Petition — Newport News Shipbuilding & Dry Dock Co. v. United States

Supreme Court brief1978

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—_——_ -— —- —- ——

IN THE

Supreme Court, U. S,

FILED

1978

AGL RODAK, JR., CLERK

Supreme Court of the Unite

Ocrover Term, 1977

No. 77-1696

NeEwrvort NEWS SHIPBUILDING AND Dry Dock ComPANY.

AND TeENNECO INC., Petitioners,

Vv.

Unirep States or America, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

——

WituiAM McL. Ferouson

225- 28th Street

Newport News, Virginia 23607

K. Martin Worruy

JoHN G. DeGooyver

Mark Svutuivan IIT

JoHN H. SpeELLMAN

JEFFREY M. PerrasH

Larry H. MircHe.yi

HAMEL, Park, McCase & SaunpERS

1776 F Street, N.W.

Washington, D.C. 20006

Counsel for Petitioners

FCR

STORY

CLADS: LITTON, NEWPORT NEWS SEEK SUPREME COURT

REVIEW ON FRAUD INDICTMENT , FRIGATE SETTLEMENT

Two shipbuilders, unhappy with rulings by the U.S. Court of Appeals for

the Fourth Circuit, are ésking the Supreme Zuxe Court to become involved in

their claims battles with the Navy.

Newport News Shipbuilding and Dry Dock Co. tupammk seeks review of the

(721 FCR A-19)

appea ls court's reamns that the Government isn't bound by the settlement negotiated

by Gordon Rule requiring the Navy to pay an edditional $22.7 million for

construction of the DICN4] xuetemupqottet «4 nuclear-powered guided missile

frigate. (Newport News Shipbuilding and Dry Dock Co, and Tenneco Inc. v.

U.S., Sup. Ct. No. 77-16%, petition filed, 5/26/78)

Litto Sy stems Chuo. wants the Court to consider ak the lower court's

(729 FCR C-1)

muctutemxteet finding/theat the Yovernment's implied threst to continue mm e fraud

atrce J To had '

indictment unless Litton, reopened an ASBCA case in which it jon a $17 million

judgement, doesn't require dismissal of the indictment .

U.S., Sup. Ct. No. 771689, petition filed, 5/26/78)

(Litton Sy stens, Inc. v.

In the Newport News case, the district court held that the parties had ax

agreed to the settlement and tint the Justice Department, having refused to

aor

participate in the negotiations , was estopped to deny it. The court of appeals,

however, found no basis Sor, estoppel and said that the Attorney General had authority

4 °

to disapprove the prepexxix “proposed compromise,®

The Fourth “ircuit decision temtwwre-tamet, Newport News states in its putt

is The Tirst Ove iY

petition, holding that an ujency of the United “tetes lacks the power, without

a a

approval of the Attorney General, to take action otherwise authorized by law, if

that action has the effect of mooting pending litigation.

The Attorney General's authority is ba _sed on 28 U.S.C. Sections 516 and

519, which state that the "conduct of litigation” is reserved to the Justice

Bepartment and that the Attorney General is to “superivise all litigation®

involving the Government. Executive Orier 6166 authorizes the Attorney Generel

to compromise litigation/

The Attorney Seneetgpgey ine Gntimmnattan, has no authority

ot News rmeintoains.

bey@nd that delegated to nin, fs Since the Defense Department and the Navy have the

authority to contract for ships regardless of whether the United States and a

shipbuilder are in litigation, exercise of that agency authority can't be

vetoed by the Attorney General.

In S & E Contractors v. U.S., 406 U.S. 1 (426 FCR Sp Supp), the Court

rejected the argument that the Attorney General was authorized, under 28 #ixix

fit tiodikipdsas Bx

executive officers. "'Where the responsibility for rendering a decision is

U.S.C. 516 and 519, to override the decisions of other

vested in a coordinate branch of Government, the duty of the Department of

Justice is to implement that decision and not to repudiate it,'® the Court

stated.

Litton, in its peitition, complains of an abuse of the Sovernment's

dual role as defendant in a contract action and criminal prosecutor,

4 A indictment

he a ot appeals characterized wry threat as “plea bargaining” and

-similar to omer. ween permitted in Bordenkircher v. Hayes, @idum 6 °.Ct. 463,

—

axx

“ut, in plea bargaining, Litton argues, nothing is involved beyond the

criminal Le its fair and mx expeditious administration. The

"extortionate discussions" between Litton and the Government prosecutors eset

the ASBCA case had none of the ch... :*eristics of plea bargaining book ith

fegard. *

term is used in Bordenkircher, xtetex

In a case such as the present one, mmoctmcemnteramtkxex in contrast to

every case involving plea bargaining, the Sovernment's role as a fair contractor,

bound by contract law - the rules governing contract disputes, is a crucial

factor, Litton states, Jy vacating the trdal court's }mempmeatimarboox

"proper disciplining" of the “overnment for its extortion and vindictiveness,

the appeals court “gave the green light for abusé in the future.”

Er ere te er ear

INDEX

Page

I a Sa ee a id 1

ES ok Seo or ee seeensounseriee 2

CN TU oo cc oc ccvccccccdcccsecccccecens 2

ConsTITUTIONAL AND Statutory Provisions Invotvep.. 2

FeperaL Rute or Civic Procepure INVOLVED ......... 3

ee ee eaeeheeuas haere 3

Reasons ror GRANTING THE Writ

I. The holding of the Court of Appeals, that a de-

partment or agency of the United States can take

no action rendering pending litigation moot with-

out the approval of the Attorney General, con-

travenes law and public policy and presents im-

portant questions of federal law requiring reso-

ES Ge SY ES ddcnudcccectcsaceeueseees 15

A. The decision below conflicts with decisions of

RES ers Prer ake

B. The decision below conflicts with a decision of

the United States Court of Appeals for the

RR SE a et ele ae prae eee 19

C. The decision below contravenes the public

policy in favor of compromise of litigation

and threatens the efficiency of the executive

and judicial branches of the federal govern-

EG SEC GK 0G ad an ee edeeesebendehsckheenss 20

II. The decision of the Court of Appeals is based on

a standard of review inconsistent with the deci-

sions of this Court and the Federal Rules of Civil

ee ee es Le bane ee edieeeeeese 21

EE RE er Ee were 29

ii Index Continued

Page

BOM, oc nccesesnsntessesitesseseeeeeeeee la

A. Opinion of the United States Court of Appeals

for the Fourth Circuit. .......ccccccscccvcees la

B. Opinion and Order of the United States Dis-

trict Court for the Eastern District of Vir-

GE. ccccccseedvnesentecesuue ene 13a

C. Constitutional and Statutory Provisions In-

CURUGED ce cccccccocccesceciceeekueusete 47a

D. Rule 52(a) of the Federal Rules of Civil Pro-

GUD, 0 00 0k. ceeveecesesednedeenee 53a

E. August 29, 1975 Order of the United States

District Court for the Eastern District of Vir-

GM, cccccccccecesevevensedeeedenenee 54a

CITATIONS

CASES:

Commissioner v. Duberstein, 363 U.S. 278 (1960) ...22, 26

The Confiscation Cases, 74 U.S. (7 Wall.) 454 (1869) . 18

The Grey Jacket, 72 U.S. (5 Wall.) 342 (1867) ...... 19

Leonard v. United States Postal Service, 489 F.2d 814

(Set Gi, BOWe occcccnccscssceuanseuns mane 19, 20

Lockheed Shipbuilding & Construction Co., 75-2 BCA

DRED 00060000060080 60000 000nn ene 15

S & E Contractors v. United States, 406 U.S. 1 (1972) 18, 19

United States v. Morris, 23 U.S. (10 Wheat) 246

(ERED ccccccccsnecesgechetesennennaae 18, 19

United States v. National Ass’n. of Real Estate

Boards, 339 U.S. 485 (1950) ...............- 21, 22, 23

United States v. Oregon State Med. Soc., 343 U.S.

SD CUUUED cccccecnevcssescusiunensneee 22, 23

United States v. Sandstrom, 22 F. Supp. 190 (N.D.

Cin, SGD 0 o+cceneseeseccnsnnsarenaneeeene 19

Umted States v. Singer M fg. Co., 374 U.S. 174 Soa . 21

United States v. United States Gypsum Co., 333 U.S.

See CHOU cicccctscccescenacuenneneneeeee 21

United States v. Yellow Cab Co., 338 U.S. 338 (1949) .21, 22

Wiliams v. First National Bank, 216 U.S. 582 (1910) .. 20

Zenith Radio Corp. v. Hageltine Research, Inc., 395

Uae BOO GHREED cccccescvecesesecessmee 21, 22

— ‘

Citations Continued iii

Page

Unritep States ConstitTvuTion:

U.S. Constitution, Art. I, §8, Cl. 13 ................ 2,15

STaTuTEs:

EEE EESES SESS SS OPP PPOTOLTETTET TLE TY 2,15

10 UB.C. $6 18B(a), (b), (4) .cccccccccccccccccccees 2,15

EES ESSELTE SESE POP TETTTTTTT EET Y 2

19 U.S.C. § 2308(a)(2), (b)(4) .... cece eee eeees 2,15

10 U.S.C. §$ 2304(a)(13)-(14) .... cece ccc eee eens 3,15

cic ee sececcccceccsccccces 3,15

EEE ESTES ISS OPO OTTTOTT TELE TTT TT 3,15

EEE SES IEP PET OTTTTTETTTTTET YE 3, 16, 18

EET OTTTTTTTTTTT TTT Te 3, 16, 18

Bee e sac cceceecscoccccccccece 2

eee coc c ccd ccccesceccecocceces 3

EE SLES SEES IPP ETTOTTETTET TET 3, 15

FeperaL Ruues or Crvm Procepure:

Fed. R. Civ. P. 52(a) .......... <> + 2/3, 21, 22, 23, 25, 28

REGULATIONS:

ES EES ETE CETTULETTEE ETE EE 15

Executive OrpERs:

Ex. Ord. 6166, June 10, 1933 .............. cee eeeee. 17

IN THE

Supreme Court of the United States

OcrToBeR TERM, 1977

No.

NEwportT NEws SHIPBUILDING AND Dry Dock CoMPANY,

AND TENNECO INc., Petitioners,

Vv.

Unirep States oF America, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

The Petitioners, Newport News Shipbuilding and

Dry Dock Company (‘‘Newport News’’) and Tenneco

Inc., respectfully pray that a writ of certiorari be

issued to review the judgment and opinion of the

United States Court of Appeals for the Fourth Cir-

cuit entered in this proceeding on February 27, 1978.

OPINIONS BELOW

The opinion of the Court of Appeals, reported at

571 F.2d 1283, is reproduced in its entirety as Adden-

dum A hereto, pp. la-12a. The opinion of the United

e States District Court for the Eastern District of Vir-

ginia, which is not reported, is reproduced in its en-

-tirety as Addendum B hereto, pp. 13a-46a.

JURISDICTION

The judgment of the Court of Appeals for the

Fourth Circuit was entered on February 27, 1978, and

this petition for certiorari is filed within 90 days of that

date. This Court’s jurisdiction is invoked under 28

U.S.C. § 1254(1).

QUESTIONS PRESENTED

1, Whether agency action, taken pursuant to duly

delegated authority, can be set aside by the Attorney

General solely because it would have the effect of com-

promising or rendering moot pending litigation in

which the Attorney General represents such agency.

2. Whether a Court of Appeals can substitute its

judgment as to a District Court’s findings of fact,

made on the basis of depositions, documentary evi-

dence and concessions of counsel before the District

Court, concerning the meaning and extent of compli-

ance with an order of the District Court entered at the

request of both parties.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The following constitutional and statutory provi-

sions involved are reproduced in Addendum C hereto,

pp. 47a-52a.

U.S. Constitution, Art. I, §8, Cl. 13

10 U.S.C. §131

10 U.S.C. §133(a),(b),(d)

10 U.S.C. § 134

10 U.S.C. § 2303(a) (2),(b) (4)

ee a

10 U.S.C. § 2304(a) (13)-(14)

10 U.S.C. § 5011

10 U.S.C. § 5031

28 U.S.C. § 516

28 U.S.C. §519

50 U.S.C. § 401

FEDERAL RULE OF CIVIL PROCEDURE INVOLVED

Rule 52(a) of the Federal Rules of Civil Procedure

is reproduced as Addendum D hereto, p. 53a.

STATEMENT

This action was brought by the United States in the

United States District Court for the Eastern District

of Virginia on August 29, 1975, under 28 U.S.C. § 1345,

for specific performance of an alleged contract for the

construction of a nuclear-powered guided missile frig-

ate designated DLGN-41.‘ Work continued on the

DLGN-41 pursuant to a court order consented to by

the parties and requiring them to negotiate their dif-

ferences in good faith. Nearly one year later the parties,

through their duly authorized agents, arrived at what

the negotiators on both sides believed to be an agree-

ment settling the litigation. Upon Petitioners’ motion

the District Court enforced this settlement agreement,

ruled that the United States had acted in bad faith,

and dismissed the case. On appeal by the United States,

the Court of Appeals for the Fourth Circuit reversed.

1 The Navy has changed the designation DLGN to CGN and the

terms ‘‘DLGN-41’’ and ‘‘CGN-41’’ have been used interchange-

ably in the pleadings, evidence and arguments before the courts

below.

Petitioners now seek review by this Court of the action

of the Court of Appeals.

Background—Pre-August 29, 1975

On December 21, 1971, Newport News entered into

a contract (Contract Modification P00007) with the

United States Navy for the construction of three nuc-

lear-powered guided missile frigates designated as

DLGN’s 38, 39, and 40, [App. 5; App. Ex. 1-27].* The

contract included a provision captioned ‘‘Option for

Increased Quantity’? [App. Ex. 27] which stated in

part that the Navy had an option, exercisable before

February 1, 1973, for the construction of an additional

such frigate, the DLGN-41.

On February 1, 1973, the parties executed a docu-

ment, Contract Modification P00018, which purported

to extend the ‘‘Option for Increased Quantity’’ on new

terms to February 1, 1975, but only if certain prior

conditions were met. [App. Ex. 28-40]. One such condi-

tion was that the parties ‘‘negotiate in good faith to

reach an agreement as rapidly as possible” on various

matters, eight of which were specifically enumerated in

the modification and upon which the parties had pre-

viously been unable to agree. [App. Ex. 31-32]. Almost

a year passed in which the Navy made no effort to ne-

gotiate. [App. Ex. 233-35; also see Affidavit of F.

Hunter Creech, dated August 29, 1975, pp. 4-8 (Record

29-33) ]. In 1974, Newport News made repeated, un-

successful attempts to get the Navy to negotiate and

agree on such matters. [App. Ex. 233-35; also see Affi-

davit of F. Hunter Creech, dated August 29, 1975, pp.

* References are tc the Appendix, Appendix Exhibits and Record

before the Court of Appeals.

4-8 (Record 29-33)]. Also, despite the fact that the

Navy had made over 300 separate drawing design and

specification changes for the three earlier ships then

under construction and even though the option related

to an ‘‘Increased Quantity’’, the Navy repeatedly re-

fused to incorporate such changes into the drawings

and specifications for the DLGN-41. [App. Ex. 234;

also see Affidavit of F. Hunter Creech, dated August

29, 1975, pp. 3-9 (Record 28-34) ]. Meanwhile Newport

News undertook certain preliminary work on the

DLGN-41.

Finally in August 1974, Newport News formally ad-

vised the Navy that for numerous reasons—including

the Navy’s refusal to fulfili its obligations to negotiate

under Modification P00018—Newport News regarded

the option to be a nullity, void and of no legal effect.

(App. 142, 595; also see Affidavit of F. Hunter Creech,

dated August 29, 1975, pp. 6-8 (Record 31-33) ]. Never-

theless, the Navy purported to exercise the option by

notice to Newport News on January 31, 1975. [App.

