Petition — Northern Helex Co. v. United States

Supreme Court of the United States

OcroBer TERM, 1975

No. Z5-14 2%

NortHern Heiex Company, Petitioner,

Vv.

Unirep States or America, Respondent,

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF CLAIMS

CLARENCE T. Kuipps, JR.

1700 Pennsylvania Ave., N.W.

Washington, D. C, 20006

Counsel for Petitioner

Or COUNSEL :

I’, Vinson Roacw

Dean W. WALLACE

NortHern NaturaL Gas Company

2223 Dodge Street

Omaha, Nebraska 68102

Joun Luioyp Rice

Mriuer & CHEVALIER

1700 Pennsylvania Ave., N.W.

Washington, D. C, 20006

Passes or Braon 8, ADaMa Parntine, Inc.,, Wasnineton, D, C.

INDEX

Page

ND Sr he a eee 1

I iat ged ik Ct i a ee eae he 2

GQURNTISS FPORUBIGED wc ccccccccescecccccccccccccese 2

EEE ee ee ee ne en eee es 8

REASONS FOR GRANTING THE WRIT .........00ee cece ees 12

I, The failure of the Court of Claims to comply

with its Rule 147 violates a fundamental safe-

guard against decisions ne mar arbitrarily

and requires the exercise of this Court’s super-

THIOUT DOTGDD cc ccccccecccccccesccccccesecss 12

A. The Court of Claims should not be permitted

to dispense with findings of fact in cases tried

OM TRO TRGED ccc cc cccccccecccccccccccccceee 18

B. The Court of Claims should not be permitted

to summarily disregard the findings of fact

made by its trial judges .........cceeeeees 20

©. This case presents a clear illustration of why

the Court of Claims must be required to con-

tinne making findings of fact and be pre-

cluded from summarily rejecting its trial

judges’ findings of fact ..........00cceeees 22

II. The decision of the Court of Claims on damages

is so patently erroneous that the judgment should

be vacated and the case remanded for a new

SEN dnc dacedncieseeethketeueseseesinsene 26

III. The Court of Claims erred in failing to look to

and apply the Uniform Commercial Code to es-

tablish the contract price as the measure of dam-

ages for the Government’s breach of contract

when the contractor exercised reasonable com-

mercial judgment and continued to tender the

product to the Government ..............655. 30

EE i cide seu ee eneeeceueeeedsceekenaede 36

ii

CITATIONS

Cases:

Anderson v. Mt, Clemens Pottery Co., 828 U.S, 680

SEED ocs.00c ccahescduenes tas 0cuabineecacenans

Bonnar vy, United States, 194 Ct.Cl, 103, 488 F.2d 540

ERUEED 6000000566690606660900560nRs60ne es

Brown Shoe Co, v, United States, 870 U.S, 294 (1962)

Burlington Truck Lines, Inc, v, United States, 871 U.S.

Be MED 6.0 6dé:n0bbes 0b 4bnceasen Creeesennse®

Carpenter Steel Co,, AR CBCA, 65-1 B.C.A, {4,848 ..

Catalytic Engineering & Manufacturing Corp.,

4SEBCA, 13-1 B.O.A. FOBEB on. ccccccsccccvecees

Commissioner v, Duberstein, 363 U.S, 278 (1960) .....

Cities Service Helex, Inc, vy, United States, Ct.Cl, Dkt.

Pee ere eer

Council Mfg, Co.,, ASBCA, 71-1 B.C.A, 98,781 .......

Cov Broadcasting Corp, v. Coln, 420 U.S, 469 (1975)

Cross Aero Corp,, ASBCA, 71-2 B.C.A, 99,075 ......

Davis v. United States, 164 Ct.Cl, 612 (1964) .........

Duke Power Co, vy. Greenwood County, 299 U.S, 259

SD: casasedeneee BP CHOm oc vinnnctidadsscoune

Elmers v, United States, 172 Ct.Cl, 226 (1965) ......

Everett Plywood and Door Corp, v. United States, 190

Ct.Cl, 80, 119 F.2d 425 (1969) ....csessevvsevees

Federal Pac, Elec, Co,., IBCA, 1964 B.C.A, 7 4,494 ...

Gardiner Mfg. Co, v. United States, 479 F.2d 39 (9th

Cen BOE vccchsen 400006069 c00uadadasscuceess

General Elec, Co., IBCA, 66-1 B.C.A, 95,507 ........

Gibson v, Lockheed Aircraft Service, Inc., 350 U.S, 356

SED n.c0o.006000054600060n0K086heeRRsuas ES ene!

Gillespie vy. United States Steel Corp,, 379 U.S, 148

>) PPT Treo ot

Grain Merchants v. Union B, & S, Co,, 408 F.2d 209,

(7th Civ. 10GB) .ccccccccccccccccccccvevccvvece

(iroves v. United States, 202 Ct.Cl, 660 (1973) .......

Interstate Circuit, Inc. v, United States, 304 U.S, 55

BUD nov cundececnccdeccgneséesecesecaseesenas

John (, Kohler Co, v. United States, 204 Ct.Cl, 777,

406 F.9d 1900 (2074) 2. ccccccccccvvesccccccees

Kain Cattle Co., ASBCA, 73-1 B.C.A. 19,999 ........

Kelley vy. Everglades Drainage District, 319 U.S, 415

CBDES) ccccccccccesccecennccosceecessesecscces

Keydata Corp, v, United States, 205 Ct.Cl, 467, 504 F.2d

RDU (1GTE) oc cccccvecccccccccsvcveveccsececces

19

Citations Continued

In re King-Porter Co,, 446 F.2d 722 (5th Cir, 1971) ..

Mayo v, Lakeland Highlands Canning Co., Ine., 309

ee Ge ED oo badnandesaneenasehedeeenes cas

wee tom States, 168 Ct.Cl. 498, 339 F.2d 661

National Helium Corp. v, United States, Ot.Cl, Dkt. No.

Northeross v. Board of Education, 412 U.S, 427 (1974)

Northern Helex Co. v. United States, 197 Ct.Cl, 118, 45

I'.2d 546 i (ape bianees cube cae kes teeeenedes

Padbloc Co, Inc. v, United States, 161 Ct.Cl. 369 (1963)

sae ey Unlimited, Inc., VACAB, 66-1 B.C.A,

5,444 COO OOOOOO HERE eee Hee eee eee eeeenene

Reeves Soundcraft Corp,, ASBCA, 1964 B.C.A, J 4,317

Saginaw Broadcasting Co, v, Federal Communications

Commission, 96 F.2d 554 (D.C, Cir.), cert. denied

ee Wah UE CUED ccc cheBuccccnennascduadacne

Schlagenhauf v, Holder, 379 U.S, 104 (1964) .........

Schneiderman vy, United States, 320 U.S, 118 (1943) ..

Bee tOeTy Board of Bar Examiners, 353 U.S, 232

Mh Kxc4 se6ke 6 ncukune Lee eds cee schenas

Seminole Nation v, United States, 316 U.S, 286 (1942)

ae or Piute Indians v, United States, 125 Ct.Cl, 241

Dn 9ikesties nan dsébuadesknueeitnes teennenes

Southern Construction Co, v. United States, 371 U.S.

SREP eit cn ey pen pRr aR

Taylor v, McKeithen, 407 U.S, 191 (1972) ........045.

Terrell vy. Houschold Goods Carriers Bureau, 494 F.2d

16 (Sth Cir.) cert, denied 419 U.S, 987 (1974) ....

Tilghman v, Proctor, 125 U.S, 126 (1888) ........605.

In . fon Laxpress Systems, Inc,, 870 F.2d 433 (2d Cir,

Se -n.06 60-6006 as dN bee hes as cans coe eeeeke bee

United States v. Causby, 828 U.S, 256 (1946) ........

United States v, Cloverleaf Cold Storage Co., 286 F.

Supp. Se Ce BED sn ccccusesvicotveoses

United States v. Dooling, 406 F.2d 192, cert. denied, 395

ok | ee a een

United States v, Forness, 125 F.2d 928 (2d Cir, 1942)

United States v. Heat, 444 F.2d 804 (5th Cir, 1971) ..,

United States v. Marine Bancorporation Inc., 418 U.S.

