Opposition Brief — Datalect Computer Services, Ltd. v. United States, 120 S. Ct. 1530 (2000) (No. 99-1049)

| Supreme Court, U.S.

FILED

Ly FEB 22 20

No. 99-1049

me

Jn the Supreme Court of the United-States— —

DATALECT COMPUTER SERVICES, LTD., PETITIONER

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

SETH P. WAXMAN

Solicitor General

Counsel of Record

DAVID W. OGDEN

Acting Assistant Attorney

General

DAVID M. COHEN

ANTHONY J. STEINMEYER

KIRK MANHARDT

BRIAN S. SMITH

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether the court of appeals correctly affirmed the

finding of the Court of Federal Claims that petitioner, a

government contractor, failed to make an adequate

showing of damages in this breach of contract action.

(I)

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases:

Anderson v. Mount Clemens Pottery Co., 328 U.S.

I CI nrsicseesciiensitecindictechiupiitinsctandiadiacisapsinasiinhiispiiclieeitdebabises

Bigelow v. RKO Radio Pictures, 327 U.S. 251

RIP O UE sin ioiesiiditasssnsaainaaacighanieadiinhdaiaiipinesmiiaaicienindmeanidaimsitan

Dale Constr. Co. v. United States, 168 Ct. Cl.

eC RIOUT sibs tanicelasanlibcesesiecibuabihenicibantisnimcaatabicansumictibiilibeishae

Eastman Kodak Co. v. Southern Photo Materials

Ca, RE ae OME ceitinisstinivncsccnbsrnndteiaciainsiniceanisinians

Hetzel v. Baltimore & Ohio R.R., 169 U.S. 26

IIT I esniiitiisinssdetiheipibacii ith Siiulsaisidbeaiadeiccemceniaianiticcanbasindniiata

J. Truett Payne Co. v. Chrysler Motors Corp.,

ARR Ta Pe GD ta schiib eiaieniccdncciadedinenieentieicadiiibicliniedanti

Mount Healthy City Sch. Dist. Bd. of Educ. v.

SEG I OO CT ED easasinsintcitctdtesinitnsetinenenienistinne

NLRB v. Transportation Management Corp., 462

This Se TIED sincviscsethaeaicicesntadbiininiatccdbbadhaedniiidbpaciadpansibanscs

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

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

Palmer v. Connecticut Ry. & Lighting Co.,

SED TP, OE Ce) tates teisiatensieadatidattechicnbinibinicibamiinidinsnie

Quality Tooling, Inc. v. United States, 47 F.3d

Rr i aes BE ncteusaneieianisiccsiantinniliaibiciniiinasniadajaspbbianies

(IIT)

IV

Cases—Continued:

Ramsey v. United States, 101 F. Supp. 353 (Ct.

Cl. 1951), cert. denied, 343 U.S. 977 (1952)

San Carlos Irrigation & Prainage Dist. v.

United States, 111 F.3d 1557 (Fed. Cir. 1997) ..........

Sheldon v. Metro-Goldwyn Pictures Corp., 309

9 Ths SOO CI) sincesinesssscnincinntsycscatisnensenseesenmisaniatapesohenseasans

Specialty Assembling & Packing Co. v. United

States, 355 F.2d 554 (Ct. Cl. 1966)

Story Parchment Co. v. Paterson Parchment

Paper Co., 282 U.S. 555 (1931)

S.W. Elecs. & Mfg. Corp. v. United States, 655

F.2d 1078 (Ct. Cl. 1981)

Wells Fargo Bank, N.A. v. United States, 88 F.3d

1012 (Fed. Cir. 1996), cert. denied, 520 U.S. 1116

(1997)

William Green Constr. Co. v. United States,

477 F.2d 930 (Ct. Cl. 1973), cert. denied, 417 U.S.

I CEO ihiceahad Selceieetencciiseisacianenlcse

Constitution and statutes:

U.S. Const.:

Amend. XIV

28 U.S.C. 1295(a)(3) ...

28 U.S.C. 1295(a)(10)

Miscellaneous:

Lionel M. Lavenue, Survey of Government Contract

Cases in the United States Court of Appeals for the

AAA H

Federal Circuit: 1997 in Review, 47 Am. U. L. Rev.

