Petition for Writ of Certiorari — Gregory Lumber Co. v. United States

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Supreme Court, U.S.

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87-865 oy 27 2a

PH F. SPANIOL, JR

IN THE er ct

Supreme Court of the United States

OCTOBER TERM, 1987

GREGORY LUMBER Co., Petitioner,

VS.

THE UNiTED States, Respondent

ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

PETITION FOR WRIT OF CERTIORARI

EDWARD F. CANFIELD

Counsel of Record

CASEY, SCOTT & CANFIELD, P.C.

1331 Pennsylvania Avenue, N.W.

Suite 524

Washington, D.C. 20004

(202) 783-6490

For Petitioner

Gregory Lumber Company

QUESTIONS PRESENTED

I. WHETHER THE UNITED

STATES CAN BY CONTRACT DISCLAIM

ITS "ESTIMATES" OF QUANTITY, WHERE

THE "ESTIMATES" OF QUANTITY WERE

USED TO CALCULATE A REQUIRED

MINIMUM BID PRICE IN AUCTIONS

WITH RESERVE.

Il. WHETHER THE TERMS

"MORE OR LESS" AND "APPROXIMATELY"

AS INTERPRETED BY THIS COURT

PERMIT SHORTAGES IN QUANTITY AS

HIGH AS 50% IN U.S. CONTRACTS.

Ill. WHETHER THE UNIFORM

COMMERCIAL CODE SHOULD BE

APPLIED AS A UNIFIED BODY OF LAW TO

A CONTRACT DRAFTED BY THE UNITED

STATES GOVERNMENT.

ill

LIST OF PARTIES TO THE PROCEEDING IN THE

COURT BELOW

The caption of the case in this Court contains the

names of all parties to the appeal to the United States Court

of Appeals for the Federal Circuit.

TABLE OF CONTENTS

QUESTIONS PRESENTED...............

LIST OF PARTIES TO THE PROCEEDING

IN THE COURT BELOW..................

ill

TABLE OF AUTHORITIEG...............

OPINIONS BELOW.................00

STATEMENT OF JURISDICTION..........

STATUTORY PROVISIONS INVOLVED......

STATEMENT OF THE CASE.............

REASONS FOR GRANTING THE WRIT FOR

CERTIORARI

THE FEDERAL CIRCUIT IS IN CONFLICT

WITH THIS COURT, OTHER CIRCUITS

AND STATE COURTS AS TO WHETHER

THE UNITED STATES CAN _ BY

CONTRACT DISCLAIM ITS "ESTIMATES"

OF QUANTITY, WHERE THE

"ESTIMATES" OF QUANTITY WERE

USED TO CALCULATE A REQUIRED

MINIMUM BID PRICE IN AUCTIONS

NUE BD WORSE Y icc cccscsscasescncrecesncess

A. The Federal Circuit's holding in

Gregory is in conflict with prior

holdings of this Court as to the Federal

law merchant and is a significant

Federal question which requires

clarification by this Court.................

B. The decision of the Federal Circuit is in

conflict with decisions of the Fourth,

Eighth and Ninth Circuits which relied

upon prior rulings of this Court...

IL.

2 The Federal Circuit is in conflict with

decisions of the courts of Arkansas,

California, and Oregon.........

1. Identification of Goods (U.C.C.

§ 2-501) and Express

Warranties (U.C.C. § 2-313)...

2. Disclaimer of Warranties

(U.C.C. § 2-316).........cccecseeees

THE FEDERAL CIRCUIT IS IN CONFLICT

WITH THIS COURT AS TO THE LEGAL

SIGNIFICANCE OF THE TERMS "MORE

OR LESS" AND "APPROXIMATELY" AS

INTERPRETED BY THIS COURT. THE

FEDERAL CIRCUIT'S DECISION

PERMITS SHORTAGES IN QUANTITY AS

HIGH AS 50% IN U.S. CON-

ae 0 ah nae dala andsti naan ae.

If.

THE FEDERAL CIRCUIT IS IN CONFLICT

WITH THIS COURT, OTHER FEDERAL

CIRCUITS AND STATE COURTS AS TO

WHETHER THE UNIFORM COMMER-

CIAL CODE SHOULD BE APPLIED AS A

UNIFIED BODY OF LAW TO A

CONTRACT DRAFTED BY THE UNITED

STATES GOVERNMENT......000.00.0...

A. The Federal Circuit's holding in

Gregory is in conflict with prior

holdings as to the application of the

U.C.C. as a unified body of law...............

B. The decision of the Federal Circuit is in

conflict with the Second and Third

Circuits, which relied upon prior rulings

of this Court, in using the Uniform

Commercial Code and the Uniform

Sales Act as a source of law for the

federal law of sales..............

vii

a The Federal Circuit is in conflict with

decisions of Appellate and Supreme

Courts of Arkansas, California, and

Oregon in interpreting U.C.C. Articles

1 and 2 as to the obligation of good

faith, limitation of remedies, and

unconscionability............

1. Obligation of Good Faitb.....

2. Limitation of Remedies........

27 |

a Unconscionability Under the

LE a @ CTO

CONCLUSION. ....c.c.ccccccccscsscesereeesees

APPENDIX......ccccccscsssccscccccscscscsccessesssnse

A-1

Vili

TABLE OF AUTHORITIES CITED

CASES

A & M Produce Co. v. FMC Corp., 186 Cal.

Rptr. 114 (Cal.Ct.App. 1982)

Autzen v. John C. Taylor Lumber Sales, Inc.,

$72 P.2d 1322 (Or. 1977)

Best v. United States National Bank of Oregon,

714 P.2d 1049 (Or.App. 1986)

Boardman v. Reed, 31 U.S. 328 (1832)

Brawley v. United States, 96 U.S. 168 (1877)

Budge v. United Smelting and Refining Co., 104

F. 498 (9th Cir. 1900)

Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d

Cir. 1948)

Canal Co. v. Hill, 82 U.S. 94 (1872)

Page

15,27,29

23,27

Christie v. United States, 237 U.S. 234 (1914)

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

363 (1943)

Davis v. Kolb, 563 S.W.2d 438 (Ark. 1978)

Eastern Service Management Company v.

United States, 363 F.2d 729 (4th Cir.

1966)

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)

Federal Pacific Electric Co., No. 334, Interior

BCA, 33 U.S.L.W. 2222, (October 23,

1964)

Filley v. Pope, 115 U.S. 213 (1885)

Giustina v. United States, 190 F.Supp. 303

(D.Or. 1960)

LOT OP PT ene ee

Hadley Dean Plate Glass Co. v. Highland Glass

Co., 143 F. 242 (8th Cir. 1906)

Heise v. Pilot Rock Lbr. Co., 352 P.2d 1072 (Or.

1960)

Hollerbach v. United States, 233 U.S. 165

(1914)

7,8,23,24

Libby Creek Logging, Inc. v. Johnson, 358 P.2d

491 (Or. 1960) -

Lowell O. West Lumber Sales v. United States,

270 F.2d 12 (9th Cir. 1959)

Mandel, Inc. v. United States, 424 F.2d 1252

(8th Cir. 1970)

Miller v. Hubbard-Wray Co., 630 P.2d 880

(Or.Ct.App. 1981)

12,13

Mobile Housing, Inc. v. Stone, 490 S.W.2d 611

(Tex.Civ.App. 1973)

13,14

Moore v. United States, 196 U.S. 157 (1905)

New York, N.H. and H.R. Co. v. Reconstruction

Finance Corporation, 180 F.2d 241 (2d

Cir. 1950)

Norrington v. Wright, 115 U.S. 188 (1885)

O'Brien v. Miller, 168 U.S. 287 (1892)

Paullus v. Yarbrough, 347 P.2d 620 (Or. 1959)

Pine River Logging Co. v. United States. 196

U.S. 157 (1904)

Reconstruction Finance Corporation v. Sullivan

Mining Co., 230 F.2d 247 (9th Cir. 1956)

Rock Island v. Rio Grande Railroad, 143 U.S.

596 (1892)

Selman v. Shirley, 85 P.2d 384, on reh. 91 P.2d

312, 124 A.L.R. 1 (Or. 1938)

xil

United States v. Atlantic Dredging Co., 253 U.S.

1 (1920)

United States v. Lundstrom, 53 F.Supp. 709

(D.Or. 1941), affd 139 F.2d 792 (1943)

adie SRP

United States v. Republic Bag and Paper Co.,

250 F. 79 (2d Cir. 1918)

‘ 17,18

United States v. Spearin, 248 U.S. 132 (1918)

United States v. Stage Company, 199 U.S. 414

(1905)

7,23,24

United States v. Standard Oil Co. of California,

332 U.S. 301 (1947) Pa

a 19

United States v. Standard Rice Co., 323 U.S. 106

(1944)

United States v. Wegematic Corporation, 360

F.2d 674 (2d Cir. 1966) si

xiii

W. L. May Co., Inc. v. Philco-Ford Corporation,

543 P.2d 283 (Or. 1975)

Whitaker v. Farmhand, Inc., 173 Mont. 345, 567

P.2d 916 (1977)

Williams v. Walker-Thomas Furniture

Company,350 F.2d. 445 (D.C.Cir. 1965)

Woodruff v. Clark Co. Farm Bureau, 153 Ind.

App. 13, 286 N.E.2d 188 (1972)

STATUTES

43 C.F.R. § 5400 (1979)

U.C.C. § 1-103 (1977), Supplementary General

Principles of Law Applicable

U.C.C. § 1-104 (1977), Construction Against

Implicit Repeal

U.C.C. § 1-201(19) (1977), General Definitions

U.C.C. § 1-203 (1977), Obligation of Good

Faith

11,13

XiV

U.C.C. § 2-103(1)(b) (1977), Definitions and

Index of Definitions

U.C.C. § 2-302 (1977), Unconscionable

Contract or Clause

U.C.C. § 2-313(1)(b) (1977), Express

Warranties by Affirmation, Promise,

Description, Sample

U.C.C. § 2-316 (1977), Exclusion or

Modification of Warranties

U.C.C. § 2-501 (1977), Insurable Interest in

Goods; Manner of Identification of

Goods

U.C.C. § 2-612 (1977), Installment Contract;

Breach

U.C.C. § 2-719 (1977), Contractual

Modification or Limitation of Remedy

U.C.C. § 2-721 (1977), Remedies for Fraud

Uniform Sales Act § 14 (1906), Implied

Warranty in Sale by Description

ARTICLE

Farnsworth, Good Faith Performance and

Commercial Reasonableness Under the

Uniform Commercial Code, 30

U.Chi.L.Rev. 666, 672 (1963)

Friendly, In Praise of Erie and of the New

Federal Common Law, 39 N.Y.U. L.

Rev. 383 (1964)

Mallor, Unconscionability in Contracts between

Merchants, 40 SW.L.J. 1065 (1986)

-IN THE

Supreme Court of the United States

OCTOBER TERM. 1987

GREGORY LuMBER Co., Petitioner,

VS.

THE UNitEp States, Respondent

ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Gregory Lumber Company, the Petitioner herein, prays the

Court that a Writ of Certiorari issue to review the judgment

of the United States Court of Appeals for the Federal Circuit

in this case.

OPINIONS BELOW

The decision of the United States Court of

Appeals for the Federal Circuit as of this time has not been

reported. The Court of Appeals affirmed per curiam the

decision of the United States Claims Court, Gibson, J.,

reported at Gregory Lumber Company v. United States, 11

Cl.Ct. 489 (1986). No request for rehearing was made.

STATEMENT OF JURISDICTION

No petition for rehearing was requested. This

Court has jurisdiction to review the judgment by writ of

certiorari under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Uniform Commercial Code (1977)

43 C.F.R. § 5400 (1979)

STATEMENT OF THE CASE

Gregory Lumber Co. ("Gregory") was awarded

12 contracts for timber at auctions by the U.S. Department

of Interior through the Bureau of Land Management

("BLM") in Eugene, Oregon. These small business "set

aside" sales were conducted pursuant to 43 C.F.R. § 5400

(1979) using BLM formats, procedures, contract forms, and

supporting documentation. BLM's files, calculations, and

estimates of the amount of standing timber available

frequently totalled hundreds of pages for each contract.

The contracts executed between 1975 and 1977

involved timber estimated (i.e. "cruised") by BLM through

visual measurements to be 53,366,900 board feet. Gregory

paid BLM $8,380,875.09 for the 12 contracts based on BLM's

estimates. When the felled timber was measured on the

ground (i.e. "scaled") by an impartial third party, the actual

recovery was 39,484,810 board feet with a shortage of

13,882,090 board feet. The aggregate volume recovered was

26% less than that estimated by BLM, in effect, resulting in

an Overpayment to BLM by Gregory of $2,246,553.52. The

shortages in recovery on individual contracts ranged as high

as 50% of the estimates published by BLM.

BLM sells billions of board feet of timber

valued at billions of dollars in this fashion each year to the

public in Oregon. The BLM forms used the terms

"approximately" and "more or less" repeatedly in referring to

the timber to be sold. The BLM contract form also included

disclaimers of quantity, quality and merchantability. The

contract form, App. at 070-73,! also required the bidder to

1/ The Joint Appendix to the Briefs of Plaintiff-Appellant

Gregory Lumber Co. and Defendant-Appellee United States in the Court

state that it had "inspected" the timber. BLM set forth

internal accuracy standards between +5% and + 10% in its

manuals on the measurement of timber and the appraisal of

its value in the marketplace.

BLM's defense was that the shortages were

due to differences between the way BLM and industry

measure timber, and, further, that the disclaimers as a

matter of law absolved BLM of any responsibility no matter

the severity of the shortage in recovery.

Gregory sought relief before administrative

boards and before the U.S. Court of Claims. Although

limited discovery was allowed in 1986, no evidentiary hearing

was granted and no oral argument held on the legal

significance of 55 exhibits and 2327 pages of-—evidence

submitted in opposition to the motions for summary

judgment. .

Gregory argued that application of the

Uniform Commercial Code ("U.C.C.") as a unified body of

law to these transactions in which the United States acted as

a merchant required striking the disclaimers which,

according to the Claims Court, constituted an absolute bar to

relief. Gregory also asserted that the use of the words "more

or less" and “approximately" in the contract documents

meant "slight" variations not shortages as high as 50%.

