Opposition Brief — Prudential Insurance Co. of America v. United States, 107 S. Ct. 1289 (1987) (No. 86-847)

F. SPANIOL, JR,

In the Supreme Court of the An

OCTOBER TERM, 1986

THE PRUDENTIAL INSURANCE COMPANY

OF AMERICA, PETITIONER

vw:

THE UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

CHARLES FRIED

Solicitor General

F. HENRY HABICHT II

Assistant Attorney General

MARTIN W. MATZEN

JOHN T. STAHR

Altorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

QUESTION PRESENTED

Whether, on the facts of this case, the court of appeals

correctly held that petitioner’s claimed consequential

damages in a breach of contract action were not

reasonably foreseeable.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES ;

Cases:

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970) ....-... 7

Celotex Corp. v. Catrett, No. 85-198 (June 25, 1986) ._.. 7

Clearfield Trust Co. v. United States, 318 U.S. 263

OI et Oe ee Was Su ke axe e's te. Pe

Formany. United States, 767 F.2d 875 (Fed. Cir. 1985) .. 5

Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S.

ee aia 6 Sena a) Shake eo 6 > .” 9%

Keydata Corp. v. United States, 504 F.2d 1115 (Ct. Cl.

ee SEIS OD Sa a ee ae 5

Northern Helex Co. v. United States, 524 F.2d 707 (Ct.

Cl. 1975), cert. denied, 429 U.S. 866 (1976) .......... 5, 8

Pure Gold, Inc. v. Syvntex (U.S.A.), Inc., 739 F.2d 624

ee ad Ue gtk ak kee eek oe deen 8

United States vy. County of Allegheny, 322 U.S. 174

pe pO aS ne ee nen a 5, 6

Statute:

De RE AR teas SPUEMMEED 64s cece seek cede 4

Miscellaneous:

Restatement (Second) of Property (1977) .............. 5, 6

(111)

Jn the Supreme Court of the Gnited States

OCTOBER TERM, 1986

No. 86-847

THE PRUDENTIAL INSURANCE COMPANY

OF AMERICA, PETITIONER

vs

THE UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A15)

is reported at 801 F.2d 1295. The opinion of the United

States Claims Court (Pet. App. B1-B18) is reported at 7

Cl. Ct. 710.

JURISDICTION

The judgment of the court of appeals (Pet. App. Cl)

was entered on August 29, 1986, and a petition for rehear-

ing was denied on September 26, 1986 (Pet. App. D1). The

petition for a writ of certiorari was filed on Novemer 25,

1986. The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

STATEMENT

Petitioner seeks consequential contract damages which

it contends were incurred when the General Services Ad-

ministration (GSA) was unable to vacate leased premises

(1)

2

for approximately ten months after petitioner terminated

GSA’s lease. The United States conceded liability for the

fair market rental value of the space for the entire period.

This amount --calculated at a rate substantially in excess

of the rent specified by the lease for its exptred term — was

stipulated and agreed upon by the parties and judgment

was entered accordingly (Pet. App. A2-A3 n.4). Peti-

tioner, however, claims an additional $814,723, plus at-

torney’s fees, which it contends was incurred when the

major tenant in the building, Cities Service Company, ex-

ercised an option to cancel its entire lease if it could not

also timely occupy the space held by GSA (id. at A2-A3).

Petitioner claims, for the entire space covered by the Cities

Service lease, real estate commissions incurred in obtain-

ing seven new tenants, refurbishment expenses related to

the new tenants, and increased operating costs (/bid.).

1. The lease at issue was executed between GSA and

Diversified Building Equities, Inc. (Diversified) on

December 28, 1973 (Pet. App. B2). GSA leased 8,197

square feet of space, subsequently increased to 14,074

square feet, in the Pinehollow Office Building in Houston,

Texas (ibid.). The initial lease term was from March 1,

1974, through February 28, 1979 (ibid.), with an option

for GSA to extend for three years (Pet. App. B3). Either

party could terminate during the extension period upon 90

days’ notice (/bid.). Petitioner purchased the building in

1974, thereby assuming the lease (ibid.).

GSA exercised its renewal option on January 5, 1979

(Pet. App. B3). Petitioner gave notice of termination on

March 27, 1979, effective June 27, 1979 (ibid.). Because of

the time required to obtain new office space, GSA was

unable to vacate the premises by that date. Petitioner, by

letter dated July 17, 1979, requested that GSA vacate the

premises, and advised GSA for the first time that it was

negotiating a lease for a major portion of the Pinehollow

Building with another, unnamed, tenant contingent upon

GSA’s vacating its floor space by October 1, 1979 (ibid.).

Petitioner entered a new lease with Cities Service Com-

pany on November 30, 1979, effective from November 1,

1979, through June 30, 1986 (ibid.). Petitioner did not in-

form the government of the new lease at this time (Fed.

Cir. App. 423). The lease was for 79,533 square feet,

which included 48,274 square feet already leased by Cities

Service Company, the 14,074 square feet occupied by

GSA, and 17,185 square feet in additional space (Pet.