1393 (1998)

Jn the Supreme Court of the United States

No. 99-1049

DATALECT COMPUTER SERVICES, LTD., PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-15a)

is unreported. The opinion of the Court of Federal

Claims on damages (Pet. App. 16a-35a) is reported at 41

Fed. Cl. 720. The opinion of the Court of Federal

Claims on liability (Pet. App. 36a-65a) is reported at 40

Fed. Cl. 28.

JURISDICTION

The judgment of the court of appeals was entered on

July 15, 1999. A petition for rehearing was denied on

September 21, 1999 (Pet. App. 66a-67a). The petition

for a writ of certiorari was filed on December 20, 1999.

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

2

STATEMENT

1. The United States Army awarded petitioner a

fixed-price-per-call requirements contract for repair

and maintenance of the Army’s desktop computers in

Europe. Pet. App. 2a-3a, 17a. The solicitation for the

contract contained estimates of repair frequency that

were based on the volume of service calls the Army

made under prior contracts. Jd. at 2a-3a. The contract

itself contained a provision stating that the actual call

volume could vary from the estimates. During contract

performance, petitioner complained that the volume of

service calls was lower than the Army had estimated.

Petitioner submitted a claim for the difference between

the actual and estimated call volume. Jd. at 4a.

Petitioner’s claim contained three general allega-

tions: (1) the Army was negligent in preparing the es-

timates contained in the contract solicitation; (2) the

Army breached its contract with petitioner by having

Army personnel perform some maintenance on the

Army’s computers; and (3) the Army breached its con-

tract with petitioner by using the extended manufac-

turers’ warranties that came with the purchase of their

computers. Pet. App. 4a-5a. The contracting officer de-

nied petitioner’s claim, and petitioner filed this action in

the Court of Federal Claims. /d. at 18a.

On cross motions for summary judgment on liability,

the court held against petitioner on all but its negligent

estimates claim. Pet. App. 64a. The court held that the

requirements clause of the contract did not oblige the

Army to call on petitioner to address every computer

malfunction. Rather, the court held that the contract

required the Army to use petitioner’s services when-

ever it decided that it needed to purchase computer

repair or maintenance services. Accordingly, the court

3

held that the Army did not breach the contract by using

manufacturers’ warranties and by performing its own

minor maintenance. Jd. at 58a-63a. The court also held

that the Army’s workload estimates were “faulty”

because the Army failed to discuss in the solicitation (or

subsequently to adjust its estimation in light of) known

factors that would likely reduce service call volume. Jd.

at 48a-55a. Following a one-week trial on damages, the

court determined that petitioner had not adequately

established what damages resulted from the Army’s

faulty estimates. Jd. at 16a-35a. Accordingly, the trial

court entered judgment for nodamages.

2. Petitioner appealed on both the liability and

damages issues. The court of appeals affirmed in part,

vacated in part, and remanded. Pet. App. la-15a. As

relevant here, the court affirmed the trial court’s

judgment as to damages on the faulty estimates claim.

Specifically, the court held that petitioner failed to offer

adequate evidence of financial harm caused by the

Army’s faulty estimates. Jd. at 12a-15a. While recog-

nizing that petitioner was not required to prove its

damages with certainty, the court concluded that “the

flaws in [petitioner’s] proof of damages went beyond

lack of mathematical precision. The problem is that

[petitioner’s] damages evidence was not sufficiently

related to the only breach at issue, the government’s

negligent estimates.” Jd. at 12a.’

1 The court of appeals also affirmed the trial court’s holding

that the Army did not breach the contract by performing its own

computer maintenance, Pet. App. 6a-9a, and vacated the trial

court’s holding that the Army did not breach by using the

extended manufacturers’ warranties on the computers. Jd. at 9a-

12a. As to the latter, the court found it unclear from the record

whether the Army “purchased” extended warranty service in

violation of the requirements clause in the contract. It remanded

BEST AVAILABLE COPY

4

ARGUMENT

Petitioner contends that the unpublished decision of

the court of appeals is both erroneous and inconsistent

with decisions of this Court and other courts of appeals,

insofar as it was based on a finding that petitioner’s

“damages evidence was not sufficiently related to the

* * * government’s negligent estimates.” Pet. App.

