Amicus Curiae Brief — Commonwealth Edison Co. v. United States

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FILED

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No. 01-1411 'APR24 oop

IN THE i

Supreme Court of the United States

COMMONWEALTH EDISON COMPANY,

Petitioner,

v.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF OF AMICUS CURIAE FEDERAL CIRCUIT

BAR ASSOCIATION IN SUPPORT OF PETITIONER

GEORGE E. HUTCHINSON ANDREW G. MCBRIDE

EXECUTIVE DIRECTOR (Counsel of Record)

FEDERAL CIRCUIT Scott M. MCCALEB

BAR ASSOCIATION ALLYSON P. NEWTON

1300 I Street, NW WILEY REIN & FIELDING LLP

Suite 700 1776 K Street, NW

Washington, DC 20005 Washington, DC 20006

202.408.4000 202.719.7000

Counsel for Amicus Curiae

Federal Circuit Bar

Association

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SORA STEEP NE SEES Se

i

TABLE OF CONTENTS

Page

TABLE Gr COIN Bi wicesisisciccsssercccsesscrsesnnccnssissseccrersecdinsss 1

TABLE OF ALF TIIORITTES ccsccccccccsscctcessscsccsisnssesseccsssnnsns ill

INTEREST OF AMICUS CURIASB 000.....0c0:ccccccscccsesssscsssesees l

SUMMARY OF THE ARGUMENT.................ccccssecessseeeees 2

PTE sihestnssnsinihttnsninaeiesinpeannhicindasinincanspaniannasanaisaasananins 3

I. COMMONWEALTH EDISON ENDORSES

RETROACTIVE SELF-DEALING BY THE

GOVERNMENT IN CONTRAVENTION

OF THIS COURT’S FIFTH AMENDMENT

AND GOVERNMENT CONTRACTS

PU Ie piste tannnnssnsiesccnedaaenscninndsiatarscendansnin 3

A. Commonwealth Edison Compounds ~

The Uncertainty Left By Eastern

Enterprises Over When Severely

Retroactive Exactions Violate The

ee PAIN co iiccncictarnsstncienscsnerencrenacerts 5

B. Commonwealth Edison Erodes The

Finality And Protection That Fixed-

Price Contracts Afford Buyers..................0 9

c. Commonwealth Edison Magnifies

Uncertainty About The

Unmistakability And Sovereign Acts

I sis sscrcisscntcacscoteatscmmcdtectnacsandteninsisanie 12

il

TABLE OF CONTENTS

(continued)

Page

II. COMMONWEALTH EDISON WILL

PROFOUNDLY AND ADVERSELY

AFFECT TRANSACTIONS BETWEEN

THE GOVERNMENT AND ITS

COON RAM TUB icucconisdertenmcii aimee 15

A. Commonwealth Edison Will

Adversely Impact The Negotiation

And Execution Of Government

| RRC ty er ERIN ce PINES OPS OES 15

B. Commonwealth Edison Will

Adversely Affect The Government’s

SOIR ose iisckcniexsscacnorne a atraasmied 17

oF Commonwealth Edison Disrupts

Investment-Backed Expectations

Based Uppers Sette BWW oss sicssciaceséansssceneesens 18

COIN LUBRIRIIN oscscccscaiasncssilonianneitastaiccen peieeea ean aa au 20

lll

TABLE OF AUTHORITIES

Page

CASES

Armstrong v. United States, 364 U.S. 40 (1960).............. 4

Association of Bituminous Contractors v. Apfel,

136 F.3d 1246 (D.C. Cir. 1998) oooicccccccccccccccececcccceeee. 8

Barseback Kraft AB y. United States,

121 F.3d 1475 (Fed. Cir. 1997) ..ococcccccccccccceces. eae

Boyle v. United Technologies Corporation,

487 U.S. 500 (1988).......... ‘atietdnnddanibsinsseduaibubieadstinaica 18

Brooks-Scanion Corporation v. United States.

BP i. NOG (EGG) osscsscsacecsesecsncesececaresesseseesesssese...... 9

Commonwealth Edison Company y. United States.

46 Fed. CL. 29 (2000) ........ceccscscecccecececesesecesecsesosesesese. 19

Commonwealth Edison Company v. United States,

271 F.3d 1327 (Fed. Cir. 2001) ....ceccccccccccccscsoeeees passim

Dalton v. Cessna Aircraft Company,

98 F.3d 1298 (Fed. Cir. 1996)... ccccccccccccsecesececeees. 9,11

Eastern Enterprises v. Apfel,

DA Us FOB (1996) o.nsecececesncecescscvececeneasseesece... passim

Horowitz v. United States, 267 U.S. 458 to.) 13

Kaiser Aetna v. United States.

WE Fats BOO (IDI) oo ncscnccocecanccscesecccsvescsseseseessees..... 4,7

iV

Page

Lynch vy. United States, 292 U.S. 571 (1934)... 9

Maine Yankee Atomic Power Company v.

United States, 271 F.3d 1357 (Fed. Cir. 2001) ........... 11

National Railroad Passenger Corporation v.