Trade usage also supported Gregory's interpretation of these

contract terms. The decision of the Claims Court rendered

the disclaimer clause a virtual denial of any BLM contractual

obligation.

The Claims Court relied upon its own

precedents and neither recognized nor discussed the

precedents from this Court and other jurisdictions relied

of Appeals for the Federal Circuit Docket #87-1208 will hereinafter be

referenced as "App. at__".

upon by Gregory. Appeal was taken to the U.S. Court of

Appeals for the Federal Circuit which affirmed per curiam

without opinion.

Gregory seeks review of the decision, because

the Federal Circuit is in conflict on all issues with this Court,

with other Federal Courts of Appeals, and with Supreme

Courts of states.

REASONS FOR GRANTING THE PETITION FOR WRIT

OF CERTIORARI

I. THE FEDERAL CIRCUIT IS IN CONFLICT WITH

THIS COURT, OTHER CIRCUITS AND STATE

COURTS AS TO WHETHER THE UNITED STATES

CAN BY CONTRACT DISCLAIM ITS

"ESTIMATES" OF QUANTITY, WHERE THE

"ESTIMATES" OF QUANTITY WERE USED TO

CALCULATE A REQUIRED MINIMUM BID

PRICE IN AUCTIONS WITH RESERVE.

A. The Federal Circuit's holding in Gregory is in

conflict with prior holdings of this Court as to

the Federal law merchant and is a significant

Federal question which requires clarification

— by this Court.

The Court of Appeals for the Federal Circuit

ruled in the instant case that, under both the common law

and the Uniform Commercial Code, disclaimers of warranty

as to quantity, quality, merchantability, and fitness for a

particular purpose exculpate the BLM, as a seller of trees,

from any obligation to tender any performance to the

purchaser. If taken to the logical extreme, the disclaimers

render utterly meaningless the specific quantities set forth in

a variety of BLM contract documents used in the process of

contract formation leading to this dispute. App. at 106, 107,

109. The Federal Circuit has, in effect, stated that BLM, as

seller, was not obligated to tender anything at all to buyers

because it required acceptance by Gregory of disclaimers of

warranties and required Gregory to warrant that the tracts

had been "inspected." App. at 070, § § 6(A) and (B).

The contract documents were all drafted by

BLM. The disclaimers were introduced at the very last stage

of the "bargaining" process, after Gregory had used BLM's

representations and "estimates" of timber quantity to

calculate minimum bid prices required for the BLM auctions

with reserve.

A merchant-seller cannot in good faith

disclaim his negligent or intentional misrepresentations of

fact particularly when the disclaimer is contained in a

contract drafted entirely by seller. In U.C.C. §2-103(1)(b)

“Definitions and Index of Definitions," the Code sets forth

the standard of behavior required of a merchant:

"Good faith" in the case of a merchant means

honesty in fact and the observance of reasonable

commercial standards of fair dealing in the trade.

Furthermore with reference to resolving such

problems of interpretation, in O'Brien v. Miller, 168 U.S. 287,

297 (1892), this Court restated the rules of contract

interpretation:

The elementary canon of interpretation is, not

that particular words may be _isolatedly

considered, but that the whole contract must be

brought into view and interpreted with reference

to the nature of the obligations between the

parties, and the intention which they have

manifested in forming them.

In O'Brien, this Court relied upon three of its

previous decisions when it set forth this canon of

interpretation, supra. Boardman v. Reed, 31 U.S. 328 (1832),

Canal Co. v. Hill. 82 U.S. (15 Wall) 94 (1872), and Rock

Island v. Rio Grande Railroad, 143 U.S. 596 (1892).

The Federal Circuit has first of all failed to

follow precedents of this Court which stated that a contractor

has a right to rely reasonably upon such representations of

the U.S. Government when making bids. United States v.

Stage Co., 199 U.S. 414 (1905); Hollerbach v. United States,

233 U.S. 165 (1914); Christie v. United States, 237 U.S. 234

(1914); United States v. Spearin, 248 U.S. 132 (1918); and

United States v. Atlantic Dredging Co., 253 U.S. 1, 11 (1920).

In Atlantic Dredging, this Court found that

despite a direction to contractors to inspect the site for

dredging and to inform themselves of conditions, such a

direction would not relieve the United States from defects in

its plans and specifications. 253 U.S. at 11. Similarly, the -

Federal Circuit should have found that the estimates of

quantity upon which BLM relied to calculate a minimum

price were sufficient to constitute representations to Gregory

that both the trees and an ascertainable quantity of timber

were actually there. Instead, the Federal Circuit refused to

apply the canons of contract interpretation set forth by this

Court.

B. The decision of the Federal Circuit is in

conflict with decisions of the Fourth, Eighth

and Ninth Circuits which relied upon prior

rulings of this Court.

The decision of the Federal Circuit is in

conflict with the Ninth Circuit which found in United States v.

Lundstrom, 139 F.2d 792 (9th Cir. 1943), that despite the fact

that a contractor was instructed to investigate conditions he

nevertheless had a right to rely upon U.S. Government

representations. The Ninth Circuit in affirming the decision

of the District Court in Oregon in Lundstrum, 53 F.Supp. 709

(D.Or. 1941) relied upon the Stage Co., Hollerbach, and

Christie cases cited supra.

The Oregon District Court in Lundstrom,

supra, also relied upon Hollerbach v. United States:

The contracts of the United States with one of its

citizens are construed according to the ordinary

rules of contracts which apply between

individuals. 53 F. Supp. at 711 n. 2 (D.Or. 1941)

In another decision of the Ninth Circuit,

Lowell O. West Lumber Sales v. United States, 270 F.2d 12

(9th Cir. 1959), it was held that under the proper

circumstances, the court could look to documents other than

a contract to supply the circumstances surrounding the

bargaining process for proper interpretation of a contract, if

there were any ambiguity. Gregory contended that the

disclaimers introduced by BLM in the final contract

documents for the first time in the ongoing transaction were

in direct conflict with other preceding contractual

documents. The contract files included more than thirty

discrete forms, all drafted by BLM. Any conflict or

ambiguity in these forms should have been resolved in favor

of Gregory not BLM, the drafter. The Federal Circuit and

the Claims Court failed to examine the contract documents

for conflict or ambiguity.

In Giustina v. United States, 190 F.Supp. 303

(D.Or. 1960), the District Court for Oregon relied on

Lundstrom, West, and Reconstruction Finance Corporation v.

Sullivan Mining Co., 230 F.2d 247 (9th Cir. 1956):

Where a contract between a Federal agency and

a private corporation was written in its entirety by

the agency, its language would be construed most

strongly against such agency. /d. at 308.

The Federal Circuit is also in conflict with the

Fourth Circuit which rendered a judgment on a U.S. General

Services Administration ("GSA") warranty disclaimer in

Eastern Service Management Company v. United States, 363

F.2d 729 (4th Cir. 1966). In a contract for cleaning services,

the GSA attempted to disclaim its own estimates of floor

space to be cleaned in an office building by requiring that

prospective bidders investigate the site. The Fourth Circuit

was not receptive to GSA's argument that because of the

"inspection" clause, bidders had thereby assumed the risk of

relying upon GSA's estimates of floor space. Here, also, the

court relied upon Lundstrom, Hollerbach, and Moore v.

United States, 196 U.S. 157 (1905).

The Federal Circuit is in conflict with the

Eighth Circuit as to whether or not the government can

disclaim its own estimates or representations. In Mandel,

Inc. v. United States, 424 F.2d 1252 (8th Cir. 1970), the

Eighth Circuit relied upon Eastern Service Management,

Hollerbach, Christie, and Atlantic Dredging:

Caveatory and exculpatory contractual provisions

will not shift the liability flowing from an express

or implied representation made by the

Government and reasonably relied upon by the

contractor. Id. at 1255.

c. The Federal Circuit is in conflict with

decisions of the courts of Arkansas,

California, and Oregon.

1, Identification 2-501

n rranti 2-

313)

In order to bid, Gregory had to pay a minimum

price in the auctions with reserve. App. at 108. Gregory

contends that the goods had to be identified to justify the

minimum bid price. The Court of Claims failed utterly to

address Gregory's claim that the goods must be identified to

the contract pursuant to U.C.C. § 2-501, "Insurable Interest in

Goods; Manner of Identification of Goods." The Federal

Circuit did not look to the substance of the transaction but

examined only its outward form. The disclaimers of

warranty as to quantity, quality, merchantability and fitness

for a particular purpose contained in BLM's contract form

were in conflict with the highly detailed numbers of trees,

estimates of timber volume per tree, and minimum prices

per board foot per species set forth in the contract

documents and prospectus. Other documents included the

Timber Sale Notices and Prospecti which induced Gregory's

participation in the auction sales program. App. at 106-107.

The Timber Sale Notices and Prospecti used

by BLM created an express warranty by their descriptions of

the goods therein described. U.C.C. §2-313(1)(b) "Express

Warranties by Affirmation, Promise, Description, Sample"

States:

Any description of the goods which is made part

of the basis of the bargain creates an express

warranty that the goods shall conform to the

description.

This provision was construed in Whitaker v. Farmhand, Inc.,

173 Mont. 345, 567 P.2d 916 (1977). Official Comment 4 to

§ 2-313 further states in support of Gregory's position:

A clause generally disclaiming “all warranties,

express or implied’ cannot reduce the seller's

obligation with respect to such description and

therefore cannot be given literal effect under

Section 2-316.

U.C.C, § 2-313, Official Comment 4 (1977).

The Supreme Court of Oregon in Autzen v.

John C. Taylor Lumber Sales, Inc., 572 P.2d 1322, 1325 (Or.

1977), stated that a warranty by description could be created

by seller, if the seller introduced said description into the

bargaining process. This is precisely what BLM did. The

concept of a sale by description was codified in the Uniform

Sales Act of 1906 as drafted by Professor Williston in Section

14 "Implied Warranty in Sale by Description." "Sale by

description" is a term which appears frequently in old legal

digests and in the headnotes of timber and logging cases

decided in the Nineteenth Century, and which persists due to

the inherent common sense of the concept.

y & Disclaimer of Warranties (U.C.C. §2-

316)

By its insertion of a purchaser's warranty of

inspection in Section 6A of the contract, App. at 070, and of

the disclaimers in Section 6B of the contract, App. at 070,

BLM introduced an element into the agreement which

contradicted the hundreds of pages of specific figures

contained in the contract files. By approving such a practice,

the Federal Circuit has placed itself in conflict, not only with

commercial trade practice prevalent in Oregon, but also with

state appellate level courts:

Where the conflict is between a _ written

disclaimer and other written assertions which are

part of the contract, courts have generally held

that the disclaimer is ineffective. Miller v.

Hubbard-Wray Co., 630 P.2d 880, 883 (Or.Ct.App.

1981).

For this holding on the meaning of a

disclaimer drafted in conformity with U.C.C. §2-316,

"Exclusion or Modification of Warranties", the Oregon Court

of Appeals cited Woodruff v. Clark Co. Farm Bureau, 153 Ind.

App. 13, 286 N.E.2d 188, 200 (1972). In circumstances

analogous to Gregory's, the Court of Appeals of Indiana held

that one way the validity of a disclaimer could be tested

would be to look at the point in the transaction at which the

disclaimer was introduced to the party required to accept it.

In Gregory's case, the disclaimers appeared in small print in

the final document after both the auction and the calculation

by Gregory of a minimum bid price in reliance upon BLM's

very specific numbers.

In Miller, supra, the Oregon Court of Appeals

also relied on the case of Whitaker v. Farmhand, Inc., 173

Mont. 345, 567 P.2d 916 (1977). In Whitaker, the Supreme

Court of Montana struck down a warranty disclaimer which

had been placed in a manual for assembling a sprinkler

system in_an attempt to invalidate representations in an

advertising brochure.

The Oregon Court of Appeals in Miller also

relied upon a decision of a Texas appellate court for the

proposition that it is material to the construction of a

contract whether or not certain terms have been discussed or

agreed upon. In Mobile Housing, Inc. v. Stone, 490 S.W.2d

611 (Tex.Civ.App. 1973), the Court of Civil Appeals of Texas

chose to examine the substance rather than the procedure of

a transaction for the sale of a mobile home and concluded

that a description of goods creates an obligation on the part -

of seller which cannot be disclaimed:

The code according to Comment 4 under § 2.313

seems to take the view that the whole purpose of

the law of warranty is to determine what it is that

the seller has in essence agreed to sell, and

refuses except in unusual circumstances to

recognize a material deletion of the seller's

obligation. Thus, a contract is normally one for a

sale of something describable and described. A

clause generally disclaiming "all warranties, express

or implied," cannot reduce the seller's obligation

with respect to such description and therefore

cannot be given literal effect under § 2.316. Mobile

Housing, Inc. v. Stone, 490 S.W.2d 611, 615

(Tex.Civ.App. 1973). (Emphasis supplied.)

Gregory has contended that BLM, by the use

of disclaimers, tried to impose a controlling procedural

overlay on the substance of the transactions, thereby twisting

the meanings of terms used in the Oregon timber trade.

BLM labelled its timber contracts "lump sum" sales, but

required payment from Gregory in installments in a manner

similar to that described in U.C.C. §2-612, "Installment

Contract, Breach." App. at 108. The installments were

calculated upon an average volume of wood per acre before

the wood became the property of purchaser. Calling such

sales "lump sum" is absurd. Nevertheless, this practice has

been permitted by the Federal Circuit directly in conflict

with the Supreme Court of Oregon.

In Libby Creek Logging, Inc. v. Johnson, 358

P.2d 491 (Or. 1960), the Supreme Court of Oregon relied

upon old Oregon case law, and trade custom and usage to

look into the substance of a “lump sum" transaction and the

reasonable expectations of the parties:

A misrepresentation as to the quantity of real

property including timber furnishes a proper basis

for the recovery of damages for fraud even

though the sale was in gross for a lump sum in the

instant case. Libby Creek Logging, Inc. v. Johnson,

358 P.2d 491, 495 (Or. 1960), citing Heise v. Pilot

Rock Lbr. Co., 352 P.2d 1072; Selman v. Shirley,

85 P.2d 384, on reh. 91 P.2d 312, 124 A.L.R. 1, 16

(1938).

