall be final and conclusive on the parties. In the meantime, the Subcontractor shall diligently proceed with the contract as directed."

This clause was modified by mutual agreement on February 28, 1956 substituting the word "Commissioner" for the words "Commission's Manager of Oak Ridge Operations or his duly authorized representative, representatives or board".

The disputes clause in a contract between the government and a contractor has long been recognized and approved as a valid provision for the determination of fact issues arising out of the contract.⁵ The purpose of the clause is to provide for a quick efficient determination of disputes on an administrative level, thus mitigating or avoiding large claims which might otherwise arise.⁶ The Atomic Energy Commission has made its disputes settlement procedure available to parties to subcontracts under contracts let by them.⁷ And...