No. 98-697
In the Supreme Court of the United States
OCTOBER TERM, 1998
HARBERT/LUMMUS AGRIFUELS PROJECTS, ET AL., PETITIONERS
v.
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
FRANK W. HUNGER
Assistant Attorney General
DAVID M. COHEN
MARK A. MELNICK
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether the court of appeals correctly reversed the trial court's judgment
in favor of petitioners, based upon a breach of an oral contract by the
United States, because no lawful contract existed.
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 98-697
HARBERT/LUMMUS AGRIFUELS PROJECTS, ET AL., PETITIONERS
v.
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. 62-74) is reported at 142
F.3d 1429. The opinion of the United States Court of Federal Claims (Pet.
App. 1-61) is reported at 36 Fed. Cl. 494.
JURISDICTION
The judgment of the court of appeals was entered on April 21, 1998. A petition
for rehearing was denied on July 27, 1998 (Pet. App. 75). The petition for
a writ of certiorari was filed on October 26, 1998 (a Monday). The jurisdiction
of this Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. In 1985, pursuant to the Biomass Energy and Alcohol Fuels Act of 1980,
42 U.S.C. 8801 et seq., the United States Department of Energy (DOE) contracted
with Agrifuels Refining Corp. (Agrifuels) and various lending banks for
DOE to provide a 90% guarantee of the construction financing of an ethanol
plant that would be owned by Agrifuels. Agrifuels separately contracted
with petitioners for the latter to construct the plant. Pet. App. 3-5.
The construction payment schedule, which was included in both DOE's loan
servicing agreement with Agrifuels and in Agrifuels' separate construction
contract with petitioners, provided for disbursement of progress payments
over 21 months. Pet. App. 6-7. When construction progressed more quickly
than the 21-month disbursement schedule, petitioners requested a modification
of the schedule to reflect their actual performance. Agrifuels forwarded
to DOE different forms of the request, which was ultimately denied. Id.
at 23-28, 35.
In January 1987, prior to completion of plant construction, Agrifuels' parent
corporations declared Chapter 11 bankruptcy, which constituted a default
under Agrifuels' guarantee agreement with DOE and the financing banks. Pet.
App. 28-29. Instead of immediately exercising their default rights, DOE
and the banks executed monthly waivers. Id. at 29. However, concerns arose
about the viability of the project and a need to restructure financing.
Ibid. At a meeting of the various parties held on February 24, 1987, the
Vice President of Harbert International, Inc., stated that he wanted the
requested disbursement modification approved. Id. at 29-30.
Daniel Beckman, DOE's Deputy Director of the Office of Alcohol Fuels, who
did not have contracting authority, responded that DOE was committed to
funding the project to completion, and if the contractor completed the project,
all of the payments would work out. The trial court found that the DOE contracting
officer, Thomas Keefe, was present when that statement was made and did
not question it. Pet. App. 30-31. Although finding Keefe present, the trial
court did not find that Keefe actually heard the Deputy Director's statement
at the meeting. Keefe was deceased by the time of trial, and had not previously
provided any testimony. Id. at 28.
The parties continued to meet to discuss possible new arrangements for financing
in light of Agrifuels' default. Pet. App. 32-40. On April 9, 1987, during
one of these meetings, DOE informed the parties that the Secretary of Energy
would not proceed with the guarantees of any more disbursements because
the project was not viable. Id. at 39-40. Subsequently, DOE formally declared
Agrifuels in default and assumed control of the plant pursuant to its rights
under the guarantee agreement. Id. at 42-43.
DOE eventually paid approximately $70 million in guarantees upon the previous
disbursements. DOE ultimately sold the plant for scrap for approximately
$3 million. Pet. App. 43.
2. Nearly six years later, in 1993, petitioners filed suit against the United
States in the United States Court of Federal Claims, essentially asserting
two claims.
First, petitioners claimed that in 1985, at the time of the closing of the
various written contracts related to the project, negotiators for petitioners
and DOE entered into a separate oral contract. Petitioners claimed that
DOE promised that if the joint venture performed its construction contract
with Agrifuels on an accelerated schedule, DOE would approve an amendment
to the payment schedule of the construction contract, allowing Agrifuels
to disburse DOE-guaranteed funds to petitioners on that accelerated basis.