I RRR err

ROSE PES eh 50 eR RL a aad et

Assuming arguendo that the transactions in the

instant case were truly "lump sum" sales, as characterized by

the Federal Circuit, the Court should still have found that

the seller, BLM, made actionable misrepresentations for

which purchaser could make a recovery pursuant to U.C.C.

§ 2-721, "Remedies for Fraud."

Finally, the Federal Circuit is in conflict with

the courts of California which have held, that despite

technical compliance with the disclaimer requirements of the

U.C.C. a disclaimer can be rendered unenforceable because

of unfairness. A & M Produce Co. v. FMC Corp., 186 Cal.

Rptr. 114, 120 (Cal.Ct.App. 1982).

II. THE FEDERAL CIRCUIT IS IN CONFLICT WITH

THIS COURT AS TO THE LEGAL SIGNIFICANCE

OF THE TERMS "MORE OR LESS" AND

"APPROXIMATELY" AS INTERPRETED BY THIS

COURT. THE FEDERAL CIRCUIT'S DECISION

PERMITS SHORTAGES IN QUANTITY AS HIGH

AS 50% IN U.S. CONTRACTS.

The decision of the Claims Court, 11 CI.Ct.

489 (1986), affirmed by the Federal Circuit, is in conflict with

prior rulings of this Court which interpreted the terms "more

or less," "about," and "approximately." This Court in Brawley

v. United States, 96 U.S. 168 (1877), stated the rule by which

the Federal Circuit should have been guided but which it

contradicted:

The addition of the qualifying words "about,"

“more or less," and the like in such cases is only

for the purpose of providing against accidental

variations arising from slight and unimportant

excesses or deficiencies in number, measure or

weight. 96 U.S. at 172.

Justice Bradley's reasoning was followed subsequently in

Norrington v. Wright, 115 U.S. 188 (1885), Filley v. Pope, 115

U.S. 213 (1885) and Pine River Logging Co. v. United States.

196 U.S. 157 (1904).

The Timber Sale Notices and Prospecti which

induced Gregory to make a mandatory bid deposit for

participation in auction sales of timber used the terms "more _

or less" and "approximately many times. The process of

contract formation between BLM and Gregory relied heavily

upon the specific numbers set forth in the Timber Sale

Notices and Prospecti which numbers were used to calculate

both BLM's minimum bid price and Gregory's bid at auction.

App. at 106-109. In short, the figures and the prices

calculated therefrom formed the basis of the bargain. It was

only at the last stage of the bargaining process that the

Bureau of Land Management inserted a disclaimer of

warranties.

Timber recovery shortages averaging 26% for

the 12 contracts and running as high as 50% exceeded any

reasonable concept of "slight" variations. The Federal

Circuit considered these shortages averaging 26% in millions

of board feet as being well within the meaning of "more or

less," "about," and "approximately."

The Federal Circuit has construed the

meaning of these terms in conflict with the decision by the

Fourth Circuit in Eastern Service Management Company v.

United States, 363 F.2d 729 (4th Cir. 1966). In Eastern, a

cleaning service contractor entered a bid to clean office

space occupied by the Internal Revenue Service. According

PORTS

COALS OL RRS ER ET G07 a ooo

to both the District and Circuit courts, a variance of 8700

square feet or 6% in excess of the U.S. Government's

estimate of 129,300 square feet was not within the meaning

of "approximately." As stated by the court in Eastern:

The government cannot avoid this reliance by

instructing bidders to visit the building to

ascertain the nature and location of the work, and

the general local conditions which can affect the

work and the cost thereof. /d. at 731.

The Fourth Circuit in Eastern relied, in turn, upon a Ninth

Circuit decision, United States v. Lundstrom, 139 F.2d 792,

794 (9th Cir. 1943), as to a bidder's right to rely upon figures

supplied by the government when computing bids for a

contract.

Further authority for the legal theory that

“more or less" covers accidental or slight variations is Budge

v. United Smelting and Refining Co., 104 F. 498 (9th Cir.

1900) which relied upon the Brawley decision for its

interpretation of "more or less." Brawley was also cited as

authority in United States v. Republic Bag and Paper Co., 250

F. 79 (2d Cir. 1918) in which the Second Circuit also cited

the Norrington and Pine River Logging Co. cases for the

proposition that:

[w]hen the only measure is the estimate itself,

they allow only a small latitude of variation, much

within that here asserted. United States v.

Republic Bag and Paper Co., 250 F. at 81.

The Republic Bag and Paper Co. case relied upon a decision

to the same effect rendered by the Eighth Circuit in Hadley

Dean Plate Glass Co. v. Highland Glass Co., 143 F. 242 (8th

Cir. 1906).

Ill. THE FEDERAL CIRCUIT IS IN CONFLICT WITH

THIS COURT, OTHER FEDERAL CIRCUITS AND

STATE COURTS AS TO WHETHER’ THE

UNIFORM COMMERCIAL CODE SHOULD BE

APPLIED AS A UNIFIED BODY OF LAW TO A

CONTRACT DRAFTED BY THE UNITED STATES

GOVERNMENT.

A. The Federal Circuit's holding in Gregory is in

conflict with prior holdings of this Court as to

the application of the U.C.C. as a unified body

of law.

This Court ruled on the commercial law

applicable to U.S. negotiable instruments in Swift v. Tyson,

41 U.S. (16 Pet.) 1 (1842). Justice Story stated that the Court

could draw upon general principles and doctrines of

commercial jurisprudence to create, in effect, a "federal law

merchant." In 1938, Justice Brandeis adopted a different

view: -

There is no federal general common law.

Congress has no power to declare substantive

rules of common law applicable in a state

whether they be local in nature or "general" be

they commercial law or a part of the law of torts.

Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

In Erie, Justice Brandeis made it clear that

henceforth the Federal Courts would construe substantive

state law and use the new Federal Rules of Civil Procedure

in a uniform manner. Notwithstanding Erie, as discussed

below there were and still are certain areas of law which are

uniquely "federal" and among these areas are government

contracts, admiralty, and commercial paper, when issued by

the United States.

For example, in Clearfield Trust Co. v. United

States, 318 U.S. 363, 367 (1943), Justice Douglas found that

Swift v. Tyson was "a convenient source of reference for

fashioning federal rules applicable to these federal

questions." He relied upon Federal statutes, regulations

promulgated by the Department of the Treasury, and

"general" principles of banking law. Four years later, Justice

Rutledge relied upon Clearfield to fashion a similar

governing rule of law in United States v. Standard Oil Co. of

California, 332 U.S. 301 (1947).

The U.C.C. evolved, inter alia, from the

Uniform Sales Act of 1906, the Negotiable Instruments Law

and the English Sale of Goods Act. The drafting of the Code

and its adoption by the state legislatures required more than

fifty years. The drafters of the U.C.C. and its antecedents

drew from the experience of the English, the French, and the

German communities for guidance when they were creating

a comprehensive model for commercial transactions. From

the outset, the purpose of the drafters was to facilitate the

growth of a national economy rather than merely regional

spheres, or markets.

The Uniform Commercial Code has now been

adopted in 49 states, the District of Columbia, and. by the

Department of Interior's Board of Contract Appeals in

Federal Pacific Electric Co., No. 334, Interior BCA, 33

U.S.L.W. 2222 (October 23, 1964). However, in this case,

BLM has argued for a very narrow application of the U.C.C.

The portions of the U.C.C. placed at issue by Gregory below

in the Court of Claims and the Federal Circuit were Articles

1 and 2 of the U.C.C., "General Provisions" and "Sales"

respectively. By the terms of § 1-104, the sections of the

Code are to be applied as a “unified coverage of its subject

matter..." Furthermore, general supplementary principles of

law were incorporated into the Code by reference in § 1-103.

When Gregory sought to have the U.C.C. applied as a

unified body of law to the U.S. contracts at issue, the appeal

was treated as a matter of first impression for lack of

precedents in the Federal Circuit. The Federal Circuit and

the Claims Court ruled on only one issue, unconscionability,

rather than applying Articles 1 and 2 of the U.C.C. to the

entire contract.

The common law principles expressed in the

U.C.C. do not substantially vary from the principles set forth

by this Court in its decisions. Nevertheless, the Federal

Circuit has steadfastly refused to give any recognition to case

law developed elsewhere upon which precedents Gregory

relied when making its arguments. Clearly, the U.C.C. like

its predecessor uniform acts should be considered as an

important source of law and principle for fashioning the

federal law of sales when interpreting government contracts.

B. The decision of the Federal Circuit is in

conflict with the Second and Third Circuits,

- which relied upon prior rulings of this Court,

in using the Uniform Commercial Code and

the Uniform Sales Act as a source of law for

the federal law of sales.

In its decision, 11 Cl.Ct. at 489, of December

29, 1986, the U.S. Claims Court failed to apply all of the

provisions of the Uniform Commercial Code which pertain

to buyer's, ie. Gregory's, remedies under Article 2. By

affirming the Claims Court decision without comment on

September 1, 1987, the Federal Circuit placed itself squarely

in conflict with decisions of other U.S. Circuit Courts of

Appeals and failed to follow precedents established by this

Court.

The late Judge Friendly of the Second Circuit

cited the Uniform Commercial Code as a source of law for

the "federal" law of sales:

When the states have gone so far in achieving

the desirable goal of a uniform law governing

commercial transactions, it would be a

disservice to insist on a different one for the

segment of commerce, important but still small

in relation to the total, consisting of

transactions with the United States. United

States v. Wegematic Corporation, 360 F.2d 674,

676 (2d Cir. 1966).

Judge Friendly used the Code at the

suggestion of defendant in that case, while relying upon

Judge Learned Hand's decision in New York, N.H. and H.R.

Co. v. Reconstruction Finance Corporation, 180 F.2d 241 (2d

Cir. 1950), as a precedent. Judge Hand in the latter case

applied the Negotiable Instruments Law to a dispute

between a railroad and a federal agency acting in its

proprietary capacity. Judge Hand relied upon this Court's

decision in Standard Oil, supra for guidance in fashioning a

rule of law in an area where state law would not control, but

where, nevertheless, a uniform act adopted by the states

might prove to be a valuable source of law and principle.

Perhaps, Judge Friendly anticipated the

Wegematic case when he commented in 1964 on the impact

of the Erie decision and the way that it might change

commercial law:

Here the effort for uniformity once the limited

value of Story's approach was recognized, has

taken the form of an endeavor to secure the

passage of various uniform acts, and now of the

Uniform Commercial Code. The difficulty in

getting uniform acts adopted by fifty state

legislatures, the even greater difficulty in getting

them adopted uniformly, the sheer impossibility

of getting unruly judges to interpret them

uniformly, and the felt necessity of resisting

desirable amendments in order to protect the

uniformity so hardly won do not require

elaboration. Friendly, Jn Praise of Erie and of the

New Federal Common Law, 39 N.Y.U. L. Rev.

383, 419 (1964).

Judge Friendly, who clerked for Justice Brandeis,

commented on government contracts, in his words, “a

restricted area”:

Because of the presence of a federal question

most of the litigation is likely to be in the federal

courts, which thus have an opportunity to develop

a set of rules as to what issues should be left to

state law, and also a body of federal law on those

issues where national uniformity is demanded. Jd.

at 411.

Gregory cites as authority decisions of this

Court pertaining to the purchase of goods or services by the

federal government. See, e.g., United States v. Stage Co., 199

U.S. 414 (1905); Hollerbach v. United States, 233 U.S. 165

(1914). Gregory sought to purchase goods from the federal

government and to provide road construction services to the

federal government according to BLM's specifications. The

Federal Circuit has juxtaposed the inapposite standards of

sovereign immunity upon the ordinary contractual

obligations undertaken by BLM when authorized to act in its

proprietary capacity as a seller of trees. As stated by Judge

Friendly the U.C.C. provides a necessary frame of reference

for determining both the proper obligations of and remedies

for the parties. However, the Federal Circuit is not free to

use the U.C.C. as it sees fit by resolving disputes in conflict

with this Court and the other Federal Courts.

The Third Circuit in Campbell Soup v. Wentz,

172 F.2d 80 (3d Cir. 1948), resolved a diversity case between

two private parties by drawing upon the Uniform Sales Act

as then adopted by Pennsylvania and New Jersey. The Court

took notice of Erie and also the fact that it was the role of a

federal court to fashion relief. Jd. at 81. Although the

instant dispute is one between the federal government and a

private party, the method of resolving the dispute should not

differ substantially from the resolution of disputes between

individuals because the U.S. is a merchant when it sells

goods.

In the United States v. Stage Company, 199 U.S.

414 (1905), this Court stated:

The same principles of right and justice which

prevail between individuals should control in the

construction and carrying out of contracts

between the government and individuals. Jd. at

423.

This proposition was followed subsequently in Hollerbach v.

United States, 233 U.S. 165 (1914) and United States v.

Standard Rice Co., 323 U.S. 106, (1944).

c. The Federal Circuit is in conflict with

decisions of Appellate and Supreme Courts of

Arkansas, California, and Oregon in

interpreting U.C.C. Articles 1 and 2 as to the

obligation of good faith, limitation of

remedies, and unconscionability.

1, ligation of Faith

The Claims Court, in its decision, affirmed by

the Federal Circuit, described as "complicated" the

application of the U.C.C. to a federal contract, 11 Cl.Ct. 489

(1986). The Claims Court had ruled only on the narrow

issue of "unconscionability" as set forth in U.C.C. § 2-302,

while utterly ignoring the more basic breach of contract

claims made in the original and amended petitions.

When he rendered a decision permitting

limited discovery at January 31, 1986, at 9 Cl.Ct. 503 (1986),

the judge commented that there was no remedy provision

included in the contracts which are the basis for this

controversy. Curiously, less than a year later, when the

Claims Court granted BLM's motions for summary

judgment, the court refused to address the fundamental

inequity of a contract without a remedy under the U.C.C. § 2-

719. The Court admitted that Gregory's claims were for

"tortious breach of contract," and were based in part on the

BLM's breach of its obligation to act in "good faith." 9 Cl.Ct.

503, 509 (1986). Professor Farnsworth summarized the

essence of good faith as set forth in the U.C.C.