8 BRR rr re ee :

33

iv Citations Continued

Page

United States v, Merz, 376 U.S, 192 (1964) .......05. 21

United States vy. National Optical Stores Co,, 407 F.2d

Toe (yee Cae. DOGO) 00 cceccccencsscanneneeeea of

United States v. Penn Foundry & Manufacturing Co.,

BRC, GEE Uler SOO CODED 6 0eseucscessuausanee 15,17

United States v. United States District Court, 444 F.2d

651 (6th Cir, 1971) aff'd 407 U.S, 297 (1972) , 14

United States v. United States Gypsum Co.,, 333 US.

B64 (IDES) on vccscccvcecscensntabeusneeeeeee 21

United States v. Wegematic Co., 360 F.2d 674 (2d Cir,

BOGS) cccccvccccceccescccesceeseneesasenuneaen 32

Will v, United States, 889 U.S, 90 (1967) vo... cee 14

Zenith Radio Corp. vy. lHazeltine Research, Inc., 395

UR. BGO (OREO) cccccccccvecceseceeenscaeaee 21

STATUTES:

96 Bhat. SGD OT (OGGT) occcccccccescccssecavanmene 15, 16

$8 U.S.C. (9066. 26a.) 06 SOR, FES vec cccccesessuckunee 16

56 U.B.0, (ERGO Be) BGO ccccvccessccenseuneaneee 16

$6 U.B.0. (30GB Tae) 8 UGE occccccecsceosesaneeunul 16

SB USO. PIRES) .cccccccccsccessevaseseuneneeue 2

Bie OR) Pee 20)

Y8 U.S.C. (1948 Ed.) §§ 2071, 2072 oo... ccc cseeeeees 16

SB UGG, GHBRS cccecccccccccecesccecuecenaeuuee 16

BO UGG, OOF ceccccveséccevccesccseneanneeee 3, 26

Count RuLes:

Court of Claims Rule 147 .....ccccccccees 2,11, 12, 13, 15,

20, 21, 25, 30

Federal Rules of Civil Procedure, Rule 85 ...... ... 14

Federal Rules of Civil Procedure, Rule 52 ......... 18, 20

Federal Rules of Civil Procedure, Rule 53 ......... 20, 21

lederal Rules of Civil Procedure, Rules 52 and 75 16

MiIsceLLANEOUS:

2 B Barron & Holtzoff, Federal Practice and Proce-

Gases (Writ IG, BOGE) .cccccscusnceaueeuee 19

Hawkland, A Transactional Guide to the U.C.C, (1964) 31

86 Harvard Law Review 595 (1973) oo... cece eee ee 14

Hl, Rep, No, 808, 80th Cong, Ist Sess, (1947) ........ 16

Citations Continued Vv

Page

1 B Moore’s Federal Practice, § 0.404 .............- 34

5 A Moore’s Federal Practice, { 52.06 [1] ........... 19

) Moore’s Federal Practice, {110.25 ..............-. 36

Notes of Advisory Committee on 1946 Amendment to

Rule 52(a), F. B. Civ. P. .......ccccccececce: . 19

Restatement of Law, tate eee de gs 9

Traynor, ‘‘Statutes Revolving in Common-Law Or-

bits’’, 17 Cath. U.L. Rev. 401 (1968) ............ 33

UC. BEBBS nccccccccccccccccccrcccvcscccccccons 31

TIMED, UE cdcvcecvccesccceccccccecccscceoeces 30, 34

UOC. OS-TOG cncccccccccccscccccescccess 8, 30, 31, 39, 34

U.C.C. § 2-709 nn ccescccllh 31, 32

1 U.S. Code Cong. and Admin. News 1948 ........... 16

IN THE

Supreme Court of the United States

OcToBEeR TERM, 1975

No.

NORTHERN Hetex Company, Petitioner,

v.

Untrep States oF AMERICA, Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF CLAIMS

Petitioner, Northern Helex Company, respectfully

prays that a writ of certiorari issue to review the

judgment and opinion of the United States Court of

Claims entered in this proceeding on October 22, 1975,

and that the Court of Claims be directed to reconsider

and decide this cause in compliance with its rules.

OPINION BELOW

The opinion of the Court of Claims, reported at 207

Ct.Cl. 862, 524 F.2d 707, together with the opinion

and findings of fact of the Trial Judge, and the 1972

opinion of the Court of Claims, appear in the sep-

arate Appendix filed herewith.

2

JURISDICTION

The judgment of the Court of Claims was entered

on October 22, 1975. A timely petition for rehearing

en banc was denied on January 9, 1976, and this peti-

tion for certiorari was filed within 90 days of that

date. This Court’s jurisdiction is invoked under 28

U.S.C. § 1255(1).

QUESTIONS PRESENTED

1. Whether this judgment should be reversed and

the cause remanded for a new decision in this excep-

tionally important and lead case involving the largest

claim ever decided by the Court of Claims because it:

(a) disregarded its Rule 147(a) and departed from

its 110-year procedure by not adopting or making any

findings of fact, thereby failing to provide a discern-

ible factual basis for its judgment; and

(b) summarily disregarded the Trial Judge’s 277

Findings of Fact notwithstanding the presumed cor-

rectness of such findings under Rule 147(b).

2. Whether the Court of Claims committed gross

errer compelling reversal when the record incontro-

vertibly shows, and the Trial Judge found, that:

(a) none of the $43 million cost of contract per-

formance can be saved and the helium must be ex-

tracted whether accepted by the Government or wasted

into the atmosphere because the helium plant is in-

extricably integrated with other facilities in a manner

known to and encouraged by the Government; and

(b) only judgment for the contract price will com-

pensate petitioner for its actual direct damages and

a Sa — -

ai

3

result in the Government’s receiving the helium vital

to this Nation.

3. Whether the Court of Claims erred in failing to

look to and apply the Uniform Commercial Code to

establish the contract price as the measure of damages

for the Government’s breach of contract when the con-

tractor exercised reasonable commercial judgment and

continued to tender the product to the Government.

STATEMENT OF CASE

This is the first of several exceptionally large

breach of contract cases arising out of the helium con-

servation program.’ The United States, acting

through the Department of Interior (Interior), en-

tered into a helium purchase contract on Angust 15,

1961, With Northern Helex Company (Northern Helex

or petitioner), a wholly-owned subsidiary of North-

ern Natural Gas Company (Northern) which pro-

vided that helium would be delivered and paid for

during the period 1962 through 1983.

Interior entered into four helium purchase con-

tracts pursuant to the Helium Act Amendments of

1960, 50 U.S.C. § 167 et seq., totaling approximately

$950 million. The program and contracts were ini-

tiated because (1) helium is a unique and limited nat-

ural resource vital to fulfilling many of our energy,

defense, space, industrial, and medical needs, and (2)

helium contained in the natural gas being produced

foi fuel constitutes this Nation’s largest helium re-

1 See, e.g., Cities Service Helex, Ine. v. United States, Ct. Cl.

Dkt. No. 128-75 (filed April 24, 1975), seeking $99 million; Na-

tional Helium Corp. v. United States, Ct.Cl. Dkt. No. 158-75 (filed

May 12, 1975), seeking $175 million.

4

serve and unless extracted and saved from the gas on

the way to market, the helium is wasted into the at-

mosphere. It is uncontroverted that conservation of

this helium is still clearly in the public interest (App.

306, 252-253).

Interior’s contract with Northern Helex was pre-

ceded by extensive studies by both parties of North-

ern’s gas stream and the manner in which helium

could be extracted to their mutual benefit. A general

comprehension of how a helium extraction plant pro-

vides the opportunity to extract other constituents

from a natural gas stream is crucial to understanding

why inextricable integration of petitioner’s helium

plant with other facilities was clearly foreseen by the

Government and the result reached by the Court of

Claims is clearly erroneous.

Liquefied petroleum gas (LPG) and ethane are

combustible constituents of natural gas and their re-

moval reduces the heating value of the remaining gas

stream unless a commensurate quantity of helium and

nitrogen, which are non-combustibles, is also removed.

Inasmuch as the nitrogen content of Northern’s

stream was between 12% and 14% and the helium

content was .4%, nitrogen was the predominant non-

combustible to be removed. Helium and nitrogen are

extracted by the same cryogenic process which, in

stages, liquefies the other constituents of the gas

stream leaving as a vapor a helium and nitrogen mix-

ture which is then separated in the final stage. Thus,

as a result of the nitrogen removal capability made

available by a helium extraction plant, LPG and

ethane are extracted for petrochemical operations

and, at the same time, substantial economies are

5

achieved by integrating the processes and the physical

facilities involved (App. 169-170, 221-222, 38).