Ex. 46-46a]. Newport News immediately notified the

Navy that it considered the alleged option and its pur-

ported exercise to be void and unenforceable, but ex-

pressed its continuing interest in reaching a mutually

acceptable arrangement for construction of the DLGN-

41. [App. Ex. 47]. Upon discovering shortly thereafter

that the Navy had previously determined (in October

1974) that the total cost of the DLGN-41 would exceed

the appropriation then available therefor, Newport

News advised Navy that it considered the purported

exercise of the option invalid for the additional reason

that it violated the Anti-Deficiency Acts. [App. Ex.

358-63 ].

In light of the Navy’s insistence that Newport News

proceed with construction, and Newport News’ insist-

ence that it had no obligation to do so, the parties en-

tered into a January 31, 1975 Memorandum of Under-

standing which was subject to cancellation by either

party at the end of 30 days and pursuant to which: (a)

Newport News agreed to continue its work on the

DLGN-41 for the time being; (b) the Navy agreed to

pay for subsequent work as it had for past work; (c) the

parties agreed not to institute any action in any admin-

istrative or judicial tribunal ; and (d) the parties agreed

‘‘to negotiate in good faith to reach an agreement as

rapidly as possible to modify those contract provisions

requiring amendment or to take other appropriate ac-

tion.’’ [App. Ex. 49-50; App. 145, 598].

Notwithstanding its initial agreement to discuss all

issues between the parties, the Navy refused in early

1975 to negotiate with respect to the validity of the

option or on any matters other than the eight items

enumerated in Modification P00018 without some show-

ing of government fault or unless new consideration

flowed to the government. [App. 121-22, 148-50, 300;

App. Ex. 236-39, 358-67]. In June 1975, the Navy re-

fused to make any further payments for work being

done by Newport News under the Memorandum of

Understanding. [App. 53, App. Ex. 238-39]. The Navy

also refused to agree with a request previously made

by Newport News that the Navy join it in asking for an

opinion of the General Accounting Office with respect

to the sufficiency of the available appropriation. [ App.

46-48, 51-53, 58-60, 63-66; App. Ex. 52]. Since Newport

News was prohibited by the terms of the Memorandum

of Understanding from seeking such an opinion on its

own, it exercised its right to terminate the Memoran-

dum of Understanding effective August 27, 1975, and

on that day filed a request with the General Account-

ing Office for an opinion on the anti-deficiency ques-

tions. [App. 52-53, 62]. Newport News also advised

the Navy that ‘‘[p]ending a resolution of the questions

as to the validity of the option and its exercise, all ma-

terial procurement, shop fabrication and other prelim-

inary work on the DLGN41 which has been continuing

pursuant to the Memorandum of Understanding will

be suspended and the DLGN41 construction effort will

not begin.’’ [See Affidavit #2 of Vincent F. Ewell,

dated August 29, 1975, Appendix A, Exhibit M, p. 10

(Record 168) ].

August 29, 1975—March 7, 1977

On August 29, 1975, the government brought this

action for an injunction to compel Newport News to

construct the DLGN-41, and the District Court heard

argument on the government’s Motion for Temporary

Restraining Order. [ App. 14-77].’ After a hearing and

recess, during which counsel for the parties engaged in

extensive discussion, the parties by counsel entered into

a stipulation which, at the request of counsel, was en-

tered as an order of the District Court in lieu of a Tem-

porary Restraining Order. [Addendum E hereto, pp.

54a-55a]. This order required Newport News to con-

tinue its efforts with respect to the DLGN-41, required

the Navy to pay for those efforts in the same manner as

under the Memorandum of Understanding, and re-

quired that the changes made in the plans and speci-

* The government was represented by Mr. Jeffrey Axelrad, United

States Department of Justice, and by Mr. E. Grey Lewis, United

States Department of Navy.

fications for DLU.N’s 38, 39 and 40 be incorporated into

the plans and specifications for DLGN-41. Addition-

ally, after reciting Newport News’ contention as to the

invalidity of the option and its exercise, the order pro-

vided :

‘‘The parties agree to negotiate in good faith

to reach an agreement as rapidly as possible to

modify those contract prewisions requiring amend-

ment or to take other appropriate action.’’ [Ad-

dendum E hereto, p. 54a]

At the time this order was entered, counsel for the

Department of Justice and the Navy assured the Dis-

trict Court that, ‘‘Mr. E. Grey Lewis [General Coun-

sel of the Navy] on behalf of the Navy has agreed to

undertake to ensure the Navy’s obligation hereunder.’’

[App. 70-71, 150]. In response to a question from the

court, Mr. Lewis confirmed his and the Navy’s assump-

tion of this obligation. [App. 71].

The Navy did not carry out its obligations under the

stipulation and order to negotiate in good faith with

Newport News during the succeeding 11 months. The

Navy failed to provide Newport News with informa-

tion essential to meaningful negotiations, and also or-

dered Mr. Lewis, who was responsible for its obliga-

tions under the consent order, out of the settiement ne-

gotiations in October 1975. [App. 152, 155-58]. The

Deputy Secretary of Defense subsequently determined

that from the date of the court order until July 1976,

the Navy did not negotiate in good faith on the DLGN-

41 dispute. [App. Ex. 253]. A subsequent negotiator of

the Navy, Mr. Gordon W. Rule, who was appointed in

July 1976, also characterized the Navy as having had

during such period a ‘“‘complete adversary attitude,

complete lack of good faith, at all times a lack of good

faith.’’ [App. 345-49].

The Navy’s failure to negotiate in good faith caused

Newport News to file a motion in the District Court on

July 13, 1976, requesting, among other things, that the

government be ordered to comply with its obligations

under the August 29, 1975 order. [App. 112-17]. The

Deputy Secretary of Defense held a meeting in his of-

fice within hours after the Newport News motion was

filed, as a result of which Gordon W. Rule was ap-

pointed to negotiate with Newport News concerning

the DLGN-41 dispute. [App. 286-88, 294; App. Ex.

251, 256, 277]. Newport News was subsequently advised

of Mr. Rule’s appointment and repeatedly told by the

Navy that he had complete authority to resolve this

controversy. [App. 222-23, 240-41, 291-92, 295, 306-07,

358, 373-75]. Mr. Rule was appointed with the knowl-

edge and concurrence of the Department of Justice,

and Justice confirmed Newport News’ understanding

that Mr. Rule had authority ‘‘to resolve all issues be-

tween the parties.’’ [App. Ex. 277; App. 639-39a, 658].

Following Mr. Rule’s appointment, both he and the

Department of Justice requested that Newport News

withdraw its July 13, 1976 motion because of Mr.

Rule’s appointment as negotiator. [ App. 224-25, 294-95,

639-39a]. Acting on government representations that

Mr. Rule had been appointed with full authority to

reach agreement with Newport News resolving all is-

sues between the parties, Newport News requested that

the District Court hold the July 13 motion in abey-

ance pending further advice from Newport News.

[App. 225, 639a, 658].

Immediately following Mr. Rule’s appointment, he

and Newport News commenced negotiations in good

faith to reach an agreement resolving the issues in dis-

pute between the parties. [App. 223-29, 291-300]. Con-

siderable information and data were requested from,

and provided by, Newport News. [Jd.]. On August 19,

1976, Gordon W. Rule received a contracting officer’s

warrant granting him:

‘‘Unlimited authority with respect to negotiations

with Newport News rnin po | and Dry Dock

Company for construction of CGN 41 under Con-

tract N00024-70-C-0252.”’ [App. Ex. 276; App. 230,

301, 306-07, 361, 374-75].

On the morning of August 20, 1976, Mr. Rule and other

representatives of the Navy met with representatives

of Newport News and an agreement was reached as to

all substantive matters in issue, which was subsequently

upheld by the District Court. [App. 230-35, 248, 300-06,

312-13, 407, 409, 460-61; App. Ex. 482; Addendum B

hereto, pp. 13a-46a]. With the concurrence of the Navy,

Newport News issued a press release announcing the

settlement. [App. 236-38].

After reaching agreement on August 20, 1976, the

parties began work on a written document expressing

the terms of their agreement. [App. 239, 241-44, 307,

313-14]. At the same time, persons within the Navy

eommenced efforts to disavow the agreement and to

place purported restrictions on Mr. Rule’s authority.

[ App. 236-41, 243-45, 309-14, 320-23, 358-66, 372-74, 447-

51; App. Ex. 502, 528]. Notwithstanding these efforts,

Mr. Rule, on behalf of the Navy, and Mr. Dart, on

behalf of Newport News, executed a final written con-

tract modification on October 7, 1976, constituting a

written settlement agreement. Mr. Rule’s contracting

officer’s warrant was immediately thereafter revoked.

[App. 197, 333-34, App. Ex. 279]. Deputy Secretary

of Defense Clements then found the agreement to be

a reasonable resolution to the dispute and sent the

agreement to the Attorney General for implementa-

tion. [Addendum B hereto, pp. 27a, 35a]. The Attorney

General subsequently, however, purported to disap-

prove the settlement and refused to recognize its va-

lidity. [Addendum B hereto, p. 27a].

Newport News thereupon filed a Motion for Entry

of Judgment (on the ground that the case had been

settled by the agreement with Mr. Rule) or, In the

Alternative, for Dismissal with Prejudice (on the

ground of bad faith on the part of the government in

failing to carry out the District Court’s order). [ App.

192-248].

The Decisions Below

In a March 8, 1977 Memorandum Opinion and Or-

der, the District Court held that the parties had reached

an agreement on August 20, 1976, the government was

bound by its agreement, and the government had acted

in bad faith. Accordingly, the District Court granted

Newport News’ motion and dismissed the case. [Ad-

dendum B hereto, p. 46a].

The District Court supported its decision by making

extensive findings of fact based on a voluminous record,

containing testimony, affidavits and documentary evi-

dence, and the appearance and concessions of counsel

before it. The court found that: Deputy Secretary

Clements appointed Mr. Rule as chief negotiator with

authority to bind the United States to a compromise

agreement, and, on August 19, 1976, the Navy had

issued Mr. Rule a contracting officer’s warrant grant-

ing him ‘“‘unlimited authority”’ to negotiate with New-

port News concerning the dispute; serious negotiations

had begun July 15, 1976, and continued on an almost

daily basis through August 20, 1976; on August 20,

1976, the parties came to an oral agreement on all of

the outstanding substantive issues concerning the CGN-

41 and agreed to prepare a written agreement; and that

the parties intended to be bound by their August 20,

1976, agreement. [Addendum B hereto, p. 23a-25a]. On

the basis of these findings, the District Court con-

cluded that a binding agreement between the parties

existed on August 20, 1976.

The District Court made additional findings of fact

concerning the conduct of the government and the De-

partment of Justice in the settlement negotiations. It

found that the government had agreed on three sepa-

rate occasions to negotiate in good faith to resolve all

its differences with Newport News: when it entered

into the January 31, 1975 Memorandum of Under-

standing; when it sought entry of the August 29, 1975

consent order; and when Mr. Rule was appointed and

Newport News was induced to request the District

Court to stay action on Newport News’ July 13, 1976

motion. [Addendum B hereto, pp. 19a; 14a, 21-22a,

39a; 23a-24a, 39a]. The court found that in August

1975, the Department of Justice had represented to it

that the United States was bound to negotiate in good

faith and had joined with Newport News and requested

the court to enter its August 29, 1975 consent order.

[Addendum B hereto, pp. 21a-22a, 39a]. At that time

the Department of Justice stipulated to the court that

the Navy’s General Counsel would ‘‘undertake to en-

sure the Navy’s obligation’’ to negotiate pursuant to

the consent order. [Addendum B hereto, pp. 22a, 39a].

The court further found that, the United States

through the Department of Justice had made ‘‘a de-

liberate decision not to seek an immediate judicial de-

Bie oe es

termination of its rights under the disputed option

contract’’ when it requested entry of the August 29,

1975, consent order. [Addendum B hereto, p. 39a]. The

Department of Justice was found to have reaffirmed its

agreement when it consented to the appointment of

Mr. Rule. [Addendum B hereto, p. 40a]. The Depart-

ment of Justice refused to participate directly in any

negotiations for the next seventeen months. [ Adden-

dum B hereto, p. 15a]. On the basis of these findings the

court held the United States ‘‘estopped to deny the

authority of the Department of Defense to bind the

United States to a compromise agreement.’’ [Jd.].

Notwithstanding the government’s commitment to

negotiate the resolution of all differences in good faith,

the District Court found that the government ‘‘utterly

failed”’ to so negotiate until Mr. Rule’s appointment.

[Addendum B hereto, p. 14a]. It found that: the

Navy had ignored not only its own January 31, 1975

Memorandum of Understanding, but the August 29,

1975 consent order as well [Addendum B hereto, p.

22a]; it had ordered the General Counsel of the Navy

to stop negotiating in October of 1975 [Addendum B

hereto, pp. 22a-23a]; and the Navy made efforts to un-

dermine Mr. Rule’s authority after August 20, 1976.

[Addendum B hereto, pp. 25a-27a]. The court further

found that Navy’s position that it would only negotiate

the eight items originally listed in Modification P00018

was ‘‘incredible’’ since language expressly limiting

the negotiations to those items was expressly excluded

from the final version of the January 31, 1975 Memo-

randum of Understanding. [Addendum B hereto, p.

20a]. The court stated that it would not have entered

the August 29, 1975 consent order had it been aware

that the government would later attempt to assert that

it was not required to negotiate all differences. [ Adden-

dum B hereto, p. 14a].

On the basis of these findings of fact, as well as others

recited in its opinion, the District Court held the par-

ties had agreed to a settlement, the government and

the Department of Justice were estopped to deny it,

and the government had acted in bad faith towards

the court and Newport News.

The government appealed the District Court’s de-

cision to the United States Court of Appeals for the

Fourth Circuit which reversed the lower court in a

February 27, 1978 decision and remanded the case to

the District Court for further proceedings consistent

with the court’s opinion. [Addendum A hereto, p. 10a].

The Court of Appeals set aside the District Court’s

findings of an August 20, 1976 agreement notwithstand-

ing its concurrence in the trial court’s finding that on

“that date ‘‘the parties reached what Rule and the

Shipyard’s negotiators considered to be an oral agree-

ment in principle... .’’ [Addendum A hereto, p. 3a].

Ignoring the specific findings of the District Court and

without citing any principles of law involved, the Court

of Appeals concluded that the Department of Justice

decision not to take part in the settlement negotiations,

standing alone, did not constitute ‘‘a sufficient basis

for invoking estoppel.’’ [Addendum A hereto, p. 8a].

Conceding that the underlying facts were not in dispute

[Addendum A hereto, pp. 5a, 10a], and that there was

no need for an evidentiary hearing on the motion to en-

force the settlement [Addendum A hereto, p. 5a], the

Court of Appeals nevertheless held that a summary

disposition of the case on the grounds of bad faith by

the government towards the court at that time was

Na oe, antral

inappropriate because there was a controversy as to

the inferences that could be drawn from the undisputed

underlying facts. [Addendum A hereto, p. 10a].

I, THE HOLDING OF THE COURT OF APPEALS, THAT A DE-

PARTMENT OR AGENCY OF THE UNITED STATES CAN

TAKE NO ACTION RENDERING PENDING LITIGATION

MOOT WITHOUT THE APPROVAL OF THE ATTORNEY

GENERAL, CONTRAVENES LAW AND PUBLIC POLICY AND

PRESENTS IMPORTANT QUESTIONS OF FEDERAL LAW

REQUIRING RESOLUTION BY THIS COURT.

The decision of the Court of Appeals in this case

marks the first time that any federal court has held

that a department or agency of the United States lacks

the power, without approval of the Attorney General,

to take action otherwise authorized by law, if that ac-

tion has the effect of mooting pending litigation.

The Department of Defense and the Navy have spe-

cific authority and responsibility for the procurement

of vessels for the fleet. U.S. Const. Art. I, § 8, Cl. 13;

10 U.S.C. §§ 131, 133(a), (b), (d), 2303(a) (2), (b) (4),

2304(a)(13)-(14), 5011, and 5031; 50 U.S.C. §401;

Lockheed Shipbuilding & Construction Co., 75-2 BCA

111,566 at 55,213-15, 17. That authority was exercised

when Gordon W. Rule was appointed as a contracting

officer pursuant to 32 C.F.R. § 1-405.2. On August 20,

1976, Mr. Rule, in his capacity as a duly designated

contracting officer, and Newport News reached an

agreement for the construction of the vessel known as

the DLGN-41. On October 7, 1976, the parties entered

into a contract modification which was approved by

Deputy Secretary of Defense Clements as ‘‘a reason-

ble resolution to this complex matter.’’ [ App. Ex. 259].