Good faith performance has always required the

cooperation of one party where it was necessary

in order that the other might secure the expected

benefits of the contract, And the standard for

determining what cooperation was required has

always been an objective standard, based on the

decency, fairness or reasonableness of the

community and not on the individual's own

beliefs as to what might be decent, fair or

reasonable. Farnsworth, Good Faith Performance

and Commercial Reasonableness Under the

Uniform Commercial Code, 30 U.Chi.L.Rev. 666,

672 (1963).

In denying that a cause of action existed for

breach of that obligation, the Federal Circuit is in conflict

with the Court of Appeals of Oregon, which stated that

despite the failure of Plaintiff's unconscionability claim that

the Plaintiff would still have an actionable cause on the basis

of a simple claim of breach. Furthermore, the Oregon court

found:

Every contract contains an implied covenant of

good faith and fair dealing... When that

covenant is breached, the nonbreaching party

may bring an action for breach of contract...

Whether a party has breached the covenant of

good faith and fair dealing is a question of fact.

Best v. United States National Bank of Oregon, 714

P.2d 1049, 1056 (Or.App. 1986).

The Federal Circuit in the Gregory case

applied an inapposite standard of "bad faith" drawn from

libel cases filed against public officials in rejecting Gregory's

allegations of "bad faith" in a commercial setting, stating that

Gregory would have had to show "actual malice” to sustain a

cause of action. That proposition is in conflict with the

meaning of "good faith" set forth in U.C.C. §§ 1-201(19), 1-

203, and 2-103(1)(b). Gregory alleged that the U.S., as a

merchant, breached its obligation to act honestly in fact and

to observe the obligations historically imposed by the law

merchant. Such allegations constituted a meritorious cause

of action.

The Federal Circuit demonstrated a confused

understanding of the respective meanings of "good faith" on

the part of public officials in the performance of their duties,

and "bad faith" in a commercial setting when it affirmed the

decision of the Claims Court. By so doing, the Federal

Circuit placed itself in conflict with the Supreme Court of

Oregon which found that a claim for breach of the

merchant's implied obligation of good faith and fair dealing

would be actionable despite the failure of a claim of

unconscionability.. W.L. May Co., Inc. v. Philco-Ford

Corporation, 543 P.2d 283, 288 (Or. 1975). In W. L. May, the

Supreme Court of Oregon relied upon Campbell Soup Co. v.

Wentz, 172 F.2d 80 (3d Cir. 1948) for a test of

"unconscionability" in commercial transactions under the

Uniform Sales Act as adopted by Pennsylvania and New

Jersey. The Third Circuit also looked to the Restatement of

Contracts for guidance in deciding the Wentz case.

yo Limitation of Remedies

In the January 31, 1986 decision granting

Gregory limited discovery, the Claims Court stated that: "no

part of the contracts, expressly or by implication, contains

specific adjustment provisions aimed at remedying recovery

of timber shortfalls of any kind." 9 Cl.Ct. at 519. In other

words, there was no remedy for a shortage no matter how

severe. The lower court failed to make any further

examination of the effect of such severe limitations of

remedy in the contract as it should have pursuant to U.C.C.

§ 2-719, "Contractual Modification or Limitation of Remedy."

By allowing such an omission, the Federal Circuit placed

itself in conflict with the Supreme Court of California. See A

& M Produce Co. v. FMC Corp., 186 Cal. Rptr. 114

(Cal.Ct.App. 1982).

The Federal Circuit, by its affirmation of the

lower court holding, applied sections of the U.C.C. to the

BLM's contract form as if the sections were meant to be read

in a selective and disjunctive manner and not as a unified

body of law. Such an interpretation of the U.C.C. is in

conflict with the very purpose of drafting such a

comprehensive Code, whose sections were designed to be

complementary, not alternatives to be applied subjectively at

the whim of the Court.

Gregory argued that the Defendant breached

its obligation of "good faith" and that the totality of

circumstances were procedurally and __ substantively

unconscionable. Gregory argued that the limitation of

remedies contained in the contract form was so severe as to

cause the bargain and the "remedy" to fail of their essential

purposes. Further, Gregory pointed out that the conflict

between specific BLM calculations on the one hand and the

disclaimers of warranty could be resolved only by

invalidating the disclaimers in favor of a remedy for the large

shortages. This rule of law has historically been accepted by

courts which have examined such problems with the

exception of the Federal Circuit.

a nconscionabili nder th

The Federal Circuit is in conflict with the

California Court of Appeals which decided that a contract

drafted by a large diversified corporation and used with a

much smaller purchaser was "unconscionable" on grounds

similar to those cited by Gregory before the Federal Circuit:

[C]ourts view businessmen as possessed of a

greater degree of commercial understanding and

substantially more economic muscle than the

ordinary consumer. Hence, a businessman

usually has a more difficult time establishing

procedural unconscionability in the sense of

either "unfair surprise" or "unequal bargaining

power"... Nevertheless, generalizations are

always subject to exceptions and categorization is

rarely an adequate substitute for analysis. With

increasing frequency, courts have begun to

recognize that experienced but _ legally

unsophisticated businessmen may be_ unfairly

surprised by unconscionable contract terms ... and

that even large business entities may have

relatively little bargaining power, depending on

the identity of the other contracting party and the

commercial circumstances surrounding the

agreement. A & M Produce Co. v. FMC Corp.,

186 Cal. Rptr. 114, 124 (Cal.Ct.App. 1982). —

(Emphasis added.)

Gregory's arguments in the lower court were

on all fours with the reasoning of the California Court of

Appeals in A & M Produce. The relative strength of the

United States acting through BLM versus that of Gregory

was never addressed by the courts below. See Davis v. Kolb,

563 S.W.2d 438 (Ark. 1978).

In Mallor, Unconscionability in Contracts

between Merchants, 40 SW.L.J. 1065 (1986), the author

demonstrated that courts have addressed the concept of

"unconscionability” in.contracts not only between merchants

and consumers as in Williams v. Walker-Thomas Furniture

Company, 350 F.2d. 445 (D.C.Cir. 1965), but also in contracts

between merchants, as cited by Gregory. BLM knew or had

reason to know that timber was becoming very difficult, if

not impossible, for small businesses to obtain from any

source other than the U.S. Government. In 1959, the

Supreme Court of Oregon took judicial notice of this fact in

Paullus v. Yarbrough, 347 P.2d 620, 635 (Or. 1959):

Although timber and the logs cut therefrom may

not be regarded as unique "chattels" we can take

judicial cognizance of the fact that it is becoming

increasingly difficult for small operations such as

the plaintiff to obtain tracts of timber within their

purchasing power. /d. at 635.

What was true in 1959 had certainly become a

progressively more critical concern for small businessmen 20

years later when Gregory bid on these contracts. Gregory

sustained an aggregate shortage of 26% in 12 contracts which”

was not commercially reasonable. The reality of the

marketplace in Oregon is that the small businesses which

participated in the BLM set-aside program had to deal with

BLM despite the fact that they never got the quantity of

timber they "bargained" for. Consequently, they went

bankrupt, or, if they were fortunate, simply closed their

doors.

CONCLUSION

For the above stated reasons, Gregory

respectfully requests the Court to issue a writ of certiorari to

the Court of Appeals for the Federal Circuit on issues I, II,

and III.

Respectfully submitted,

Edward F. Canfield

CASEY, SCOTT & CANFIELD, P.C.

Counsel of Record

For Petitioner

Gregory Lumber Company

Dated: November 25, 1987

APPENDIX

A-1

Note: This opinion has not been prepared for

publication in a printed volume because it

does not add significantly to the body of law

and is not of widespread legal interest. It is a

public record. It is not citable as precedent.

The decision will appear in tables published

periodically.

UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT

87-1208

GREGORY LUMBER CO., INC.,

Plaintiff-Appellant,

THE UNITED STATES,

Defendant-Appellee.

DECIDED: September 1, 1987

A-2

Before DAVIS, Circuit Judge, BALDWIN, Senior Circuit

Judge, and SMITH, Circuit Judge.

Gregory Lumber Company (Gregory) appeals from

the grant of summary judgment to the United States by the

United States Claims Court in Gregory Lumber Co. v

United States, 11 Cl. Ct. 489 (1986) (Gibson, J.). The Claims

Court held that Gregory failed to meet its burden of

establishing the existence of genuine issues of material fact

as required by Rule 56(e) of the United States Claims Court.

On the basis of the Claims Court's opinion, said judgment,

dated December 29, 1986, is affirmed. ,

A-2

IN THE UNITED STATES CLAIMS COURT

Nos. 428-80 C, 532-80 C, 578-80 C, 626-80 C, 627-80

C, 628-80 C, 637-80 C, 134-81 C, 135-81 C, 136-81 C, 137-81

C, and 146-81 C

GREGORY LUMBER COMPANY, INC.

JUDGMENT

Filed DECEMBER 239, 1986

THE UNITED STATES

Pursuant to the opinion of December 29, 1986,

directing entry of judgment,

IT IS ORDERED AND ADJUDGED this date,

pursuant to Rule 58, that the complaints are dismissed as to

dockets 428-80 C, 578-80 C, 626-80 C, 627-80 C, 628-80 C,

637-80 C, 135-81 C, 136-81 C, and 137-81 C. Costs to the

prevailing party.

Frank T. Peartree

Clerk of Court

December 29, 1986 By: /s/

Deputy Clerk

NOTE: As to appeal, 60 days from this date, see FRAP 4(a)

tee eee oe ee.

A-4

IN THE UNITED STATES CLAIMS COURT

Nos. 428-80C, 532-80C, 578-80C, 626-80C, 627-80C, 628-

80C,637-80C, 134-81C, 135-81C, 136-81C, 137-81C, and 146-

81C

(Filed: December 29, 1986)

GREGORY LUMBER COMPANY, Inc.,

Plaintiff

Vv.

THE UNITED STATES,

Defendant

Timber sales contracts; lump sum_ contracts;

jurisdiction premised on Tucker Act and Contract Disputes

Act; motion for summary judgment; existence of genuine

issues of material fact; standard for determining based on

106 S.Ct. 2548 (June 25, 1986); bad

faith, misrepresentation in the inducement; disclaimer of

warranty 0 — and warranties against reliance --

unconscionability.

Edward F. Canfield, Washington D.C., attorney of

record for plaintiff.

E. Kathleen Shahan, Washington, D.C., with whom

was Assistant Attorney General Richard J. Willard, for

defendant.

A-5

OPINION

GIBSON, Judge:

I. INTRODUCTION

This case, involving 12 docketed claims! filed -

originally in the predecessor Court of Claims intermittently

over the period August, 1980 through March, 1981, once

again comes before the court pursuant to defendant's 1983

unified motion for summary judgment. Defendant, by said

motion, pursues the dismissal of all claims remaining

following this court's earlier opinion of January 31, 1986.

See, Gregory Lumber Co, v. United States, 9 Cl. Ct. 503

(1986). That January 31, 1986 opinion entered a

jurisdictional dismissal of several counts of plaintiff's

amended petitions,? remanded a minor claim to the U.S.

Department of Interior Board of Land Appeals, and

concomitantly stayed a resolution of defendant's summary

1/ See Appendix A attached which is a summary schedule listing all of the

docketed claims filed. Said attachment also contains other pertinent data

such as docket numbers, dates claims were filed in the predecessor Court

of Claims and before the Interior Board of Contract Appeals (IBCA) and

the Interior Board of Land Appeals (IBLA).

2/ Specifically, the January 31, 1986 opinion dismissed on jurisdictional

~ grounds, without prejudice, plaintiff's cause of action based on violation of

43 U.S.C. § 1181(a) (1982), and plaintiff's road design offset claims in

dockets 578-80C and 146-81C.

A-6

judgment motion as to all other counts in the remaining 11

docketed claims of plaintiffs amended petitions pending a

period of limited discovery for plaintiff pursuant to, inter

alia, RUSCC 56(f).

Following thereon, plaintiff engaged in such

discovery over the period February 1, 1986 through

April 15, 1986. Thereafter, both parties supplemented their

initial briefs, as required, relative to defendant's pending

motions for summary judgment in light of any alleged newly

discovered evidence. Surprisingly, plaintiff proffered an

additional 75-page memorandum supplemented by an

appendix consisting of approximately 2,269 pages, which

included eight unexcerpted depositions, various other

documents and five affidavits.

As thoroughly analyzed by the court in its

opinion of January 31, 1986, the 12 docketed claims in these

cases postured an amalgamation of Tucker Act (28 U..C. §

1491 (1982)) and Contract Disputes Act (41 U.S.C. §

609(a)(1) (1982)) jurisdictional issues. At this juncture, of

the remaining 12 dockets, 11 aver a separate claim by the

contractor, Gregory Lumber Company, for breach of a

timber sales contract with the government. The primary

thrust of these claims is plaintiff's alleged failure to recover

from each purchase the specified amount of timber which

was estimated by the government to be recoverable in each

contract.> Plaintiff contends, through its amended petitions,

that these various recovery shortfalls, averaging 26% per

—

3/ In 10 of these remaining 11 claims, the contacts were “lump sum"

timber sales. However, in the eleventh, i¢., no. 428-80C, the sale was for

specifically marked, or specifically identified, trees, and hence, not lump

A-7

contract, are the result of either bad faith dealing or

misrepresentation by he government or both. Alternatively,

plaintiff avers that any contractual disclaimers by defendant

and any warranty against reliance by plaintiff, which insulates

the government from liability, should be stricken as

unconscionable.

Contrary to the other 11 contracts that are lump sum

contracts, one of the docketed claims, no. 428-80C (i.e.,

Dunn Ridge), bases the recovery it seeks on the

government's alleged negligence for having failed to mark a

number of trees for cutting which had been specifically

identified to that contract at the time of sale. Lastly, three of

the docketed lump sum contract claims also contain

subsidiary performance price adjustment claims,* and one,

ie., no. 134-81C, also contains a performance related

counterclaim by the government. We underscore, at this

posture, the fact that this opinion only resolves those claims

asserted by plaintiff relative to the alleged timber shortfalls

(i.e., those claims based on bad faith, misrepresentation,

breach of warranty, unconscionability, and the negligent

marking of trees), and not the subsidiary performance

claims.>

4/ In docket no. 146-81C, plaintiff asserts a breach claim based on a faulty

rock source. In docket no. 134-81C, plaintiff asserts a claim based on a

landslide. Lastly, in docket 532-80C, plaintiff seeks recovery based on a

warranty of road costs theory.