Interior, which prior to the Helium Act Amend-

ments had been the sole extractor and supplier of

helium, recognizi:d that the process for helium ex-

traction would also enable Northern to remove nitro-

gen which then would permit extraction of LPG and

ethane for petrochemical operations. The potential

for integrating petrochemical operations with tli

helium plant and the dependency of the petrochemic:!

operations on the continued operation of the helium

plant were apparent to and discussed by Northern

and Interior. Congress and Interior wanted private

industry to participate in the conservation program

and provide the capital to construct and operate the

helium plants. The means expressly used by Interior

to attract Northern and the other owners of rich

helium-bearing natural gas into the helium conser

vation program were (1) a contract to purchase the

helium for 20 years and (2) the opportunity to extract

LPG and ethane for petrochemical operations through

the nitrogen removal capability provided by a helium

plant.

In accordance with the integration plans discussed

and encouraged by Interior, petitioner constructed

a helium plant which was inextricably integrated with

LPG, ethane, and petrochemical operations.’ The he-

lium plant was intentionally designed and constructed

to extract a nitrogen stream in the quantities needed

by Northern to support its ethane and petrochemical

operations. It is this need to remove nitrogen in

2The petrochemical facilities were the last to be constructed

under the $300 million integration plan because they were de-

pendent on the operation of the LPG and helium facilities.

6

order to permit the extraction of ethane for petro-

chemical operations that makes the integration inex-

tricable. Northern Helex commenced its delivery of

helium to Interior in December 1962,

The helium conservation program was intended to

be self-supporting, financed with borrowing authority

provided by Congress and with funds lent by the

Treasury Department to Interior, which were to be

repaid from helium sales proceeds. The Trial Judge

found:

**139, During 1969 the Bureau of the Budget

(‘BOB’) (which in July 1970 heeame the Office

of Management and Budget ((OMB’)), selected

the helium conservation program as one of the

Federal programs which could be eliminated to

save money. It was BOB’s view that the helium

conservation contracts were no longer necessary,

and that, unless their budgetary impact could be

substantially reduced, the program » wor F be can-

celed.’? (App. 237)

The contracts, however, permitted termination only if

certain specified conditions occurred which would make

it clear that it would no longer be in the public interest

to continue conservation of helium. Interior pointed

out to BOB and OMB that those conditions did not

exist. Nevertheless BOB, and later OMB, refused

to seek adequate borrowing authority, and Interior

was unable to continue paying for the helium de-

livered (App. 237-246), Northern Helex treated the

failure of Interior to pay for the helium delivered

in 1969 and 1970 as a material breach, ended the

contract, and filed suit in the Court of Claims on

December 24, 1970, to recover $92,304,000, On instrue-

tions from OMB, and contrary to his own view and

that of his staff, Acting Secretary of the Interior

7

Russell sent out a notice dated January 26, 1971,

purporting to terminate Northern Helex’ contract,

together with the contracts of the other three con-

tractors under the termination clause in the contracts

(App. 241-253),

On January 21, 1972, the Court of Claims, in a

decision delivered by Judge Davis speaking for the

unanimous 7-Judge Court, held that the Government’s

breach of Northern Helex’ contract was material and

had not been waived. The Court entered judgment

on liability against the Government and remanded

the case to the Trial Judge for a determination of

the amount of damages. Northern Helex continued

tendering helium to the Government after the con-

tractual obligation to do so had been ended because

as significantly determined by the Court in its 1972

decision:

«* * * Plaintiff’s helium extraction facilities

are so interrelated with its liquefied petroleum

gas and petrochemical operations that the helium

facilities must be continued in operation whether

helium is wasted or sold. * * *’? (App. 305-306)

“* * * nlaintiff was fully warranted in follow-

ing the course it chose, It exercised ‘reasonable

commercial judgment’ in deciding to continue per-

formance.’’ (App. 310)

“We are convinced of the fairness of followin

the modern U.C.C. rule in this case because 0

the harshness of a contrary result on our special

facts, where cessation of production was com-

mercialy impossible and avoidance of waste most

desirable. * * *’? (App. 311)

8

“* * * Those circumstances were all indicated

above as the reasons why, in this ease, continua-

tion of performance reasonably served to miti-

gate damages, Moreover, accurate record-keeping

and measuring was essential to the identification

of helium with the contract pursuant to U.C.C, § 2-

704(2), one remedy afforded Northern Helex by

the Code.’’ (App. 312)

Included in the remand to the Trial Judge for a deter-

mination of the amount of damages was the effect

thereon, if any, of the Government’s affirmative de-

fense relating to Under Secretary Russell’s purported

termination,

The major question before the Trial Judge in the

extensive trial on the damage issue’ was whether

Northern Ilelex was entitled to recover the contract

price for the balance of the contract period because it

was unable to avoid any cost of performing the con-

tract. The parties stipulated that (with adjustments

‘Trial on the damage issues was concluded in April 1973 with

a record consisting of the testimony of 19 witnesses at trial, 5

evidentiary depositions, and thousands of pages of exhibits, The

Trial Judge filed his opinion and 277 numbered findings of faet

with the Court on December 8, 1974, The Trial Judge, Louis Spee-

tor, is a seasoned trier of the facts as former member and Chair-

man of the Armed Serviees Board of Contract Appeals and Com-

missioner and Trial Judge at the Court of Claims, and especially

qualified in Government contract matters.

‘The authorities awarding the contract price as the measure of

damages at common law are summarized by the Trial Judge (App.

146, 149-150), Northern Helex also relied on the Uniform Com-

mercial Code because the Court in its 1972 unanimous decision

¢

9

immaterial here) $43,067,413 represents ‘‘cost of per-

formance’’—that is, the cost of continuing operations

of the helium plant from December 24, 1970, to the end

of the contract period in August 1983, The parties

agreed and the Trial Judge and the Court of Claims

all recognized that;

“The basie rule for awarding common law dam-

ages for a breach of contract is stated as follows

in ResraveMeNtT OF Law, Contracts § 329, com-

ment a at 504;

“Tn awarding compensatory damages, the

effort is made to put the injured party in

as good a position as that in which he would

have been put by full performance of the

contract, at the least cost to the defendant

and without charging him with harms that

he had no sufficient reason to foresee when

he made the contract. * * *”’

And at section 335 [id.]:

“Tf the defendant’s breach of contract

saves expense to the plaintiff by discharg-

ing his duty of rendering a performance in

return or by excusing him from the perform-

ance of a condition precedent, the amount of

this saving is deducted from the damages

that would otherwise be recoverable.”’ (App.

11)

The record showed, and the Government acknowledged,

that integration of the helium plant with ethane and

petrochemical operations precluded saving any cost

had already ruled that it was applicable and the Code reached the

same result of awarding Northern Helex the contract price and

the Government the helium,

10

of performance.’ Thus, the basic factual issue for de- .

cision was whether the Government had sufficient rea-

son to foresee that integration.

The Trial Judge, citing numerous findings, con-

cluded ;

‘In accordance with the basic rule, plaintiff

claims entitlement to the full contract price be-

cause it cannot avoid any costs of performance.

Its helium facilities are in fact fully and inex-

tricably linked with LPG, ethane and _ petro-

chemical facilities, and must continue in operation

whether the helium is taken by defendant or

vented into the atmosphere. This integration was

contemplated by the parties as the most practical

method of implementing their respective plans.

It was encouraged by defendant for the mutual

benefit of the parties and it was expressed in a

contract provision.

” ” ” ”

“* * * Oapital investment in the system exceeds

#300 million. These integration plans, discussed,

endorsed and encouraged by defendant’s repre-

sentatives in their negotiations with Northern,

were major criteria in Northern’s decision to

articipate in the conservation program, * * * It

is clear that plaintiff cannot avoid any costs of

performance, and that it is entitled to the con-

tract price.’’ (App. 147)

The Trial Judge found the contract price, with ad-

justments, was $78,012,142, and he recommended entry

of judgment for this amount.

*A fuel cost savings of $11,000 a year could be achieved only

with a capital expenditure for modification of the plant and other

costs in excess of the total fuel cost savings.