On October 15, 1976, the modification was sent to the

Attorney General for implementation,* but the Attor-

ney General subsequently purported to disapprove the

agreement. [Addendum B hereto, p. 27a].

The Court of Appeals, without elaboration or cita-

tion to any authority which grants the Attorney Gen-

eral power to do more then supervise, compromise and

settle litigation, held that: ‘*The law pertaining to

the Attorney General’s control over cases referred to

the Department of Justice by other agencies of the

government fully sustains his authority to disapprove

the proposed compromise.’’ [Addendum A hereto, p.

9a]. However, contrary to this holding of the Court

of Appeals, the law does not sustain any power in the

Attorney General to veto any action of a department

or agency of the United States which would have the

effect of rendering litigation moot.

The Attorney General’s authority to conduct litiga-

tion on behalf of federal agencies is not inherent,

but rather derives from 28 U.S.C. §§ 516, 519. Neither

of these sections limits the authority of an executive

agency to take actions permitted it by law which would

have the effect of mooting or compromising litigation

which has been referred by the agency to the Depart-

ment of Justice. 28 U.S.C. § 516 states only that the

“conduct of litigation’’ to which the government is a

party and the ‘‘securing of evidence therefor’’ are re-

served to the Department of Justice. Similarly, 28

U.S.C. §519 provides only that the Attorney General

* The court order of August 29, 1975, with respect to the obliga-

tions of the parties as to negotiations and as to construction and

payment pending resolution of the dispute, was stil] in effect, and

it was necessary for appropriate steps to be taken to obtain ratifica-

tion by the District Court of the settlement negotiated pursuant to

that order.

Gian. -

will ‘‘supervise all litigation’’ involving the govern-

ment and ‘‘shall direct all United States Attorneys,

Assistant United States Attorneys and special attor-

neys appointed under [28 U.S.C. §543] in the dis-

charge of their respective duties.’’ Executive Order

No. 6166, June 10, 1933, gives the Attorney General

the authority to compromise litigation. No decision has

been found that construes these statutory provisions,

their predecessors, or Executive Order No. 6166 to ex-

tend the Attorney General’s authority beyond: (1) the

overseeing of the conduct of proceedings on behalf of

the United States; (2) the authorizing of Department

of Justice attorneys to appear as counsel of record on

behalf of the United States; and (3) the ability to com-

promise litigation committed to his supervision.

In short, the Attorney General has no authority be-

yond that which is delegated to him. Inasmuch as the

Department of Defense and the Navy have the author-

ity to contract for vessels irrespective of whether the

United States and a shipbuilder are in litigation, the

exercise of that authority cannot be prevented or ve-

toed by the Attorney General. If the Attorney General

is for the first time to acquire authority to block agency

actions, within the scope of the agency’s authority,

which have the effect of settling or mooting litigation,

Petitioners contend that only the Congress can grant it.

At the very least, the decision of the Court of Appeals

holding that existing law grants or sustains such au-

thority requires the review of this Court.

A. The Decision Below Conflicts With Decisions of This Court.

This Court has specifically upheld the power of an

agency to take action, within the scope of its authority,

which has the effect of mooting pending litigation.

United States v. Morris, 23 U.S. (10 Wheat) 246

(1825).

In Morris, this Court upheld the authority of the

Secretary of the Treasury to remit a forfeiture during

pending litigation. The plaintiffs, customs collectors

suing in the name of their employer, the United States,

and represented by the Attorney General, brought suit

against a United States Marshal for his failure to sell

a vessel and its goods which had been seized and con-

demned as forfeited for violation of non-intercourse

acts then in existence. After condemnation, but before

execution, and therefore while the matter was still in

litigation, the Secretary of the Treasury remitted the

forfeiture. The marshal then delivered the property

back to the defendants in the condemnation action

pursuant to the Secretary’s grant of remission. This

Court held over objection of the plaintiffs that the

Secretary did not exceed his authority when he remit-

ted the forfeiture during the pendency of litigation

involving validity of the forfeiture. The Morris de-

cision was cited with approval and discussed at some

length by the Court in The Confiscation Cases, 74 U.S.

(7 Wall.) 454, 461-62 (1869).

Moreover, in S & E Contractors v. United States,

406 U.S. 1 (1972), this Court rejected the government

argument that 28 U.S.C. §§ 516, 519 gave the Attorney

General authority to override the decisions of other

executive officers:

“‘[W here the responsibility for rendering a de-

cision is vested in a coordinate branch of Govern-

ment, the duty of the Department of Justice is to

om that decision and not repudiate it.’’ /d.

at 13.°

The conflict between the holding of the court below

and the decisions of this Court in Morris and S & E

Contractors fully justifies the grant of certiorari to

review the judgment below.

B. The Decision Below Conflicts With a Decision of the United

States Court of Appeals for the First Circuit.

The Court of Appeals for the First Circuit has taken

a position directly in conflict with the holding of the

court below. Jn Leonard v. United States Postal Ser-

vice, 489 F.2d 814 (1st Cir., 1974), while the litiga-

tion was pending, the Postal Service entered into a

stipulation of settlement. Despite objections of the At-

torney General, the District Court entered judgment.

The Court of Appeals found that, under the special

statutory scheme for the Postal Service, that agency

was authorized to settle litigation. The Court further

stated (at 817 n.7), however:

‘These [cited] cases may establish the proposition

that where the Attorney General has supervision

and control over a particular litigation he is em-

powered to settle that litigation. But we have had

no case pointed out to us, nor have we been able to

discover any, where it has been held that the At-

torney General can block a setiiement agreed to

*An agency cannot, of course, take action which would render

pending litigation moot if it lacks the authority to take such ac-

tion in the absence of litigation. The Grey Jacket, 72 U.S. (5

Wall.) 342 (1867). It has been recognized, howeyer, that this does

not mean that an agency is completely lacking in authority to com-

promise a matter merely because it is in litigation. United States

v. Sandstrom, 22 F. Supp. 190, 191 (N.D. Okla., 1938).

by a government agency involved in that litiga-

tion. Such an action on the part of the Attorney

General would not further the policy interest in

giving him power to screen out cases which should

not burden the federal courts. See, FTC v. Claire

Furnace Co., supra. And, at least in some cireum-

stances, it would violate the spirit of S & E Con-

tractors, Inc. v. United States, 406 U.S. 1, 13, 92

S. Ct. 1411, 31 L.Ed. 2d 658 (1972).”’

(emphasis in original)

The position of the Court of Appeals below and tuat

of the First Circuit as to the authority of the Attorney

General to set aside compromises of litigation are in

direct conflict, and this conftict alone justifies the grant

of certiorari to review the judgment below.

C. The Decision Below Contravenes the Public Policy in Favor of

Compromise of Litigation and Threatens the Efficiency of the

Executive and Judicial Branches of the Federal Government.

The decision of the Fourth Circuit in this case, which

affects every party to litigation in which the Attorney

General is involved, contravenes a longstanding pub-

lie policy in favor of compromises of litigation. Wil-

liams v. First National Bank, 216 U.S. 582, 595 (1910).

Such compromises permit a more efficient functioning

of the judicial system. At a time when the number of

cases pending in the federal courts is increasingly an-

nually, impediments to compromises should not be con-

doned, much less approved. Such impediments are also

inappropriate from the perspective of the departments

and agencies of the United States whose own orderly

functioning depends in part on their ability to decide

whether to continue or compromise disputes with pri-

vate parties.

Il. THE DECISION OF THE COURT OF APPEALS IS BASED ON

A STANDARD OF REVIEW INCONSISTENT WITH THE

DECISIONS OF THIS COURT AND THE FEDERAL RULES OF

CIVIL PROCEDURE.

The Court of Appeals improperly discharged its

appellate function when it failed to apply the proper

standard of review to the District Court’s findings of

fact and substituted its judgment for that of the lower

court. Both the Federal Rules of Civil Procedure and

decisions of this Court accord finality to trial court

findings of fact unless the findings are clearly errone-

ous. Rule 52(a), Fed. R. Civ. P.; United States v.

United States Gypsum Co., 333 U.S. 364, reh. den., 333

U.S. 869 (1948). Rule 52(a) does not authorize the re-

viewing court to try factual issues de novo and requires

that deference be given to the decisions of the trier of

fact. Zenith Radio Corp. v. Hazeltine Research, Inc.,

395 U.S. 100, 123 (1969).

The duty of a reviewing court is to correct clear

error and to set aside the trial court’s findings of fact

only when a review of the evidence clearly compels a

contrary finding. United States v. Yellow Cab Co., 338

U.S. 338, 342 (1949); United States v. Singer Mfg.

Co., 374 U.S. 174, 194 n.9 (1963). A choice by the trial

court between permissible views of the evidence is not

‘clearly erroneous’’. United States v. Yellow Cab Co.,

supra, at 342. A reviewing court is not given the choice

of substituting its judgment for that of the trial court

simply because it might give the facts another con-

struction or resolve ambiguities differently. United

States v. National Ass’n. of Real Estate Boards, 339

U.S. 485, 495-96 (1950). Instead, Rule 52(a) requires

it to accept the lower court’s findings unless clearly

erroneous, and this is true even though the record is

lengthy, contains conflicts in testimony, and includes

quantities of documentary material. United States v.

Oregon State Medical Society, 343 U.S. 326 (1952).

The Rule applies as well to factual inferences drawn

from undisputed facts. Commissioner v. Duberstein,

363 U.S. 278, 291 (1960).

The opinion of the Court of Appeals, which is devoid

of any reference to Rule 52(a) or any holding that the

District Court’s findings of fact were clearly errone-

ous, constitutes precisely the de novo retrial of fac-

tual issues and substitution of judgment which Rule

52(a) and the decisions of this Court prohibit. Zenith

Radio Corp. v. Hazeltine Research, Inc., supra; and

United States v. National Ass’n. of Real Estate Boards,

supra. A reading of the Court of Appeals opinion,

which fails to consider some of the District Court’s

findings and concedes that others are not in dispute,

compels the conclusion that the Court of Appeals did

not regard the trial court’s findings as clearly errone-

ous within the meaning of Rule 52(a). Instead, the

Court of Appeals simply had a different view of the

evidence as to the existence of an agreement on August

20, 1976, the actions of the government constituting

estoppel to deny a settlement, and the bad faith conduct

of the government. Such a difference of opinion is not

sufficient grounds for a reviewing court to set aside a

trial court’s findings where, as in this case, the findings

were made on the basis of a voluminous record, con-

taining testimony, affidavits, and documentary evi-

dence, United States v. Oregon State Medical Society,

supra, and also the appearance and concessions of

counsel before the District Court.

Ms iat a a ee ee

The August 20, 1976 Agreement

The District Court found that Mr. Rule had unlim-

ited authority to negotiate a compromise and that set-

tlement discussions commenced on July 15, 1976. [ Ad-

dendum B hereto, pp. 24a-25a]. These discussions con-

tinued for over a month and culminated on August 20,

1976 in an agreement on all substantive matters in

issue. [Addendum B hereto, p. 25a]. The District Court

found that the parties intended to be bound on that

date [Addendum B hereto, p. 25a], and the Court of

Appeals acknowledged that the Navy’s duly authorized

representative, Mr. Rule, and Newport News reached

what they considered to be an agreement. [ Addendum

A hereto, p. 3a]. However, in direct contradiction to its

acknowledgement, the Court of Appeals disagreed with

the trial court and found that the parties did not in-

tend to be bound by their August 20, 1976 agreement.

{Addendum A hereto, p. 6a]. Whatever the reason for

this inconsistency in its opinion, the contradiction dem-

onstrates that the Court of Appeals did not, as indeed

on this record it could not, find that the evidence

clearly compels a contrary finding. The District Court’s

view of the evidence was clearly permissible, and the

Court of Appeals’ rejection of the trial court’s findings

constitutes a substitution of judgment which is pro-

hibited by Rule 52(a) and the decisions of this Court

construing the Rule. See, e.g., United States v. Na-

tional Ass’n. of Real Estate Boards, supra.

Department of Justice Conduct

The District Court held that the Department of Jus-

tice was estopped from disapproving the settlement.

[Addendum B hereto, pp. 15a, 40a]. Its holding was

based on extensive findings of fact that the Depart-

ment: (1) made a ‘‘deliberate decision’’ not to go for-

ward with its injunction action, but instead voluntarily

agreed and subjected itself, through the order of the

District Court, to negotiate and to rely upon the Navy

to conduct the negotiations rather than participate it-

self; (2) agreed to and promoted the August 29, 1975

court order and directed Navy officials to conduct nego-

tiations on behalf of the United States and ‘‘to reach an

agreement as rapidly as possible’’; (3) refused to par-

ticipate in negotiations despite its knowledge that the

Navy was not negotiating pursuant to the court order

and was in ‘‘utter default’ prior to Mr. Rule’s ap-

pointment; (4) reaffirmed its agreement when Gordon

Rule was appointed and gave its express approval of

settlement negotiations ; and (5) had exercised its power

to control the litigation by asking the court to enter its

consent order, and having done so, could not repudi-

ate its position. [Addendum B hereto, pp. 39a-41la]. The

August 20, 1976 agreement was negotiated by Gordon

Rule pursuant to a stipulation of the parties which had

been entered as an order of the court at the specific re-

quest of the Department of Justice. [Addendum B

hereto, pp. 21a-25a, 31a]. The opinion below neither dis-

cusses any of these findings, which were fully supported

in the record, nor does it cite any portion of the record

which either is to the contrary or suggests any limita-

tion, exception or reservation in the government’s ac-

tions which would have informed the District Court or

Newport News prior to the August 20 agreement that

the government did not intend to be bound by its ac-

tions. The Court of Appeals’ conclusion that the gov-

ernment was not estopped, without citing either facts in

support of that conclusion or any analysis of applicable

law, is therefore precisely the substitution of judgment

which the ‘‘clearly erroneous’’ standard was adopted

to prevent.

The Government's Bad Faith

The Court of Appeals also failed to comply with

Rule 52(a) and the decisions of this Court when it held

that summary disposition of the case on the basis of

the government’s bad faith was inappropriate. The Dis-

trict Court held that the government had acted in bad

faith towards the court, as well as towards Newport

News, and dismissed the litigation. The dismissal was

supported by extensive findings of fact concerning the

manner in which the government conducted itself on

and after August 29, 1975, the date on which the gov-

ernment agreed to negotiate in good faith to resolve

the dispute over construction of the DLGN-41 and spe-

cifically requested the District Court to enter an order

requiring it to so negotiate. [Addendum B hereto, pp.

21a-23a, 25a-27a]. The Department of Justice repre-

sented to the District Court that the General Counsel of

the Navy, E. Grey Lewis, would undertake to satisfy

the government’s obligations under the order, and Mr.

Lewis advised the Court that he would do so. [Adden-

dum B hereto, pp. 22a, 39a]. Notwithstanding these as-

surances, the District Court found that on October 29,

1975, Mr. Lewis was ordered by higher Navy officials to

stop all negotiations, and that for the next eleven

months

**. . . the United States totally failed to meet its

obligations to negotiate in good faith, although at

the same time it was receiving the benefits of the

Shipyard’s continued performance under the dis-

puted contract.’’ [Addendum B hereto, p. 23a (em-

phasis in original) ]

The District Court further found that during this pe-

riod, the Department of Justice knew that the Navy

was not negotiating and that prior to Mr. Rule’s ap-

pointment ‘‘ Navy officials were in utter default’’ under

this order. [Addendum B hereto, p. 39a]. Both prior

and subsequent to Mr. Rule’s appointment and the

August 20, 1976 agreement, the Navy attempted to un-

dercut his authority and the agreement which resulted

from its exercise. [Addendum B hereto, pp. 25a-27a].