5/ We proceed in tisis manner, for a number of reasons, despite the fact

that defendant's pending motion addresses the merits of all of plaintiff's

subsidiary claims. First, the subsidiary claims are not all in the same

jurisdictional posture. One (no. 134-81C) is here for Wunderlich Act

review, while others (nos. 146-81C and 532-80C) are here for de nova

Sa ae aN Ee a OE ET RAO te im OE Se tw

Lt A ht te ye

A-8

Prior to the time these claims were filed in the

predecessor Court of Claims, plaintiff also sought and was

denied relief by its various contracting officers. Initial

decisions by the contracting officers were issued over the

period November, 1978 through November, 1979. From

these adverse determinations, plaintiff appealed to both the

IBLA and the IBCA. The detailed history at the board level,

which eventually led plaintiff to seek relief in the

predecessor Court of Claims, is exhaustively documented in

our earlier opinion of January 31, 1986, supra, which should

be read as an integral background to our decision today. See

Gregory Lumber Co., 9 Cl. Ct. at 503.

By the opinion, we lift the current stay as to all

dockets and address the merits of defendant's motion to

dispose summarily of plaintiff's timber underrun claims. It is

our considered opinion, following an exhaustive review of all

briefs, supplements, and exhibits filed in this matter, and

with oral argument, that defendant is entitled to summary

judgment (except as otherwise noted) on alli of plaintiff's

timber underrun claims which are based on bad faith,

misrepresentation, breach of warranty, unconscionability,

and negligent marking of trees. With respect to said timber

underrun claims, quite simply, plaintiff has totally failed to

review. The chance that discovery may be needed, as well as a subsequent

trial on the merits relative to this latter group, has not been ruled out at

this time. In addition, to complicate matters even further, the claim

contained in docket 134-81C has been remanded to the Interior Board of

Land Appeals (in contrast to those other “arising under" claims which were

dismissed, without prejudice, in the January 31, 1986 opinion) and remains

on our docket for future consideration. Finally, there is the interrelated

matter of defendant's counterclaim which is not addressed by either party

in any motion currently before the court.

A-9

carry its burden, pursuant to RUSCC 56(e), to come forward

with "specific facts" establishing the required elements of bad

faith or misrepresentation, or at the very least facts sufficient

to raise genuine issues of material fact relative thereto. See

Celotex Corp, v. Catrett, 106 S.Ct. 2548 (June 25, 1986).

Because of such failure of proof, this court is convinced that

a trial on the merits on such issues would be totally

inappropriate.

Notwithstanding plaintiffs contention that to

apply its warranty of inspection and defendant's disclaimers

of quantity would be unconscionable, we believe the

undisputed facts establish, beyond cavil, that an arm's-length

bargain was struck by thoroughly knowledgeable and vastly

experienced parties which contained no elements of

oppression, surprise, or less than knowing even-handed

dealing. The disclaimers are, therefore, fully enforceable to

preclude recovery under plaintiff's contention that defendant

warranted the estimated quantum. Lastly, in granting

defendant's motion for summary judgment relative to the

plaintiffs negligent marking of trees cause of action, in

docket no. 428-80C, we find that as a matter of law the

inspection warranty in plaintiff's contract fully insulates the

government even given the non-lump sum nature of this

contract. Summary disposition in the government's favor,

therefore, is appropriate.

Il. BACKGROUND

Each of the 12 docketed cases in issue is premised on

a separate contract between the plaintiff and the U.S.

Department of Interior, Bureau of Land Management

(BLM), for the sale of standing timber. Eleven of said

contracts are similar "lump sum" timber sales contracts, and

A-10

the twelfth, no. 428-80C, is a salvage sale of specifically

marked trees. A lump sum timber contract represents the

sale of an unquantified amount of timber which is identified

generally only be references to its geographic location (i.e.,

the sale of such timber located within designated

boundaries). See Gregory Lumber Co,, 9 Cl. Ct. at 506 n. 1.

As mentioned earlier, there are also subsidiary performance

claims found in dockets 146-81C (based on inadequate rock

source for road construction), 134-81C (based on additional

road usage costs due to a landslide), and 532-80C (based on

the plaintiffs encountering excess road construction costs).

Defendant has asserted a performance counterclaim in

docket no. 134-81C.

Said 12 contracts® were bid on and entered into from

very early in 1975 through about April of 1977, and reflect a

6/ In order to fully understand the nature of the contracts at

issue in this case, some general familiarity with the chronology of a BLM

timber sale may be helpful. BLM's timber sales authorized pursuant to the

Act of August 28, 1937 (43 U.S.C. § 1181a), as were those to the plaintiff,

are governed by the procedures set out in subpart 5400 of volume 43 of the

Code of Federal Regulations (CFR) (1976). All sales begin with the

formation of a Timer Sale Plan (TSP), which is prepared by the BLM and

takes into account suggestions from prospective timber purchasers (§

5410.0-6 (1976)). Such plan includes an annual listing as to when various

tracts of timber, included in the plan, will be offered for sale; an indication

whether there will be Small Business set-asides; and finally a description of

the probable location and anticipated volumes of such tracts. Id. Once

integrated into the TSP, each sale is measured by tree cruise, log scale,

weight, or such other form of measurement as may be determined to be in

the public interest (§ 5420.0-6). Each of the instant plaintiff's sales was

measured by “tree cruise” -- a method which determines sales volume

A-11

based on the estimated volume of standing timber. This is the standard

BLM method for all timber sales (§ 5422.1).

As the sale date approaches, competitive timber sales are

advertised in newspapers of general circulation in the area where the sale

is located (§ 5430.0-6). Usually, at least a two-week lead time for most

advertisements is required. Id. The advertisement is commonly referred

to as a "Timber Sales Notice" (TSN) and contains the location of the tract,

the estimated total quantity of timber recoverable, the unit of measure, the

total appraised value, the minimum deposit required, the time and place

for receiving bids, the office where additional information may be

obtained, and any other facts deemed relevant by BLM at the time (§

5430.1).

Qualified bidders must submit with their bids a deposit of

not less than 10% of the appraised value of the timber offered for sale (§

5441.1-1). Bidding may be conducted by written bids, oral auction, or a

combination of both (§ 5442.1). If by oral auction, the declared high

bidder must confirm his oral bid in writing by signing a "Deposit and Bid

for Timber" form immediately thereafter. Id. In the case at bar, the

evidence discloses that all plaintiff's contracts were awarded on the basis of

an oral contract auction, in which a written "Deposit and Bid for Timber"

form was executed immediately. See, e.g. Brief Appendix, Defendant's

Motion for Summary Judgment (January 18, 1983), at 61.

The contract which actually is executed by the parties is nearly

identical to that which is made available to potential bidders at the time of

the TSN prospectus. It is entitled "Contract for the Sale of Timber - Lump

Sum Sale," and consists of 41 sections and two exhibits. Exhibit A is

typically a map of the tract under contract, and Exhibit B is typically a

recitation of the estimated quantity of timber recoverable. Exhibit B is

A-12

cumulative purchase price of approximately $8.4 million.

Also, the 12 contracts were estimated by BLM to produce, in

the aggregate, over 53 million net board feet of timber, once

all merchantable trees were felled and converted into

lumber. Despite BLM's cumulative estimated 53 million

board feet (MBF) as reflected in the aggregate in Exhibit B

of the 12 contracts, plaintiff alleges that it was able to

actually recover only some 74% of this figure (i.e., 39.5

MBF), with a resulting shortfall of approximately 13.9

million board feet. Needless to say, this apparently dramatic

shortfall, ranging on individual contracts from 6.84% to 50%

(with an average of 26%), is the primary basis averred for

the relief sought in this litigation. (See Appendix B,

schedule reflecting alleged variances and overpayments.)

Because of the alleged foregoing underruns (i.e., the

measured difference between the timber estimated by BLM

and the logs scaled by plaintiff), plaintiff first sought

administrative relief from its contracting officer, and then

appealed the contracting officer's various denials to both the

IBLA and the IBCA. Similarly, plaintiff received no comfort

on the merits at the board level. As delineated in our

analysis of the board proceedings contained in this court's

opinion of January 31, 1986, "[w]hat actually happened

before these two boards may perhaps be _ hospitably

characterized as utter confusion." Id. at 508. [For a more

detailed understanding of the issues which were presented

and resolved at the board level, which subsequently surfaced

here, the reader is referred to our January 31, 1986 opinion,

supra. See also Appendix A attached hereto.]

based on information previously made available through the TSN. Id. at

65-77.

A-13

Thereafter, 12 separate petitions were filed in the

predecessor Court of Claims over the period August, 1980

through March, 1981. Jurisdiction was originally premised

simultaneously, as to each docket, on both the Tucker Act

and the Contract Disputes Act (CDA). This jurisdictional

melange was definitively clarified in our January 31, 1986

opinion, supra, after a plethora of motions in both this court

and our predecessor court, as follows: Dockets 428-80C,

532-80C, 626-80C, 627-80C, 628-80C, and 637-80C are all

properly here pursuant to the CDA, and only the CDA. The

remaining docketed claims, 578-80C, 134-81C, 135-81C, 136-

81, 137-81C, and 146-81C, do not come within the

jurisdictional confines of the CDA and are therefore here

pursuant to the Tucker Act, and only the Tucker Act. While

we note here the unique jurisdictional basis of each docket

seriatim, in a practical sense, because the timber underrun

claims are themselves "breach" type claims rather than

"arising under claims," the standard of review by this court is

nevertheless de novo as to all such docketed claims whether

premised under the Tucker Act or the CDA. See Gregory

Lumber Co., 9 Cl. Ct. at 520, wherein this dichotomy is

analyzed.

In further clarification of the background to all of

these cases, there is also one earlier ruling by the

predecessor Court of Claims which deserves some comment

before we proceed in more detail to the events which have

occurred before this court. On January 12, 1982, defendant

moved for summary judgment in docket 134-81C. No such

similar motion was filed in any of the other 11 docketed

cases. At that time, the motion encompassed a request for

summary judgment only on the grounds that, notwithstanding

the timber shortfalls, the warranty by the plaintiff against

reliance on defendant's estimates and defendant's disclaimer

Qh lad PN mitt ES ome ha

A-14

as to quantity bars plaintiffs recovery on its breach of

warranty theory. Subsequent to the Court of Claims'

eventual ruling on that very January 1982 motion, on June 4,

1982, the amendments to plaintiff's petitions containing the

bad faith, misrepresentation, and unconscionability theories

were filed on January 12, 1983. In its decision on the

January 1982 motion in docket 134-81C, the Court of Claims

found that the defendant's numerous disclaimers against

warranty of quantity, in conjunction with the plaintiffs own

warranty of inspection, effectively precluded plaintiff from

recovering on any underruns as a matter of law. Gregory

Lumber Co. v. United States, 230 Ct. Cl. 1041, 1043 (June 4,

1982). We are, of course, bound by that decision to the

extent it mirrors the operative facts presented in the cases

now before this court with regard to the timber underrun

issues.

However, that is not the end of the analysis whereas

here plaintiffs subsequent amendment to the petition in all

of its other 11 docketed cases creates another dimension by

raising issues, ie., bad faith, misrepresentation, and

unconscionability, that were not before the court in Gregory,

230 Ct. Cl. 1041, supra. These amendments effectively

revived the timber underrun issues in those 11 dockets which

most probably would have been dismissed on the basis of the

Court of Claims' June 4, 1982 and July 23, 1982 decisions in

docket 134-81C. Consequently, this circumstance brings us

to the series of remaining unified motions for summary

judgment filed by the government in the 11 timber underrun

dockets, now pending in this court, seeking a summary

disposition of the entire litigation premised on the amended

petitions. In that connection, on January 18, 1983,

defendant filed a motion for summary judgment in eight

docketed cases (428-80C, 626-80C, 627-80C, 628-80C, 637-

A-15

80C, 135-81C, 136-81C, and 137-81C) averring its

entitlement to recover notwithstanding plaintiff's allegations

of bad faith and misrepresentation in making its estimates.

On January 24, 1983, defendant filed its motion for summary

judgment in dockets 532-80C and 578-80C regarding road

construction costs as well as the timber underrun issues as

amended. And finally, on February 9, 1983, defendant filed

a motion for summary judgment in docket 146-81C regarding

road construction costs as well as the timber underrun issues

as amended. For reasons previously explained, we address at

this time only that portion of the foregoing motions as is

related to plaintiff's timber underrun claims.

Since the filing of the foregoing defendant's 1983

motions for summary judgment, much has happened in this

complex litigation’? which bears on the decision which we

issue today. For example, there are the circumstances which

led to the issuance of our January 31, 1986 opinion, supra.

That opinion issued because following the filing of the

government's 1983 motions for summary judgment, the

plaintiff countermoved for a stay of proceedings and for

discovery pursuant to RUSCC 56(f).8 Plaintiff sought

additional discovery in order to gain access to those facts, if

any, peculiarly within the knowledge of the defendant which

7/ Early on in a June 4, 1982 Order, the predecessor Court of Claims

characterized these cases as containing a "twisted procedural posture.”

8/ RUSCC 56(f) (Feb. 15, 1984 edition) provides: "When Affidavits Are

Unavailable. Should it appear from the affidavit of a party opposing the

motion that he cannot for reasons stated present by affidavit facts essential

to justify his opposition, the court may refuse the application for judgment

or may order _a continuance to permit affidavits to be obtained or

depositions to be taken or discovery to be had or may make such other

order as is just." (emphasis added). See Celotex Corp, v. Catrett, supra.

A-16

it perceived would enable it to raise genuine issues of

material fact in response to defendant's summary judgment

motion(s). As found in its January 31, 1986 opinion, supra,

this court agreed with plaintiff's position, stayed a decision

on defendant's 1983 motions for summary judgment, and

granted plaintiff limited discovery ending on April 15, 1986.

Following discovery, said opinion ordered the parties to

supplement their briefs relative to the defendant's summary

judgment motion(s) in order to focus on any new evidence

garnered by the plaintiff during its period of discovery.