Because DOE never approved such a modification of the payment schedule,
at the time DOE withdrew its guarantee petitioners had been paid far less
by Agrifuels for their performance of the construction contract than they
would have been paid had DOE allowed accelerated payment. Pet. App. 44.
Second, petitioners alleged that, in February 1987, after Agrifuels defaulted
under its guarantee agreement with DOE, Keefe orally promised petitioners
that DOE would continue guaranteeing disbursement of funds for the project
until completion, inducing petitioners to remain on the job longer than
they would have otherwise. Pet. App. 44.
3. After a trial, the Court of Federal Claims rejected petitioners' claim
that an oral contract was formed requiring DOE to approve an accelerated
payment schedule. Pet. App. 44-49. However, the court found that at the
February 24, 1987 meeting, Beckman made an oral offer to petitioners that
DOE would continue to guarantee future funding of the project through completion,
notwithstanding Agrifuels' default, if petitioners would not follow through
on a threat to abandon the project. Id. at 30-31, 45-55.
The trial court found that this oral statement by Beckman constituted a
formal offer to petitioners to enter into a unilateral contract with DOE,
and that such a contract was formed when petitioners performed by remaining
on the job. Pet. App. 49-55. The trial court did not find that Beckman possessed
authority to bind the government to this oral promise. Id. at 14 n.27, 55-57.
Instead, it found that Keefe, who was present but remained silent when Beckman
made the statement, possessed the authority to enter into such an oral contract
with petitioners, and his silence amounted to a ratification of Beckman's
statement.1 Id. at 31, 49, 55-57. The trial court then held that in April
1987, when the Secretary of Energy decided that no new additional loan disbursements
would be guaranteed by DOE, he in effect repudiated the oral contract, obligating
the government to pay up to the amount of its guarantee for the additional
work that petitioners had performed after February 24 in reliance upon the
promise. Id. at 52, 55, 60.
In a subsequent decision dated December 19, 1996, the trial court elaborated
upon the nature of the contract that it had found. Pet. App. 156. After
ruling that the government was liable to petitioners for $2,870,768, the
trial court emphasized that "[w]hat [it] has found in the present facts
is an express oral contract entered into by an executive agency for the
procurement of plaintiff's construction services." Id. at 160. The
trial court therefore ruled that the pre-judgment interest provisions of
the Contract Disputes Act (CDA), 41 U.S.C. 611, applied. Pet. App. 160.
The court issued judgment for petitioners in the amount of $2,870,768, plus
interest from February 4, 1993.
4. The government appealed the trial court's judgment for petitioners that
there was a unilateral contract obliging DOE to continue to guarantee disbursements
until petitioners completed the project. Petitioners cross-appealed the
trial court's rejection of their allegation that an earlier contract was
also formed committing the government to approve any request for modification
of the payment disbursement schedule.
5. The court of appeals reversed the trial court's judgment in favor of
petitioners. Pet. App. 62. The court of appeals ruled that the trial court
erred in holding that Keefe was authorized to bind DOE to the oral contract
because Keefe's delegation of authority required that all actions taken
by him be accompanied by a prior written approval.2 Id. at 67-70. No evidence
of such written approval was presented to the trial court. Id. at 68-69.
The court of appeals further held that even if Keefe had been delegated
authority to bind DOE to an oral contract, he did not ratify such an oral
contract in the circumstances presented here. There was no finding that
Keefe actually heard Beckman make the offer that supposedly led to the unilateral
oral contract. In the absence of a finding that the authorized official
had knowledge of the unauthorized act, he could not be found to have ratified
it. The mere finding by the trial court that Keefe was present when Beckman
made the oral offer is not a finding that Keefe heard the offer. Pet. App.
70-71. The court of appeals also held that ratification requires a demonstrated
acceptance of the contract, and mere silence is not a demonstrated acceptance.
Id. at 71-72. Finally, the court of appeals noted that the same delegation
of authority requiring Keefe to memorialize his actions in writing required
that any ratification by him be memorialized in writing, and no such memorialization
existed. Id. at 72.
In an aspect of its decision not challenged before this Court, the court
of appeals rejected petitioners' cross appeal of the trial court's holding
that there was no earlier contract binding DOE to approve a requested modification
of the disbursement schedule. Pet. App. 72-73.
ARGUMENT
The decision of the court of appeals is correct, is consistent with this
Court's decisions, and does not conflict with any decision of any other
court of appeals. Accordingly, further review is not warranted.