Notwithstanding the foregoing findings of fact,

among others, evidencing the bad faith of the govern-

ment towards the District Court, the Court of Appeals

held that ‘‘summary disposition’’ of the case was ‘‘in-

appropriate’’. [Addendum A hereto, p. 10a]. The Court

of Appeals conceded that ‘‘the underlying facts were

not in dispute,’ but held that the inferences to be

drawn from them were in controversy as to the mean-

ing of the clause ‘‘to take other appropriate action”’

which was contained in the stipulation and court order

of August 29, 1975. [Id.] This Court has held that in-

ferences drawn from undisputed facts can be set aside

only if clearly erroneous. Commissioner v. Duberstein,

supra. However, the Court of Appeals opinion notes

only that a controversy existed as to those inferences,

but nowhere states that the inferences drawn by the

District Court were so clearly in error as to compel a

reversal of the District Court’s conclusion that the case

should be dismissed because of the government’s bad

faith.

A fundamental defect in the Court of Appeals opin-

ion is that the District Court judge was not only the

trier of fact, but also a party to the order and had no

doubt as to its intended scope. The District Court en-

tered the order at the request of both parties ‘‘believ-

— eee ee

Oh es 8 er ie Cr ti ee st ee

dee

ing that all good faith attempts to reach a settlement

should be encouraged.’’ [Addendum B hereto, p. 21a}.

The transcript of the hearing at which the order of

August 29 was issued shows that the court was con-

cerned with the total dispute between the parties, in-

cluding the validity of the option and its exercise and

not just the specific items enumerated in Modification

P00018 as to which the government later claimed it was

limited to negotiate. [App. 14, 34-38, 56]. Before the

order was issued, the court inquired of Mr. David

James, one of the government’s counsel, about the

scope of negotiations under the Memorandum of Un-

derstanding which contained the identical ‘‘take other

appropriate action’’ language.

‘*THE Court: ... does this memorandum of un-

derstanding contemplate the responsible people in

a number more than one on each side sitting down

and arbitrating the problems that apparently have

beset you ?

a James: Yes, Your Honor... .’’ [App. 30,

Nowhere in the proceedings was there any suggestion

that negotiations were to be limited to only some of

the issues.® In its opinion dismissing the litigation for

failure to comply with the August 29, 1975 order by

negotiating all matters in dispute, the District Court

stated:

‘“‘Had we been aware that the Government would

later attempt to assert that it was not required to

so negotiate, this Court would rover have entered

* After the order of August 29, 1975 was entered, Assistant

Secretary of Navy Bowers directed ‘‘negotiations with Newport

the stipulated agreement of the parties to nego-

tiate as an order. We would have moved the par-

ties along to a swift adjudication of the validity

of the disputed contract.’’ [Addendum B hereto,

p. 14a]

In short, there was no dispute as to either the facts

or the inferences to be drawn from them as to the obli-

gations of the Government to the District Court to ne-

gotiate all items in dispute. To hold otherwise is to con-

clude that neither the District Court nor the parties

knew what was meant by the stipulation and order, and

that is a conclusion supported by neither logic nor the

record in this case. Accordingly, the District Court’s

dismissal, which was within its discretion and sup-

ported by an uncontradicted factual record, should

have been upheld.

The opinion of the Court of Appeals evidences ap-

plication of a far less stringent standard of review

than that required by Rule 52(a), and this Court, in

the exercise of its supervisory responsibilities, should

grant certiorari to rectify this error.

News in good faith on all matters contained in the stipulation set

forth in the court order’’—which stipulation recited Newport

News’ claim of invalidity of the option exercise [App. 75]—and

further specifically directed that settlement be reached in such

negotiations on the ‘‘CGN-41 Option validity.’’ [App. 633 (empha-

sis added) |. It was later that Navy attempted to limit the scope of

the negotiations to the eight items in P00018.

wet Oe eee Bes wt at

Dcpenaetere te Metie te A

NO Oe

CONCLUSION

For these reasons the petition for writ of certiorari

should be granted.

Respectfully submitted,

WiiuiaM McL. Freravson

225 - 28th Street

Newport News, Virginia 23607

K. Martin Wortry

JoHN G. DeGooyer

Mark Su.tuivan ITI

JOHN H. SpPeLLMAN

JEFFREY M. PerrasH

Larry H. MircHern

HaMEL, Park, McCazne & SAuNDERS

1776 F Street, N.W.

Washington, D.C. 20006

Counsel for Petitioners

May 1978

ADDENDUM

- a

ADDENDUM A

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 77-1748

Unitep States or America, Appellant,

Newport News SuHipsurtpine anp Dry Dock Company,

anp Tenneco, Inc., Appellees.

Appeal from the United States District Court for the

Eastern District of Virginia, at Newport News. John A.

MacKenzie, District Judge.

Argued October 4, 1977 Decided February 27, 1978

Before Haynswortn, Chief Judge, Butzner, Circuit Judge,

and Frevp, Senior Circuit Judge.

Patricia N. Blair, Attorney, Civil Division, Department of

Justice (Barbara Allen Babcock, Assistant Attorney Gen-

eral; William B. Cummings, United States Attorney;

Leonard Schaitman & Stuart E. Schiffer, Attorneys, Civil

Division, Department of Justice on brief) for appellant;

K. Martin Worthy (John G. DeGooyer, Mark Sullivan, ITI,

John H. Spellman, Jeffrey M. Petrash, Larry H. Mitchell,

Hamel, Park, McCabe & Sanders; William McL. Ferguson,

Ferguson & Mason on brief) for appellees.

Butzner, Circuit Judge:

The United States appeals from an order of the district

court enforcing an oral settlement purportedly reached

between the Department of the Navy and the Newport

News Shipbuilding and Drydock Co., and dismissing as

moot the government’s suit for specific performance of a

contract for construction of a vessel. We vacate this order

because we conclude that the parties’ negotiators did not

settle the case orally and because the Attorney General,

whose approval was essential, rejected the terms that were

ultimately reduced to writing.

This litigation arises from the Navy’s attempt to exercise

an option for construction of the DLGN-41, the fourth ship

in a class of nuclear powered guided missile frigates. As

part of an agreement to negotiate a number of disputed

matters, the final date for exercising this option was ex-

tended to February 1, 1975. In the meantime, the Navy

authorized the shipyard to start preconstruction work. In

August 1974, however, the shipyard notified the Navy that

for a variety of reasons it considered the option invalid.

The Navy disagreed, and on January 31, 1975, it formally

undertook to exercise the option. The parties then signed

a memorandum of understanding obligating the shipyard to

continue its preconstruction work while they negotiated. In

August 1975, the shipyard exercised its right to cancel the

memorandum of understanding because it was dissatisfied

with the progress of the negotiations.

As a result of the cancellation, the Navy filed this suit

seeking specific performance of the contract and a tempo-

rary restraining order directing the shipyard to resume

work on the vessel. At a hearing on August 29, 1975, the

district court adopted as its order a stipulation by the par-

ties providing for continued work on the ship, for contin-

ued payment for work performed, and for negotiations “in

good faith to reach an agreement as rapidly as possible to

modify those contract provisions requiring amendment or

to take other appropriate action.”

The shipyard, again dissatisfied with the Navy’s nego-

tiating tactics, filed a motion on July 13, 1976, for enforce-

ment of the court’s order to negotiate in good faith. It also

sought to have its obligation to continue work suspended

until the Navy complied. The Navy countered by designat-

ing as its negotiator Gordon W. Rule, an experienced ci-

vilian official in the procurement office. In view of this de-

velopment, the shipyard requested the court to reserve rul-

ing on its motion.

Rule began negotiating with the shipyard on July 15,

1976, and subsequently the Navy issued him a contracting

officer’s warrant granting him “unlimited authority with

respect to negotiations.” On August 20, 1976, the parties

reached what Rule and the shipyard’s negotiators consid-

ered to be an oral agreement in principle which the Navy

later estimated would increase the cost of the ship by about

22.7 million dollars.

The shipyard prepared a written first draft of the oral

agreement which Rule received on August 30, 1976. The

negotiators then met on several occasions to discuss revi-

sions. A second draft was circulated on September 27, 1976,

and further discussions concerning revisions were held. On

October 7, 1976, the shipyard executed a third draft of the

agreement and sent it to Rule. Although Rule sigaed the

draft as presented by the shipyard, he conditioned his exe-

cution of the document by the following provisions set forth

in his letter returning it to the shipyard:

(i) That ultimate approval must be received from

Deputy Secretary of Defense Clements, and

(ii) That escalation under this Mod [i.e., modifica-

tion of the contract] will be paid by the Government

on the basis of the contractor’s actual experience or

the BLS Indices times 1.25, whichever is less.

On October 15, 1976, Deputy Secretary Clements for-

warded a copy of the compromise to the Attorney General

with the recommendation that it be approved. The Attor-

ney General, however, disapproved it on November 24,

1976.

During the negotiations dissension had arisen concern-

ing the scope of Rule’s duties. Rule thought he possessed

plenary authority both to negotiate and to bind the govern-

ment to any agreement he reached. Immediately after his

appointment, he told the shipyard that this was the extent

of his power. The Navy agreed that Rule possessed un-

limited authority to negotiate, but it denied granting him

unreviewable authority to bind the government to a settle-

ment. Alerted by a news report that the shipyard consid-

ered the law suit to have been settled on August 20, Rule’s

superiors explicitly cautioned him several times that any

agreement he reached would require approval by higher

authorities. The Navy also informed representatives of

the shipyard about the necessity for review and approval.

Rule himself appears to have recognized that his au-

thority was not as unrestricted as he first supposed. In a

memorandum dated October 5, 1976, he submitted the pro-

posed agreement to the Chief of Naval Material for ap-

proval and referred to obtaining “final review and ap-

proval” from the Oftice of General Counsel of the Navy.

Finally, the letter addressed to the shipyard accompany-

ing Rule’s executed copy of the agreement expressly con-

ditioned his execution of the document on approval by Dep-

uty Secretary Clements.

Shortly after Rule executed the agreement, and even be-

fore the Deputy Secretary transmitted his recommendation

to the Attorney General, the shipyard moved the district

court to enforce the compromise and dismiss the govern-

ment’s action for specific performance. In the alternative,

it moved to dismiss the action on the ground that the Navy

had failed to negotiate in good faith.

The court considered the shipyard’s motion to enforce the

settlement without conducting an evidentiary hearing. Re-

oa re he oe ae

lying on affidavits and discovery depositions, it found that

Rule had authority to bind the government to the settle-

ment he negotiated; that agreement was reached orally on

August 20, 1976, and subsequently memoralized; that Dep-

uty Secretary Clements approved the agreement; and that

the Attorney General “is estopped to deny the settlement.”

We find no reversible error in the Navy’s complaint that

the district court should have held an evidentiary hearing

on the motion to enforce the settlement. When there is no

real dispute about the facts, a court has inherent power to

enforce summarily a compromise terminating pending liti-

gation. Meetings & Expositions, Inc. v. Tandy Corp., 490

F.2d 714, 717 (2d Cir. 1974). The only conflict of any sig-

nificance concerned Rule’s duties. We have some doubt that

the law and the evidence support the conclusion that the

Deputy Secretary vested him with authority to commit the

Navy to the expenditure of additional millions of dollars

for the construction of the vessel. This issue, however, is

not material to our decision. The uncontradicted evidence

establishes that by August 25, the Navy had notified the

shipyard of the necessity for review and approval of any

settlement Rule negotiated. The critical question therefore

is whether the August 20 oral agreement was a binding

settlement as the shipyard insists and the district court

found.

III

Parties to contractual negotiations may enter into an

enforceable oral contract that is later to be expressed in

writing if, intending to be bound, they reach agreement on

all major issues. Orient Mid-East Great Lakes Service v.

International Export Lines, Ltd., 315 F.2d 519, 522-23

(4th Cir. 1963); In Re: ABC-Federal Oil & Burner Co.,

290 F.2d 886, 889-90 (3d Cir. 1961); 1 A. Corbin, Contracts

§§ 29, 30 (1963) ; Restatement (Second) of Contracts §§ 26,

32 (Tent. Draft, 1973). Applying this principle to the un-

contradicted facts discloses that the parties did not intend

to commit themselves irrevocably to an oral » itlement of

the case on August 20. First, the draft agreement pre-

pared by the shipyard after the August 20 negotiating ses-

sion contained an escalation clause that computed payments

by using indices prepared by the Bureau of Labor Sta-

tistics from data concerning steel vessel construction

throughout the country. The Navy soon determined, how-

ever, that the shipyard’s actual costs had increased less

than the BLS indices. In subsequent discussions Rule in-

sisted that the escalation clause be changed to award pay-

ments based on the shipyard’s actual experience or 1.25 of

the BLS indices, whichever was less. Estimating that the

difference between the two clauses amounted to about 9.4

million dollars, Rule aptly characterized this issue as sub-

stantive. The final draft submitted to Rule on October 7

retained the shipyard’s version of the escalation clause, and

Rule expressly conditioned his execution of the draft on

acceptance of the government’s position. Although the ship-

yard had represented during the negotiations that it would

relent if this issue “became . . . the hinge point” for the

whole settlement, it did not accede to the condition Rule

imposed. In January 1977, at the hearing on enforcement of

the August 20 oral agreement, it pressed for the clause

awarding the higher escalation payments.

The shipyard’s final draft was essentially an offer of set-

tlement. Rule accepted this offer subject to a condition con-

cerning the escalation clause. Under these circumstances,

the following principle of law applies: ‘‘when an offer or a

counteroffer is accepted subject to a condition or reserva-

tion, neither party is bound to an agreement until the con-

dition or reservation has been withdrawn or satisfied.’’

Orient Mid-East Great Lakes Service v. International Ex-

port Lines, Ltd., 315 F.2d 519, 522 (4th Cir. 1963).

hh ore

We. OR Oe POs ——_ Sar

OSS So a ES

Second, by his letter of October 8 transmitting the exe-

cuted agreement to the shipyard, Rule indicated that he did

not intend the government to be bound either by the results

of the Angust 20 negotiations or by his execution of the

final draft. In this letter he conditioned his execution of the

document by the statement that ‘‘ultimate approval must

be received from Deputy Secretary of Defense Clements.”’

To sustain its thesis that the August 20 agreement bound

the government, the district court construed this condition

to mean that Deputy Secretary Clements must ‘‘approve

the document as memorializing the compromise agreement

between the parties.’’ This restrictive view of the Secre-

tary’s function is not supported either by the plain lan-

guage of the letter or by any action of the Deputy Secre-

tary. He played a far more responsible role than simply

determining whether the executed document prepared by

the shipyard conformed to the terms of the oral negotia-

tions. Moreover, the Deputy Secretary did not undertake to

commit the government to the settlement that Rule had

negotiated. In his letter to the Attorney General of October

15, 1976, which is set forth as an appendix, he recognized

that final approval rested with the Attorney General.

Title 28 U.S.C. §§ 516 and 519 authorize the Attorney

General to supervise all litigation involving an agency of

the government unless the law otherwise directs. As an

incident to this broad grant, he has authority to agree to

dismissal of actions brought by the government. See Con-

fiscation Cases, 74 U.S. (7 Wall) 454, 458 (1868). His au-

thority to compromise and settle any case referred to the

Justice Department was expressly confirmed by §5 of

Executive Order No. 6166, June 10, 1933, 5 U.S.C. § 901.*

* Section 5 of Executive Order No. 6166 provides in part:

As to any case referred to the Department of Justice for

prosecution or defense in the courts, the function of decision

Notwithstanding these well established principles, the

district court held that the Attorney General was estopped

from disapproving the settlement for two reasons. First, it

noted that during oral argument the Department of Justice

stipulated that when Rule was appointed he had authority

to bind the United States. The government, however, pro-

tests that it made no such stipulation or concession. It

points to portions of the transcript where it specifically de-

nied that Rule could bind the government while recogniz-

ing that he had authority to negotiate with the shipyard.

The shipyard in its brief does not claim that the govern-

ment made such a concession, and we have been unable to

find it in the record.