In an attempt to forestall the RUSCC 56(f) discovery

ordered in this court's January 31, 1986 opinion, defendant

moved this court, on February 12, 1986, to certify for

interlocutory appeal (28 U.S.C. § 1292(d)(2) (1982)) the

question of the propriety of this court staying a decision on

defendant's motions for summary judgment and allowing

plaintiff additional discovery. On February 26, 1986, this

court denied defendant's motion for § 1292(d)(2)

certification. Thereafter, in a further effort to preclude

discovery, the defendant petitioned the U.S. Court of

Appeals for the Federal Circuit (CAFC) on March 19, 1986,

for a Writ of Mandamus directing this court to deny the

plaintiff RUSCC 56(f) discovery and to enter summary

judgment in the government's favor on all timber underrun

issues. Defendant's petition for such a writ was denied by the

CAFC in an unpublished order dated March 31, 1986.

Discovery then progressed uninterruptedly until April 15,

1986, after which the parties filed their respective

supplements pursuant to the order contained in the court's

January 31, 1986 opinion.

A-17

Ill. CONTENTIONS OF THE PARTIES

Although extensively presented in numerous length

briefs and supplemental memoranda, the parties’ arguments

going to the merits of plaintiff's timber underrun claims, as

amended, are quite straightforward. Plaintiffs threshold

underlying theory to this entire litigation is that the written

estimates of recoverable timber volume contained in Exhibit

B to each of plaintiffs contracts constituted express

warranties by defendant of approximate recoverable timber

quantity (more or less, +/- 10%) upon which plaintiff had

the unquestioned right to reply, and did so rely, in making its

bid and in entering into the 12 subject contracts. Defendant,

on the other hand, has consistently and strenuously

maintained that no such warranties were intended, none

existed, and, in fact, were unequivocally expressly disclaimed

in numerous places in each of plaintiffs contracts. In

addition, defendant cites to an unconditional express

warranty of inspection by which the plaintiff itself definitively

warranted to defendant that_it was entering into each

contract based upon its inspection and its opinion as to the

value of the timber sold thereunder. Assuming for the

moment that the parties’ allegations go no further than the

foregoing (although in reality they do), the question is clearly

resolved in favor of the defendant as the Court of Claims

held back on July 4, 1982, relative to docket 134-81C.

However, where matters become slightly more

complex is when one considers the impact on this neatly

tailored scenario described supra, in conjunction with

plaintiff's subsequently alleged theories of bad faith,

misrepresentation, and unconscionability. In order to

overcome the preclusive effect of the defendant's

disclaimers, and plaintiff's warranty of inspection, plaintiff

a es. ey

A-18

now argues that at the time the contracts were entered into

with the government, BLM then knew that its volume

estimates in Exhibit B to each contract were grossly

overstated. To the extent the government acted with said

alleged knowledge, intending injury to bidders it well knew

would rely on those estimates, plaintiff proclaims such bad

faith conduct demands recovery notwithstanding the

existence of the broad disclaimer and its warranty of

inspection. Additionally, to the extent the evidence is

wanting of malice, and reflects mere knowledge or

reasonable attribution of said knowledge, plaintiff asserts

actionable misrepresentation to overcome the broad

disclaimers and the warranty of inspection. Lastly, there is

the argument by plaintiff that inasmuch as it is a small

business, lacking in any meaningful bargaining power, and

thoroughly dependent on the government for its livelihood,

the insertion of such broad disclaimers and warranty in the

contracts is indeed unconscionable under the circumstances,

which renders such disclaimers unenforceable in favor of the

prevailing defendant's express warranty of quantity.

The thrust of defendant's response to all of the

foregoing has been two-fold. First, defendant argues that

even given the facts as alleged by plaintiff relative to bad

faith, misrepresentation, and unconscionability, its warranty

disclaimers as to estimated recoverable quantity and the

warranty of inspection by plaintiff are nonetheless

enforceable as a matter of law. This initial position

undoubtedly accounts for defendant's unrelenting quest to

resolve this litigation by summary disposition without a

reasonable opportunity for discovery by plaintiff. Secondly,

defendant argues that regardless of these abstract theories,

they do not overcome the warranty disclaimers as to quantity

and the warranty of inspection, inasmuch as plaintiff has

A-19

presented no credible facts to support or even to raise

genuine and material fact issues as to the actionable

elements of bad _ faith, misrepresentation, or

unconscionability.

While the debate as to the legal merits of defendant's

first position could be endlessly waged, we have acted upon

what we perceive to be the sounder approach, i.e., to test

plaintiffs amended petition and defendant's motions for

summary judgment based on the defendant's second

contention. In other words, by granting plaintiffs RUSCC

56(f) motion, and allowing it additional discovery, we have

put plaintiff to the proof of going forward with the evidence

of establishing genuine issues of material fact as required by

RUSCC 56(e). Against the foregoing background, we offer a

recitation of the specific discovered facts, from plaintiff's

perspective, which allegedly overcome RUSCC 56(e)? and

raise genuine issues of material fact so as to make summary

judgment inappropriate. So as to not misconstrue or

misstate what plaintiff perceives to amount to facts sufficient —

to raise triable issues of fact, we quote directly from

plaintiffs brief, infra. Plaintiff has asserted four main

"[flindings" as grounds for establishing bad faith and

misrepresentation in overcoming its RUSCC 56(e)

obligation. These are:

9/ RUSCC S6(e) (Feb. 15, 1984 edition) provides, in pertinent part:

"When a motion for summary judgment is made and supported as

* * .

JiLiitl Wi» Jk Ui UW

there is a genuine issue for trial. If he does not so respond, summary

judgment, if appropriate, shall be entered against him.” (emphasis added).

A-20

(1) BLM reports of large contracts from 1969

through 1977 at Eugene, Oregon reveal that 88.9%

were underruns -- knowledge concealed from the

public and industry.

(2) BLM explained large underruns by inventing

the theory that there were major differences between

BLM and industry scaling techniques, which was

untrue. BLM then applied the theory on a faulty

assumption which was contradicted by data available

to BLM from Gregory.

(3) For two decades BLM management was

informed of serous gaps between BLM estimates and

industry recovery but did nothing to solve the

problem.

(a) ineffectual programs were established, e.g.,

the timber appraisal and cruiser/appraiser

programs.

(b) internal BLM standards and practices, ¢.g.,

cruising accuracy, were concealed and

unavailable.

(4) BLM took unfair advantage of industry by

deliberately inserting inequitable clauses in contracts

whose acceptance was made a condition of bidding

and obtaining timber.

Supplemental Opposition to United States' Motions for

Summary Judgment at 6. In the discussion which follows

infra, we assess the materiality of these so-called "[f]indings"

in terms of plaintiff's RUSCC 56(e) obligation.

A-21

IV. DISCUSSION

A. Introduction

We now address the questions presented relative to

plaintiff's timber underrun claims by methodically applying

the operative provisions that RUSCC 56 outlines for

evaluating and resolving motions for summary judgment.

That process evolves around two critical determinations.

First, pursuant to RUSCC 56(c)!° relating to the motion and

proceedings thereon, the moving party must show

affirmatively, based on the pleadings, depositions, answers to

interrogatories, admissions and affidavits, if any, that

(1) there are no genuine issues as to any material facts; and

(2) that it is entitled to judgment as a matter of law. Balboa

Insurance Co, v. United States, 775 F.2d 1158 (Fed. Cir.

1985); SRI International v. Matsushita Electric Corp., 775

F.2d 1107 (Fed. Cir. 1985). Second, pursuant to RUSCC

56(e)>!! it must be determined whether the non-moving party

has merely rested upon bare allegations or denials, or has set

forth any specific facts, by depositions, answers to

interrogatories, or affidavits, showing that there are indeed

genuine issues of material fact for trial. Balboa, 775 F.2d at

1163. In the case where the moving party makes the proper

10/ RUSCC 56(c) provides: “Motion and Proceedings Thereon. The

judgment sought shall be rendered forthwith if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact

and that the moving party is entitled to a judgment as a matter of law. A

summary judgment, interlocutory in character, may be rendered on the

issue of liability alone although there is a genuine issue as to the amount of

damages."

11/ See note 9, supra.

BN aT alata a: oi Slat Ty

A-22

showing pursuant to the standards of RUSCC 56(c), the

entry of summary judgment, therefore, will not be withheld

based simply on naked allegations or unsupported

conclusions of the non-moving party, Celotex Corp., 106

S.Ct. at 2553. That burden "on the moving party may be

discharged by ‘showing’ -- that is, pointing out to the...

Court -- that there is an absence of evidence to support the

nonmoving party's case." Id. at 2554. In such case, the non-

movant must go forward and identify specific credible facts

tending to either establish all necessary elements of its cause

of action, or at a minimum, sufficient to raise genuine issues

of material fact relative thereto. Id. at 2552-53. Otherwise,

Celotex Corp. teaches that:

the plain language of Rule 56(c) mandates the entry

of summary judgment, after adequate time for

discovery and upon motion, against a party who fails

to make a showing sufficient to establish the existence

f an elemen nti h n

which that party will bear the burden of proof at trial.

In such a situation, there can be "no genuine issues as

to nay material fact," since a complete failure of proof

concerning an essential element of the nonmoving

party's case necessarily renders all other facts

immaterial. The moving party is "entitled to

judgment as a matter of law" because the nonmoving

party has failed to make a sufficient showing on an

essential element of [its] case with respect to which

[it] has the burden of proof.

Id. at 2553 (emphasis added).

—

We begin our analysis by examining the allegations of

the plaintiff and the arguments of the defendant in the

A-23

context of the requirements of RUSCC 56. Plaintiff initially

relies on a warranty of quantity theory relative to the board

feet recoverable under each contract. Defendant has

countered with an argument that such warranties, if any,

were unequivocally disclaimed. Moreover, defendant further

asserts that plaintiff's reliance on any warranty of quantity

was equally unjustified based on plaintiffs unconditional

express warranty of inspection. The threshold question we

much resolve, therefore, is if defendant shows the operative

facts to be uncontroverted, i.e,, no warranty of quantity was

made, is defendant then entitled to judgment as a matter of

law on the timber underrun claims. Our next step, should

defendant be found to have carried its threshold burden, is to

examine any newly discovered evidence proffered by the

plaintiff to determine whether there exists triable issues of

fact relative to plaintiff's counter-arguments based on bad

faith, misrepresentation, and unconscionability. If plaintiff

succeeds in posturing issues of fact, then an assessment of

the impact of the genuineness and materiality of those issues

will be addressed. On the other hand, if plaintiff fails in its

burden of going forward under RUSCC 56(e), then judgment

shall be entered appropriately in favor of the defendant. Of

course, should the defendant fail in its initial burden, our

inquiry would likewise be at an end. We next discuss each of

these issues seriatim.

B. Defendant's Entitlement — =

Defendant's summary judgment motion is based

almost solely on the language in the contracts themselves,

and the favorable precedent in several cases in the

predecessor Court of Cleims. Inasmuch as the defendant's

assertion of the contract disclaimers and the plaintiff's

warranty of inspection are in the form of an affirmative

pide olsen

A-24

defense to plaintiffs breach of warranty theory, regarding

defendant's estimates of board feet of timber, the burden of

persuasion with respect thereto rests with the defendant. In

this regard, defendant's RUSCC 56(c) burden therefore

entails supporting its motion with credible evidence

sufficient to entitle it to a directed verdict if not controverted

at trial. Celotex, 106 S. Ct at 2553. In addition, defendant,

as movant, also possesses the initial burden of persuading the

court that, with respect to those issues for which plaintiff

would possess the burden at trial (ie., bad faith,

misrepresentation, and unconscionability), plaintiff's

evidence is insufficient to establish at least one essential

element of each of these alternative causes of action. Id. As

discussed infra, we believe the record clearly shows that

defendant has fulfilled each of these enumerated burdens.

The strength of defendant's proffer stems from

identical language common to each contract, in each of the

11 dockets in which a timber underrun claim exists (i.e., all

except 134-81C which issue was previously decided by the

predecessor Court of Claims). One expressed contract

provision in particular contains the operative language

relative to the plaintiffs warranty of inspection and the

defendant's disclaimer of any warranty of quantity. That

provision, "Sec. 6," provides as follows:

(a) Purchaser warrants that this contract is

accepted and executed on the basis of its examination

and inspection of the timber sold under this contract

ndi ini f the value thereof.

(b) Government expressly disclaims any

warranty of fitness of timber for any purpose; all

timber sold hereunder is accepted As Is (in original)

A-25

without any warranty of merchantability by

Government. Any warranty as to the quantity or :

quality of the timber sold hereunder is expressly

disclaimed by Government.

Defendant's Brief, January 18, 1983, Appendix at 65

(emphasis added). In addition, Exhibit B of each contract,

the exhibit which contains the estimated recoverable timber

figures upon which plaintiff allegedly relies, is captioned

"Lump Sum Sale" and contains the additional express caveat:

Except as provided in Sec. 2, Purchaser shall be liable

for total purchase price even though quantity of

imber ] or_remov r_desi for

taking is less than the estimated volume or quantity

shown.

Id. at 77 (emphasis added). The internally referenced "Sec.

2" removes nothing from the plain meaning of this provision.

As an additional, perhaps corrobative, source of

evidence as to the absence of a warranty regarding recovery

of a specific quantity of timber, defendant has also proferred

the bid documents which were assembled and provided to

Gregory prior to the time the contracts were in fact signed.

The BLM standard bid form entitled "Deposit and Bid for

Timber: Lump Sum Sale," applicable in each sale, advises :

bidders in accordance with paragraph 6(a) of the instructions

to Bidders, as follows:

Bids shall specify (1) Bureau of Land Management

estimated volume, (2) price per thousand board feet,

and (3) total purchase price. Estimated volume and

A-26

ric r_thousand rd feet are to be used for

administrative and reappraisal purposes only. Upon

award of contract, high bidder shall be liable for total

purchase price, including any adjustment which may

be made as a result of reappraisal if an extension of

time is granted, even though quantity of timber

actually cut, removed, or designated for taking is

more or less than the estimated volume or quantity

listed.

Id. at 62 (emphasis added). Similarly, the bid confirmation

form which Gregory was required to sign at the time it

placed the highest oral bid at the auction is also persuasively

probative on the issue. Directly above the signature line for

the high bidding company's representative it states:

If timber sale contract is executed, undersigned i

liable for total purchase price even though the ~

quantity of timber cut, removed, or designated for

taking is more or less than the total estimated volume

or quantity shown above.

Id. at 61 (emphasis added).