Atchison, Topeka & Santa Fe Railway Company,

I a Te Ce es kos nncinsicceniennissaniniiininicendvinebbaniadias 6

Perry v. United States, 294 U.S. 330 (1935)............... 4,6

Ruckelshaus v. Monsanto Company,

er Ss Se is tatihidelestsltctncieicesdasnutidiniecnanasaiaboania 9

Salsbury Industrial v. United States,

oe bel) fk a, Re mneN nan 16

Sinking-Fund Cases, 99 U.S. 700 (1879).........ccccceeeseees 9

United States Fidelity & Guaranty Company v.

McKeithan, 226 F.3d 412 (Sth Cir. 2000)........0...0.000... 8

United States v. National Exchange Bank

of Baltimore, 270 U.S. 527 (1926)...........:cccccccceeesseees 12

United States v. Security Industrial Bank,

aes, Se ics daishisacactecapsibcbabiclidibsanccindepthinctianaenioite 4

United States v. Spearin, 248 U.S. 132 (1918) ................ 9

United States v. Sperry Corporation,

es Fe I vith iciicicecinssddsbpiadasnaadiesiaiesdadedaphaiiihonaen 8-9

United States v. Winstar Corporation,

Re ee Be iiecsetaibustincsaistiscisiceapbiceeoanh passim

we art Me a

Page

Washington Legal Foundation v. Legal Foundation

of Washington, 271 F.3d 835 (9th Cir. 2001) ........0... 9

Yankee Atomic Electric Company v. United States,

112 F.3d 1569 (Fed. Cir. 1997), cert. denied,

Dae NS SPR EAP sethsieccnadccuanecnabnaceascuacunees passim

DOCKETED CASES

Maine Yankee Atomic Power Company v.

CFG NE, TOD: GE EAD isconctanesssiatacemeanintdieanadicess ]

Omaha Public Power District v. United States,

BORK SIRE SUE. cssipidcstnonatsedaatmucannapeabuasianendineamen ]

Sacramento Mutual Utility District v.

United States, No. 01-1020 ............ccc.cccccccccccseccssesseseceee

STATUTE

Energy Policy Act of 1992, Pub. L. No. 102-486,

POD OR. 27 Fe CE ccs ae passim

OTHER AUTHORITIES

Daniel E. Troy, Retroactive Legislation 20 (1998)........ 17

John Cibinic, Jr., & Ralph C. Nash, Jr.,

Formation of Government Contracts 1079 -

CUR OG, TEE wicassstcasninashacdesmsatinecnanateneeaionaaate 11

Vi

Page

Richard A. Posner & Andrew M. Rosenfield,

Impossibility and Related Doctrines in

Contract Law: An Economic Analysis,

© 5. BAI TOE, TP CBT 1 Pwesscnsstetertmtnttentntunddendsnsacs 15-16

MISCELLANEOUS

Petition for a Writ of Certiorari.

Commonwealth Edison Company vy.

CIE TINE; POD. GEWGES scincincesncsisisissnusinanbiniisdsiadiaie 10

INTEREST OF AMICUS CURIAE a

The Federal Circuit Bar Association (“FCBA”) is a

national organization comprising approximately 2,400

attorneys whose practices concern the United States Court of

Appeals for the Federal Circuit in all aspects of its

jurisdiction. The FCBA offers a forum for the discussion of

legal issues of common interest and dialogue between the bar

and the judges of the Federal Circuit. One purpose of the

FCBA is to offer assistance and advice to the federal courts,

including filing briefs amicus curiae, on matters affecting

practice before the Federal Circuit and lower tribunals.’

Pursuant to Supreme Court Rule 37.2(a), the FCBA

has conferred with the parties regarding the filing of this

brief amicus curiae, and both have consented to its filing.

The parties’ letters of consent are on file with the clerk.

The FCBA respectfully submits this brief in support

of the petition for certiorari filed by Petitioner

Commonwealth Edison Company.” The FCBA seeks to

offer a practitioner’s perspective on the impact of the Federal

Circuit’s decision in Commonwealth Edison Co. v. United

States, 271 F.3d 1327 (Fed. Cir. 2001) (“Commonwealth

Edison”) on the government’s contracting partners.

Pursuant to Supreme Court Rule 37.6, the FCBA states that no

counsel for a party authored this brief in whole or in part. No person or

entity, other than the amicus curiae, its members, or its counsel, made

any monetary contribution to the preparation or submission of the brief

; The FCBA likewise supports the petitions for certiorari in the

following related cases decided on the bases articulated in

Commonwealth Edison Co. v. United States. 27} F.3d 1327 (Fed. Cir.

2001): Omaha Pub. Power Dist. v. United States, No. 01-1398; Maine

Yankee Atomic Power Co. vy. United States, No. 01-1155: and

Sacramento Mun. Util. Dist. v- United States. No. 01-1020.

2

SUMMARY OF THE ARGUMENT

The decision below has sown and will sow

substantial confusion in an area of law where certainty is at a

premium—the myriad procurement and service contracts the

United States must enter with private enterprise.

Commonwealth Edison is at odds with this Court’s

jurisprudence regarding the constitutionality of retroactive

legislation and with the Court’s repeated pronouncements

that the government cannot use its power as sovereign to

rewrite its contractual relationships with private parties.