The second reason the district court assigned for its rul-

ing is that the Justice Department took no action to fulfill

its obligation to negotiate in good faith pursuant to the

court’s order ‘‘except through its implicit delegation of

any authority it had to settle this litigation to the Depart-

ment of Defense.’’ We conclude that this reason does not

provide a sufficient basis for invoking estoppel.

The negotiations concerning settlement of the litigation

between the shipyard and the Navy covered many technical

issues about the construction of the vessel, the computation

of its cost, and a feasible date for its delivery. It was there-

fore reasonable for the Justice Department attorneys to

leave discussion of these complex subjects to Navy officials

who had the expertise to deal with them. But another im-

portant question was whether the government should press

its suit for specific performance of the initial contract in-

stead of compromising, in view of the millions of dollars

involved. The answer to this question depended on careful

analysis of the strength of the government’s claim from

whether and in what manner to prosecute, or to defend, or to

compromise, or to appeal, or to abandon prosecution or defense,

now exercised by any agency or officer, is transferred to the

Department of Justice.

> nee ae

both evidentiary and legal standpoints. In turn, the dis-

closures of that survey had to be weighed against the re-

sults of Rule’s negotiations. The final product of this study

was an assessment of the litigative risk.

The Attorney Generai did not, either personally or

through his subordinates, delegate to Rule the authority to

make this critical decision. Moreover, Deputy Secretary

Clements, who was the source of Rule’s authority, under-

stood that the responsibility for evaluating the litigative

risk and consequently for ultimately approving or disap-

proving the settlement remained with the Attorney Gen-

eral. We therefore conclude that the record does not sup-

port the court’s ruling that the Attorney General was

estopped. The law pertaining to the Attorney General’s

control over cases referred to the Department of Justice by

other agencies of the government fully sustains his author-

ity to disapprove the proposed compromise.

As an alternative ground for dismissing the govern-

ment’s suit for the specific performance of the construction

contract, the district court held that the government was

barred by the doctrine of unclean hands because it did not

negotiate in good faith. The controversy about the govern-

ment’s negotiating tactics centers on the parties’ August 29,

1975, stipulation which was incorporated in the court’s

order. In view of the dispute about the validity of the

Navy’s option, the parties stipulated that they would ‘‘ne-

gotiate in good faith to reach an agreement as rapidly as

possible to modify those contract provisions requiring

amendment or to take other appropriate action.’’ The nub

of the issue is the clause ‘‘to take other appropriate ac-

tion.’’ The shipyard contends that this language was in-

tended to impose a duty on the parties to renegotiate the

basic contract for the construction of the vessel. Although

there was some difference of opinion in its ranks about the

meaning of the language, the Navy asserted, at least until

the time Rule was appointed its chief negotiator, that it

10a

was required to bargain over the basic contract only if the

shipyard offered some new legal consideration or demon-

strated governmental responsibility justifying more favor-

able terms.

The Navy’s claim of good faith is altogether consistent

with paragraph five of the stipulation, which provided,

‘‘This stipulation and any action taken by either party pur-

suant hereto shall be without prejudice to the rights or

legal positions of either party.’’ The Navy was not obli-

gated to abandon its legal position in order to demonstrate

good faith bargaining if its insistence was sincerely held.

NLRB v. Almeida Bus Lines, Inc., 333 F.2d 729, 731 (1st

Cir. 1964). Although the underlying facts were not in dis-

pute, there was a controversy as to the inferences that

could properly be drawn from them. In the context of this

controversy, the clause ‘‘to take other appropriate action’”’

is ambiguous; there is a genuine dispute about its meaning.

Under these circumstances, summary disposition of the

case on the basis of the defense of unclean hands is inap-

propriate. American Fidelity and Casualty Co. v. London

and Edinburgh Insurance Co., 354 F.2d 214, 216 (4th Cir.

1965),

The judgment of the district court is reversed, and the

case is remanded for further proceedings consistent with

this opinion.

SO a Re OEE ARR A Ee eee

lla

APPENDIX

Tue Deputy Secretary or Derense

WASHINGTON, D.c. 20301

15 October 1976

The Honorable Edward Levi

Attorney General

Department of Justice

Washington, D.C. 20530

Dear Mr. Levi:

This letter forwards a proposed settlement of the CGN-41

litigation negotiated pursuant to Court Order. As you

know, I have been deeply committed to efforts to settle the

Navy’s on-going disputes with the shipbuilding industry

and have undertaken a number of initiatives to this end. In

a meeting on 13 July 1976, Senior Navy Officials, with my

approval, appointed Mr. Gordon W. Rule of the Naval

Material Command as the principal negotiator of this par-

ticular matter. Mr. Rule has negotiated a proposed modi-

fication to the contract with Newport News, attachment (1),

on the CGN-41.

In view of the long-standing, acrimonious, and disruptive

controversy between the Navy and its sole present new con-

struction surface nuclear warship contractor, I consider it

vital to the national defense that this dispute be resolved as

quickly as possible. I consider the proposed modification a

reasonable resolution to this complex matter.

Attachment (2) provides a comparative financial esti-

mate of the proposed settlement. While attachment (2)

indicates a difference of $22.7M I believe it is reasonable

to assume that a Court might grant Newport News, as a

minimum, an extension of the existing escalation coverage

to an achievable contract delivery date (e.g., August 1980) ;

consequently, the difference in the settlement could be re-

12a

duced another $7.5M, to $15.2M. We have not included any

other assessment of litigative risk since this is a matter

under your purview. Quantifying the latter could further

reduce or eliminate the $15.2M differential noted above.

In any event, the District Court instructed the parties as

follows: ‘‘The parties agree to negotiate in good faith to

reach an agreement as rapidly as possible to modify those

contract provisions requiring amendment or to take other

appropriate action.’’ Mr. Rule, in the spirit of this order,

negotiated a contract modification which, if approved,

would undoubtedly facilitate the construction of the badly

needed CGN-41.

Accordingly, I am forwarding the results of these nego-

tiations for your approval and such legal action as may be

necessary to obtain ratification.

/3/ W. P. Clements, Jr.

Attachments

ee eee ee ee ee een ee

ale A i et Na ali a 5 Mate DP ll Men, Ae

13a

ADDENDUM B

IN THE UNITED STATES DISTRICT COURT

FOR THE E\asteRN District or VIRGINIA

Newport News Division

Crviz, Action

No. 75-88-NN

Unitep States or Amenica, Plaintiff

Newport News Surpsurtpine anp Dry Dock Company, and

Tenneco Inc., Defendants

Memorandum Opinion

JURISDICTION AND Parties

The plaintiff, the United States of America, has brought

this action seeking specific performance of a shipbuilding

contract it purports to have entered into with the defendant,

Newport News Shipbuilding and Dry Dock Company (the

Shipyard). Defendant, Tenneco Inc. is the parent corpora-

tion of the Shipyard, and its liability is allegedly based on

its guarantee of the Shipyard’s contractual duties.

The Court has jurisdiction pursuant to 28 U.S.C. § 1345.

Nature oF THE Motion Berore THE CouRT AND THE

Court’s REeso.uTIon or THE Issues PResENTED

The Shipyard here contends that a valid compromise

agreement has been reached between itself and the United

States which moots and settles all of the issues presented

l4a

in the Government’s action; it moves for an entry of judg-

ment to enforce the settlement and to dismiss this litiga-

tion, and in the alternative, for a dismissal with prejudice

of the Government’s action because of its bad faith toward

this Court and the defendants. The United States main-

tains that it has negotiated towards the settlement in good

faith, but that any agreement reached between the Shipyard

and the Government is invalid for a variety of reasons.

We have no problem with the case and hold that a com-

promise agreement has been reached; that it is binding on

the United States; that the matters before the Court are

moot; and that judgment should be entered enforcing the

settlement and thus dismissing the litigation.

We find that the United States voluntarily bound itself,

contractually and by the consent order of this Court, to

negotiate in good faith to resolve all of the disputes be-

tween itself and the Shipyard with respect to the construc-

tion of the DLGN-41. The United States utterly failed, until

the appointment of Gordon Rule, to so negotiate in good

faith. It insists that it was only required to negotiate cer-

tain items and not all of the matters that are in dispute.

This false insistence evidences the Government’s complete

bad faith toward this Court and the Shipyard. The Govern-

ment, as well as the defendants, had every right to seek a

quick judicial determination of their respective rights un-

der the disputed contract. However, the parties agreed to

an order entered in this Court, on August 29, 1975 and

again a year later, that judicial action should be stayed to

allow the parties to negotiate in good faith to resolve all

their differences. Had we been aware that the Government

would later attempt to assert that it was not required to so

negotiate, this Court would never have entered the stipu-

lated agreement of the parties to negotiate as an order. We

would have moved the parties along to a swift adjudication

of the validity of the disputed contract.

ee ee ee ee eee ees es

*. Sgete we

l5a

We conclude that sovereign immunity does not deprive

this Court of jurisdiction to declare that the compromise

agreement here binds the United States. The Department

of Defense, in this case, delegated its executive authority

to Gordon Rule to bind the United States to an agreement

which compromises and settles the rights of the parties to

this suit. We need not reach the issue whether it would have

been proper for the Department of Defense, once the dis-

puted contract became the subject of litigation, to nego-

tiate a compromise agreement without the consent and ap-

approval of the Department of Justice. That issue is not

before the Court because the Department of Justice repre-

sented to this Court, in August, 1975, that the United States

would be bound to negotiate in good faith, and yet we find

that the Department of Justice has refused to directly par-

ticipate in any of the negotiations over the past seventeen

months. The United States here is estopped to deny the

authority of the Department of Defense to bind the United

States to a compromise agreement.

We find that the United States is fully bound to the com-

promise agreement negotiated on August 20, 1976 between

Gordon Rule, for the Government, and the Shipyard. This

agreement is evidenced by the documents executed by Rule

which memorialize the prior oral agreement. The documents

which speak to the compromise agreement are Contract

Modification P00037 and Rule’s cover letter imposing two

conditions.

These documents satisfy any statute of frauds require-

ment. There was a meeting of the minds of the parties on

August 20, 1976; there is adequate consideration to support

this compromise agreement; and failure to provide cost of

pricing data does not invalidate the agreement. We find

that Deputy Secretary of Defense Clements, who initiated

the negotiation efforts, has approved the compromise agree-

ment.

l6a

III

Tuer Facts

The Disputed Contract: June 25, 1970 to August 25, 1975

This acrimonious confrontation between the United

States Navy and the Newport News Shipyard over the con-

struction of the DLGN-4i, a nuclear-powered guided mis-

sile frigate, a high priority national defense item, is consid-

erably affected by the public interest.

On June 25, 1970 the Navy entered into a contract (Con-

tract N00024-70-C-0252) with the Shipyard for the precon-

struction preparation necessary for the construction of a

nuclear guided missile frigate, DLGN-38. This contract also

contained an option exercisable by the Navy for the actual

construction of the DLGN-38.

Subsequently various documents, identified as Contract

Modifications P0001 et seq., have been executed and en-

larged the scope of the original contract, and modified its

terms. The most important of these, for our purposes, are

Contract Modifications P0007, P00018, P00024, and P00037.

They raised issues upon which the parties disagree as to

their legal effects.

P0007 was executed on December 21, 1971. a “

avy purported to exercise its construction options for the

means ant two ships of the same class, the DLGN-39

and 40. In addition, P0007 in Article 28 granted the Navy

two options for the construction of two additional ships of

the same class, the DLGN-41 and DLGN-42, the options to

be exercised by February 1, 1973 and February 1, 1974

respectively. The Shipyard does not admit these legal

effects.

On February 1, 1973 the parties executed P00018. The

United States maintains that this document amended Ar-

ticle 28 to extend the time for the exercise of the construc-

RE:

17a

tion options for DLGN-41 and DLGN-42 by two years. Two

provisions are important for our purposes. One is the op-

tion provision which the Navy purported to exercise which

states:

On or before 1 February 1975, the Government, by

modification to this contract, may require the con-

tractor to construct and deliver DLGN 41, but only if

the Government, by modification to this contract, by

1 December 1973, authorizes the contractor to expend

funds in an amount of $29,062,200 for material pro-

curement, shop fabrication, and other preliminary

work.

The second relevant provision states:

The Parties agree to negotiate in good faith to reach

an agreement as rapidly as possible on the provisions

of this contract which require modification in order to

express the agreement of the parties as to new option

provisions for DLGN 41 and DLGN 42. Therefore, such

contract modification will:

(i) establish a target cost, a target price, a ceiling

price, and a share ratio within the profit-cost

envelope set forth below for each option so ex-

ercised separate from that for the other ships

under this contract, and revise Article 7, entitled

“Limitation or Contractor’s LiaBiuity ror Cor-

RECTION OF Derects” to provide a limitation on

the Contractor’s liability for correction of de-

fects for each vessel to two percent (2%) of the

initial Target Price for that vessel,

(ii) provide for a total final negotiated cost pursuant

to Article 5 hereof entitled “Incentive Price Re-

vision (Firm Tarcet)” separate from that for

DLGN 38, 39 and 40 combined,

(ili)

(iv)

(v)

(vi)

(vii)

(viii)

18a

establish escalation tables separate and different

from those for the DLGN 38, 39 and 40 com-

bined,

modify the payment provision as necessary to

provide payment for DLGN 41 and 42 separate

from DLGN 38, 39, and 40,

revise the project milestones in Articles 17 for

DLGN 41 and 42,

establish a fixed fee, and other terms and condi-

tions on account of the work which may be re-

quired by the Option Conditions described be-

low which will be effective until the correspond-

ing option is exercised, or the work, which may

have been continued pursuant to the direction

of the Contracting Officer, stops,

contain a provision for computing equitable ad-

justment on account of changes in the Longshore-

men and Harbor Workers’ Act, the Federal In-

surance Compensation Act, state workmen’s com-

pensation, unemployment, disability compensa-

tion and public liability acts occurring since

June of 1970, and

revise Schedule “A” to provide for DLGN 41

and DLGN 42 equipment delivery schedules the

same as those listed for DLGN 39.

If, despite the best efforts of both parties, the afore-

said agreement is not executed before the Govern-

ment exercises either or both options, the parties agree

that interim billings will be in accordance with the

terms and conditions of the payment provision for the

DLGN 38, 39 and 40 using the maximum profit-cost

envelope ... until such time as the aforesaid agree-

ment is reached, said interim billings not to exceed total

incurred costs for DLGN 41 and DLGN 42.

19a

On November 29, 1973 the parties executed P00021. The

United States maintains that modification extended the de-

livery dates for the DLGN-41 and DLGN.-42 to October

1978 and June 1979 respectively, in return for an exten-

sion of the date by which the Navy must provide funding

for the preconstruction work on the DLGN-41 and DLGN-

42 in order to exercise the options for actual construction.

On February 27, 1974 the Navy executed P00022 which re-

cites that the Shipyard is authorized to expend 35 million

dollars to accomplish the preconstruction work on the

DLGN-41. The bulk of this authorization was a prerequi-

site under Article 28 to an exercise of the DLGN-41 con-

struction option.

The Shipyard does not agree with the Government as to

the legal effects of these modifications, and maintains, and

we find as a fact, that it notified the Navy during August

1974 that it no longer considered the DLGN-41 option to

be valid.

The Navy was well aware of the Shipyard’s position

when, on January 31, 1975, it executed P00024 which re-

cites that the Navy exercises its construction option for the

DLGN.-41. In fact, the Shipyard and the Navy agreed, prior

to the execution of P00024, that an agreement, which was

contained in a document entitled a Memorandum of Under-

standing, would become effective on February 3, 1975. Un-

der this agreement, which was to remain in effect for at

least thirty days and to continue until one party had given

forty-eight hours’ notice, the Shipyard agreed to continue

the preconstruction work for the DLGN-41, and each party

agreed

... to negotiate in good faith to reach an agreement as

rapidly as possible to modify those contract provisions

requiring amendment or to take other appropriate

action. [Emphasis added.]