11

On October 22, 1975, the Court of Claims held

that the $43 million of unavoidable cost of perform-

ance was not recoverable and entered judgment for

petitioner only for its anticipated profits.’

It is impossible to discern the legal or factual

basis for the Court’s holding. It seemed to recognize

that the pre-contract discussions prove that the Gov-

ernment knew about and encouraged the very type

of integration achieved by Northern, The Court also

seemed to recognize that the helium plant must con-

tinue in operation because of that integration, The

Court nevertheless ignored these two factors and,

rather than awarding the full contract price as

damages, proceeded into an irrelevant and confusing

discussion of specious points and non-sequitors with-

out addressing and answering the contentions actually

made, Incredible as it may seem, the Court coneluded—

without any factual basis whatever—‘‘that the Govern-

ment could not possibly have foreseen these activities”’

and, therefore, was not liable for the unavoidable cost

of continued operation of the helium plant.

The findings of fact made by the Trial Judge

could not support the conclusions reached by the

Court. Without any discussion of his findings or

explanation for doing so, the Court violated its Rule

147(b), under which the Trial Judge’s findings of

fact are presumed correct and disregarded the Trial

Judge’s 277 findings in their entirety. Indeed, because

the record did not support its conclusions, the Court

made no findings of fact at all, notwithstanding its

Rule 147(a), which requires the Court to find the

* Because of some possible deductions suggested by the Court,

the case was remanded to the Trial Judge to determine the precise

amount of the judgment.

12

facts and state separately its conclusion of law in

all cases tried on the facts.

The Court stated that the facts necessary to the

decision are contained in the opinion, They are not.

Instead, for its introductory statement on the amount

of damages, the Court copied essentially verbatim the

introductory statement in the 1972 decision on liability.

These facts relate to the issue of liability and are ir-

relevant to the damage issue. Indeed, they were not

even updated to comport with or reflect the determina-

tions made in the 1972 decision or the facts proved in

the trial.’

Judge Nichols dissented. On the basis of the Uni-

form Commercial Code and the common law rules, he

would have allowed recovery of the $43 million un-

avoidable cost of performance: ‘‘The record herein

shows without contradiction that the Government al-

ways foresaw * * * that plaintiff would integrate * * *,”’

(App. 38)

The Court denied rehearing on January 9, 1976.

REASONS FOR GRANTING THE WRIT

I

THE FAILURE OF THE COURT OF CLAIMS TO COMPLY WITH

ITS RULE 147 VIOLATES A FUNDAMENTAL SAFEGUARD

AGAINST DECISIONS BEING MADE ARBITRARILY AND RE-

QUIRES THE EXERCISE OF THIS COURT'S SUPERVISORY

POWERS.

Rule 147(a) of the Rules of the Court of Claims,

28 U.S.C. Rules, provides:

™ This October 22, 1975, decision on which review is sought was

rendered by a 5-Judge Court, with one concurring opinion and one

dissenting opinion. Judge Davis, who authored the earlier 7-Judge

unanimous decision on liability, did not participate in the decision

on damages.

13

«“* * * Tn all actions tried on the facts, the

Court will find the facts and state separately its

conclusion of law, and will enter an appropriate

judgment. * * *”’

Rule 147(b) provides that ‘‘the findings of fact made

by the trial judge shall be presumed to be correct’’.

The Court of Claims violated both of these provi-

sions (1) by disregarding the Trial Judge’s 277 find-

ings of fact ‘‘without respect to the presumption of

correctness demanded by Rule 147(b)”’ (dissenting

opinion) (App. 40), (2) by failing to indicate which

findings it determined were not supported by the rec-

ord, and (3) by failing to make its own specific fact

findings as required by Rule 147(a). From its incep-

tion until the instant case, the Court of Claims has

made separate findings of fact in all cases tried on

the facts. The Court’s departure in this case calls for

corrective action by this Court.

A. The Court of Claims Should Not Be Permitted To Dispense

with Findings of Fact in Cases Tried on the Facts.

This Court is responsible for overseeing compliance

by lower federal courts with the rules established to

govern their practice and procedure.*

This Court has indicated that where a lower fed-

eral court has disregarded one of the rules governing

its procedure, and there is a likelihood of recurring

error that will be forestalled by immediately con-

fronting the challenged practice, mandamus is an ap-

®See Northcross v. Board of Education for The Memphis City

Schools, 412 U.S. 427, 429 (1974); Taylor v. McKeithen, 407 U.S.

191 (1972); Southern Construction Company v. United States, 371

U.S. 57, 60 (1962); Duke Power Company v. Greenwood County,

299 U.S. 259 (1936).

14

propriate remedy. In McCullough v. Cosgrave, 309

U.S. 634 (1940) (per curiam), this Court issued a

mandamus upon finding that the District Court vio-

lated Rule 53(b), ’.R.Civ.P., and directed the District

Court to vacate its order and proceed in accordance

with the rules governing its procedure. See also La

Buy v. Howes Leather Co., 352 U.S. 249, 260 (1957),

wherein its supervisory control over ‘‘the exercise

of its judicial administration in the federal system”’,

this Court affirmed the issuance of a writ of mandamus

to a District Court which failed to adhere to the re-

quirements of Rule 53(b), F.R.Civ.P.

Mandamus is proper to review an issue of first im-

pression involving a basic and undecided rules prob-

lem. Schlagenhauf v. Holder, 379 U.S. 104 (1964)

(involving Rule 35, F.R.Civ.P.); see also United

States v. United States District Court, 444 F.2d 651,

656 (6th Cir. 1971), aff’d 407 U.S. 297, 301, n. 3

(1972); United States v. Dooling, 406 F.2d 192, 198-

199 (2d Cir.) cert. denied, 395 U.S. 911 (1969). In

Will v. United States, 389 U.S. 90, 107 (1967), the

Court noted that ‘‘* * * mandamus will lie in appro-

priate cases to correct willful disobedience of the rules

laid down by this Court * * *’’. See generally, note,

86 Harv.L.Rev. 595 (1973).

The departure of the Court of Claims from its 110-

year procedure and violation of its Rule 147 is inex-

plicable (App. 40). The Court of Claims has embarked

upon what will undoubtedly prove to be a dangerous

course for all litigants in that Court by failing to set

forth the factual basis for its decision. The instant case

is more than just the single largest case ever decided

by the Court of Claims; it is the lead case in several

breach of helium contract cases pending in that Court

15

that have common factual issues. This Court should

vacate the judgment of the Court of Claims, remand

the case to that Court, and direct the Court to comply

with its rules. Petitioner does not seek a writ of man-

damus in this case only because the trial proceedings

are completed, or essentially so, and, therefore, relief

is available by writ of certiorari.

The United States is always the defendant in the

Court of Claims. There could be no doubt about the

importance of the Court of Claims’ complying with

its Rule 147 if we assumed arguendo that the findings

of fact of the Trial Judge showed Northern Helex to

be entitled to only its anticipated profits, the Court

of Claims disregarded his findings, made none of its

own, and entered judgment for Northern Helex for

$80 million. Compare United States v. Penn Foundry

& Manufacturing Co., Inc., 337 U.S. 198 (1949). A

claimant against the United States, of course, is en-

titled to the same judicial procedures and considera-

tion as the United States. The failure of the Court of

Claims to make factual findings to support its ulti-

mate conclusions requires reversal and remand.

Congress has bestowed upon the Court of Claims

exclusive jurisdiction over most claims against the

Government in excess of $10,000. These cases are fre-

quently large and complex. The only review of these

decisions on the facts or the law is in this Court by

writ of certiorari. The availability of only this single,

discretionary review highlights the need for the Court

of Claims to adhere to its rules and make findings of

fact. For many year the statutes expressly required

the Court itself to make findings of fact (24 Stat. 505

16

($7) (1887); 28 U.S.C. (1946 ed.) §§ 288 and 764).°

The statute now requires the Commissioners (‘Trial

Judges) of the Court of Claims to make findings of

fact and indicates that the Court’s ‘opinion will be

accompanied with findings of fact (28 U.S.C. § 2503).