The test adopted by the en banc Federal Circuit

effectively gives the Government carte blanche to

retroactively alter its own contractual rights and obligations

in commercial transactions closed long ago. The lower

court’s focus on the “benefit” to the party complaining of the

retroactivity is misplaced in the area of government

contracts. Every government contractor will have received

some benefit as part of the mutuality of consideration

necessary to form a contract in the first place. Moreover,

rather than focusing on the reasonable expectations of the

parties under the contract, the Federal Circuit cited general

regulatory trends and the heavily regulated nature of the

industry to effectively trump express contractual terms. This

analysis is contrary to the approach of five Members of the

Court in Eastern Enterprises v. Apfel, 524 U.S. 498 (1998),

where the lack of any contractual provisions for lifetime

health benefits at the time of the transactions was central to

the conclusion that Eastern Enterprises could not be forced to

bear retroactive liability for such costs. Where parties enter

into fixed-price contracts with the United States for services

or for the delivery of goods, they are entitled to rely upon

settled contract law which clearly provides that no. further

monetary liability can be assigned to the transaction.

These critical errors led the Court below to endorse

retroactive legislation—certain provisions of the Energy

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3

Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776

(“EPACT”)—that is substantially more severe, especially in

monetary effect, than that rejected by the Court in Eastern

Enterprises. Because of these errors and the substantial

importance of the issues, this Court’s intervention is

essential. The Court need not and should not await a circuit

conflict where the exclusive jurisdiction of the Court of

Federal Claims under the Tucker Act makes such a conflict

unlikely. Moreover, much like the situation in United States

v. Winstar Corp., 518 U.S. 839 (1996), the Court’s guidance

is needed in order to resolve the dozens of related cases

pending in the Court of Federal Claims.

Finally, this case presents the Court with an excellent

vehicle to resolve several issues that have troubled the lower

courts after Eastern Enterprises and Winstar. The court

below issued a categorical ruling that the Takings Clause

does not apply to the exaction of money payments to the

United States. In addition, the lower court’s ruling that no

vested contract right is involved in this case rests ori a clear

misapplication of the sovereign acts doctrine as applied in

Winstar and numerous previous government contract cases.

For these reasons, the FCBA respectfully urges the Court to

grant review of the decision below.

ARGUMENT

I. COMMONWEALTH EDISON ENDORSES

RETROACTIVE SELF-DEALING BY THE

GOVERNMENT IN CONTRAVENTION OF

THIS COURT’S FIFTH AMENDMENT AND

GOVERNMENT CONTRACTS PRECEDENTS.

It is a fundamental principle of this Court’s Fifth

Amendment jurisprudence that the retroactive reassignment

of rights and duties is highly disfavored. This principle finds

expression in the emphasis the Court has placed on

4

reasonable, investment-backed expectations in its Takings

Clause jurisprudence, see Kaiser Aetna v. United States, 444

U.S. 164 (1979), and in due process cases that reject

retroactive laws that “change the legal consequences of

transactions long closed.” See Eastern Enterprises, 524 U.S.

at 548 (Kennedy, J., concurring in the judgment and

dissenting in part). Where the government rewrites the

obligations of a fixed class of persons based upon past

commercial activities or completed transactions, the danger

that the government is “forcing some people alone to bear

public burdens which, in all fairness and justice, should be

borne by the public as a whole,” Armstrong v. United States,

364 U.S. 40, 49 (1960), is at its zenith. Moreover, because

the affected class had neither notice nor an opportunity to

alter its conduct to avoid liability, the Due Process Clause’s

protection against arbitrary and fundamentally unfair

government action is directly implicated.

These Fifth Amendment principles apply (and have

been repeatedly vindicated by this Court) where the party

affected by retroactive legislation is not in privity with the

United States. See Eastern Enterprises v. Apfel, 524 US.

498 (1998); United States v. Sec. Indus. Bank, 459 U.S. 70

(1982); Kaiser Aetna v. United States, 444 U.S. 164 (1979).

The dangers of retroactive legislation are vastly magnified

where the Government alters the obligations of its own

contracting partners after the fact. This Court has unfailingly

distinguished between legislation that is “relatively free of

government self-interest” and legislation that impermissibly

“seeks to shift the cost of meeting [the Government’s]

legitimate public responsibilities to private parties.” See

Winstar, 518 U.S. at 896; Perry v. United States, 294 U.S.

330, 350-51 (1935). “The greater the Government’s self-

interest . . . the more suspect becomes the claim that its

private contracting partners ought to bear the financial

burden of the Government’s own improvidence ... .”

Winstar, 518 U.S. at 898.

BED hea is Bt SSG aan

5 :

The decision below creates significant tension with

both settled Fifth Amendment principles against retroactive

legislation and the doctrine that the government should not

be able to employ its power as sovereign to advance its

nairow commercial interests at the expense of its contracting

partners. The Commonwealth Edison court decided that the

Nation’s utilities, which acquired or used enriched uranium

from their contracting partner, the United States, through

fixed-price contracts dating as far back as the 1950s, can

collectively be required to pay up to $2.25 billion for the

decontamination and decommissioning of the government

facilities that enriched the uranium. The Federal Circuit’s

decision has particularly grave consequences for those who

contract with the Government, as they can no longer rely on

the well-settled legal standards that have traditionally

governed those contractual relationships.

A. Commonwealth Edison Compounds The

Uncertainty Left By Eastern Enterprises

Over When Severely Retroactive Exactions

Violate The Fifth Amendment.