In assessing the import of the various sources of

evidence presented, supra, which defendant has asserted to

carry its RUSCC 56(c) burden, we are at once made aware

of the fact that the operative provisions of the foregoing

contract(s) and bid form(s) are essentially incontrovertible.

They manifest the official record of the parties’

understanding and agreement as to their corresponding

rights and obligations under the contract(s). Inasmuch as

A-27

they contain the signatures of both parties, they testify

forcefully to the mutual consent of the parties. From this

perspective, and noting the fact that plaintiff has presented

no evidence or arguments to the contrary, these contract and

bid form provisions must be accepted by the court as

essentially uncontroverted facts. As such, they reflect the

requisite uncontroverted factual predicate for assessing

defendant's entitlement to judgment as a matter of law.

Defendant's position on the legal merits of the

warranty/disclaimer relationship is, upon considerable

reflection and review, the position we are inclined to adopt.

Additionally, notwithstanding the plaintiffs counter-

allegations of bad _ faith, misrepresentation, and

unconscionability, allegations for which we only look to the

plaintiff for affirmative proof of "specific facts," defendant's

reliance on the contract disclaimers and plaintiff's warranty

of inspection (absent a showing by plaintiff of genuine issues

of material facts here) is also fully supported by the binding

precedent of the U. S. Court of Claims. See Gregory

Lumber Co., 230 Ct. Cl. at 1041; W Lumber, Inc. v.

United States, 677 F.2d 860 (Ct. Cl. 1982); Caffall Brothers

Forest Products, Inc, v. United States, 678 F.2d 1071 (Ct. Cl.

1982).

In particular, the Webco and Gregory cases were

based on contracts which contained identical contractual

language to that presented here. The same disclaimer of

warranty of quantity, the contractor's warranty of inspection,

and warnings that the purchaser is liable for the entire

purchase price fr l f_ th i f_timber

recovered, were present there as are present here.

Moreover, there, as here, the plaintiffs were all "invited,

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urged and cautioned," to inspect the timber prior to

submitting a bid. On these facts, the Court of Claims stated

conclusively in the prior Gregory case.

A contractor cannot, as plaintiff did, sign a contract

whick states, ["][p]urchaser warrants that this contract

is accepted and executed on the basis of its

examination and inspection of the timber sold under

the contract and its opinion of the value thereof,["] in

1975, and then in 1982 come into this court, make the

bare allegation that it had insufficient time to inspect

the timber, and expect the court to override the

contractual terms. Plaintiff cannot recover as a

matter of law.

Gregory, 230 Ct. Cl. at 1043. As we have previously stated,

unless plaintiff is able to come forward with "specific facts"

supporting the allegations of bad faith, misrepresentation,

and unconscionability, which we believe on the present

record it cannot and has not, cases such as the prior Gregory

decision, and the Webco case cited therein, bind us to award

summary judgment to the defendant on _ the

warranty/disclaimer issues regarding the timber underruns.

In relying on the prior Gregory decision, and that in

the Webco case, it must not be overlooked that neither those

decision, nor this opinion, rest upon the blanket conclusion

so often asserted by the defendant in this litigation that

regardless of the facts -- iie., the degree or circumstances of

any bad faith, misrepresentation, or unconscionability -- the

contract disclaimers and plaintiffs warranty of inspection

nonetheless entitle defendant to judgment as a matter of law.

We do not read the case law of this court and our

A-29

predecessor court to support such a holding. Rather, as we

explain in more detail, infra, the need to consider such a

hypothesis, on the merits, does not arise in this litigation, and

it did not arise in the prior Gregory decision, or the Webco

case. But rather, because of the total absence in this case of

specific material facts sufficient to even raise such issues as

bad faith, misrepresentation, or unconscionability beyond the

category of mere allegations, they did not form a part of the

factual predicate upon which our decision turns, infra.

C. Plaintiffs Burden Relative To The Existence Of Genuine

Issues Of Material Fact (RUSCC 56(e)) And Defendant's

Burden As To The Non-Existence And Non-Materiality Of

An hI R

1. Bad Faith

Plaintiff seeks to posture a genuine issue of material

fact and defeat defendant's motion for summary judgment, as

to each petition, by averring that the substantial underruns

(excess of BLM's estimate of board feet of timber over actual

recovery) in each contract are the products of defendant's

bad faith. As a basic proposition, findings that public

officials have acted with an intent sufficient to constitute bad

faith are relatively few. This is not surprising, however,

because of the long-accepted presumption that public

officials act in good faith, and with integrity in the

performance of their duties. Contract Custom Drapery

Service v. United States, 6 Cl. Ct. 811, 817 (1984); Eagle

Constr. Corp. v. United States, 4 Cl. Ct. 470, 479 (1984); P.

Francini & Co, v. United States, 2 Cl. Ct. 7, 11 (1983);

Burroughs Corp. v. United States, 617 F.2d 590, 597 (Ct. Cl.

1980); Sun Oil Co, v. United States, 572 F.2d 786 (Ct. Cl.

SO ak MAND Rt 0 ee a ll

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1978). As a corollary thereto, the level of proof required to

overcome said presumption has been described as "well-nigh

irrefragable," and will not be sustained by inferences or

speculation. ntr m_ Drapery Service, 6 Cl. Ct. at

817; CACI, Inc. v. United States, 719 F.2d 1567 (Fed. Cir.

1983); American General Leasing v. United States, 587 F.2d

54, 59 (Ct. Cl. 1978); Knotts v. United States, 121 F. Supp.

630, 631 (Ct. Cl. 1954). As defendant in its brief points out,

"[pjiaintiff must present ‘irrefragable proof such as a

‘conspiracy to get rid of the plaintiff,’ or that the actions of

the defendant were ‘motivated alone by malice,’ or were

‘'designedly oppressive." Defendant's Supplemental

Response at 13, citing Knotts, 121 F. Supp. at 130; Gadsen v.

United States, 111 Ct. Cl. 487 (1948); Struck Construction

Co. v. United States, 96 Ct. Cl. 186 (1942).

In order to sustain this heavy burden enumerated

supra, plaintiff relies on its contention that defendant

concealed from the public and industry the existence of

underruns, some of large magnitude, in an average of 88.8%

of those contracts (unrelated to plaintiff) let by BLM as

evidence establishing "specific facts" of bad faith as to the

plaintiff. There is no showing whatsoever that in any of

those contracts plaintiff at bar was a party. Moreover, the

underrun issue was a perceived industry problem as to which,

the record shows, it had general knowledge for many years

pre-dating the contracts in issue. Plaintiff goes on to allege

that defendant's explanation for said underruns is "untrue";

and finally blandly concludes that BLM has done "nothing" to

correct this problem. We find such contentions to be totally

inadequate to raise even an inference of bad faith as against

plaintiff. The allegations proffered here are fatally defective

in that they simply generally relate to unnamed third parties.

A-31

More importantly, they fail to posture "specific facts” clearly

establishing genuine and material issues for trial, as

required.

As has been held by the U. S. Supreme Court, as well

as this court, bad faith, which is a form of fraud, "implies

intentional conduct... ." LaMear v. United States, 9 Cl. Ct.

562, 570, aff'd unpublished slip op. (Fed. Cir. November 17,

1986), citing Wood v. Carpenter, 101 U.S. 135, 143 (1879).

See also Hohri v. United States, 782 F.2d 227, 261 (D.C. Cir.

1986) (Markey, C.J., dissenting). "Concealment by mere

silence is not enough. There must be some trick or

contrivance intended to exclude suspicion and prevent

inquiry." Wood, 101 U.S. at 143. Nowhere does the

"evidence" proffered by the plaintiff suggest that the

defendant attempted to secrete the evidence of past

underruns regarding unrelated contractors. In point of fact,

the source from which the government information as to the

actual recovery and alleged underruns of timber on BLM

contracts, which is the precise information which plaintiff

now contends was concealed from industry, is a form filled

out by contractors such as Gregory Lumber. It has never

been suggested that these forms were not themselves public

documents, available upon request, should plaintiff or any

other contractor wish to compare them with BLM's contract

estimates. Not to mention the fact that BLM contract files

themselves are themselves public documents. If this was

such importai information, as plaintiff now contends, it is

puzzling why plaintiff did not seek it prior to committing its

resources to perform, not one but 12, high volume timber

sale contracts. We are confident that had plaintiff sought

such information, it would have been provided.

A-32

Not only is there not one scintilla of evidence of

concealment or bad faith proferred by plaintiff (and we have

thoroughly searched), to the contrary, the evidence is

abundantly clear that industry as a whole was painfully aware

of timber underruns in BLM's lump sum sales, and had been

so informed and continuously aware thereof since at least

1967, if not sooner. The most probative document

evidencing this circumstance is Exhibit 24 to plaintiff's

supplemental submission. That exhibit is an official report

prepared by BLM which discusses the timber underrun

problem in the industry as early as April, 1967. We believe

that the extent of the broad exposure within industry of the

underrun problem is adequately ventilated by quoting

several passages from this 1967 report. The first sentence in

the introduction to this report focuses directly on that which

plaintiff alleges was concealed from it in 1975 and 1976 at

the time the contract in issue were executed:

One _ of the problems that members of industry

. . . 4

i i . The

Director, at that time, promised industry that he

would look into the matter.

Plaintiffs Supplement, Appendix, Exhibit 24 at 1513

(Volume IV) (emphasis added). The first subject addressed

by this report is entitled: "Differences Between Cruise

Volume and the Operators Reported Scale," and contains a

general recognition of the precise "knowledge," in the form

of a statement of industry, that plaintiff alleges herein that

BLM concealed:

A-33

The . . . 16 purchasers claimed that although the

cruises varied from the scale in different degrees, the

scaled volume tended to underrun the cruise, i.e¢., they

did not cutout the cruised volume.

Ig. at 1515. Without quoting endlessly therefrom, we find

that the apparent substance of this report represents an

obvious cooperative effort by industry and BLM to identify

the sources which cause timber cutout underruns, and to

propose and test methods designed to alleviate them.

Plaintiff is an experienced timber operator, as is attested to

by the affidavits of its officers. We simply cannot believe

that such a widespread industry concern, addressed publicly

by BLM, could have escaped their attention. Even assuming

arguendo that it did, if affords no credibility to plaintiff's

naked allegations of bad faith and concealment. Such an

allegation, in the face of the evidence presented by plaintiff,

clearly borders on the frivolous.

2. Misrepresentation

Next, we address plaintiff's contention that the BLM

volume estimate of board feet contained within the sales

areas, because they were substantially less than timber

actually recovered, constituted a misrepresentation. One of

the central elements of the doctrine of misrepresentation is

that the injured party's reliance upon the statement must

have been innocent or reasonable. See Summit Timber Co.

v. United States, 677 F.2d 852 (Ct. Cl. 1982). In the context

of government contracting, such a standard is measured from

the perspective of what the reasonable contractcr would

have done when charged with knowledge common within the

industry. Virginia Engineering Co., Inc, v. United States, 101

A-34

Ct. Cl. 516, 532 (1944); Meyerstein, Inc, v. United States, 137

F. Supp. 427, 431 (Ct. Cl. 1956). In general, the test of

reasonableness focuses on whether through such knowledge,

or through some affirmative signal from the government, the

contractor was on notice not to reply on the utterance in

issue, or that all such statements should be investigated for

the reasons given. H, N. Bailey & Associates v. United

States, 449 F.2d 376, 386 (C. Cl. 1971); Rixon Electronics,

Inc. v. United States, 536 F.2d 1345, 1349-50 (Ct. Cl. 1976).

Failure to heed such warnings leaves any risk created by the

alleged misrepresentation with the contractor, and renders a

contractor unable to recover under a_ theory of

misrepresentation.

We think that the indisputable evidence in the record

more than amply demonstrates that, as a matter of law, the

plaintiff in no way behaved reasonably in relying, as it did, on

the estimates of recoverable timber contained in Appendix B

to each of the contracts in issue. Several indisputable facts

lead us to this conclusion. First, there is the long-standing

industry knowledge of what were apparently consistent

underruns in BLM timber contracts dating back to at least

1966. See Plaintiffs Appendix, Exhibit 24, as discussed

supra. That knowledge is clearly attributable to plaintiff who

did not enter into the first of these contracts until 1975.

Virginia Engineering, 101 Ct. Cl. at 516. While plaintiff, in

its averments, supra, makes much of the fact that defendant's

explanation for these underruns is "untrue," it is the notice

value of these underruns -- that they are indeed occurring --

which is critical, not why BLM allegedly took no action to

correct them.

A-35

Second, there is the express disclaimer of any

warranty against quantity contained in each contract. See

Section 6. Defendant, in language too clear to be hailed as

ambiguous, is in effect telling plaintiff that it takes no

responsibility for what is recoverable within the boundaries

of plaintiff's sales area. This warning is even more blatantly

expressed where plaintiff is admonished in Exhibit B itself

that it is liable for the entire purchase price regardless of the

quantity of timber recovered.

Lastly, there is the admonition for plaintiff to conduct

its own inspection. In no uncertain terms, plaintiff is warned,

in writing, to beware of the need to determine for itself what

it is bidding on. Indeed, ab initio, plaintiff was alerted to the

principle caveat emptor. We believe that to claim

reasonable reliance on the estimated quantity figures in

Exhibit B, in light of the foregoing considerations, could in

no way be characterized as reasonable. Again, the verity of

defendant's explanation or its diligence in correcting these

alleged underruns does not impact favorably upon plaintiff's

right to rely on the estimates in Exhibit B. In light of the

foregoing, therefore, plaintiff has proffered no basis for

recovery on the grounds of misrepresentation. Equally

important, the simple fact is that there is not one shred of

evidence proffered by plaintiff establishing "specific facts" to

support a contention that genuine and material issues have

been raised regarding the foregoing. Said theory of recovery,

therefore, is no more than meritless allegations.

a nsci ili

With respect to this issue, the question is whether on

these facts it would be unconscionable for this court to give

le ee ~~

A-36

credence to defendant's disclaimers against quantity and to

plaintiffs warranty against reliance on BLM's estimate. In

our opinion of January 31, 1986, supra, we noted that the

doctrine of unconscionability has had little substantive

development in either this court or our predecessor court. In

fact, the only informative reference we find is one in the case

of Hume v. United States, 21 Ct. Cl. 328 (1886), affd, 132

U.S. 406 (1889), wherein an unconscionable contract was

defined as one "which no man in his senses, not under

delusion, would make, on the one hand, and which no fair

and honest man would accept on the other. .. ." Hume, 21

Ct. Cl. at 330, quoting Bouvier's Law Dictionary. Updating

these notions with the Uniform Commercial Code's

definition of unconscionability, as does plaintiff, is

complicated in the context of government contracting, at

best. In particular, the more modern concept of

unconscionability, which stresses inequality of bargaining

power, particularly in consumer transactions, is quite

dissimilar to the realities of dealing with the federal

government as one's contracting partner. It should come as

no surprise to find, therefore, that there is no case in either

this court or our predecessor court, where a plaintiff has

prevailed by invoking the theory of unconscionability to void

a perceived unfavorable contract or contract provision. Nor

has plaintiff cited us to any.