The Court of Claims may adopt, reject or modify the

Trial Judge’s findings of fact, but it cannot dispense

with the findings of fact in their entirety as it did in

this case. The Court of Claims itself cogently stated

in Miller v. United States, 168 Ct.Cl. 498, 501, 339

F.2d 661, 662 (1964):

““* * * Under our rules the findings of our

commissioner are prima facie correct and they

are adopted by the court in the absence of excep-

tions thereto. However, the law casts the ultimate

burden of making findings on the judges of the

court, and wherever we are convinced that the

weight of the testimony is contrary to the finding

of the commissioner, it is our duty to substitute

for the commissioner’s finding what we consider

to be the correct finding. * * *’’

®*The Act of March 3, 1887, c. 359, 24 Stat. 505, providing for

suits against the United States, in § 7 specifically required findings

of fact by the Court of Claims and district courts. This require-

ment was carried into § 764 of the 1926 codification of Title 28

and was made applicable to the Court of Claims and district courts

by 28 U.S.C. § 761 (1926 ed.). In the 1948 revision of Title 28,

the table of distribution shows § 761 as incorporated in 28 U.S.C.

§§ 2071, 2072 (1 U.S. Code Cong. & Admin. News 1948, p. A194).

Section 7 of the Act of March 3, 1887, 28 U.S.C. § 764 (1940 ed.)

was repealed, according to the Reviser’s Notes, because the require-

ment was ‘‘Covered by Rules 52 and 75 of the Federal Rules of

Civil Procedure’’. H. Rep. No. 308, 80th Cong., Ist Sess. (1947),

A239. The failure to reference the Court of Claims rule requiring

findings of fact in the repeal of § 764 was an apparent oversight

and, in any event, there is no indication of an intention to change

the existing fact finding rules and practice in the Court which has

exclusive jurisdiction in the largest cases.

17

With the trend being toward more complex and

larger claims against the Government, now is not the

time to dispense with findings of fact.

This Court has emphasized on several occasions the

importance of these rules of the Court of Claims and,

as the only Court with jurisdiction to do so, has stood

watch over their observance. In United States v.

Penn Foundry & Manufacturing Co., supra, this Court

held that findings of fact of the Court of Claims were

insufficient to sustain the Court’s award of damages to

a contractor following the Navy’s cancellation of a con-

tract. Although the Court of Claims made findings of

fact in Penn Foundry, it did not make a specific find-

ing that the contractor was ready and capable of per-

forming the contractual obligation upon which its

profits were contingent. Indeed, there existed findings

which precluded the drawing of any inference of such

readiness and capacity to perform.

A similarly confused result occurred in the instant

ease. The Trial Judge made no less than ten separate

findings that integration of petitioner’s helium ex-

traction facilities with other liquid and gas extraction

processes was foreseeable, and, in fact, encouraged by

the Government. These findings are presumed to be

correct. The Court of Claims did not point to even a

shred of evidence contrary to these findings. Nor did

it point to any facts that demonstrated a lack of fore-

seeability by Interior of the integration of these fa-

cilities.

In United States v. Causby, 328 U.S. 256 (1946),

the Court of Claims held that low altitude Army and

Navy aircraft flights over private farmland consti-

tuted the taking of a permanent easement. ‘This Court

18

reversed the judgment and remanded the case to the

Court of Claims to make the necessary findings as re-

quired by its rules. Specifically, this Court could not

discern any finding to support the Court of Claims

conclusion that the easement taken was permanent.

This Court stated:

‘* * * Tt is true that the Court of Claims

stated in its opinion that the easement taken was

permanent. But the deficiency in findings cannot

be rectified by statements in the opinion. * * *”’

(328 U.S. at 267)

Here, like in Causby, the ultimate ruling that integra-

tion of petitioner’s operations was not foreseeable is

‘“* * * more like conjecture rather than a conclusion

from evidence * * *.’’ (328 U.S. at 268) ‘‘When the

Court of Claims fails to make findings on a material

issue, it is proper to remand the case for such find-

ings.’ Seminole Nation vy. United States, 316 U.S.

286, 300 (1942).

Findings of fact are required in all actions tried on

the facts in the United States District Courts (F.R.

Civ.P. 52(a)).*° Ultimate factual conclusions stated in

the opinion without supporting subsidiary findings of

fact do not comply with Rule 52(a), and constitute

In Schneiderman v. United States, 320 U.S. 118, 129-131

(1943), the Court noted:

‘¢# * * The pertinent findings of fact on these points, set

forth in the margin, are but the most general conclusions of

ultimate fact. It is impossible to tell from them upon ‘what

underlying facts the court relied, and whether proper statu-

tory standards were observed. If it were not rendered un-

necessary by the broad view we take of this case, we would

be inclined to reverse and remand to the district court for the

purpose of making adequate findings.’’

19

reversal error. Interstate Circuit, Inc. v. United States,

304 U.S. 55 (1938) ; Mayo v. Lakeland Highlands Can-

ning Co., Inc., 309 U.S. 310 (1940); Kelley v. Ever-

glades Drainage District, 319 U.S. 415, 420 (1943).

Supporting findings of fact similarly are xeguired un-

der Rule 147. United States v. Penn Foundry & Manu-

facturing Co., supra. Contrary to the statement at the

outset of the Court of Claims’ opinion, the facts neces-

sary to the decision are not stated in the opinion.

Instead of making subsidiary factual determinations in

this opinion to support its ultimate conclusions, the

Court intermingled assumptions with allegations and

contentions making it impossible to discern the basis

for its ultimate determinations.

Findings of facts are a judicial safeguard against

eareless factual determinations. United States v.

Forness, 125 F.2d 928, 942 (2d Cir. 1942) ; see also 2B

Barron & Holtzoff, Federal Practice and Procedures

(Wright ed. 1961), § 1121, pp. 481-482; Notes of Ad-

visory Committee on 1946 Amendment to Rule 52(a),

F.R.Civ.P.; 5A Moore’s Federal Practice, 52.06[1],

p. 2706. In The Snake Or Piute Indians vy. United

States, 125 Ct.Cl. 241, 249-250 (1953), the Court of

Claims reviewed the extensive authorities on the need

for findings of fact and, quoting from Saginaw

Broadcasting Co. v. Federal Communications Com-

mission, 96 F.2d 554, 559 (D.C. Cir.), cert. denied,

305 U.S. 613 (1938), recognized :

‘*The requirement that courts, and commissions

acting in a quasi-judicial capacity, shall make

findings of fact, is a means provided by Congress

for guaranteeing that cases shall be decided ac-

cording to the evidence and the law, rather than

arbitrarily or from extralegal considerations; and

findings of fact serve the additional purpose * * *

20

of apprising the parties and the reviewing tri-

bunal of the factual basis of the action. * * *

The requirement of findings is thus far from a

technicality. On the contrary, it is to insure

against Star Chamber methods, to make certain

that justice shall be administered according to

facts and law, * * *”? (Emphasis added. )

The integrity of the judicial system requires that

the Court of Claims should not be permitted to dis-

pense with such an important judicial procedure as

findings of fact.

B. The Court of Claims Should Not Be Permitted To Summarily

Disregard the Findings of Fact Made by Its Trial Judges.

In breach of contract cases heard under 28 U.S.C.

§ 1491, the Court of Claims, like the District Courts,

sits as a court of original jurisdiction, Court of

Claims Rule 147(b) is similar to F.R.Civ.P. 52(a)

and 53(e)(2). Under the Federal Rules, the District

Court must accept the findings of fact of the Master

unless clearly erroneous, and the appellate courts

must accept the findings of fact of the District Court

unless clearly erroneous. Under Court of Claims Rule

147(b), the findings of fact made by the Trial Judges

are presumed to be correct, which is essentially the

same as Rule 52(a). See Elmers v. United States, 172

Ct.Cl. 226, 232 (1965) (using the ‘clearly erroneous”

standard of review). In Bonnar v. United States, 194

Ct.Cl. 103, 146-147, 438 F.2d 540, 563 (1971), the Court

of Claims emphasized the importance of Rule 147(b)

and defined the burden necessary to overcome the pre-

sumption:

“Tn this, as in all cases in which a Commis-

sioner has carefully weighed conflicting evidence,

21

the burden of sustaining exceptions to the find-

ings is far from slight. We start with the double

directive that due regard must be given to the

Commissioner’s opportunity to judge the eredi-

bility of the witnesses and that his factuat find-

ings ‘will be presumed to be correct.’ Rule 48

[now Rule 147(b)]. That presumption is dissi-

pated only by a strong affirmative showing. * * *”

(Citing Davis v. United States, 164 Ct.Cl. 612,

616-617 (1964).)