1. The court of appeals' decision turns initially upon whether the contracting
officer, Keefe, possessed the authority to enter into the express, oral,
unilateral contract found by the trial court. Applying the long established
principle that the government is not bound by the acts of its agents beyond
the scope of their authority (Pet. App. 67), the court of appeals analyzed
the delegation of authority issued to Keefe and correctly concluded that
it did not permit him to enter into a contract that was not accompanied
by a prior written approval.
The terms of that delegation permit no other conclusion. After specifying
the acts Keefe may take on behalf of DOE, his delegation expressly requires
that "a separate prior written approval of any such action must be
given by or concurred in by Mr. Keefe to accompany the action." Pet.
App. 68, 111-112. The court of appeals correctly noted that Keefe was not
authorized to act on behalf of DOE in disregard of this requirement.
"[A]nyone entering into an arrangement with the Government takes the
risk of having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority." Federal Crop
Ins. Corp. v. Merrill, 332 U.S. 380, 383 (1947); Sutton v. United States,
256 U.S. 575, 579 (1921)(those purporting to contract with a government
agent "must be held to have had notice of the limitations upon his
authority").3 Here, as the court of appeals stated, "[i]t appears
evident that, if [petitioners] had examined [Keefe's] delegation of authority,
[they] could not have reasonably believed [they] had entered into a binding
contract with the government in the absence of the required written approval
by [Keefe]." Pet. App. 70.
The court of appeals' holding accords with nearly 100 years of precedent
in this Court, as well as that of the court of appeals and its predecessor,
the United States Court of Claims, recognizing that the government is not
bound by the acts of agents beyond the scope of their authority.4
Because the court of appeals correctly applied the binding precedent of
this Court, petitioners' suggestion (Pet. 14-15) that its decision conflicts
with the decision in PacOrd, Inc. v. United States, 139 F.3d 1320 (9th Cir.
1998), is irrelevant. In fact, however, PacOrd does not conflict with the
decision in this case.
PacOrd held that a government regulation specifically requiring express
procurement contracts to be in writing does not bar the government's entry
into an oral, implied-in-fact contract. The PacOrd court recognized that
an issue separate from the one it decided was whether the government agent
purporting to bind the government possessed the requisite authority to enter
into the contract, 139 F.3d at 1322-1323, and accordingly the decision in
PacOrd distinguished cases, such as this one, where the alleged contract
would have been outside the agent's delegated authority. Id. at 1323.5 Indeed,
the PacOrd court specifically noted that in those cases "the government
was not contractually bound because the government agent had no contracting
authority or exceeded what authority he had." Ibid.6
Petitioners also ignore the fact that in this case it was not Keefe who
was found to have formed a contract. Instead, the trial court found that
Keefe ratified through his silence a contract otherwise offered by the oral
representations of an unauthorized DOE official, Beckman. Pet. App. 14 n.27,
31, 49-57. The court of appeals correctly held that even if Keefe had been
authorized to enter into the oral contract found by the trial court, the
trial court did not find that Keefe was actually aware of Beckman's representations,
which is a necessary element of ratification. United States v. Beebe, 180
U.S. 343, 354 (1901). Pet. App. 70-71. That fact-specific determination
does not warrant this Court's review.
2. Petitioners also argue that even if the alleged oral contract was unauthorized,
they were entitled to recover the value of services they allegedly provided
to the government on a quantum meruit basis. Pet. 11-14. Petitioners suggest
that the court of appeals' decision therefore conflicts with Clark v. United
States, 95 U.S. 539 (1877), which allowed quantum meruit recovery.7
The court of appeals' decision does not address any quantum meruit claim
because petitioners never made a timely alternative claim for quantum meruit
recovery, nor do they suggest that they did. Before the trial court, other
than one cryptic reference made in closing argument, petitioners chose to
stand upon the claim for breach of contract damages resulting from the breach
of an allegedly authorized contract. Neither petitioners' complaint, pre-trial
motions, nor pre-trial statement of facts and law under Appendix G of the
Rules of the United States Court of Federal Claims related or referred to
a quantum meruit claim, even after the government clearly put into issue
whether the alleged contract was authorized. Instead, petitioners sought
only breach of contract damages measured by the portion of the contract
price with Agrifuels that they did not receive, and claim they would have
received had the government not breached the alleged contract. Pet. App.