Commonwealth Edison represents a marked and

significant departure from the traditional standards for

assessing the constitutionality of retroactive legislation as

applied to the Government’s contracting partners. The

FCBA respectfully submits that this departure will invite the

Government to abuse its power as sovereign to rewrite its

contractual obligations with private parties, long after both

sides have fully performed them. In fact, the court expressly

declined to give any weight to the contractual relationship

between the Government and Commonwealth Edison in

assessing the merits of the utility’s Fifth Amendment claims.

See Commonwealth Edison, 271 F.3d at 1348.

This approach departs from settled law governing the

rights and obligations that arise from government contracts.

6

“(T]he power of the Congress to control or interdict the

contracts of private parties” differs significantly from “the

power of the Congress to alter or repudiate the substance of

its own engagements.” See Perry, 294 U.S. at 350-51.

Where, as here, retroactive liability is imposed on the basis

of privity with the Government, that contractual relationship

should be crucial to the due process analysis. Indeed, due

process challenges arsing out of the Government’s

“impairment of its own [contractual] obligations” may even

watrant a more stringent standard of review. See National

R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry.

Co., 470 U.S. 451, 471 & n.24 (1985). The Federal Circuit’s

decision to discount this cntical factor entirely cannot be

squared with the Fifth Amendment precedents of this Court.

In fact, Commonwealth Edison makes it easier for the

Government to rewrite its own contractual obligations than

to adjust contractual rights among private parties. Under the

Federal Circuit’s new test, even “severely retroactive and

costly” legislation targeting the Government’s own

contractual relationships must be upheld if the contractors:

(1) “benefited” from the Government’s performance, and

liability is not “disproportionately imposed”; and (2) had

“reasonable expectations” that their purchase of government

services would expose them to future liability for costs

incurred by the Government in performing the contracted

services. See Commonwealth Edison, 271 F.3d at 1346.

The first prong will be satisfied in virtually every

government contract case, no matter how arbitrary or unfair

the legislation: The mutuality of benefit that serves as

consideration to support every contract is sufficient, in the

Federal Circuit’s view, to justify the imposition of enormous

retroactive liability. See id. This cannot be the law. The

existence of a contractual relationship with the United States

(and the failure to assign this particular cost to the

contractor) should be a critical (if not decisive) factor against

allowing the Government to impose retroactive liability. The

5

Federal Circuit’s position means that government contracts

receive /ess protection against the retroactive alteration of

obligations than do contracts between private parties.”

Likewise, Commonwealth Edison's application of its

“reasonable expectations” test ignores that where, as here, a

private party has entered a contract with the Government,

vague considerations such as whether the party operates in a

“highly regulated industry” or could have “reasonably

anticipated” retroactive legislation, see Commonwealth

Edison, 271 F.3d at 1348, should be beside the point.

Rather, the contractor’s “reasonable expectations” should be

deemed to arise, as a matter of law, from the contract itself

Given that a contract need not contain any “second promise”

by the Government not to demand more for its services after

performance, see Winstar, 518 U.S. at 887, it makes little

sense to say that a contractor may nonetheless be deemed to

have “expected” retroactive liability imposed on the basis of

that contract. In other words, “[wJhile it is true enough...

that one who deals with the Government may need to “turn

Square corners,”’ . . . he need not turn them twice.” /d. at

922 (Scalia, J., concurring in the judgment).

: The inquiry into whether the retroactive liability is

“disproportionate” to the benefit is similarly misplaced in this context.

The contract itself assigned burdens and benefits regarding the

transaction at issue—any subsequent reassignment of risks and benefits

that were known to exist at the time of the contract is “disproportionate.”

In Kaiser Aetna, a government permit to develop a pond,

although not a contractual undertaking, was a government promise

sufficient to create reasonable, investment-backed expectations that the

government was bound to respect. See 444 U.S. at 179. A fortiori an

express contract between the government and a private party concerning

the very transaction at issue should be the central factor in judging the

expectations of the parties to the contract.

’ In Eastern Enterprises, five Members of the Court concluded

that retroactive liability violated the Fifth Amendment in large part

because Eastern Enterprises itself had exited the coal mining business

before any contractual promises of lifetime benefits had been made to the

miners. See 524 U.S. at 535 (plurality opinion); id. at 550 (Kennedy, J.,

These errors are symptomatic of the confusion that

has reigned in the lower courts since Eastern Enterprises

issued. Courts have had great difficulty in applying both the

Takings Clause and the Due Process Clause to retroactive

legislation in light of Eastern Enterprises and have not been

able to distill any core principles from Justice O’Connor’s

plurality opinion combined with Justice Kennedy’s

concurring opinion. Compare United States Fid. & Guar.

Co. v. McKeithan, 226 F.3d 412, 420 (Sth Cir. 2000)

(“Justice Kennedy’s due process analysis focuses on

retroactivity and is essentially harmonious with the reasoning

of the other four justices.”), with Ass'n of Bituminous

Contractors v. Apfel, 156 F.3d 1246, 1254-55 (D.C. Cir.

