Everett Plywood Corp. v. United States

651 F.2d 723, 28 Cont. Cas. Fed. 81,397, 227 Ct. Cl. 415, 31 U.C.C. Rep. Serv. (West) 1234, 11 Envtl. L. Rep. (Envtl. Law Inst.) 21026, 1981 U.S. Ct. Cl. LEXIS 278
CourtUnited States Court of Claims
DecidedMay 20, 1981
DocketNo. 199-75
StatusPublished
Cited by36 cases

This text of 651 F.2d 723 (Everett Plywood Corp. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Everett Plywood Corp. v. United States, 651 F.2d 723, 28 Cont. Cas. Fed. 81,397, 227 Ct. Cl. 415, 31 U.C.C. Rep. Serv. (West) 1234, 11 Envtl. L. Rep. (Envtl. Law Inst.) 21026, 1981 U.S. Ct. Cl. LEXIS 278 (cc 1981).

Opinion

NICHOLS, Judge,

delivered the opinion of the court:

The issues presented in this breach of contract case are (1) whether, under the doctrines of frustration or sovereign acts, the government may cancel a timber contract because of anticipated environmental damage without being liable for breach damages, (2) if the government is liable what the appropriate measure of damages is, and (3) whether the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (Supp. II 1978) (Act), authorizes the award of interest. For the reasons discussed herein, we hold that the government is liable for damages resulting from a breach of the contract, and we set forth the appropriate damage formula later in the opinion. We also hold that the Act does not authorize an award of interest in this case.

Plaintiff, Everett Plywood Corporation (Everett), prosecutes various exceptions to the report of Trial Judge Harkins, wherein the trial judge recommended that cancellation by the government was not a breach because continued performance under the contract would have resulted in undue damage to the soil, watershed, and forest resources, thus frustrating the primary purpose of the contract. Everett also presents claims seeking recovery with interest for itself and its subcontractor. Lastly, Everett attacks the trial judge’s report as motivated by prejudice.1

I

Facts

[417]*417Everett was a manufacturing cooperative located in Everett, Washington. It produced plywood from hardwood and softwood timber purchased in the Puget Sound area. Everett has since undergone liquidation for reasons not connected with this case. In 1970 Everett was the high successful bidder on a contract for the sale of standing timber located in the Mount Baker National Forest (hereinafter ARM sale or contract). Before setting the minimum acceptable bid on this contract, National Forest Service (NFS) staff prepared the sale between 1967 and 1969. A "cruise” or systematic sampling of the timber within the sale area was made to estimate the quantity and quality of the timber to be sold within the specified geographic area of four units. The contract also specified the bidder was to construct 3.2 miles of permanent timber access roads as designated by the NFS. The NFS would then pay for such designated roads by $159,011 worth of purchaser road credits which would be applied by the purchaser against the agreed purchase price of the timber, or "stumpage.”

After completing the cruise, the NFS followed the appraisal theory and principles established in the NFS Manual to determine minimum acceptable bid prices for the various types of timber contained in the sale. Such an appraisal is based on the proposition that the worth of the timber to the government — or "stumpage” — is the "selling value” of end products such as lumber and plywood manufactured from that timber minus both the costs of production (including specified road costs) and an allowance for profit and risk to the purchaser. The NFS estimates a "conversion return” which is the selling value minus cost of production, and this "conversion” is then divided between a projected profit to the purchaser and the indicated stump-age to the government. Indicated stumpage, therefore, is the projected residual which develops after all costs and purchaser profit have been deducted from estimated selling values. 36 C.F.R. § 223.4. To determine the minimum acceptable bid, the NFS then adds the cost of the roads specified in the contract to the indicated stumpage. The bidding process then determines the contract rate or actual stumpage. During the course of performance as the timber is logged, the purchaser pays the contract rate "stumpage” [418]*418less the purchaser credits allowed for the specified road costs.

The ARM contract was advertised on December 21,1969, for bids on an estimated total of 7,400 thousand board feet (MBF) comprised of 1,500 MBF Douglas-fir, 4,700 MBF western hemlock, and 1,200 MBF cedar. The NFS estimated the selling price per MBF for Douglas-fir at $167.45; for hemlock at $123.17; and for cedar at $110.79. Total production costs per MBF were estimated at $118.61 for Douglas-fir; $94.78 for hemlock; and $97.39 for cedar. Specified road costs for each species were $21.49 per MBF. Indicated stumpage per MBF (selling value less costs) was $29.56 MBF for Douglas-fir; $14.21 for hemlock; and $.66 for cedar. The minimum bid price (indicated stumpage plus road costs) was $51.05 MBF for Douglas-fir; $35.70 for hemlock; and $22.15 for cedar. Everett bid $51.55 per MBF for the Douglas-fir and the minimum acceptable bid for the remaining species, and the NFS awarded the contract to Everett as high bidder. The contract was one of "adhesion” in that bidders had to accept the contract terms the government wrote into the invitation, only the price being open for the bidder to specify. Neither the contract nor the applicable agency regulations provided for cancellation of the contract for environmental reasons.

On April 27, 1970, Everett entered a subcontract with Miller Shingle Co., Inc. (Miller), whereby Miller was to perform all logging, road construction, road maintenance, and other timber removal services. For logging services, Everett agreed to pay Miller $40.00 per MBF for merchantable delivered timber. For Miller’s road construction services, Everett agreed to pay Miller $190,500 — an addition of $31,489 to the original $159,011 worth of purchaser road credits. Miller was obligated to accept any adjustments in the total contract price for subsequent changes in purchaser road credits by the NFS. Everett and Miller also agreed orally that Miller could purchase all cedar logged under the contract for $138.40 per MBF.

Miller began construction of the specified road into Unit 1 of the contract area in April 1970. Beginning in September 1970, clay deposits presented road construction problems, and the NFS halted logging in Unit 1 on February 18, [419]*4191970, because of road instability. The road was redesigned and repaired, and Everett received additional purchaser road credits for these additional road costs. Logging in Unit 1 resumed and road construction began in Unit 2.

By February 24, 1972, the NFS had concluded that road construction and logging planned for Units 3 and 4 would result in massive mantle failures with resulting soil and watershed damage, thereby making difficult the reestablishment of the timber stand. The NFS thereupon requested Everett to agree to a contract modification that would delete Units 3 and 4 from the contract and halt road construction in Unit 2. Everett refused, and a series of meetings were held in which Everett contested the NFS’s evaluation of environmental factors, refused to agree to the cancellation, and insisted if there were a cancellation the NFS substitute other timber to replace any amounts that would be lost from the deletion of Units 3 and 4 from the contract. The NFS, however, decided that the contract could not legally be modified to include substitute timber outside of the sections so designated in the contract. In an internal communication, the deputy chief of the NFS also advised that unilateral cancellation by the government would expose the government to a claim for damages.

On October 19, 1972, the parties agreed to modify the sale contract.

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651 F.2d 723, 28 Cont. Cas. Fed. 81,397, 227 Ct. Cl. 415, 31 U.C.C. Rep. Serv. (West) 1234, 11 Envtl. L. Rep. (Envtl. Law Inst.) 21026, 1981 U.S. Ct. Cl. LEXIS 278, Counsel Stack Legal Research, https://law.counselstack.com/opinion/everett-plywood-corp-v-united-states-cc-1981.