157-159. Accordingly, the government was never put on notice of an alternative
quantum meruit claim so that it could address what, if any, applicability
a quantum meruit claim might have to this case, or submit evidence of the
value to the government, if any, of services the government might have received
from petitioners.8
Similarly, on appeal, petitioners did not argue that the trial court's judgment
in their favor should be affirmed on the basis of any quantum meruit theory,
or that if the court of appeals were to reverse that judgment the case should
be remanded for additional proceedings based upon a quantum meruit claim.9
Instead, petitioners chose to defend the judgment solely on the breach of
contract theory.
Accordingly, petitioners failed to assert a claim for quantum meruit recovery
before both the trial court and the court of appeals. This Court does not
ordinarily consider issues that were neither raised before nor considered
by the lower courts. See Taylor v. Freeland & Kronz, 503 U.S. 638, 646
(1992); Adickes v. S.H. Kress & Co., 398 U.S. 144, 147 n.2 (1970).
Petitioners' failure to advance a quantum meruit claim below is not merely
academic. The value to the government of any services the government may
have received from petitioners' performance subsequent to Beckman's representation
would present a question clearly distinct from the breach of contract damages
actually sought by petitioners before the trial court. Those damages were
derived from petitioners' contract price with Agrifuels for the construction
work performed by petitioners after Beckman's representation, and petitioners'
costs incurred in starting up the plant. Pet. App. 157-159.
Clearly, petitioners' contract price with Agrifuels, and their plant startup
costs, do not dictate the value of their actions to the government, which
only obtained value from the plant as collateral for its guarantees. As
previously noted, after assuming control of the plant the government paid
approximately $70 million in guarantees. However, the government only received
approximately $3 million from its sale of the plant to offset its expenditure.
Pet. App. 43. Any value to the government of petitioners' construction work
between February 24 and April 7, 1987, is, at most, a fraction of that $3
million received in its sale. Additionally, petitioners' startup costs in
serving Agrifuels did not necessarily contribute anything in value to the
$3 million the government received from its sale of the plant as scrap.
As noted, petitioners' failure timely to assert a quantum meruit claim denied
the government any opportunity at trial to present evidence of the amount
of value it actually may have received. Having failed upon the sole claim
for breach of contract damages that they advanced below, petitioners should
not be permitted to pursue an entirely new claim, requiring the presentation
of different evidence than the claim that was tried, for the first time
before this Court.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
FRANK W. HUNGER
Assistant Attorney General
DAVID M. COHEN
MARK A. MELNICK
Attorneys
JANUARY 1999
1 Petitioners imply that the trial court found that Keefe affirmatively
stated his consent to the agreement by quoting the trial court's statement
that Keefe had "acquiesced." Pet. 5. However, the trial court's
findings do not include any affirmative act or statement by Keefe. Instead,
the court based its conclusion that Keefe "acquiesced" on the
mere fact that he was present and did not question Beckman's statement.
Pet. App. 31, 49, 56 n.67.
2 On November 15, 1986, Keefe was delegated "the authority, with respect
to actions valued at $50 million or less, to approve, execute, enter into,
modify, administer, closeout, terminate and take any other necessary and
appropriate action (collectively, 'Actions') with respect to Financial Incentive
awards." Pet. App. 68, 111-112. Citing DOE Order No. 5700.5 (Jan. 12,
1981), the delegation defines "Financial Incentives" as the authorized
financial incentive programs of DOE, "including direct loans, loan
guarantees, purchase agreements, price supports, guaranteed market agreements
and any others which may evolve." The delegation proceeds to state,
"[h]owever, a separate prior written approval of any such action must
be given by or concurred in by Keefe to accompany the action." The
delegation also states that its exercise "shall be governed by the
rules and regulations of [DOE] and policies and procedures prescribed by
the Secretary or his delegate(s)." Pet. App. 111-113.
3 Petitioners suggest that they did not bear this obligation by citing a
DOE regulation requiring contracting officers, upon their discovery that
work is being performed pursuant to an unauthorized commitment, to inform
contractors that they are performing at their own risk. Pet. 13 n.3. (Petitioners
incorrectly cite 48 C.F.R. 901.602-3 (1995) as the regulation in effect
at the appropriate time. In fact, the regulation then in effect was 48 C.F.R.