App. B3). The lease allowed Cities Service to terminate for

all leased space if the square footage occupied by GSA was

not available by February 1, 1980 (ibid.). Cities Service ex-

ercised its option to terminate on March 1, 1980, after

which petitioner advised GSA of the existence of the lease

(Pet. App. B4; Fed. Cir. App. 423). Cities Service vacated

its prior leased space on July 31, 1980 (Pet. App. B4).

GSA vacated its space on April 15, 1980 (id. at B3).

2. The Claims Court granted summary judgment to

GSA on petitioner’s claim for consequential damages. The

court held, in relevant part, that consequential damages

under federal contract law are recoverable only if

reasonably foreseeable at the time the lease agreement is

executed (Pet. App. B14). On the facts of this case, the

court found no such foreseeability. The government could

not have anticipated that its failure to vacate 14,074

square feet would result in lost rental of an additional

65,459 square feet, or that petitioner would be required to

subdivide the total property, with accompanying expen-

ditures, among seven new tenants (/bid.).

The court of appeals affirmed on the issue of

foreseeability (Pet. App. A10-A12). The court stressed

that petitioner did not even begin negotiating with Cities

Service until after exercising its option to terminate GSA

(id. at All). The court of appeals concluded that “[w]ith

this timing, Prudential has failed to show that a material

4

issue of fact existed concerning the government’s ability to

foresee Prudential’s dealings with Cities Service or any

other tenant occupying such a large part of the Pinehollow

Building at the date of execution of its lease in 1973”

(ibid.).

ARGUMENT

The court of appeals correctly applied federal contract

law in holding, under the facts of this case, that

petitioner’s claimed consequential damages were not

reasonably foreseeable. This decision does not conflict

with any decision of this Court or of any other court of ap-

peals. Review by this Court therefore is not warranted. '

1. Petitioner argues that the lower courts erred in

judging the foreseeability of its claimed consequential

damages as of the time the lease agreement was executed.

' As its principal holding, the Claims Court concluded that it had

no jurisdiction over petitioner’s claim for consequential damages. The

court noted that the Tucker Act, 28 U.S.C. 1491(a)(1), grants it

jurisdiction only over claims based on express or implied contracts

with the United States (Pet. App. B6). The court round no express

provision in the lease requiring GSA to vacate the premises upon its

termination (/bid.). Nor did it find any meeting of the minds such as

would be necessary to imply in fact such a provision (/d. at B7).

Noting that “the United States always has the right to occupy premises

for public purposes merely in return for fair rental value or just com-

pensation” (/d. at B8), the court was unwilling to read into the lease

any agreement that would grant petitioner consequential damages tor

a holdover above and beyond the fair rental value.

The court of appeals held to the contrary that an implied duty to

vacate is an inherent part of ever, /ixed term lease agreement absent

an explicit provision to the contrary (Pet. App. A7). Therefore, it con-

cluded, GSA’s failure to vacate upon termination of the lease was a

breach of contract cognizable under the Tucker Act (/d. at AY). There

is no need for this Court to consider whether that conclusion was cor-

rect Since the court of appeals correctly rejected petitioner’s claim tor

consequential damages on other grounds.

Instead, petitioner urges, the foreseeability of damages

consequent upon a breach of contract should be judged as

of the date of the breach. That contention, however, is

foreclosed by settled federal law to the contrary.

It is fundamental that contracts to which the federal

government is a party “present questions of federal law

not controlled by the law of any State.” United States v.

County of Allegheny, 322 U.S. 174, 183 (1944); Clearfield

Trust Co. v. United States, 318 U.S. 363, 366 (1943); For-

man v. United States, 767 F.2d 875, 879-880 (Fed. Cir.

1985).2 Under federal contract law, a plaintiff may recover

only those damages which are reasonably foreseeable at

the time the contract is executed. Globe Refining Co. v.

Landa Cotton Oil Co., 190 U.S. 540, 544 (1903); Northern

Helex Co. v. United States, 524 F.2d 707, 714-715 (Ct. Cl.

1975), cert. denied, 429 U.S. 866 (1976). As stated by this

Court in Globe Refining Co., 190 U.S. at 544, the measure

of damages “depends on what liability the defendant fairly

may be supposed to have assumed consciously, or to have

warranted the plaintiff reasonably to suppose that it

assumed, when the contract was made.” The consequence

“must be contemplated at the time of the making of the

contract” (/bid.).

Instead of addressing this federal contract law,

however, petitioner asserts (Pet. 5-6) that the courts below

erred in not applying what petitioner perceives to be the

prevailing rule among state courts, as expressed by the

Restatement (Second) of Property § 14.6 (1977), that

foreseeability is to be determined at the time of breach.

But petitioner’s novel effort to rely on the law of a number

of states, rather than the law of a particular state, is

> Lease agreements clearly fall within this principle. Forman v.

United States, 767 F.2d 875, 879-880 & n.6 (Fed. Cir. 1985); Kevdata

Corp. v. United States, 504 F.2d 1115, 1123 (Ct. Cl. 1974).