1998) (“[T]he only binding aspect of Eastern Enterprises is

its specific result.”). Because the retroactive liability in

Commonwealth Edison is even more severe than that at issue

in Eastern Enterprises and because past privity with the

Government raises the issue of the taking of a vested

contract nght, this case provides an excellent vehicle for a

majority of the Court to provide guidance on the proper

factors to be considered in assessing retroactive legislation

under both the Due Process and-Takings Clauses.°

(Continued . . .)

concurring in the judgment and dissenting 1n part). The retroactivity

there violated reasonable expectations because of the lack of notice of

potential obligations. See id. at 530-31 (plurality opinion); id. at 550

(Kennedy, J., concurring in the judgment and dissenting in part). Here,

the combination of fixed-price contracts and the 1984 Settlement

Agreement created a contractual right not to be exposed to further costs

for enriched uranium paid for and delivered decades before. The court

below essentially ignored these contractual expectations in contravention

of the views of a majority of the Court in Eastern Enterprises.

: The decision below also categorically held that the Takings

Clause never applies to legislation requiring the payment of money,

unless a specific fund of money is involved. See Commonwealth Edison,

271 F.3d at 1340. This conclusion rests, at least in part, on a stray

foomote in United States v. Sperry Corp., 493 U.S. 52, 62 n.9 (1989), to

9

B. Commonwealth Edison Erodes The Finality

And Protection That Fixed-Price Contracts

Afford Buyers.

The Government and its contracting partners have

long understood that “[w]here one agrees to do, for a fixed

sum, a thing possible to be performed, he will not be excused

or become entitled to additional compensation, because

unforeseen difficulties are encountered.” United States vy.

Spearin, 248 U.S. 132, 136 (1918). Ina fixed-price contract,

the seller bears the risk that the actual cost of performance

will be greater than anticipated. Dalton v. Cessna Aircraft

Co., 98 F.3d 1298, 1305 (Fed. Cir. 1996). Once the contract

has been fully performed, the rights, obligations, and risks

set forth in the contract become vested property rights

because contracts are property. See Ruckelshaus vy.

Monsanto Co., 467 U.S. 986, 1003 (1984). Accordingly, the

Government cannot deprive its business partners “of the

fruits actually reduced to possession of contracts lawfully

made.” Sinking-Fund Cases, 99 U.S. 700, 720 (1879).

(Continued .. .)

the effect that money is “fungible.” But as Judge Kozinski has noted

regarding Sperry, “[njowhere . . . does the Supreme Court suggest that

the government’s obligation to pay compensation is eliminated because it

takes money rather than real or personal property.” Washington Legal

Found. v. Legal Found. of Wash., 271 F.3d 835, 867 (9th Cir. 2001)

(Kozinski, J., dissenting). Moreover, in the FCBA’s view, the taking in

this case is properly conceptualized as the taking of a vested contract

right to pay a fixed price for certain goods. Of course, contract rights

themselves are property under the Fifth Amendment. See Lynch v.

United States, 292 U.S. 571, 579 (1934); see also Brooks-Scanlon Corp.

v. United States, 265 U.S. 106, 121 (1924). Even putting the contract

aside, the fact that EPACT liability follows possession and use of

discrete property (e.g., government-enriched uranium) distinguishes this

case from cases like Eastern Enterprises. Thus, this case offers the Court

a vehicle to address which government actions should be evaluated under

the Takings Clause and which are subject to due process analysis.

10

Commonwealth Edison erodes these vital principles

in the law of government contracts. “The bargain struck

between the government and [utilities] was simple.” Yankee

Atomic Elec. Co. v. United States, 112 F.3d 1569, 1582 (Fed.

Cir. 1997) (Mayer, C J., dissenting), cert. denied, 524 U.S.

951 (1998). The Government provided enriched uranium to

the utilities and they paid a fixed price in return. The fixed

price was required to capture all performance costs. See

Barseback Kraft AB v. United States, 121 F.3d 1475, 1478

(Fed. Cir. 1997) (“[T]he Atomic Energy Act of 1954...

provided that ‘any prices established under this subsection

shall be on a basis of recovery of the Government’s costs

over a reasonable period of time.’”). When the contracts at

issue were formed, the need to decontaminate and

decommission the Government’s enrichment facilities was

well understood. Commonwealth Edison, 271 F.3d at 1332,

1349; see also Petition for a Wnt of Certioran,

Commonwealth Edison Co. v. United States, No. 01-1411 at

3-4 n.3 (citing government study that clean-up obligation

was known at contract execution and contamination was no

greater in 1992 than in the 1960s). Indeed, clean-up costs

were an element of the fixed price. Barseback Kraft AB, 121

F.3d at 1483.

The utilities were entirely rational in expecting that

the Government’s price included clean-up costs, or at the

very least, that the risk that the fixed prices would cover

those costs resided with the Government as the fixed-price

seller. This view was confirmed in 1984, when the utilities

terminated their existing contracts to replace them with a

new “Utility Services Contract.” Commonwealth Edison,

271 F.3d at 1331. The parties terminated the prior,

outstanding contracts through a “Supplemental Agreement of

Settlement,” id., which provided the utilities with a waiver of

liability and further obligation: ““‘the Government agrees that

all obligations arising under the [previous] contracts or by

——aa~*x~ mae

1]

reason of their termination shall be deemed to be

concluded,’” id. at 1332 n.3.