Despite our reservations about the scope of the

doctrine of unconscionability in government contracting, it is

a doctrine for which binding precedent nevertheless appears

to discern some role in this court. See, e.g., Frass Surgical

Mfg. Co., Inc, v. United States, 571 F.2d 34 (Ct. Cl. 1978);

Louisiana-Pacific Corp, v. United States, 656 F.2d 650 (Ct.

Cl. 1981); Peters v. United States, 694 F.2d 687 (Fed. Cir.

A-37

1982). In the Frass case, the court gave limited credence to a

claim of unconscionability, but eventually denied it

explaining:

r i ion ny_enforcemen n

unconscionable clause in the modern Uniform

Commercial Code's Section 2-302 is not intended to

permit courts to redistribute risks allocated by

differences in bargaining power, but rather to prevent

oppression and unfair surprise.

(emphasis added). Frass, 571 F.2d at 40. Analogous to the

Frass Court's emphasis on surprise and oppression, is the

somewhat later explanation of the court in Louisiana-Pacific,

wherein it stated that:

The doctrine [unconscionability] has been applied in

Situations whére one party signed an unreasonable

contract with little knowledge of its terms, from which

MIN tose |

Louisiana-Pacific, 656 F.2d at 655 (emphasis added). In

Louisiana-Pacific, the inherent unconscionability, however,

seems to stem more from the standard concept of lack of

consent. In analyzing the contention of unconscionability

raised by the plaintiff in the case at bar, we therefore are

guided by the foregoing case law to look for all three of these

factors -- oppression, unfair surprise, and lack of consent --

but we are to apply them in such a way so as to not disturb

any knowing allocation of risk between the parties, no matter

how seemingly unfair it might appear on the surface.

A-38

Despite plaintiffs protestations that the

implementation of the contract disclaimers and the warranty

of inspection provisions, given the alleged substantial timber

shortfalls, will visit inequity and unfairness on it -- this court

is thoroughly convinced that the record belies any such fact.

First, there could have been no surprise whatsoever on the

part of a reasonable timber operator as to the substance of

the bargain struck in the contracts at issue, ie., their "lump

sum" nature, and the fact that the purchaser would be

unconditionally liable for the entire purchase price

regardless of the quantum of actual recovery. Several

clauses and appended provisions, cited supra, make

abundantly clear, ie., beyond cavil, the fact that the

government wished to put plaintiff/contractor on notice that

it, not the government, was assuming any and all risk as to

what was precisely being sold under_these contracts. The

disclaimer language contained in plaintiffs contracts has

been held by our predecessor Court of Claims, in both the

prior Gregory and Webco cases, to be fully actionable.

Equally significant, on the issue of the existence of "unfair

surprise,” is the fact that plaintiff's officers were admittedly

highly experienced timber operators and businessmen --

hardly the type to enter into multi-million dollar contracts

without appreciating and evaluating the basic fundamental

risks in the “lump sum" nature of each sale.

Second, the contract disclaimers and warranty of

inspection are by no means oppressive. What they required,

in order to avoid the type of problems encountered by the

plaintiff here, was very little, given the magnitude of each

contract undertaken. These provisions not only informed but

urged the plaintiff to go out and make its own estimate of the

timber on which it was bidding; but they also urged plaintiff

A-39 _

to ensure itself that the minimum price, and its own bid,

would indeed be recoverable. All plaintiff seems to argue is

that it chose not to perform a pre-bid cruise because it would

be a wasteful and costly duplication of the cruise already

performed by BLM. That this decision not to make its own

pre-bid cruise later turned out to be injurious to plaintiff

certainly is not the fault of the defendant. In that

connection, it was a knowing and conscious decision by

plaintiff, after warning by defendant, and to that extent it

assumed the risk. More importantly, plaintiff presents no

evidence to show that at any time prior to contracting it

voiced any concern as to its inability to adequately protect

itself through a pre-bid cruise.

While the outcome of plaintiff's decision to proceed

as it did has indeed been costly, assuming of course that the

amount of the alleged shortfall in each contract is accurate,

there is nothing unfair or unconscionable about what took

place under the terms of any of these contracts. Here

knowledgeable parties, in a competitive and commercial

setting, simply agreed to allocate certain risks in an all and

as-is fashion. Plaintiff, not through ignorance or lack of

consent, but through conscious competitive decision-making,

failed to take into account all information readily available

to it, and urged on it to consider, in factoring the risks into its

bids. To undue such a bargain, against this background,

without a further clear showing of oppression or surprise

would be to do precisely what the court in Frass warned

against, ie., applying the doctrine of unconscionability to

redistribute risks previously allocated knowingly, freely, and

by the conscious mutual decision of the parties.

Ny ere ee a

PAP eg ey oa Wr a Se Pe

A-40

Much is made of the degree of bargaining power of

the plaintiff relative to the BLM, the plaintiff's dependence

on government timber for its livelihood, and the plaintiff's

lack of meaningful choice regarding the inclusion of the

disclaimer provisions in its timber sales contracts, as facts in

issue portraying unconscionability. Our response to the

foregoing is simply that their materiality is muted by their

obvious lack of connection to the primary cause of plaintiff's

plight. That is, these factors do not overcome plaintiff's

warranty of inspection and plaintiff's certification that its

contract bid was based on its own opinion as to the quantity,

quality, and value of the timber recoverable. Such provisions

were neither hidden nor are they oppressive. We conclude,

therefore, that there is not one scintilla of credible evidence

in the record to even raise a question as to the

unconscionability of any challenged provision of these

contracts beyond the level of mere allegation. Thus, we see

no “specific facts" in the records raising genuine issues for

trial as required by RUSCC S6(e).

4, Docket 428-80C: Negligent Marking of Trees

As we determined supra, the contract underlying the

claim in docket 428-80C (Dunn Ridge sale) is not a "lump

sum" contract as are the other 11 contracts. Rather, said

contract represents a salvage sale of specifically identified

trees (i.¢., marked with blue paint) -- and not a sale of trees

identified solely by geographical location as in the other 11

contracts. Because of the distinction, a somewhat different

analysis is required.

The thrust of plaintiff's argument in the Dunn Ridge

sale centers on the alleged fact that it was specifically

A-41-

promised 72 more trees in its contract than were actually

marked for cutting in the tract. Plaintiff claims it is entitled

to recover the value of these 72 trees in spite of defendant's

disclaimer of warranty as to quantity and plaintiff's warranty

of inspection, because defendant has admitted in answers to

interrogatories that it "inadequately marked or inadvertently

failed to mark" said 72 trees. Outside of its reliance on the

defendant's alleged admission of liability, plaintiff fails to

address in more substance the impact of the defendant's

assertion of the disclaimer of warranty of quantity and its

(plaintiff's) warranty of inspection on its negligence theory.

We first address defendant's alleged admission of

liability. Although plaintiff asserts that defendant admits

liability for the shortfall in docket 428-80C in answers to

interrogatories, the real basis for that alleged admission is

contained in a letter dated August 14, 1979, from the BLM

to plaintiff via its counsel. While arguably containing a tacit

admission of liability, we believe that that letter is

nonetheless not available to plaintiff as a basis on which to

premise a contention that defendant has unequivocally

admitted liability. This is so because the nature of that

August 14, 1979 letter, in our judgment, is such that it falls

clearly within the evidentiary prohibition of Federal Rule of

Evidence (FRE) 408 dealing with "Compromise and Offers

to Compromise."!> The August 14, 1979 letter is a response

12/ The operative language in said letter is that -- "the [BLM] .. . is

prepared to refund $45,055.04 to Gregory Lumber Company, Inc., in full

settlement of any claims which the company feel [sic] it has in connection

with the Dunn Ridge timber sale contract. . . ." (emphasis added).

13/ FRE 408 provides, in pertinent part, as follows: “Evidence cf (1)

furnishing or offering or promising to furnish, or (2) accepting or off:ring

or promising to accept, a valuable consideration in compromisirg or

—

A-42

to a claim submitted on behalf of the plaintiff to the BLM

for a contract modification and refund based on the alleged

shortfall in docket 428-80C. The BLM's response outlines

that it is willing to offer plaintiff a “settiement” amount in

exchange for a release by plaintiff of all claims arising out of

the contract in docket 428-80C. Any document prepared in

such a context, and containing such language, would be

clearly inadmissible at trial, and thus cannot serve as the sole

and definitive factual predicate for plaintiffs assertion that

defendant has admitted liability. As a result, we do not find

in the record any support for the contention that defendant

has in any way legally admitted liability for any alleged

negligent marking of trees in docket 428-80C. More

significantly, plaintiff does not point us to any such evidence.

This is not to say that in plaintiffs plethora of

submitted supplementa! material there is not some evidence

to raise an issue of fact as to whether defendant acted

negligently in failing to mark certain trees appropriated to

the contract in docket 428-80C. We believe the various

analyses performed by plaintiff's outside expert, contained in

Appendix Exhibit 21 (affidavit of James Prochnau, and

submitted reports numbered 1 and 5) clearly raise as an issue

of fact the proper explanation as to why there was a shortfall

of specifically-identified trees in docket 428-80C. While

there may remain questions of fact on the issue of negligence

in this regard, however, whereas here there is no evidence of

bad faith or misrepresentation, they are immaterial, as a

matter of law, and are regrettably insufficient to overcome

attempting to compromise a claim which was disputed as to either validity

or amount, is not admissible to prove liability for or invalidity of the claim

or its amount. Evidence of conduct or statements made in compromise

negotiations is likewise not admissible."

A-43

the plaintiffs burden pursuant to RUSCC 56(e) and the

preclusive effect of plaintiffs unequivocal contractual

warranty of inspection.

In granting the defendant summary judgment in

docket 428-80C as well, we rely primarily on the plaintiff's

contractual warranty of inspection, rather than on the

defendant's express disclaimer of warranty. Plaintiff seeks

compensation here under docket 428-80C because certain

specifically identified standing trees were not marked and

felled. It is not a claim which rests expressly on the failure to

obtain an estimated volume of recoverable board feet of cut

timber. Therefore, we believe that inasmuch as there is

created herein some reasonable ambiguity as to whether the

disclaimer of warranty of quantity applies to such a

characteristically non-lump sum transaction, we decline to

rest our decision on the basis of said disclaimer provision.

Where there is no ambiguity, and plaintiff has

asserted none, is in the impact of plaintiffs warranty of

inspection. Plaintiff warranted that it signed and accepted

the contract in docket 428-80C on the basis of its own

inspection and estimate of the timber on the tract. Against

that background, plaintiff either failed to inspect and

examine the trees as specifically warranted, or it did so

negligently. In other words, plaintiff was the person in a

position to prevent such a situation from occurring by

undertaking a reasonably accurate inspection. Apparently it

failed to do so for reasons it deemed to be appropriate. We

fail to see how plaintiff could have properly conducted said

inspection and still have failed to notice the allegedly missing

72 trees. If the trees were identifiable as missing after

cutout, they were certainly similarly identifiable as missing

A-44

before the cutout as well inasmuch as they would not have

been marked. This is what plaintiff itself warranted, i.e., it

inspected the area and observed the precise number of trees

marked for cutting as stipulated in the contract, and by so

doing, assumed the risk for any discrepancy which, in this

case, obviously should have caused it to complain before the

contract was signed, instead of after. This intervening fact of

plaintiffs warranty of inspection breaks the causal link

between any perceived negligence on behalf of the

government in failing to mark said trees, and the resulting

loss to plaintiff who entered into said contract warranting it

had undertaken actions which would have discovered said

preceding negligence on behalf of the government. The

question as to the degree and nature of the defendant's

negligence, therefore, is immaterial and cannot be asserted

as a basis to overcome plaintiffs RUSCC 56(e) burden and

deny defendant judgment as a matter of law.

V. CONCLUSION

As noted supra, this opinion addresses only the

timber underrun claims contained in plaintiffs amended

petitions. ~Our award of summary judgment and partial

summary judgment to the defendant pursuant to its 1983

unified motions for summary judgment is as follows:

(1) Complete Summary Judgment is awarded to the

defendant per dockets 428-80C, 578-80C, 626-80C, 627-80C,

628-80C, 637-80C, 135-81C, 136-81C and 137-81C. The

Clerk shall enter judgment for the defendant therein and

said petitions and amended petitions shall be dismissed.

Costs to the prevailing party.

A-45

(2) Partial Summary Judgment is awarded to the

defendant per dockets 532-80C, and 146-81C. Said partial

summary judgment relates to all claims in said petitions and

amended petitions which state claims based on the alleged

timber underruns (ic, ## warranty, bad faith,

misrepresentation, and unconscionability).

(3) On the basis of the foregoing, remaining before

the court in this litigation are warranty of rock source claims

in dockets 532-80C and 146-81C, and a remanded road usage

costs claim and defendant's counterclaim in docket 134-81C.

Lastly, the parties shall appear before the court for a

hearing at 10:00 a.m., on January 20, 1987, to determine the

status and mode of resolving those claims remaining as

delineated supra.

IT IS SO ORDERED.

14/ While it is true that the petitions in dockets 532-80C and 146-81C

~ alleged subsidiary claims based on a recovery of costs for an alleged road

design change, said claims were dismissed, without prejudice, for lack of

jurisdiction in our decision of January 31, 1986. Nothing we do here today

changes that result, or prejudices plaintiff relative to the future initiation of

any claim relative to those road design changes properly within our

jurisdiction in the future.

” ay, in ate by Hs > oe

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.