6

equally incompatible with this Court’s holdings that

government contract issues present questions of federal,

not state, law. See, e.g., United States vy. County of

Allegheny, 322 U.S. at 183. Petitioner’s approach would

require extensive analysis in each case, as to each contract

issue, to determine what, in the court’s view, constitutes

the prevalent or appropriate state court position. It is

precisely this “introduction of disparities, confusions and

conflicts which would follow if the Government’s general

authority were subject to local controls,” which the crea-

tion of a uniform body of federal contract law was de-

signed to avoid. /bid.; Clearfield Trust Co. v. United

States, 318 U.S. at 367. The Claims Court is, of course,

free to consult state court decisions or the Restatement, as

the court of appeals did here (Pet. App. A10), but it is

under no obligation to adopt —as the rule of federal con-

tract law—a given state approach because of a perceived

majority consensus.

Petitioner also fails to offer any substantive reasons fo

preferring the Restatement standard over the current

federal rule. That longstanding rule provides a

manageable and accurate mechanism for judging the ex-

tent to Which the respective parties agreed to be bound.

Globe Refining Co., 190 U.S. at 543-544.'

‘In any event, the consequential damages claimed by petitioner in

this case were not foreseeable even at the time of the breach. As the

court of appeals concluded, petitioner did not begin negotiations with

Cities Service until after petitioner had exercised its termination op

tion on March 27, 1979 (Pet. App. All), and it provided no notitica

tion to GSA of those negotiations until July 17, 1979, alter GSA had

breached the contract and become a holdover tenant (/d. at B3). bus

thermore, petitioner did not advise GSA that it had signed a new leas,

With Cities Service, or of the terms of that lease, until alter Citn

Service had terminated (Fed. Cir. App. 423). GSA could not be es

pected to divine unaided petitioner’s peculiarly vulnerable position

with respect to Cities Service. Thus, even on its own theory, petitions

is not entitled to the reliet sought. These considerations, of cours

2. Petitioner also claims (Pet. 8-10) that the record

was insufficient on the question of foreseeability to permit

resolution by summary judgment. However, petitioner

fails to cite any material facts in dispute. The court of ap-

peals correctly held that the “party opposing summary

judgment must show an evidentiary conflict on the record

by a counter statement of facts or facts set forth in detail

by a knowledgeable affiant” (Pet. App. Al2). This stand-

ard comports fully with this Court’s decision in Celotex

Corp. v. Catrett, No. 85-198 (June 25, 1986).* Petitioner

conspicuously failed to meet its burden.

Petitioner’s meie assertion that GSA should have fore-

seen that failure to vacate 14,074 square feet would cost

petitioner not only the fair rental value of that space, but

also lost rent, real estate commissions, refurbishment ex-

penses and operations costs for more than 65,000 addi-

tional square feet, or some 465% more space, is wholly

untenable. By rental of a single floor, petitioner would re-

quire the government to anticipate damages encompassing

an entire six-story building and seven new tenants. The

court of appeals currectly held that such damages “were

too remote and speculative, i.e., not natural and probable

apply with even more force to petitioner’s alternative suggestion

(Pet. 7) that toreseeablity in this case be determined as of GSA’s

January 5, 1979, lease renewal, rather than the original December 28,

1973, execution date.

* Petitioner asserts (Pet. 8) that review should be vranted because

“this Court will have the opportunity to explain the differences be-

iween” Celotey Corp. and Adickes v. S.H. Kress & Co., 398 U.S. 144

(1970). The Court in Celotex Corp., however, tully addressed the

earlier Adickes decision, holding that the moving party, under that

decision, need not demonstrate the absence of a genuine issue of

material tact, but must show only “that there is an absence of evidence

to support the nonmosing party's case.” Slip op. 7. The nonmoving

party, in turn, must “make a showing sufficient to establish the ex-

istence of an element essential to that party’s case, and on which that

party Will bear the burden of proot at trial.” /d. at §.

consequences flowing from the government’s holdover’

(Pet. App. All (citing Northern Helex Co. v. Uniti

States, 524 F.2d at 720)).

3. Finally, petitioner asserts (Pet. 8) that summary

judgment was premature in this case because turthe!

discovery was necessary to develop disputed material facts

relevant to its claim that the damages were foresecable

Petitioner even claims a conflict with decisions in othe!

circuits holding that summary Judgment is inappropriatc

where relevant discovery is necessary. This alleged conflict

dissolves, however, once it is recognized that petitione!

has provided no substantiation for its claim to need tur

ther discovery. Petitioner never specifies what discovery ts

desired, how such discovery could be relevant, or how 1

might change the result in this case.’ As the court of ap

peals concluded (Pet. App. All-A12), all the necessary

and determinative facts are already in the record in this

case. It is well settled that “[s}ummary judgment need no

be denied merely to satisty a litigant’s speculative hope ot

finding some evidence that might tend to support a com

plaint.” Pure Gold, Inc. v. Syntex (U.S.A.), Inc., 739 F.2d

624, 627 (Fed. Cir. 1984)

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CONCLUSION

[he petition for a writ of certiorari should be denied.

Respectfully submitted.

CHARLES FRIED

Solicitor General

F. HENRY HABICHT II]

Assistant Attorney General

MARTIN W. MATZEN

JOHN T. STAHR

Altorneys