12a. Petitioner’s contentions are without merit.

1. The decision of the court of appeals does not

conflict with any decision of this Court. As a general

rule, once a plaintiff has established liability, it need not

prove the precise quantum of its damages with absolute

certainty. See J. Truett Payne Co. v. Chrysler Motors

Corp., 451 U.S. 557, 566 (1981); Palmer v. Connecticut

Ry. & Lighting Co., 311 U.S. 544, 561 (1941); Story

Parchment Co. v. Paterson Parchment Paper Co., 282

U.S. 555, 562-563 (1931); San Carlos Irrigation &

Drainage Dist. v. United States, 111 F.3d 1557, 1563

(Fed. Cir. 1997). Consistent with that general rule, the

court of appeals in this case observed that “the amount

of [petitioner’s] damages need not be proved with

certainty and * * * a fair and reasonable approxima-

tion should be accepted by the trial court.” Pet. App.

12a (citing S.W. Elecs. & Mfg. Corp. v. United States,

655 F.2d 1078, 1088 (Ct. Cl. 1981)).

It is equally well established, however, that contract

law precludes recovery for speculative damages. See

Story Parchment Co., 282 U.S. at 562-563. Although

that rule pertains to contract law in general, the Fed-

eral Circuit has long applied it strictly in government

contract cases. See San Carlos, 111 F.3d at 1563; Wells

Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1021

for resolution of that issue. Jd. at 2a. Those aspects of the court of

appeals’ decision are not at issue before this Court.

5

(Fed. Cir. 1996), cert. denied, 520 U.S. 1116 (1997);

Northern Helex Co. v. United States, 524 F.2d 707, 720

(Ct. Cl. 1975), cert. denied, 429 U.S. 866 (1976); William

Green Constr. Co. v. United States, 477 F.2d 930, 936

(Ct. Cl. 1973), cert. denied, 417 U.S. 909 (1974); Spe-

cialty Assembling & Packing Co. v. United States, 355

F.2d 554, 567-568 (Ct. Cl. 1966); Dale Constr. Co. v. _

United States, 168 Ct. Cl. 692, 738 (1964); Ramsey v.

United States, 101 F. Supp. 353, 357 (Ct. Cl. 1951), cert.

denied, 343 U.S. 977 (1952); see also Lionel M. Lavenue,

Survey of Government Contract Cases in the United

States Court of Appeals for the Federal Circuit: 1997

in Review, 47 Am. U. L. Rev. 1393, 1461-1462 (1998)

(“[W]hereas speculative damages are generally not

recoverable against private parties, this rule is strictly

enforced in government transactions.”). As the prede-

cessor to the Federal Circuit explained, in government

contract cases “[rJecovery of damages for a breach of

contract is not allowed unless acceptable evidence

demonstrates that the damages claimed resulted from

and were caused by the breach.” Boyajian v. United

States, 423 F.2d 1231, 1235 (Ct. Cl. 1970). In accordance

with that well-established rule, the court of appeals in

this case concluded that petitioner’s “damages evidence

was not sufficiently related to * * * the government’s

negligent estimates,” Pet. App. 12a, and that it

therefore “failf[ed] to provide the basis for a damages

award.” Id. at 13a.”

2 Petitioner cites no government contract decision that departs

from established principles precluding recovery for speculative

damages. Instead, it points to formulations utilized in other legal

contexts that present a variety of different considerations in

proving damages. See NLRB v. Transportation Management

Corp., 462 U.S. 393 (1983) (Nationai Labor Relations Act); J.

Truett Payne Co., supra (Clayton Act, as amended by Robinson-

6

2. In contending that the courts below employed an

inappropriately high standard of proof by requiring

petitioner to “pinpoint the precise amount of damages,”

Pet. 12, petitioner mischaracterizes the decisions below.

At trial and on appeal, petitioner relied on two

theories of damages, both of which were based on

unsupported assumptions. First, petitioner’s contract

reformation theory hypothesized that if the Army had

disclosed “facts” regarding planned troop reductions,

Army maintenance of computers, and new computer

purchases, then petitioner would have anticipated a

specific reduced level of call volume (8500 per year), and

would have increased its bid prices by a large amount.