Some attempts to negotiate were made by both parties;

however, they failed because of the parties’ disagreement

20a

over the meaning of the phrase, “or take other appropriate

action.” The same language was incorporated into the

Court’s order of August 29, 1975. Certain elements in

the Navy maintain that this phrase did not obligate the

Navy to negotiate outside of the eight specific items which

the Navy was already obligated in February 1975 to nego-

tiate pursuant to P00018. We find this contention to be in-

eredible in light of the drafters’ deliberate rejection of

language which would have specifically limited negotiations

to those eight areas contemplated by P00018, and in light

of the fact that the Shipyard consistently maintained that

the exercise of the DLGN-41 option was invalid.

On May 28, 1975 the Navy sent the Shipyard a letter ad-

vising the Shipyard of the Government’s maximum accept-

able position. This Navy position basically was that the

exercise of the DLGN-41 construction option was valid and

therefore the Navy was not required to negotiate outside of

the eight items in P00018; this meant no change in the

October 1978 delivery date or the production schedule, no

change in target cost, profit, or ceiling price, and no change

in the incentive formula. The Navy would not negotiate

outside of the eight items to accomplish a modification of

the contract unless the Shipyard could prove that it was

entitled to an equitable adjustment due to Government re-

sponsibility, or the Shipyard could furnish new considera-

tion.

The disputed contract for the construction of the DLGN-

41 is a fixed-price, incentive-type contract, with a cost-price

envelope defined in terms of a target cost, target profit,

target price, and ceiling price as follows:

Target cost $ 76,050,000

Target profit + 9,691,000

Target price + 85,741,000

Ceiling price $ 100,951,000

2la

The contract compensation provisions also contain adjust-

ment and escalation clauses for the contingencies that ac-

tual costs may exceed target costs, and that there may be

inflation of labor and material costs.

. On August 25, 1975 the Shipyard notified the Navy that

it was exercising its right to cancel the Memorandum of

Understanding, and that all preconstruction work on the

DLGN-41 would be suspended as of August 27, 1975.

The Court’s Order: August 29, 1975 to July 13, 1976

On August 29, 1975 the United States filed in this Court

its complaint and a motion for a preliminary injunction and

a temporary restraining order. On that same day, a hear-

ing was heid before the Court on the motion for a tempo-

rary restraining order. It was at this hearing that the Court

first became aware of the positions of the parties. The

Shipyard maintained that the exercise of the DLGN-41

construction option was invalid because: (1) there were in-

sufficient appropriations, that the exercise was in contra-

vention of 41 U.S.C. §11(a), 31 U.S.C. § 665(a), and the

Armed Services Procurement Regulations (ASPR) : (2) the

Navy had failed to notify the Shipyard of the specifications

for the DLGN-41; and (3) under various legal theories, the

option was unenforceable, e.g. commercial impracticability.

After arguments on the TRO motion and a brief recess,

the parties asked the Court to allow an agreement, which

had been reached between the parties, to be read into the

record and to be entered as an Order of the Court. The

Court, believing that all good faith attempts to reach a

settlement should be encouraged, agreed. This Order, by the

Court, mooted the TRO issue and stayed the judicial pro-

ceedings. It directed, first, that the Shipyard would imme-

diately resume the preconstruction work and proceed to

22a

undertake construction of the DLGN-41. The Navy agreed

to pay for such work. In addition, all changes he. etofore

made in the specifications for the earlier DLGN-38, 39 and

40 were to be considered as incorporated into the specifica-

tions for the DLGN-41, and the parties agreed to negotiate

in good faith the appropriate equitable adjustments for all

specification changes. Second, it stated that:

The parties agree to negotiate in good faith to reach

an agreement as rapidly as possible to modify those

contract provisions requiring amendment or to take

other appropriate action.

Third, the parties agreed to urge the Comptroller General

to expedite his opinion on the issues previously submitted

by the Shipyard concerning whether the exercise of the

DLGN-41 construction option violated 41 U.S.C. §11(a),

31 U.S.C. § 665(a), or the ASPR’s.

Mr. Jeffrey Axelrad, representing the United States and

the Department of Justice, stipulated to the Court that E.

Grey Lewis, the Navy’s General Counsel, would “under-

take to ensure the Navy’s obligation” to negotiate under

the Order.

Unfortunately, the United States’ agreement to negotiate

has been undercut by the existence of diverse points of

view within the Navy, with the result that the record dis-

closes, without possible peradventure, that the United States

has fully and totally ignored not only its own February,

1975 agreement, but also the Order of this Court, that ne-

gotiations in good faith should ensue. Even before the Mem-

orandum of Understanding took effect on February 3, 1975

there was an effort within the Navy to limit negotiations

only to certain items listed in P00018. Although counsel

for the United States, Mr. Axelrad, in open court acknowl-

edged that the Navy’s General Counsel would ensure the

Navy’s compliance, on October 29, 1975, Mr. Lewis, that

- aids Maca

23a

Generai Counsel, was ordered by higher Navy officials to

stop all negotiations.

Despite the Navy’s appointment of two succeeding chief

negotiators, we find that in the eleven months following

our August 29, 1975 Order, the United States totally failed

to meet its obligations to negotiate in good faith, although

at the same time it was receiving the benefits of the Ship-

yard’s continued performance under the disputed contract.

Rule’s Appointment and the Compromise

Agreement: July 13, 1976 to date

On July 13, 1976 the Shipyard instituted, by a motion, an

effort to enforce the United States’ agreement to negotiate

in good faith and it asked the Court to suspend the Ship-

yard’s obligation under the Order of August 29, 1975, to

continue work on the DLGN-41 until the United States did

undertake to negotiate in good faith to resolve all disputes

between the parties concerning the DLGN-41.

On that same date, July 13, 1976, Gordon Rule was sum-

monsed, with others, to the office of Deputy Secretary of

Defense Clements to a meeting concerning the DLGN-41 dis-

pute. The United States has claimed executive privilege

concerning certain Government minutes of meetings, docu-

ments, and records of conversations, which frankly the

Court has viewed with an eye to ruling thereon. However,

there is ample evidence in the record, to which no privilege

is asserted, to justify our findings of fact that:

1. Gordon Rule was appointed by the Deputy Secretary

of Defense as chief negotiator for the DLGN-41 dispute

with the authority to bind the United States to a compro-

mise agreement. In fact, the United States admitted this

fact during its argument on January 13, 1977.

24a

2. Deputy Secretary Clements instructed Rule that he

wanted to see four items negotiated in any DLGN-41 com-

promise agreement: (a) a new escalation clause; (b) a new

“changes in the law” clause; (c) a new ceiling price; and

(d) a new delivery schedule.

3. Rule was appointed as chief DLGN-41 negotiator in

direct response to the Shipyard’s filing of its July 13, 1976

motion.

4. Deputy Secretary of Defense Clements specifically

called this meeting of July 13, 1976 for the purpose of prod-

ding the Navy to reach a DLGN-41 compromise agreement

with the Shipyard. In tuis regard Clements instructed the

high Navy officials in attendance that they should there-

after meet with him on a daily basis to keep him informed

of Rule’s progress in negotiating a compromise.

5. The Shipyard interpreted the appointment of Rule as

an indication of the United States’ willingness to negotiate,

for the first time, in good faith. As a result, the Shipyard

asked this Court, on July 19, 1976, to stay action on its

July 13, 1976 motion.

6. On July 16, 1976 Assistant Secretary of the Navy

Bauers issued a memorandum which designated Rule as the

Navy’s chief DLGN-41 negotiator. On August 19, 1976 the

Navy issued Rule a Certificate of Appointment as Contract-

ing Officer which recited that he had ‘‘unlimited authority’”’

to negotiate with the Shipyard concerning the DLGN-41

negotiator. On August 19, 1976 the Navy issued Rule a Cer-

tificate of Appointment as Contracting Officer which recited

that he had ‘‘unlimited authority’’ to negotiate with the

Shipyard concerning the DLGN-41 contract dispute. It is

significant that Bauers’ memorandum recites that Rule was

appointed, after consultation with the Department of Jus-

tice, to deal directly with the Shipyard, without the in-

volvement of the Department of Justice, and that Rule was

to be assisted by the Navy’s General Counsel.

25a

7. Rule is a high ranking civilian Navy employee who is

normally assigned as the Director of the Procurement Con-

trol and Clearance Division in the Office of the Chief of

Naval Material. It is his job function to approve or disap-

prove the business clearance on all Navy procurement con-

tracts. He is referred to as the ‘‘top civilian contracting

officer in the Navy.’’ Rule had previously signed for the

United States an unrelated contract modification involving

over $1,037,000,000.

8. Serious negotiations between Rule and the Shipyard

began on July 15, 1976, continued on an almost daily basis,

and resulted on August 20, 1976 in an oral agreement be-

tween Rule and the Shipyard on all of the outstanding sub-

stantive issues concerning the construction of the DLGN-41,

including those specifically charged to him by Secretary

Clements. The negotiators agreed that a written document,

to be labelled Contract Modification P00037, would confirm

and memorialize the terms of the August 20, 1976 agree-

ment.

9. On August 20, 1976 the parties orally agreed to a

change in the delivery date from October 1978 to August

1980, to a new escalation clause appropriate to the new

delivery date, to new and separate fringe benefits and en-

ergy cost provisions, and to agree later on a new ‘‘changes

in the law’’ provision as they were already obligated to do

under the earlier P00018.

10. At the completion of the August 20, 1976 meeting the

parties intended themselves to be bound by the agreement

reached and only contemplated a memorialization of this

agreement in a written document.

Despite the United States’ admission that Rule was ini-

tially appointed with full authority to bind the United

States, an effort was mounted within the Navy before

August 20, 1976 to undercut Rule’s specific authority, and

to bring it under further Navy scrutiny. Even in the face of

that internal Navy effort, such action would not have re-

26a

voked Rule’s authority as granted by the Deputy Secretary .

of Defense on July 13, 1976, and by Assistant Secretary of .

the Navy Bauers, on July 16, 1976, and as expressed as

‘‘ynlimited”’ in the Contracting Officer’s warrant issued.

Further Navy efforts to undermine Rule’s authority oc-

curred after the agreement was reached on August 20, 1976.

On August 30, 1976 an Admiral Michaelis sought to appoint

a review panel of three Navy persons, and purported to

grant them the sole final authority to bind the Navy to a

compromise agreement.

On August 23, 1976 Rule met with Deputy Secretary

Clements and reported to him that an agreement had been

reached with the Shipyard on August 20, 1976. On August

25, 1976 Admiral Reich, a top consultant to Clements, ap-

proved a press release announcing that a settlement agree-

ment had been reached.

A final draft, setting forth the agreement as reached on

August 20, 1976, was prepared by the Shipyard, and signed

by Rule, subject to two conditions, on October 7, 1976, at

6:00 P.M. On the morning of October 8, 1976, Rule was

called to his immediate superior’s office where he was

handed a document which stated:

... you do not have the authority to bind the Govern-

ment contractually on the proposed modification to

CGN-41 contract until the legal and business reviews

have been completed ....

This document, although dated October 7, 1976, was re-

ceived by Rule on the morning of October 8th.

Rule delivered Contract Modification P00037 to the Ship-

yard but expressly conditioned his execution and delivery

of the document on the conditions that:

(1) Clements approve the document as memorializing

the compromise agreement between the parties; and

(2) the labor escalation clause contained in P00037 be

modified to provide that the Shipyard would receive the

27a

lesser of its actual experience in escalated labor costs, or

125% of the Bureau of Labor Statistics indices. These con-

ditions were dictated to a secretary, in the presence of the

Shipyard’s agent, and later incorporated in the cover letter

for the executed P00037.

Later, on October 8, a memorandum from a Navy Cap-

tain Thompson was sent to Rule’s office, reciting that Rule’s

warrant as a Contracting Officer was revoked.

On October 15, 1976 Deputy Secretary of Defense Clem-

ents forwarded a copy of the writings executed by Rule to

Attorney General Levi. In his cover letter Clements states

that the writings present ‘‘a reasonable resolution of this

complex matter.’’ He further states:

In any event, the District Court instructed the parties

as follows: ‘‘The parties agree to negotiate in good

faith to reach an agreement as rapidly as possible to

modify those contract provisions requiring amendment

or to take other appropriate action.’’ Mr. Rule, in the

spirit of this order, negotiated a contract modification

which, if approved, would undoubtedly facilitate the

construction of the badly needed CGN-41.

The Department of Justice has since informed the Court

that the Attorney General would disapprove the Rule

compromise agreement and contends that therefore there

is no compromise agreement binding on the United States.

Conciusions or Law

The United States’ Failure to Act in Geod Faith

toward this Court and the Shipyard

Even if there is a valid contract the breach of which

would entitle the aggrieved party to a damage remedy at

law, the specific performance of that contract is not a mat-

ter of right under either federal or state law. The granting

28a

of the remedy of specific performance rests in the sound

discretion of the trial court, which is to exercise its discre-

tion according to the established principles of equity and

the facts of the case, Williston on Contracts § 1418 (3rd

Ed., 1976 Supplement) citing among other cases, Manufac-

turers’ Finance Co. v. McKay, 294 U.S. 442, 55 S.Ct. 444

(1934); Barnes v. Sind, 341 F.2d 676 (4th Cir. 1965);

Raney v. Barnes Lumber Corp., 195 Va. 956, 970, 81 S.E.2d

578, 586 (1954).

A fundamental equity principle is that one who asks for

specific performance of a contract must have ‘‘clean

hands’’; he must have acted in a fair and equitable fashion

with respect to the party against whom he seeks to have the

contract enforced.

Long before the Navy purported to exercise its option

rights on January 31, 1975, the Shipyard informed the

Navy that it considered the DGLN-41 construction option to

be void. If this litigation had proceeded to trial, this Court

would have been required to pass on the validity of the

original DLGN-41 option provision. However, the Court’s

decision today that the subsequent compromise agreement

is binding on the United States moots this issue and settles

this litigation.

Certain personalities within the Department of the Navy

have taken the position that the Navy should not negotiate

with the Shipyard on the matters required to be negotiated

pursuant to the January 31, 1975 Memorandum of Under-

standing and, of more importance to us, this Court’s Order

of August 29, 1975. The Navy was not coerced by anyone,

including this Court, to agree to negotiate in good faith to

resolve the DLGN-41 dispute. The Government, if it were

80 positive of the validity of the original option provision,

_ could have had this Court’s final adjudication of the valid-

ity of that provision within%six or seven months after the

filing of its complaint. However, the United States, through

its Department of Justice, represented to this Court that

no immediate adjudication of the validity of the disputed

29a

option provision was desired, but rather that good faith

efforts would be undertaken by the Navy to resolve this dis-

pute through an out-of-court compromise agreement, and

that while the Court’s Order remained in effect the Ship-

yard would be obligated to continue its construction of the

DLGN-41, despite its contention that the exercise of the

option contract was invalid.

If that group within the Navy which disapproved of any

negotiations or settlement of the DLGN-41 dispute had at-

tained ascendancy in the Navy’s decision-making hierarchy,

they could have asked this Court to revoke its Order of

August 29, 1975, and to proceed to adjudicate the validity

of the exercise of the option. This did not occur. Instead the

official position of the Government was that good faith ne-

gotiations to resolve all of the DLGN-41 dispute were de-

sired, while certain Navy elements were even then under-

cutting the progress of any efforts toward good faith nego-

tiation. We do not decide whether it was in the best inter-

ests of the United States to negotiate or to litigate the

DLGN-41 dispute; we only conclude that the Navy, and the

United States, has not acted in good faith. For this reason,

the United States does not have clean hands to ask this

Court to specifically enforce the original DLGN-41 con-

struction option.

A Declaratory Judgment that the United States is

Bound by the Compromise Agreement is Justified

The United States has raised numerous legal objections

to the validity and enforceability of the August 20, 1976

compromise agreement. These cbjections include: (1) that

sovereign immunity deprives the Court of jurisdiction to

declare that the United States is bound by a compromise

agreement which settles and moots this action; (2) that

Rule lacked authority to bind the United States; (3) that

the August 20, 1976 agreement is unenforceable because it

30a

was oral; (4) that there has been no meeting of the minds;

(5) that the compromise agreement is void because of the

Shipyard’s failure to provide the Government with cost

and pricing data; (6) that Rule could not bind the United

States without the approval of the Attorney General; and

(7) that the compromise agreement is not supported by

adequate consideration. While we consider some of these

charges to be of no moment, nevertheless, we separately ad-

dress each of these legal objections and conclude that none

of them prevent the compromise agreement from binding

the United States.