Regardless of whether the Trial Judges of the Court

of Claims are viewed as comparable to Masters or

District Court Judges, they are the triers of the facts,

and their findings of fact should not be summarily

set aside, F.R.Civ.P. 53(e) (2); Tilghman vy. Proctor,

125 U.S. 126 (1888); Anderson v. Mt. Clemens Pot-

tery Co,, 328 U.S. 680, G89 (1946); United States v.

Merz, 376 U.S. 192, 198 (1964); United States vy.

Marine Bancorporation, Inc., 418 U.S. 602, 615, n. 13

(1974).

In reviewing a Master’s findings or those of a Trial

Judge, the question for the reviewing court is whether

“* * * on the entire evidence [it] is left with the

definite and firm conviction that a mistake has been

committed’’, Zenith Radio Corp. v. Hazeltine Research,

Tne., 395 U.S. 100, 123 (1969) ; Commissioner v. Duber-

stein, 363 U.S, 278, 289, 291 (1960); United States v.

United States Gypsum Co., 333 U.S. 364 (1948). In the

instant case, the Court of Claims opinion does not re-

view the record in whole or in part, or show where it

considered the Trial Judge to have erred. The opinion

in no way connects the evidentiary facts to the Court’s

factual assumptions and conclusions. As the dissent

stated :

22

“ee * * Our trier of fact drew his inferences,

and we are rejecting them, | believe, without

respect for the presumption of correctness de

manded by Rule 147(b). It seems to me that the

implication of this rule is that we do not dis-

regard numbered findings, but if we think the

record does not support them, we take them up

individually and show why. * * *’ (App. 40)

C. This Case Presents a Clear Illustration of Why the Court of

Claims Must Be Required To Continue Making Findings of

Fact and Be Precluded from Summarily Rejecting Its Trial

Judges’ Findings of Fact.

The instant case, involving damages in the amount

of approximately $80 million, represents the largest

ease the Court of Claims has ever had before it for

decision. The Trial Judge's 277 findings of fact and

opinion are thorough and accurately reflect the record,

On the unavoidable cost issue, the case calls for the

application of elementary legal principles to clear

facts. Yet the Court for inexplicable reasons disre-

garded its Trial Judge's findings of fact, made

none of its own, ignored its own 1972 factual deter-

minations, and based its decision on factual assump-

tions having no basis in the record,

Following the trial on damages, the Trial Judge

eoneluded that the inextricable integration of the

helium plant:

or * * was contemplated by the parties as the

most practical method of implementing their re-

spective plans. It was encouraged by defendant

for the mutual benefit of the parties and it was

expressed in a contract provision,”

In support, he cited his findings 14 throug 19, 30,

31, 35 through 40, 70, 72 through 75, 78 through 80,

8) through 90, and 95 through 97 (App. 147).

23

Findings 14 through 19, in essence, describe (1)

why Northern’s gas stream could be fully utilized by

integrating the processes and facilities for helium

extraction, nitrogen removal, LPG and ethane extrac-

tion and petrochemical operations, and (2) why that

integration was dependent upon the operation of the

helium extraction plant because it, and it alone, pro-

vided the inert removal (helium and nitrogen) capa-

bility which permitted the extraction of the quantities

of LPG and ethane needed for petrochemical opera-

tions (App. 169-170).

The balance of the cited findings summarize or

quote from Government documents prepared prior to

or contemporaneously with the negotiation of this con-

tract and compel the conclusion reached by the Trial

Judge. Specifically, the Trial Judge found that:

1, The chief Government negotiator of this con-

tract, Mr. Wheeler, stated in a memorandum prior to

execution of the eoutract that:

“* * * Northern proposed a plan whereby the

company would build and operate a petrochemical

plant and extract helium and nitrogen, process-

ing thereby about a billion eubie feet of natural

gas a day. * * * Mr. Wheeler * * * considered

the plan to have several advantages, * * * it

would fit into the overall operations of Northern,

Furthermore, as Mr. Wheeler noted for the Gov-

ernment in an internal memorandug of the eon-

ference, ‘[i]t would avoid the necessity for the

Government to undertake nitrogen removal and

a petrochemical operations as a necessary,

mit basically unrelated, adjunct to helium eon-

servation.’ ”’ (Finding 26, App. 174-175)

2. In the data used for soligitation of proposals,

Interior expressly called to the attention of pros-

24

pective contractors the integration opportunities, in-

cluding nitrogen removal and ethane extraction for

petrochemical processing (Finding 30, App. 175-176).

3. In an internal memorandum one and one-half

years prior to execution of the contract, the Govern-

ment’s chief negotiator—

“* * * noted that it was anticipated that private

industry would integrate its helium and other

operations to permit extraction of ethane and

other hydrocarbons, and removal of nitrogen to

upgrade the residue gas heating value.’ (Finding

40, App. 179)

4, Six months prior to the execution of the contract,

the Director of the Bureau of Mines informed the Un-

der Secretary of luterior that:

oe * * some of the private participants ‘would

integrate helium extraction with nitrogen re-

moval, ethane extraction, and other operations not

independently feasible,’ thus aiding the national

economy and better utilizing the ingredients in

the natural gas.”’ (Finding 75, App. 206)

5, During contract negotiations, Northern advised

Interior that it—

o* * * was then in the process of building an

LPG plant at Bushton and therefore would be

able to offer a multipurpose plant whieh would

extract helium, liquids and nitrogen, thus per-

mitting a price advantage to Interior, * * * that

the Bushton plant then being constructed was

a liquids reeovery plant, that the helium extrae-

tion plant would be fully integrated with it, and

that petrochemical facilities might be constructed

and added in the future. * © * Mr. Wheeler sent

a memo to the members of Interior's negotiating

board discussing a draft of the contract. In that

25

memo he recognized that the helium extraction

facilities would, in most cases, be fully integrated

with other facilities of the contractor.”” (Finding

79, App. 207-208)

6. As the Government's chief negotiator testified :

“In the course of negotiations, the Government

not only contemplated that integrated facilities

would be used but, * * * ‘deliberately made it

possible’ through paragraph 31.5 of the contract

*. (Finding 95, App, 214)

7. Integration was considered by Interior’s Gen-

eral Manager for Helium Operations to be—

“* * * the principal area for private helium

contractors to find economie incentive to enter

into the helium contracts, and it would also per-

mit a lower price to Interior * * *."? (Finding

96, App. 214-215)

Ineredibly, the Court completely ignored these uncon-

trovertible facts in deciding whether Interior had suf-

ficient reason to foresee the inext. icable integration of

the helium plant with LPG, ethane, and petrochemical

operations,

These detailed and elaborate findings of faet, which

under Rule 147(b) are ‘presumed to be correct”,

were disregarded by the Court in favor of the sweep-

ing eonelusion—totally bereft of analysis or documen-

tation—that ‘the Government could not possibly have

foreseen these activities * * *."" The Court thereupon

disallowed $43 million of unaveidable damages to

petitioner on the factual assumption that the Gov-

ernment could not have foreseen the very type of

integration which the Government contemplated and

expressly represented was available if petitioner con-

26

tracted wth the Government. There is no evidence

whatsoever in the record to support the Court’s con-

clusion that the Government did not contemplate or

have sufficient reason to foresee the type of integration

achieved by Northern, Judge Nichols correctly points

out in his dissent:

‘The record herein shows without contradiction

that the Government always foresaw * * * that

plaintiff would integrate * * *.”’ (App. 38)

II

THE DECISION OF THE COURT OF CLAIMS ON DAMAGES

IS SO PATENTLY ERRONEOUS THAT THE JUDGMENT SHOULD

BE VACATED AND THE CASE REMANDED FOR A NEW

DECISION.