901.603-71(b)(1986)). This requirement does not relieve a contracting party
of its burden to confirm that the agent with whom it is dealing is authorized
to bind the government. Moreover, petitioners ignore the fact that, here,
the trial court did not find that the contracting officer, Keefe, ever became
aware that petitioners continued performing after February 24 in reliance
upon any unauthorized DOE promise.
Indeed, when considered in its entirety, the cited regulation reemphasizes
the principle that contracts entered into by unauthorized personnel are
not binding, 48 C.F.R. 901.603-71(a) (1986), and also dictates elaborate
requirements that must be met before a non-binding unauthorized agreement
may be ratified by DOE. 48 C.F.R. 901.603-71(c) (1986). The record in this
case does not contain evidence that those procedures were followed here.
4 See, e.g., Heckler v. Community Health Servs., 467 U.S. 51, 63 (1984);
Federal Crop Ins. Corp., 332 U.S. at 384; United States v. California, 332
U.S. 19, 40 (1947); United States v. Stewart, 311 U.S. 60, 70 (1940); Sutton,
256 U.S. at 579-580; Utah Power & Light Co. v. United States, 243 U.S.
389, 409 (1917); Trauma Serv. Group v. United States, 104 F.3d 1321, 1327
(Fed. Cir. 1997); Total Med. Management, Inc. v. United States, 104 F.3d
1314, 1321 (Fed. Cir.), cert. denied, 118 S. Ct. 156 (1997); Doe v. United
States, 100 F.3d 1576, 1584 (Fed. Cir. 1996); CACI, Inc. v. Stone, 990 F.2d
1233, 1236 (Fed. Cir. 1993); City of El Centro v. United States, 922 F.2d
816, 820 (Fed. Cir. 1990), cert. denied, 501 U.S. 1230 (1991); American
Gen. Leasing, Inc. v. United States, 587 F.2d 54, 57-58 (Ct. Cl. 1978);
Correlated Dev. Corp. v. United States, 556 F.2d 515, 525 (Ct. Cl. 1977);
Housing Corp. of America v. United States, 468 F.2d 922, 925 (Ct. Cl. 1972);
Western Pa. Horological Inst., Inc. v. United States, 146 Ct. Cl. 540, 546
(1959).
5 Additionally, for the reasons stated in the PacOrd dissent, that decision
is inconsistent with the precedent of this Court.
6 Moreover, PacOrd stressed that its holding was limited to implied-in-fact
contracts. It is thus distinguishable from this case where the purported
contract found by the trial court was express. Pet. App. 160.
7 Petitioners also claim that the decision of the Federal Circuit conflicts
with Inter-Island Transport Line, Inc. v. Government of the Virgin Islands,
539 F.2d 322, 328-329 (3d Cir. 1976), and Blake Construction Co. v. United
States, 296 F.2d 393, 396 (D.C. Cir. 1961). In those cases, the circuit
court allowed quantum meruit recovery where plaintiff conferred some value
on defendant under a contract made without authority. Our argument regarding
the suggested conflict with Clark applies to the alleged conflict with these
cases as well.
8 Whether the United States Court of Federal Claims even possesses jurisdiction
to award quantum meruit recovery for the value of any performance conferred
upon the government in association with a completely unauthorized contract
is currently a pending issue before the court of appeals en banc. AT&T
v. United States, 124 F.3d 1471, 1479-1480 (1997), withdrawn, 136 F.3d 793
(Fed. Cir. 1998) (order granting suggestion for rehearing en banc). Among
other things, the government has contended in that appeal that quantum meruit
is an implied-in-law recovery, EWG Assocs. v. United States, 231 Ct. Cl.
1028, 1030 (1982), and that it is outside of the jurisdiction of the Court
of Federal Claims to award. Hercules, Inc. v. United States, 516 U.S. 417,
423 (1996). Clark never analyzed the jurisdiction of the lower court over
a quantum meruit claim.
9 The only reference petitioners made to a quantum meruit theory appeared
in their reply brief in support of their cross appeal. Petitioners thus
waived in the court of appeals their argument regarding quantum meruit.
See Becton Dickison, & Co. v. C.R. Bard, Inc., 922 F.2d 792, 800 (Fed.
Cir. 1990) ("[A]n issue not raised by an appellant in its opening brief
* * * is waived.").