Under longstanding contract interpretation and Fifth

Amendment principles, Commonwealth Edison had every

reason to believe that as a commercial customer of the

Government, it bore no obligation beyond the fixed price it

had negotiated and paid. It had no reason to believe that it

would be the victim of a massive exaction to fund the

Government’s clean-up of the enrichment plants it had

neglected for years after military uses had polluted them.

Maine Yankee Atomic Power Co. v. United States, 271 F.3d

1357, 1364 (Fed. Cir. 2001) (Friedman, J., concurring). But

that is exactly what EPACT did.

Whether viewed through the lens of ordinary contract

law or the Fifth Amendment, the risk that the clean-up costs

would be greater than anticipated resided squarely with the

Government. While this risk assumption embraces increased

costs “in the event of unforeseen circumstances,” Dalton, 98

F.3d at 1305; see also John Cibinic, Jr., & Ralph C. Nash,

Jr., Formation of Government Contracts 1079 (3d ed. 1998)

(fixed-price government contract “places the risk of

incurring unforeseen costs on the [seller]””), here the costs

were actually foreseen; they simply may have been

underestimated by the party that agreed to bear them.’

Commonwealth Edison compromises years of settled

legal principles concerning the exchange of risk under fixed-

price contracts. The Government may not “simply shift

costs of legislation onto its contracting partners who are

adversely affected by the change in the law, when the

Government has assumed the risk of such change.” Winstar,

518 U.S. at 883. This Court should reaffirm the fundamental

-

The Federal Circuit’s suggestion that the foreseeability of these

costs somehow works to the utilities’ detriment, see 271 F.3d at 1349, is

also confusing. That the government knew of the risk and nonetheless

offered fixed-price terms only confirms that it knowingly accepted the

risk that clean-up costs might exceed its estimates.

12

principle that “(t]he United States does business on business

terms,” United States v. Nat’l Exch. Bank of Baltimore, 270

U.S. 527, 534 (1926), and this includes assuming the same

risks any seller does in a fixed-price contract. Contractors

negotiating billions of dollars in contracts with the

Government are entitled to clear rules about fixed-price

contracts, so that they can adjust their behavior accordingly.

Otherwise, Commonwealth Edison will have “the untoward

result of compromising the Government’s practical capacity

to make contracts[.]” Winstar, 518 U.S. at 884.

Cc. Commonwealth Edison Magnifies

Uncertainty About The Unmistakability

And Sovereign Acts Doctrines.

As with its treatment of fixed-price contracts,

Commonwealth Edison leaves tremendous uncertainty in its

wake about the applicability of the sovereign acts and

unmistakability doctrines. This, in turn, makes it

exceedingly difficult for government contractors to negotiate

and enter contracts with the Government, because the rules

governing them are now unsettled.

By relying on the sovereign acts and unmistakability

doctrines to reject Commonwealth Edison’s claims that the

United States breached its contracts or abrogated vested

contract rights under the Fifth Amendment, the Federal

Circuit has extended their application to situations they were

never intended to address. These doctrines are inextricably

tied to situations in which the Government’s performance of

a contract has been rendered impossible by a public and

general governmental act. See Winstar, 518 U.S. at 895-96

(plurality opinion); id. at 921, 923 (Scalia, J., concurring).

In those circumstances, the Government (like any

private contractor) will not be held liable for its

nonperformance, unless its own actions caused the

impossibility. Jd. at 895-96. The sovereign acts and

|

13

unmistakability doctrines place the Government in the same

position as a private contractor by permitting the defense of

impossibility where the Government as sovereign has

rendered contract performance impossible by the

Government as contractor, unless it has contractually waived

that defense in unmistakable terms. More specifically, the

sovereign acts doctrine provides that the impossibility

defense is available where a “public and general act{]”

prevents the Government’s performance of a commercial

contract. See Horowitz v. United States, 267 U.S. 458, 461

(1925). The unmistakability doctrine, in turn, states that

even where the act is a sovereign one, if the Government by

contract forfeited in unmistakable terms its excuse for

nonperformance, the excuse is lost, and the Government

must answer in damages. Winstar, 518 U.S. at 877-78.

These doctrines have no application here because the

contracts were fully performed by both parties. Neither

nonperformance nor impossibility is at issue. Rather, the

question is whether, after the contracts have been fully

performed, the Government may charge the utilities for its

increased performance costs, when it expressly assumed that

very risk. In concluding that these doctrines apply, the

Federal Circuit has “adopt[ed] [a] rule of construction that

would weaken the Government’s capacity to do business by

converting every contract it makes into an arena for

unmistakability litigation,” a result against which this Court

wamed. /d. at 886. These doctrines were never intended to

apply to “humdrum [fully performed] contracts” like these.

Id. at 880. See also id. at 911 (Breyer, J., concurring)

(“[b]oth common sense and precedent make clear that an

‘unmistakable’ promise to bear the risk of a change in the

law is not required in every circumstance’’).

The Federal Circuit’s specific application of these

doctrines causes further confusion for contractors and their

counsel. The Federal Circuit has effectively held that the

sovereign acts doctrine will a/ways attach to legislation and

14

insulate the Government from breach unless the legislation

(or other sovereign act) applies solely to the government’s

contracting partners. Commonwealth Edison, 271 F.3d at

1340; Yankee Atomic Elec. Co., 112 F.3d at 1575. The

FCBA respectfully suggests that this is not the proper test.