The Court of Claims decision in this case is not

only wrong—it has no basis in the record and is ob-

viously injurious to both the Government and_ peti-

tioner. Gibson vy. Lockheed Aircraft Service, Ine.,

350 U.S. 356, 357 (1956) (Frankfurter, J., coneur-

ring); Burlington Truck Lines, Inc, vy. United States,

371 U.S. 156, 168 (1962); Schware vy. Board of Bar’

Examiners, 353 U.S, 232, 246-247 (1957),

It is clear that the helium must be extracted at a

cost of $43 million because the helium plant is inte-

grated with other facilities. It is also clear that the

helium has a substantial value in the hands of the Gov-

ernment because, inter alia, it can control the use and

price of helium, 50 U.S.C. §§167(¢) and (da). It is in-

controvertible that the helium being extracted by pe-

titioner should be conserved by the Government. be-

cause the reserves are limited and it is vital to fulfilling

many of this Nation’s energy, defense, space, industrial,

and medical needs.

eS

i

27

In its 1972 decision, the Court of Claims correctly

determined that Northern Helex’ tendering the he-

lium to Interior before as well as after the contract

was ended was the exercise of reasonable commercial

judgment, mitigated damages, und conserved a vital

national resource (supra, pp. 7-8). These determina-

tions, which were the law of the case, were ignored

by the Court and contrary conclusions summarily and

erroneously reached in its 1975 decision.

The basis of the Court’s disallowance of the $45

million unavoidable cost of performance was the arbi-

trary assumption that the Government did not have

sufficient reason to foresee the integration.

The Court failed to comprehend that it was imma-

terial whether Northern integrated the helium, LPG,

ethane, and petrochemical operations within its own

corporate structure or used separate corporations and

intercompany contracts. These separate corporate en-

tities and intercompany contracts neither increased nor

decreased the Government’s liability for its breach of

contract. Nor do they alter one iota the controlling

factual inquiry.

If the corporations are viewed as one, the liability of

the Government for the unavoidable cost of operating

the helium plant would be controlled by whether the

Government had reason to foresee the inex.,icable in-

tegration of the helium plant with other facilities. If

the corporations are viewed as separate corporations,

the liability of the Government for the unavoidable cost

of operating the helium plant would be controlled by

precisely the same inquiry—whether the Government

had sufficient reason to foresee the inextricable inte-

gration of the helium plant with other facilities. The

28

intercompany legal relationships are irrelevant, except

for the Northern Helex contract with Northern which

simply reflects the contemplated inextricable integra-

tion. Northern Helex contractually obligated itself to

Northern to operate the helium plant through July

1983 to extract helimn from Northern’s gas stream

(which by design of the plant necessarily extracted the

nitrogen in a separate stream for Northern) in ex-

change for Northern’s agreeing to supply petitioner

the helium-hearing natural gas required to perform its

contract with Interior. This contract was expressly

referred to in the Interior contract.”

Illustrative of how far off of the judicial path the

Court of Claims was in this ease is its self-contradictory

conclusion. Inasmuch as Northern Helex can save no

™ The Court seems to have recognized that Northern Helex must

continue to remove the helium (which by plant desien removes the

nitrogen) from Northern's gas stream (App. 7, 19). Nevertheless,

the $43 million which must be incurred and paid by Northern

Helex to operate the helium plant are referred to by the Court as

**integrated costs’’, and Article 31.3 of the contract is construed

as an exoneration clause to deny their recovery as damages on the

theory they are costs of extracting products other than helium

(App. 10). That article provides: ‘‘In connection with Seller's

plant, Seller at its sole risk, cost and option may construct and

operate, or cause to be constructed and operated, facilities for

extracting products other than helium from the natural gas proe-

essed through said helium plant.’’ The language of this article, the

intention of the parties found by the Trial Judge, and the rules

of construction with regard to other clauses and exculpatory clauses

are contrary to the Court’s interpretation. There is not an iota of

evidence supporting such an interpretation. Article 31.3 was in-

eluded in the contract to expressly permit the helinm plant to be

integrated with other facilities. Included in that article is also

the normal contract language placing the risks and expense of

constructing and operating the other facilities on the owners as

Article 4.1 does with respect to the helium plant and Article 4.2

does with respect to Interior’s pipeline (App. 148-149).

owe

ee ee ees

7 oe

ee

29

cost of performance, it is obvious that only the contract

price will compensate Northern Ilelex and place it in

the same monetary position it would have been in had

the contract been fully performed. The Court deducted

from the contract price the $48 million unavoidable

eost of continued operation, along with a number of

other erroneous deductions, and still concluded: ‘‘The

resulting figure, discounted to current value as of the

date of entry of final judgment, should place the plain-

tiff in as good a position as it would have been in had

the contract been fully performed.’’ (App. 28) As

Judge Nichols aptly pointed out in his dissent:

‘*The court puts on its blinders so as to be able

to say it is putting the plaintiff in as good a posi-

tion as it would have been in upon full perform-

ance, the standard it gives lip service to and should

follow in reality. * * *’’ (App. 38)”

Such a level of judicial action requires this Court to

exercise its supervisory powers and reverse the Court

2 Tilustrative of the many errors made by the Court on other

issues are the deductions from anticipated profit for so-called “‘ex-

cess’’ values of the helium plant proposed by the Court sua sponte

(App. 27-28). The deduction proposed for the physieal plant is

contrary to the express terms of the contract. In the event the

value of the helium plant was in excess of the depreciated costs,

such value was to be ignored if there had been a valid termination

by the Government. A fortiorari, such value is to be ignored when

the Government breaches the contract. The helium plant has a

value as an on-going operation only upon expending the $43 mil-

lion cost of operations which the Court refused to recognize as

reeoverable damages. Giving the Government a further deduction

based on the benefits flowing from ineurring this $43 million is

preposterous.

30

of Claims and direct it to proceed in accordance with

its Rule 147.”

III

THE COURT OF CLAIMS ERRED IN FAILING TO LOOK TO

AND APPLY THE UNIFORM COMMERCIAL CODE TO ESTAB-

LISH THE CONTRACT PRICE AS THE MEASURE OF DAMAGES

FOR THE GOVERNMENT'S BREACH OF CONTRACT WHEN

THE CONTRACTOR EXERCISED REASONABLE COMMERCIAL

JUDGMENT AND CONTINUED TO TENDER THE PRODUCT TO

THE GOVERNMENT.

Petitioner is entitled to recover the contract price as

damages under Uniform Commercial Code §§ 2-703,

2-704, and 2-709. Sections 2-703 and 2-704 of the Code

permit a seller injured by a buyer’s breach of contract,

in the exercise of reasonable commercial judgment, to

continue performance and identify the goods to the

eontract. In its 1972 decision, the Court of Claims con-

sidered the applicability of § 2-704 and specifically

found:

“* * * in our judgment, plaintiff was fully

warranted in following the course it chose. It ex-

ercised ‘reasonable commercial judgment’ in de-

ciding to continue performance.”’ (App. 310)

**No purpose would be served in delaying review by this Court

of the procedurally defective judgment of the Court of Claims

pending further proceedings before the Trial Judge to determine

the precise amount of damazes under that judgment. Indeed, harm

would be caused petitioner and the other contractors whose cases

are proceeding in the Court of Claims. Further, as a practical mat-

ter, until the damage issue is settled with certainty, much of the

helium being extracted by the contractors will continue to be

wasted when it clearly should be saved. The October 22, 1975,

judgment is ripe for review by this Court. Gillespie v. United

States Steel Corp., 379 U.S. 148 (1964); Brown Shoe Co. v. United

States, 370 U.S. 294 (1962); compare Cox Broadcasting Corp. v.

Cohn, 420 U.S. 469 (1975).

HOARE CATE Ae ee et

ee

31

The Court explained in the 1972 decision that contin-

ued delivery was the only practical course of action

and held that § 2-704 was ‘‘* * * one remedy afforded

Northern Ilelex by the Code.”’ (App. 312)

The essential purpose of compensatory damages

under the Code, as under general contract principles,

is to put the injured party in as good a position as he

would have been had the contract been fully per-

formed (U.C.C. § 1-106). The major difference in this

case between the Code and the common law rules is

that under the Cede it is unnecessary to show that the

defendant had ..ason to foresee that the cost of per-

formance was unavoidable. The exercise of reasonable

commercial judgment is the controlling eriterion for

the contract price being the measure of damages under

$§ 2-704 and 2-709 of the Code.

Having continued to extract and tender helium to

the United States, as authorized by § 2-704, petitioner

is entitled under § 2-709(1) (bh) to the contract price for

goods identified to the contract. Hawkland, A Trans-

actional Guide To The U.C.C., Vol. 1, p. 288 (1964).

Northern Helex Company v. United States, 197 Ct.Cl.

118, 455 F.2d 546 (1972) (App. 299).