Sovereign Immunity

We need not dwell long on the two sovereign immunity

arguments raised by the United States. By granting judg-

ment for the Shipyard neither do we grant a damages judg-

ment against the United States, nor do we order the equi-

table reformation of a contract to which the United States

is a party. We merely declare that the parties are legally

bound by a compromise agreement. This compromise agree-

ment moots the issue as to whether that prior contract

was enforceable.

Certainly if the facts show that the issues are moot in a

suit brought by the United States for specific performance

of a contract, the Court has jurisdiction, under 28 U.S.C.

§ 1345, to so find, and to dismiss with prejudice the Govern-

ment’s case. It make no practical difference whether the

Court’s judgment is styled a dismissal with prejudice be-

cause of mootness, or a declaratory judgment for the de-

fendant that the settlement agreement is binding. The res

judicata and collaterai estoppel effects are the same.’

1 We find it a little tenuous for the Government, after instituting

this suit in this Court, to now question the jurisdiction of the

Court to hear and determine the whole matter, including a bona

fide settlement of the dispute.

3la

We need not decide whether the enactment on October 21,

1976 of Public Law 94-574, 90 Stat. 2721, which amends 5

U.S.C. § 702, grants this Court any additional jurisdiction

with respect to this litigation.

Rule’s Authority

The United States admits that Gordon Rule had complete

and final authority to bind the United States when he was

appointed on July 13, 1976, as chief Navy negotiator in the

DLGN-41 dispute. However, the United States contends

that, subsequent to his appointment and prior to any agree-

ment reached between himself and the Shipyard, his author-

ity was limited to the negotiation of a proposed settlement,

which required the further approval of a higher authority

in the Departments of Defense or Navy, and the approval

of the Attorney General. We disagree.

Gordon Rule was appointed as the Navy’s chief negoti-

ator for the DLGN-41 dispute by Deputy Secretary William

P. Clements during a meeting held in Clements’ office at-

tended by the high-level Department of Defense and Navy

personnei concerned with this dispute with the Shipyard.

Rule’s appointment was in direct response to the Ship-

yard’s having filed a motion to compel the United States to

comply with this Court’s Order of August 29, 1975. It was

Mr. Clements’ stated and recorded belief that the Navy had

failed so far to negotiate with the Shipyard in good faith.

The Department of Justice admits that the Attorney Gen-

eral was aware of this grant of authority to Rule.

The Justice Department attempts now to discredit the

settlement worked ont by Rule. It suggests that Rule did

not act with the best interests of the United States in mind.

We find nothing in the record to svpport this view. In fact,

Rule was apyointed by Clements because of his reputation

in negotiating settlements with contractors. That segment

32a

of the Navy command which was upset at Rule’s appoint-

ment, but was then unable to prevent it, now attempts to

discredit his completed settlement.

On August 19, 1976 Rule was issued a contracting offi-

cer’s warrant signed by Captain Gerald J. Thompson, Dep-

uty Chief of Naval Material. That document stated that

Rule had ‘‘unlimited authority to negotiate with the Ship-

yard concerning the DLGN-41 dispute.’’ This warrant was

not revoked until October 8, 1976. It is incredible to the

Court that the United States now maintains that ‘‘unlim-

ited authority to negotiate for the United States’’ does not

include the authority to bind the United States. This argu-

ment is contrary to the dictates of common sense and the

English language. If the warrant authority did not include

the power to bind the United States, why did certain Navy

officials feel the need to revoke the warrant on October 8,

1976? Rule had signed and delivered the draft setting out

the Contract Modification P00037 prior to this revocation.

Statute of Frauds

The United States claims that even if Rule had the au-

thority on August 20, 1976 to bind the United States, any

agreement reached on that date would not be enforceable

because it was oral.

The United States contends that 31 U.S.C. § 200(a) es-

tablishes that an agreement must be evidenced by docu-

ments before it can be binding on the United States. This

provision states in pertinent part:

After August 26, 1954 no amount shall be recorded as

an obligation of the Government of the United States

unless it is supported by documentary evidence of—

(1) a binding agreement in writing between the par-

ties thereto, including Government agencies, in a man-

ner and form and for a purpose authorized by law,

33a

executed before the expiration of the period of availa-

bility for obligation of the appropriation concerned for

specific goods to be delivered, real property to be pur-

chased or leased, or work or services to be peformed ;

@ e @

(6) a liability which may result from pending litiga-

tion brought under authority of law; or

(8) any other legal liability of the United States

against an appropriation or fund legally available

thereto.

The Government cites United States v. American Ren-

assance Lines, Inc., 494 F.2d 1059 (1974) where the Court

of Appeals for the District of Columbia Circuit held that

an oral charter agreement was unenforceable against the

United States because of § 200(a). That Court rejected the

argument that § 200(a) was merely ‘‘a recordation statute

to facilitate auditing’’ by Congress of the Executive’s

spending in order to determine future appropriation re-

quirements; rather it held that the statute makes oral con-

tracts with the Government unenforceable. It is unneces-

sary for us to reach the issue whether 4 200(a) is applicable

to the August 20, 1976 compromise agreement for we find

that the requirements of § 200(a) have been met under both

subsections (1) and (6).

Under subsection (1) the oral compromise agreement on

August 20, 1976 is evidenced by the document (Contract

Modification P00037) which Rule signed on October 7, 1976,

and the cover letter of October 8, 1976.

Secondly, the requirements of subsection (6) have been

met. The oral agreement which was reached on August 20,

1976 was negotiated pursuant to this Court’s Order of Au-

gust 29, 1975. This oral agreement entered into by the duly

authorized agents of the parties to this pending litigation

34a

certainly establishes the liability of the parties after this

Court accepts that agreement as the settlement of this

action.

Meeting of the Minds

The United States maintains that there was no meeting

of the minds on August 20, 1976 and therefore no binding

agreement. As evidence of this contention they cite the

parties’ agreement that a draft of the agreement be for-

malized. It is well settled that the mere fact that the

parties contemplated a reduction of an oral agreement to

writing does not prevent the agreement from becoming

binding as of the date of the oral agreement. Here, a draft

was agreed to in order to correctly reflect the August

20th oral agreement.

The precise language and operation of the labor costs

escalation clause had been a major item of disagreement

between the parties in the negotiations. The parties agreed

on August 20th to grant the Government the most favor-

able escalation provision as disclosed by the Shipyard’s

actual experience. In the original DLGN-41 construction

option contained in Article 28 of P0007, the Shipyard was

to receive the lesser of its actual experience or 125% of

the Bureau of Labor Statistics’ index for wage costs. The

basic writing signed by Rule on October 7, «.e., Contract

Modification P00037, recited only that the Shipyard would

receive 125% of the BLS index irrespective of its actual

experience; however, Rule conditions his signing and de-

livery of the document on the modification of the writing

to go back and incorporate the same type provision as was

in force in P0007. The Shipyard has agreed. We find that

this modification by Rule of P00037 reflects the substance

of the oral agreement reached by the parties on August

20, 1976. 17 C.J.S., Contracts, § 31.

35a

At the August 20th meeting the parties did not work

out the specific language for a labor cost escalation clause.

At subsequent sessions it was found that all parties were

operating under the mistaken impression that the Ship-

yard was experiencing a rate of increase in labor costs

greater than the BLS index. To give the Government the

best position, the 125% of the BLS index provision was

chosen to reflect the August 20, 1976 agreement. When,

however, by October 7, it became known that the Shipyard

had sometimes been experiencing a rate of increase in

labor costs less than the BLS index, the change in lan-

guage imposed by Rule was appropriate to reflect the

actual August 20, 1976 agreement.

We need not worry whether the parties contemplated

on August 20, 1976 that approval by Deputy Secretary

Clements was necessary to bind the Government, for we

find that Clements, in any case, has granted such approval.

In his letter of October 15, 1976 to Attorney General Levi,

Clements granted his approval to the Rule compromise

agreement. We do not agree with the Government that

Clements must use the magic words ‘‘I approve’’ before

this Court can conclude that Clements in fact has approved

the compromise agreement. Clements stated:

In view of the long-standing, acrimonious, and disrup-

tive controversy between the Navy and its sole present

new construction surface nuclear warship contractor,

T consider it vital to the national defense that this

dispute be resolved as quickly as possible. I consider

the proposed modification a reasonable resolution to

this complex matter.

Failure to Provide Cost or Pricing Data

The United States argues that the compromise agree-

ment negotiated between Rule and the Shipyard is not

36a

binding on the Government because the Shipyard failed to

submit cost or pricing data to the Government. This argu-

ment rests on the proposition that such data is required

by Armed Services Procurement Regulations (ASPR)

§ 3-807.3 and by statute, 10 U.S.C. § 2306(f), that the

absence of such data invalidates the agreement, and that

the requirements cannot be waived. 10 U.S.C. § 2306(f)

states in pertinent part:

A prime contractor or any subcontractor shall be re-

quired to submit cost or pricing data under the cir-

cumstances listed below, and shall be required to cer-

tify that, to the best of his knowledge and belief, the

cost or pricing data he submitted was accurate, com-

plete and current—

(2) Prior to the pricing of any contract change or

modification for which the price adjustment is expected

to exceed $100,000, or such lesser amount as may be

prescribed by the head of the agency....

Section 3-807.3 of ASPR [32 C.F.R. § 3.807] implements

this statute and provides:

(a) The contracting officer shall require the contractor

to submit, either actually or by specific identification

in writing, cost or pricing data in accordance with

16-206 of this chapter and to certify by the use of

the certificate set forth in 3-807.4, that, to the best of

his knowledge and belief, the cost or pricing data he

submitted was accurate, complete and current prior to:

(2) the pricing of any modification to any formally

advertised or negotiated contract, whether or not cost

or pricing data was required in connection with the

initial pricing of the contract, when the modification

involves aggregate increases and/or decreases in cost

plus applicable profits expected to exceed $100,000.

37a

The Shipyard has not furnished the Navy the certificate

of cost data as specified by ASPR 3-807.3.

The original cortract (N00024-70-C-0252) contained a

now standard ‘‘Price Reduction for Defective Cost of

Pricing Data’’ clause which reads:

(a) If the Contracting Officer determines that any

price, including profit or fee negotiated in connection

with this contract was increased by any significant

sums because the Contractor . . . furnished incomplete

or inaccurate cost or pricing data not current as cer-

tified in the Contractor’s Certificate of Current Cost

or Pricing Data, then such price shall be reduced

accordingly and the contract shall be modified in writ-

ing to reflect such adjustment.

This provision was included in the contract, as required

by 10 U.S.C. § 2306(f), which states: m

Any prime contract or change or modification thereto

under which such certificate [Certificate of Current

Cost or Pricing Data] is required shall contain a pro-

vision that the price to the Government, including

profit or fee, shall be adjusted to exclude any signifi-

cant sums by which it may be determined by the head

of the agency that such price was increased because

the contractor required to furnish such a certificate,

furnished cost or pricing data which, as of date agreed

upon between the parties . . . was inaccurate, incom-

plete, or non-current. .. .

It appears obvious from these quotations that the submis-

sion of price and cost data is not a preccndition to a find-

ing that the Government is bound by the contract or any

subsequent modification thereof. The failure on the part

of the Shipyard to ultimately furnish complete and accu-

rate price and cost data does not relieve the Government

of its duty to perform under the contract, but rather only

38a

gives it the right to seek a reduction in the price of the

contract to the Government.

Nor need we decide whether the United States has

waived the statutory and contractual requirements that

the Shipyard furnish cost and pricing data. The Govern-

ment cites M-R-S Manufacturing Company v. United

States, 495 F.2d 835, 841 (Ct. Claims 1974) for the pro-

position that a Government agent cannot waive this ‘Te-

quirement. However, this decision supports our conclusion,

for the only relief granted the Government in that case

was a reduction in price.

We note that 10 U.S.C. § 2306(f) provides that no cost

and pricing data is required where

. in exceptional cases . . . the head of the agency

determines that the requirements of this section may

be waived and states in writing his reasons for such

determination.

It might be concluded that Deputy Secretary of Defense

Clements has taken such action as evidenced by his letter

forwarding the compromise agreement to the Department

of Justice.

Department of Justice Approval

The United States maintains that this is an instance

where a private contractor asserts that an agreement has

been reached between itself and a federal contracting

agency, here the Department of Defense, which settles civil

litigation involving a government contract, ‘‘notwithstand-

ing the lack of involvement or approval by the Attorney

General,’’ and therefore ‘‘the purported ‘settlement’ must

fail.’’ Plaintiff’s Brief, 37. [Emphasis added.] Such a fact

situation is not before this Court.

39a

Cn August 29, 1975 the Department of Justice stated in

open Court to this Court that the Navy’s General Counsel

would “undertake to ensure the Navy’s obligations” to ne-

gotiate in good faith a settlement of the dispute over the

Shipyard’s construction of the DLGN-41. The United

States, through its Department of Justice, voluntarily

agreed and subjected itself, through the Order of this

Court, to negotiate in good faith, thus making a deliberate

decision not to seek an immediate judicial determination of

its rights under the disputed option contract. At the request

of the Department of Justice this Court incorporated into

its Order of August 29, 1975 the agreement of the United

States to negotiate in good faith.

The Department of Justice decided as evidenced by the

testimony of its counsel, Jeffrey Axelrad, to rely upon the

Navy and not to send any of its officers to di _ ctly partici-

pate in the DLGN-41 negotiations. This remained the posi-

tion of the Justice Department despite the Department of

Justice’s knowledge that the Navy was not in fact nego-

tiating and that Nevy officials were in utter default before

the appointment of Gordon Rule. On July 13, 1976 the Ship-

yard filed in this Court a motion to enforce the Court’s

Order of August 29, 1975. In direct response to the filing

of that motion, the Department of Defense appointed Rule

as its chief negotiator for the DLGN-41 dispute. The De-

partment of Jusitce was aware of Rule’s appointment and

the authority conferred on him,’ and in light of this ap-

pointment requested counsel for the Shipyard not to press

its July 13th motion. This request was granted.

* During oral argument the Department of Justice stipulated

that at the time of Rule’s appointment he had the authority to bind

the United States; however, the Department of Justice maintains

that, subsequent to his appointment, any settlement that he negoti-

ated with the Shipyard became subject to further review and final

approval by the Department of Justice.

40a

The Department of Justice agreed to and promoted the

Court Order of August 29, 1975 that negotiations “to reach

an agreement as rapidly as possible’ on behalf of the

United States should be conducted by the Navy officials, it

reaffirmed this agreement at the time of the appointment of

Rule, and it neglected to fulfill its obligations to this Court

and the Shipyard to ensure good faith negotiations by the

United States, except through its implicit delegation of any

authority it had to settle this litigation to the Department

of Defense. It therefore is estopped to deny the authority

of the Department of Defense officials to approve an agree-

ment which in effects moots or settles this litigation. 15A

Am. Jur. 2d, Compromise and Settlement, § 12.

While we hold the Department of Justice, under its ac-

tion in this case, is estopped to deny the settlement, never-

theless, for appellate purposes we note that in United States

v. Sandstrom, 22 F.Supp. 190 (N.D. Okla. 1938), where the

Attorney General successfully resisted a settlement, that

action was based upon the lack of original authority in the

Secretary of the Interior to act in the first place. That is

not the case here.

We do not decide whether the Department of Justice can

block an agreement reached by another executive agency

which in effect settles litigation, when the Department has

neither participated in nor approved the settlement. Here,

we hold, the Department has participated. However, we

note withovt comment that the Court of Appeals for the

Fourth Circuit has held in Leonard v. United States Postal

Service, 489 F.2d 814 (1974) that the Department of Jus-

tice could not block a compromise agreement reached by

the Postal Service which mooted a claim against it for

employment discrimination, while the case was pending in

the District Court.