In Winstar itself, the legislation did not apply solely

to the Government’s contracting partners. Winstar, 518 U.S.

at 902. Nor would the Federal Circuit’s test be appropriate:

“Legislation can almost always be written in a formally

general way, and the want of an identified target is not much

security when a measure’s impact nonetheless falls

substantially upon the Government’s contracting partners.”

Id. at 902-03. The test articulated in Winstar’s principal

opinion focuses, not on the legislative aim, but on its impact

and effect: “[A] governmental act will not be public and

general if it has the substantial effect of releasing the

Government from its contractual obligations.” Jd. at 899

(emphasis added).

This test is clearly met here. EPACT’s assessment

attaches to “purchases” of enriched uranium from the

Government. Commonwealth Edison, 271 F.3d at 1333. At

least eighty-five percent of EPACT’s assessments fall on

those that procured enriched uranium- directly from the

Government, with the balance falling on those that bought it

from the original puchaser. In fact, unlike the statutory

scheme at issue in Winstar, EPACT is entirely retroactive.

The Federal Circuit’s conclusion that “[a]ny impact that this

approach may have on those utilities with which the

Government had prior contracts is merely incidental to the

accomplishment of a broader governmental objective,”

Yankee Atomic Elec. Co., 112 F.3d at 1576 (internal

quotations omitted), cannot withstand scrutiny.*

Even assuming that EPACT was a sovereign act, the Federal

Circuit's application of the unmistakability doctrine will create further

confusion in the world of government contracts. Given the fixed-price

nature of the contracts, the Government’s knowledge of its clean-up

15

Il. COMMONWEALTH EDISON WILL

PROFOUNDLY AND ADVERSELY AFFECT

TRANSACTIONS BETWEEN THE

GOVERNMENT AND ITS CONTRACTORS.

From a practical standpoint, the Federal Circuit’s

decision in Commonwealth Edison is “at odds with the

Government’s own long-run interest as a reliable contracting

partner in the myriad workaday transactions of its agencies.”

See Winstar, 518 U.S. at 883. As this Court has recognized,

“expanding the Government’s opportunities for contractual

abrogation” can have the untoward effect of “undermining

the Government’s credibility at the bargaining table and

increasing the cost of its engagements.” See id. at 884. We

respectfully suggest that Commonwealth Edison will have

precisely that effect.

A. Commonwealth Edison Will Adversely

Impact The Negotiation And Execution Of

Government Contracts.

The Government and its contracting partners

“generally rely on contract law ‘to reduce the costs of

contract negotiation by supplying contract terms that the

parties would probably have adopted explicitly had they

negotiated over them.’” Winstar, 518 U.S. at 884 n.27

(quoting Richard A. Posner & Andrew M. Rosenfield,

(Continued . . .) .

obligations, the requirement that prices recoup expenses, and the 1984

Settlement Agreement releasing Commonwealth Edison of its obligations

under its existing contracts, it is difficult to imagine what more it needed

to protect against an exaction triggered by having done business with the

Government. See Winstar, 518 U.S. at 887 (plurality opinion) (there is

“no need for an unmistakably clear ‘second promise.””); id. at 921

(Scalia, J., concurring) (there is no need for “a further promise not to go

back on the promise to accord favorable regulatory treatment”).

16

Impossibility and Related Doctrines in Contract Law: An

Economic Analysis, 6 J. Legal Stud. 83, 88-89 (1977)).

Indeed, “judicial interpretations of a contractual provision

form part of the background against which parties make their

contract.” Salsbury Indus. v. United States, 905 F.2d 1518.

1523 (Fed. Cir. 1990) (Duff, J., dissenting). By creating

increased uncertainty in an already unsettled area of the law,

Commonwealth Edison will force the Government and its

contracting partners to incur potentially significant additional

expenses in negotiating and executing their contracts.

After Commonwealth Edison, the fixed-price terms of

a government contract no longer support the expectation that

the buyer will pay only that amount, and that the seller

assumes the risk that additional expenses may be incurred.

Now, a company that has purchased goods or services from

the Government may be exposed to liability for additional

exactions 40 to 50 years after the transaction. Likewise, a

company that purchases a government product from another

private company is exposed to that same liability. This is

true even if the Government had actual knowledge of the risk

at the time it contracted to sell that product.

Nor is it enough, after Commonwealth Edison, to rely

on a “Settlement Agreement,” entered with the Government

at the conclusion of performance, indicating that all

obligations have been fulfilled. Even where a contractor has

paid the agreed price for the Government’s goods and

services, it will be deemed to have received sufficient

“benefit” to expose it to new, massive and wholly retroactive

assessments. This is especially true if the area is one of the

many in which the Government generally “regulates.”

Now government contractors and their counsel must

seek to exact concessions to insulate against the risk of

future assessments. The contractor must seek, at a

minimum, the following agreements: (1) the price is fixed;

(2) the contractor will not be subject to any future fee or

exaction based on its contract with the Government or its use

17

of products delivered under such contracts; (3) in the event

an exaction is nevertheless imposed, the Government

unmistakably agrees to indemnify the contractor; and (4) the

government official with whom it negotiates has actual

authority to bind the Government to these concessions.