The only change in circumstances between the 1972

Court of Claims decision and its 1975 decision was that

Interior refused to continue to accept the helium for

storage. Article 2.1 of petitioner’s contract provides

that ‘‘* * * the United States agrees to pay for, whether

taken or not, all of the helium-gas mixture produced in

Seller’s plant * * *”? (App. 147). Notwithstanding this

provision, petitioner paid Interior about a half-million

dollars in storage charges and filed two motions to

compel Interior to mitigate damages and store the he-

lium on a no-prejudice basis in the only storage reser-

32

voir available. In denying the second motion, the Court

stated :

**On the other hand, plaintiff’s interest, to the

extent it prevails with respect to damages and re-

covers a monetary judgment, will be fully pro-

tected by the judgment, and will not be harmed by

the failure of the defendant to continue to receive

and store the helium.’’ (App. 317) |

Interior refused to store helium extracted after Sep-

tember 28, 1972, except on confiscatory terms (App.

266).

It is apparent that petitioner has taken reasonable

steps to see that the Government received the product

of performance. The choice of the Government in Sep-

tember 1972 to waste the helium thereafter extracted

does not deprive petitioner of its right to the contract

price under §§ 2-704 and 2-709 of the Code. Neverthe-

less, the Court of Claims, in its 1975 decision, refused to

look to and apply these provisions of the Code.

The Uniform Commercial Code is a proper source

of law to be applied in this case. In a landmark de-

cision, United States v. Wegematic Co., 360 F.2d 674

(2d Cir. 1966), the Second Circuit concluded that fed-

eral courts should look to the Code ‘‘as a source for

the ‘federal’ law of sales’’. Judge Friendly stated:

‘*The Code * * * is thus well on its way to beeom-

ing a truly national law of commerce * * *. When

the states have gone so far in achieving the desir-

able goal of a uniform law governing commercial

transactions, it would be a distinct disservice to

insist on a different one for the segment of com-

merece, important, but still small in relation to

the total, consisfing of transactions with the

United States.’’ 360 F.2d, supra, at 676.

a eats ena nna na

33

Chief Justice Traynor has observed:

“The Uniform Commercial Code has become

a major influence on the development of common

law in the federal courts to govern cases involv-

ing government contracts and other commercial

transactions.’’ Traynor, ‘‘Statutes Revolving in

Common-Law Orbits’’, 17 Cath. U.L. Rev. 401,

422-423 (1968).

The Court of Claims itself has explicitly looked to

the Code as a “‘fair and just’? source of federal com-

mon law, Everett Plywood and Door Corp. v. United

States, 190 Ct.Cl. 80, 419 F.2d 425, 429 (1969), as

have numerous other Federal courts.’ Indeed, in its

decision on the liability issue in this ease, the Court

of Claims in its 1972 decision utilized the principles set

forth in the Code (App. 308-314). The Court of Claims

has consistently adhered to this view except for its un-

explainable departure from its own precedent and the

law of the case in the instant proceeding.”

Federal boards of contract appeals have similarly

acknowledged the relevance and authority of Code

principles in Government contracts disputes ‘‘as re-

See, e.g., Gardiner Mfg. Co. v. United States, 479 F.2d 39, 41

(9th Cir. 1973); In Re King-Porter Co., 446 F.2d 722, 732 (5th

Cir. 1971) ; United States v. Hert, 444 F.2d 804, 810-811 and n. 19

(5th Cir. 1971); Grain Merchants v. Union B. & 8. Co., 408 F.2d

209, 218 (7th Cir. 1969); In Re Yale Express Systems, Inc., 370

F.2d 433 (2d Cir. 1966) ; United States v. Cloverleaf Cold Storage

Co., 286 F.Supp. 680, 682 (N.D. Iowa 1968); In Re Portland

Newspaper Publ. Co., 271 F.Supp. 395, 400 (D. Ore. 1967).

© Keydata Corp. v. United States, 205 Ct.Cl. 467, 504 F.2d 1115,

1123-1124 (1974) ; John C. Kohler Co. v. United States, 204 Ct.C1.

777, 498 F.2d 1360, 1367, n. 6 (1974) ; George 8. Groves v. United

States, 202 Ct.Cl. 660 (1973).

34

99 17

flecting the best in modern decision and discussion’’.

Finally, the Government itself frequently has urged

the application of Code provisions in Federal con-

tract disputes. See Reeves Soundcraft Corp., supra;

United States vy. National Optical Stores Co., 407

F.2d 759, 761, n. 3 (7th Cir. 1969); Brief filed in

Opposition to Certiorari in Federal Electrie Corp. Vv.

United States, Dkt. No. 73-1757, cert. denied ——

U.S. —— (1975).

The Court of Claims decided the liability issue in

this case with specific reference to the remedy sec-

tions of the Code, stating that ‘‘a remedy for the

seller, when the buyer breaches, already exists under

the law (U.C.C, §§ 2-703, 2-704)’? (App. 309). Thus,

reference to the Code for determination of a seller’s

remedies for a buyer’s breach of contract was tiie law

of this case, and petitioner should have been able to

rely on the Court of Claims’ use of the Code in later

proceedings in this case.”

7 Reeves Soundcraft Corp., ASBCA Nos. 9030 and 9130, 1964

B.C.A. § 4317 at 20,877, citing Padbloce Co., Inc. v. United States,

161 Ct. Cl. 369 (1963) ; see also Kain Cattle Co., ASBCA No. 17124,

73-1 B.C.A. 99,999 at 46,921; Catalytic Eng’r & Mfg. Corp.,

ASBCA No. 15257, 72-1 B.C.A. 99,342 at 43,366; Cross Aero

Corp., ASBCA No. 14801, 71-2 B.C.A. § 9,075 at 42,087; Council

Mfg. Co., ASBCA No, 14232, 71-1 B.C.A. § 8,731 at 40, 549-50;

General Elcee. Co., IBCA No, 451-8-64, 66-1 B.C.A. 95,507 at

25,791-93; Productions Unlimited, Inc.. VACAB No. 541, 66-1

B.C.A. § 5444 at 25,515; Carpenter Steel Co., AECBCA No, 5-65,

65-1 B.C.A. 1 4,848 at 22.944: Federal Pac. Elec. Co., IBCA No.

334, 1964 B.C.A. § 4,494 at 21,585,

* Although the doctrine of the law of the case is not an inexor-

able command, it nevertheless ‘‘is waived for only the most cogent

of reasons and to avoid manifest injustice.’’ Terrell v. Household

Goods Carriers Burcau, 494 F.2d 16, 19-20 (Sth Cir.), cert. denied

419 U.S. 987 (1974). See also 1B Moore’s Federal Practice § 0.404

35

The Court of Claims’ failure to look to the perti-

nent provisions of the Code in this case where there

are no Federal precedents, statutes or regulations

which would require a result contrary to the U.C.C. is

inconsistent not only with its own prior decision in

this case, but its view in cases prior and subsequent

to this one and to the prevailing view of Federal

courts, contract boards, and the Government gen-

erally as well. The considerable uncertainty with re-

spect to the substantive law applicable to public con-

tracts which has been caused by the Court of Claims’

sudden departure from its established course must be

promptly dispelled. This is particularly true because

the Court of Claims occupies the lead role in the de-

velopment of the law of Government contracts.

[1] at 405-06 (2d ed. 1974); (9 Moore’s Federal Practice § 110.25

[2] at 274-75 (2d ed. 1975)). Here, the doctrine was not waived

for any cogent reason, but rather was ignored because of the

Court’s singular concentration on reducing the amount of the

judgment due petitioner.

36

CONCLUSION

For these reasons, a writ of certiorari should issue

to review the judgment and opinion of the United

States Court of Claims, judgment should be vacated,

and the cause remanded to the Court of Claims with

directions to comply with its Rule 147.

Respectfully submitted,

CLARENCE T. Kipps, Jr.

1700 Pennsylvania Ave., N.W.

Washington, D. C. 20006

Counsel for Petitioner

Or COUNSEL:

F. Vinson Roacw

Dean W. WALLACE

NORTHERN NATURAL Gas COMPANY

2223 Dodge Street

Omaha, Nebraska 68102

JOHN Luioyp RIcE

MILter & CHEVALIER

1700 Pennsylvania Ave., N.W.

Washington, D. C. 20006