Pet. App. 26a-28a.* The trial court found this theory to

be fundamentally flawed because petitioner introduced

no evidence as to how its original bid was prepared, and

offered only unsupported speculation as to how an

Patman Act); Mount Healthy City Sch. Dist. Bd. of Educ. v. Doyle,

429 U.S. 274 (1977) (First and Fourteenth Amendments); Ander-

son v. Mount Clemens Pottery Co., 328 U.S. 680 (1946) (Fair Labor

Standards Act); Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251

(1946) (Sherman Act and Clayton Act); Palmer, supra (Bank-

ruptecy Act); Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S.

390 (1940) (Copyright Act of 1909); Story Parchment Co., supra

(Sherman Act); Eastman Kodak Co. v. Southern Photo Materials

Co., 273 U.S. 359 (1927) (Sherman Act and Clayton Act); Hetzel v.

Baltimore & Ohio R.R., 169 U.S. 26 (1898) (local District of Colum-

bia law). Congress has, however, conferred generally exclusive

jurisdiction on the Federal Circuit to hear appeals arising in

government contract cases, see 28 U.S.C. 1295(a)(3) and (10), in

recognition that “[glovernment contract law is a specialized * * *

field.” Quality Tooling, Inc. v. United States, 47 F.3d 1569, 1580

(Fed. Cir. 1995).

3 Petitioner did not specifically allege which “facts” were im-

portant to its bid, or why their disclosure would have reduced

petitioner’s expected call volume to 8500 per year.

ee es

Ce ae eee eee ee ee

7

Army disclosure statement would have affected the

preparation of its bid. Jd. at 28a-30a. In rejecting the

contract reformation theory, the trial court found that

petitioner’s witness had a “complete lack of familiarity

with the formulation of the original bid.” Jd. at 30a.

The court therefore rejected petitioner’s “hypothetical

bid” because of its “speculative nature.” Ibid.

As an alternative to its contract reformation theory,

petitioner offered an “increased costs” claim—a dam-

ages calculation based on a series of assumed increased

costs. Pet. App. 22a.‘ Petitioner contended that the

lower-than-expected volume of service calls caused its

actual fixed costs to be borne by less revenue than it

had anticipated. Jd. at 31a. Petitioner claimed entitle-

ment to the difference between the actual revenue it

received and the “estimated” revenue that it would

have received, minus the costs that petitioner claims it

would have incurred in performing the increased vol-

ume of service calls. Jbid. The trial court, however,

found that “[s]ubstantial questions surround the compo-

nents of [petitioner’s] increased cost claim calculation.”

Id. at 32a. The trial court determined that because the

calculation relied on unsupported suppositions concern-

ing the components of petitioner’s original bid prices

and employed a highly questionable method of cost

categorization, the increased cost claim lacked a sound

foundation. Jd. at 33a. The trial court also determined

that petitioner’s failure to provide contemporaneous

evidence of its originally projected call volume,

4 The fact that petitioner’s two damages theories produced

dramatically different claim amounts—6,285,445 and 3,773,324

German deutsche marks, respectively, Pet. App. 22a—is an addi-

tional indication that neither theory contained the requisite rea-

sonable specificity.

8

anticipated costs, and bid price calculations rendered

petitioner’s increased cost calculation inherently unreli-

able. Jd. at 33a. Accordingly, this was a simple case of

failure of proof.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

SETH P. WAXMAN

Solicitor General

DAVID W. OGDEN

Acting Assistant Attorney

General

DAVID M. COHEN

ANTHONY J. STEINMEYER

KIRK MANHARDT

BRIAN S. SMITH

Attorneys

FEBRUARY 2000

® Moreover, we note that this case is in an interlocutory pos-

ture. As noted above, the court of appeals vacated the trial court’s

grant of summary judgment on the issue of manufacturers’ war-

ranties and remanded for trial on whether the Army “purchased”

those warranties within the meaning of the contract. See Pet.

App. 2a, 9a-12a. The measure of damages, if any, owed to peti-

tioner will not finally be determined until the completion of that

part of the case.