Indeed, this last concession alone imposes an onerous

burden. See Commonwealth Edison, 271 F.3d at 1355

(stating that even if Government officials had represented

that “regulatory legislation would not be enacted,” that

would not suffice because “those authorities had no authority

to bind the Government’). This list of new issues raised by

the Commonwealth Edison decision demonstrates the extent

to which it departs from standard contract principles and will

deter parties from doing business with the Government.

B. Commonwealth Edison Will Adversely

Affect The Government’s Interests.

Given the difficulty of negotiating and drafting

contractual provisions to address all of the contingencies

created by Commonwealth Edison, the decision will

undoubtedly compromise the Government’s ability “‘to

obtain needed goods and services from parties who might

otherwise, quite nghtly, be unwilling to undertake the risk of

government contracting.” See Winstar, 518 U.S. at 913

(Breyer, J., concurring).

Commonwealth Edison compromises the vital

predictability that previously attached to fixed-price, fully

performed government contracts. This, in turn, will increase

the risk and costs of government contracting. On one hand,

“(flear of post-investment opportunism by the government

may well deter parties from relying on the government’s

promises as much as they should for the sake of efficiency.”

See Daniel E. Troy, Retroactive Legislation 20 (1998).

Some contractors will simply elect not to contract with the

Government, and instead turn to other market sources for

18

supplies, services, and customers. In fact, the option existed _

here to obtain enriched uranium from alternate sources, an |

option that utilities likely would have exercised had they

believed they would be subjected to EPACT’s exaction.

On the-other hand, those contractors willing to deal

with the Government will demand compensation for

assuming the risk that the price paid today for a service or

purchase may be significantly raised by the Government

tomorrow, thereby factoring that risk into the cost of the

contract. Ultimately, of course, it is the Government (i.e.,

the taxpaying public at large) that must bear these increased

costs in government contracting.

In Boyle v. United Technologies Corp., 487 U.S. 500

(1988), the court acted to mitigate precisely these risks.

There, the Court held that federal law preempted state tort

law in actions against government contractors who comply

with government design specifications, because the

application of state tort law “will directly affect the terms of

government contracts: either the contractor will decline to

manufacture the design specified by the Government, or it

will raise its price. Either way, the interests of the United

States will be directly affected.” Jd. at 507. The same

practical reasons require the Court’s intervention here.

c. Commonwealth Edison Disrupis

Investment-Backed Expectations Based

Upon Settled Law.

The new test fashioned by the Federal Circuit may

permit severely retroactive and costly legislation to

withstand constitutional challenge even if the government

contractor could not reasonably have expected such

legislation. See Commonwealth Edison, 271 F.3d at 1345-

46. Commonwealth Edison thus has immense consequences

for government contractors that have already made business

decisions—some, like tuose in this case, involving hundreds

19

of millions of dollars—in reliance on the well-established

principle that the Government cannot retroactively impose

liability where none could be reasonably expected. This is

especially true where, as here, the underlying contract was

for a fixed price and was fully and Satisfactorily performed.

Commonwealth Edison noted that even though

foreign suppliers of uranium enrichment services emerged in

the late 1970s and early 1980s, Commonwealth Edison

“elected . . . to continue to use government processing

facilities even though . . . foreign alternatives became

available.” See Commonwealth Edison, 271 F.3d at 1331.

That decision was informed in large part by the relative costs

of foreign and domestic enrichment services. By essentially

raising the price paid by Commonwealth Edison for the

Government’s enrichment services retroactively, EPACT

reaches back to alter_quite substantially a factor that played

no small role in Commonwealth Edison’s decision to

continue purchasing enrichment services from _ the

Government even after foreign competition arose.

Likewise, the Court of Federal Claims emphasized

that the utilities received a “benefit” in that “by purchasing

the government’s service, the utilities avoided the cost o:

building and cleaning up its [sic] own plant.” See

Commonwealth Edison Co. v. United States, 46 Fed. Cl. 29,

45 (2000). If anything, this observation underscores the

negative consequences that flow from severely retroactive

legislation. Any decision by Commonwealth Edison not to

invest in “building and cleaning up its own plant” would

have been based on whether it would have been more cost-

effective at the time to “contract out” that service to the

Government based on the Government’s price. By raising

the cost of the Government’s services ex post, EPACT may

well have nullified the utility’s original value assessment.

This upsetting of investment-backed expectations is

precisely what the general prohibition on severely retroactive

laws serves to guard against.

20

CONCLUSION

For these reasons, amicus curiae Federal Circuit Bar

Association respectfully urges this Court to grant the Petition

for a Wnit of Certiorari.

Respectfully submitted,

GEORGE E. HUTCHINSON ANDREW G. MCBRIDE

EXECUTIVE DIRECTOR {Counsel of Record)

FEDERAL CIRCUIT SCOTT M. MCCALEB

BAR ASSOCIATION ALLYSON P. NEWTON

1300 I Street, NW WILEY REIN & FIELDING LLP

Suite 700 1776 K Street, NW

Washington, DC 20005 Washington, DC 20006

202.408.4000 202.719.7000

Counsel for Amicus Curiae

- Federal Circuit Bar

Association

Dated: Apmil 24, 2002