We repeat that this is not a case where a federal execu-

tive agency has attempted to usurp the authority of the

Department of Justice to initiate or control litigation in-

4la

volving the United States. Rather all of the negotiations

involving the DLGN-41 between the Shipyard and the Navy

were carried out pursuant to an agreement to which the

Department of Justice officials gave their express approval,

and which, at the express request of the Department of

Justice, was incorporated as an order of this Court.

The purpose of the agreement to negotiate in good faith

to resolve the differences between the parties with respect

to the DLGN-41 was to avoid “vexatious and expensive and,

to the contractor oftentimes, ruinous litigation.” Kihlberg

v. United States, 97 U.S. 398, 401 (1878), as quoted in S é E

Contractors, Inc. v. United States, 406 U.S. 1, 8, 92 S.Ct.

1411, 1416 (1972). Both parties to the agreement ceded their

rights “to seek immediate judicial redress for [their] grie-

vances,” and have bound themselves to proceed with the

construction of the DLGN-41 during the negotiation proc-

ess. Ss ¢ E Contractors, Inc., supra at 1416. “A citizen has

the right to expect fair dealing from his government” with

respect to such an agreement. Jd. at 1417.

There is no contention here that this compromise agree-

ment was arrived at as a result of any fraud or bad faith

on the part of the Shipyard. Jd. at 1419-1420, The Depart-

ment of Justice has exercised its power to control the

United States’ position in this litigation—it did so in ask-

ing this Court to enter a consent order, as a result of which

the United States became bound to negotiate in good faith

to resolve the disputes between the parties concerning the

DLGN -41. Having exercised this power, it cannot now re-

pudiate its decision. It cannot now maintain that another

executive agency has attempted to usurp its control over

litigatioa with the United States.

42a

Consideration

United States contends now that the Rule compro-

ont “almost totally one-sided in favor of Newport

News.” It argues that the compromise will cost the Govern-

ment 22 million dollars. In addition it cites the 22-month

deferred delivery date, and the fringe benefits and energy

provisions. [It should be noted that under our construction

of the compromise agreement the labor escalation clause

is the same type as that in the antecedent option contract. ]

The United States concludes that “the only new considera-

tion coming to the Government under the proposed modifi-

cation is that it no longer must assume the litigative risk

inherent in pursuing its present action for specific perform-

ance.” (Plaintiff’s January 7, 1977 Brief, 4.) This argu-

ment must fail for there is ample and sufficient considera-

tion to support a compromise agreeiment if it is based upon

a claim, unliquidated or disputed in good faith, and if the

parties make or promise mutual concessions.

A good statement of the legal requirements in the way

of consideration for establishing a binding compromise

agreement is found in 15A Am. Jur.2d, Compromise and

Settlement, § 13, p. 785:

A compromise, like any other contractual agreement,

must be supported by consideration. If there is @ liqui-

dated and undisputed claim, and if an effort is made

to accomplish an accord and satisfaction through the

payment of an amouut different from what is undis-

putably due, there must generally be some new or ad-

ditional consideration for the accord and satisfaction

to be effective. If, however, there is a disputed or un-

liquidated claim, based upon the parties’ doubts and

uncertainties, and if the parties, for the purpose of

avoiding or putting an end to litigation, agree to re-

43a

solve their differences amicably and by means of mu-

tual concessions, the promise or execution of such con-

cessions by one party constitutes good consideration

for the promise or execution of such concessions by the

other party. Thus, a compromise, as distinguished from

other types of accord and satisfaction, is supported by

good consideration if it is based upon a disputed or

unliquidated claim and if the parties make or promise

mutual concessions as a means of terminating their dis-

pute; no additional consideration is required.

All of the requisites for consideration to support a bind-

ing compromise agreement are found here. The parties dis-

pute in good faith the validity of the antecedent option

agreement and the United States’ purported exercise on

January 31, 1975 for the construction of the DLGN -41; the

parties’ obligations under this antecedent option agreement

were unliquidated. The basic price for the construction of

the DLGN-41 contained in the compromise agreement is

the same as that contained in the antecedent option agree-

ment. And even the antecedent option agreement (Modifi-

cation P00018) required the parties to negotiate in good

faith concerning the inclusion of the DLGN construction

contract of a provision for “computing equitable adjust-

ments on account of changes in various laws,” e.g. Long-

shoremen and Harbor Workers’ Act. The compromise

agreement specifies that it constitutes a full and final settle-

ment of all issues which are the subject of dispute in this

case, t.e. the validity of the Shipyard’s obligation to build

the DLGN-41.

In addition there is a consideration furnished by the Ship-

yard’s release of “[a]ll claims for delay and dela y costs in

the delivery schedule of DLGN-41, resulting from, caused

by or incident to any and all events, including Government

actions or inactions ....’’ We find that the Shipyard has

asserted these “delay” claims in good faith, and that the re-

lease of these claims is not illusory consideration. There is

d4a

some evidence that the Government delayed for more than

a year, from mid-1974 until the August 29, 1975 hearing in

this Court to inform the Shipyard whether it would incor-

porate into the specifications for the DLGN-41 all of the

changes already made in the DLGN-38, 39 and 40. The

Shipyard has alleged that this delay made it impossible to

establish an appropriate schedule for the construction of

the DLGN-41.

The United States argues that compromise agreements to

which the Government is a party require adequate consid-

eration. (Plaintiff’s January 7, 1977 Brief, 4 n.2.) The

United States would have this Court apply a special rule

to Government contracts and ignore the hornbook contracts

law rule that a Court will not review the adequacy of con-

sideration as long as some valid consideration supports the

contract. In the absence of any allegation of fraud or bad

faith on the part of the private contractor, we reject that

role.

None of the cases cited by the United States support its

view that tle Court is to review the adequacy of considera-

tion supporting Government contracts. The cases cited by

the Government did not address the consideration issue,

but rather the issue whether the Government agent had the

actual authority to modify a Government contract.

The law favors the resolution of controversies and un-

certainties through compromise and settlement rather

than through litigation, and it is the policy of the law

to uphold and enforce such contracts if they are fairly

made and are not in contravention of some law or pub-

lic policy.

15A. Am. Jur.2d, Compromise and Settlement, § 5, p. 777,

citing Williams v. First National Bank, 216 U.S. 582, 30

S.Ct. 441 (1909).

45a

An appropriate Order, in accord with this Memorandum

Opinion, will be separately entered this date.

/s/ Joun A. MacKenzie

United States District Judge

Norfolk, Virginia

March 8, 1977

46a

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Newport News Division

(Caption Omitted in Printing)

Order

In accord with a Memorandum Opinion dated and filed

March 8, 1977, and to which reference is made,

It is ORDERED:

(1) That the motion of the defendants to enforce the

compromise and settlement agreement between the parties

is GRANTED.

(2) This action of the plaintiff being therefore moot, the

same is DISMISSED.

/s/ Jouwx A. MacKenzie

United States District Judge

Norfolk, Virginia

March 8, 1977

47a

ADDENDUM C

United States Constitution:

Article I, Section 8, Clause 13:

The Congress shall have Power . .. To provide and main-

tain a Navy;

10 U.S.C. § 131:

The Department of Defense is an executive department

of the United States.

10 U.S.C. §133(a),(b),(d):

(a) There is a Secretary of Defense, who is the head

of the Department of Defense, appointed from civilian

life by the President, by and with the advice and con-

sent of the Senate. A person may not be appointed as

Secretary of Defense within 10 years after relief from

active duty as a commissioned officer of a regular com-

ponent of an armed force.

(b) The Secretary is the principal assistant to the

President in all matters relating to the Department of

Defense. Subject to the direction of the President and

to this title and section 401 of title 50, he has authority,

direction, and control over the Department of Defense.

(d) Unless specifically prohibited by law, the Secre-

tary may, without being relieved of his responsibility,

perform any of his functions or duties, or exercise any

of his powers through, or with the aid of, such persons

in, or organizations of, the Department of Defense as

he may designate.

10 U.S.C. $134:

(a) There are two Deputy Secretaries of Defense,

appointed from civilian life by the President, by and

48a

with the advice and consent of the Senate. A person

may not be appointed as a Deputy Secretary of De-

fense within ten years after relief from active duty as

a commissioned officer of a regular component of an

armed force.

(b) The Deputy Secretaries shall perform such du-

ties and exercise such powers as the Secretary of De-

fense may prescribe. The Deputy Secretaries, in the

order of precedence, designated by the President shall

act for, and exercise the powers of, the Secretary when

the Secretary is disabled or there is no Secretary of

Defens |

Department of Defense immediately after the Secre-

tary.

10 U.S.C. § 2303(a) (2),(b) (4):

(a) This chapter applies to the purchase, and con-

tract to purchase, by any of the following agencies, for

its use or otherwise, of all property named in subsec-

tion (b), and all services, for which payment is to be

made from appropriated funds:

. * .

(2) The Department of the Navy.

° . e

(b) This chapter does not cover land. It covers all

other property including—

(4) vessels;

10 U.S.C. § 2304(a) (13), (14):

(a) Purchases of and contracts for property or serv-

ices covered by this chapter shall be made by formal

advertising in all cases in which the use of such method

49a

is feasible and practicable under the existing condi-

tions and circumstances. If use of such method is not

feasible and practicable, the head of an agency, subject

to the requirements for determinations and findings in

section 2310, may negotiate such a purchase or con-

tract, if—

. . *

(13) the purchase or contract is for equipment that

he determines to be technical equipment whose stand-

ardization and the interchangeability of whose parts

are necessary in the public interest and whose procure-

ment by negotiation is necessary to assure that stand-

ardization and interchangeability ;

(14) the purchase or contract is for technical or spe-

cial property that he determines to require a substan-

tial initial investment or an extended period of prepa-

ration for manufacture, and for which he determines

that formal advertising would be likely to result in ad-

ditional cost to the Government by reason of duplica-

tion of investment or would result in duplication of

necessary preparation which would unduly delay the

procurement of the property;

10 U.S.C. § 5011:

The Department of the Navy is separately organized

under the Secretary of the Navy. It operates under the

authority, direction, and control of the Secretary of De-

fense. It is composed of the executive part of the De-

partment of the Navy; the Headquarters, United

States Marine Corps; the entire operating forces, in-

cluding naval aviation, of the United States Navy and

of the United States Marine Corps, and the reserve

components of those operating forces; and all field ac-

tivities, headquarters, forces, bases, installations, activ-

ities, and functions under the control or supervision of

the Secretary of the Navy. It includes the United States

50a

Coast Guard when it is operating as a service in the

Navy.

10 U.S.C. § 5031:

(a) There is a Secretary of the Navy, who is the

head of the Department of the Navy. He shall adminis-

ter the Department of the Navy under the direction,

authority, and control of the Secretary of Defense. The

Secretary is responsible to the Secretary of Defense

for the operation and efficiency of the Department.

After first informing the Secretary of Defense, the

Secretary may make such recommendations to Con-

gress relating to the Department of Defense as he may

consider appropriate.

(b) The Secretary of the Navy shall execute such

orders as he receives from the President relative to—

(1) the procurement of naval stores and mate-

rial ;

(2) the construction, armament, equipment, and

employment of naval vessels; and

(3) all matters connected with the Department

of the Navy.

charge of all books, records, and other property of the

Department.

28 U.S.C. § 516:

Except as otherwise authorized by law, the conduct

of litigation in which the United States, an agency, or

officer thereof is a party, or is interested, and securing

evidence therefor, is reserved to officers of the Depart-

ment of Justice, under the direction of the Attorney

General.

5la

28 U.S.C. § 519:

Except as otherwise authorized by law, the Attorney

General shall supervise all litigation to which the

United States, an agency, or officer thereof is a party,

and shall direct all United States attorneys, assistant

United States attorneys, and special attorneys ap-

pointed under section 543 of this title in the discharge

of their respective duties.

50 U.S.C. § 401:

In enacting this legislation, it is the intent of Con-

gress to provide a comprehensive program for the

future security of the United States; to provide for the

establishment of integrated policies and procedures for

the departments, agencies, and functions of the Govern-

ment relating to the national security; to provide a

Department of Defense, including the three military

Departments of the Army, the Navy (including naval

aviation and the United States Marine Corps), and the

Air Force under the direction, authority, and control

of the Secretary of Defense; to provide that each mili-

tary department shall be separately organized under

its own Secretary and shall function under the direc-

tion, authority, and control of the Secretary of Defense;

to provide for their unified direction under civilian

control of the Secretary of Defense but not to merge

these departments or services; to provide for the estab-

lishment of unified or specified combatant commands,

and a clear and direct line of command to such com-

mands; to eliminate unnecessary duplication in the De-

partment of Defense, and particularly in the field of

research and engineering by vesting its overall direc-

tion and control] in the Secretary of Defense; to pro-

vide more effective, efficient, and economical adminis-

tration in the Department of Defense; to provide for

the unified strategic direction of the combatant forces,

52a

for their operation under unified command, and for

their integration into an efficient team of land, naval,

and air forces but not to establish a single Chief of

Staff over the armed forces nor an overall armed forces

general staff.

53a

ADDENDUM D

Rule 52(a) Fed. RB. Civ. P.:

(a) Errecr. In all actions tried upon the facts with-

out a jury or with an advisory jury, the court shall

find the facts specially and state separately its conclu-

sions of law thereon, and judgment shall be entered

pursuant to Rule 58; and in granting or refusing inter-

locutory injunctions the court shall similarly set forth

the findings of fact and conclusions of law which con-

stitute the grounds of its action. Requests for findings

are not necessary for purposes of review. Findings of

fact shall not be set aside unless clearly erroneous, and

due regard shall be given to the opportunity of the

trial court to judge of the credibility of the witnesses.

The findings of a master, to the extent that the court

adopts them, shall be considered as the findings of the

court. If an opinion or memorandum of decision is

filed, it will be sufficient if the findings of fact and con-

clusions of law appear therein. Findings of fact and

conclusions of law are unnecessary on decisions of mo-

tions under Rules 12 or 56 or any other motion except

as provided in Rule 41 (b).

54a

ADDENDUM E

August 29, 1975. Order of the United States District

Court for the Eastern District of Virginia.

Wuenreas, the Government has giver written notice of

exercise of Option 1, Alternative 2, for the construction of

DLGN-41, under Article 28 of Contract N00024-70-C-0252;

and

Wuereas, the contractor, Newport News Shipbuilding

and Dry Dock Company, has given written notice to the

Government that the Contractor regards the option to be

invalid and its purported exercise ineffectual ;

Now THEREFoRE, in consideration of these premises:

i. The Contractor will immediately resume the pro-

curement of material and the performance of shop fab-

rication and other preliminary work for the DLGN-41

and proceed to undertake construction. Payment for

such work will be made by the Navy on the same basis

as payments were made prior to June 6, 1975. The

Contractor’s and the Navy’s obligations under this para-

graph shall be without prejudice to their legal posi-

tion and contractual rights, including recoupment of

any overpayment.

It is understood by the parties that all of the changes

made in the plans and specifications for DLGN-38,

DLGN-39, and DLGN-40 that are applicable will be in-

corporated in the plans and specifications for DLGN-

41, and the parties agree to negotiate in good faith the

appropriate equitable adjustments for all such changes.

2. The parties agree to negotiate in good faith to

reach an agreement as rapidly as possible to modify

those contract provisions requiring amendment or to

take other appropriate action.

3. Both parties agree to urge the Comptroller Gen-

eral to expedite his opinion on the issues heretofore

oo0a

submitted by the Contractor, and to promptly furnish

a copy of the Comptroller General’s opinion to the

United States District Court for the Eastern District

of Virginia. Either party may assert whatever rights

it may have in respect of such opinion to the Court, and

the Court shall retain jurisdiction in the interim.

4. The United States having represented that suffi-

cient funds are available to make payments to the Con-

tractor under paragraph 1 hereof for a period of at

least one year, the stipulation shall remain in effect

for a period of one year from the date hereof, unless

cancelled or modified by mutual agreement or by Order

of the United States District Court for the Eastern

District of Virginia at the request of either party.

5. This stipulation and any action taken by either

party pursuant hereto shall be without prejudice to the

rights or legal positions of either party.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.