February 22, 2010
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These seemingly unrelated subjects are involved in two rulings by the United States Court of Appeals for the Federal Circuit which together provide important limitations on the implied-in-fact duty not to hinder and to cooperate. The cases are Agredano v. United States, Fed. Cir. No. 2008-5114, February 17, 2010 and Precision Pine and Timber, Inc. v. United States, Fed. Cir. Nos. 2008-5092, 5093, February 19, 2010. The second of these two cases concludes with insights on the computation of damages for breach of contract.
Agredano arose from a purchase of a vehicle at a Customs Service auction of forfeited vehicles. The purchaser later took the vehicle to Mexico where he was stopped at a checkpoint, hidden marijuana was found in the vehicle, and the purchaser spent nearly a year in prison before being exonerated by the Mexican courts. The vehicle had been sold by the Customs Service “as is, where is” without warranty or guarantee and with express disclaimers as to identity, previous ownership, physical condition, or registration status.
The U.S. Court of Federal Claims held that despite the disclaimers, the sales contract for the vehicle contained an implied-in-fact warranty that the vehicle no longer contained contraband, that this implied-in-fact warranty was breached, and thus the purchaser was awarded substantial damages. The Federal Circuit reversed, looking to a prior Federal Circuit decision which holds that an Agency’s failure to perform regulatory or statutory functions does not create contractual obligations, either express or implied-in-fact.
Precision Pine arose from a U.S. Court of Federal Claims matter wherein a timber harvesting contractor had been awarded “jury verdict,” or judge-computed, damages resulting from the suspension of one of fourteen Forest Service contracts, suspensions required in order for the Forest Service to engage in Endangered Species Act consultations stemming from the endangered species listing of the Mexican Spotted Owl.
The U.S. Court of Federal Claims had held the Forest Service in breach of the implied duty of good faith and fair dealing, also termed the implied duty not to hinder and to cooperate.
But in Precision Pine the Federal Circuit limits the implied duty of good faith and fair dealing by defining it as just a “variation” of a bait-and-switch, i.e. where the Government enters into a contract that confers a significant benefit and then later eliminates or rescinds that provision or benefit through subsequent action directed at the existing contract, subsequent Government action “specifically designed to re-appropriate the benefits the other party expected to obtain.”
In the case before it, the Federal Circuit decides that there has been no breach of the implied-in-fact duty of good faith and fair dealing because all but one of the Forest Service contracts contained no guarantee that the timber harvesting contractor’s operations could proceed uninterrupted. The suspensions were due to Forest Service violations of the Endangered Species Act, but these were statutory duties not owed to the timber harvesting contractor, just as the purchaser of the seized vehicle in Agredano was owed nothing contractually by the Customs Service under the statutory duty to seize all contraband.
The Federal Circuit holds that the implied-in-fact duty of good faith and fair dealing “cannot expand a party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.” Since all but one of the Forest Service contracts contained no guarantee of uninterrupted performance, the Forest Service’s violations of the Endangered Species Act did not destroy the timber harvesting contractor’s reasonable expectations.
As to the Forest Service contract which did not give the Forest Service the right to suspend performance, the U.S. Court of Federal Claims had rejected the methodology used by the timber harvesting contractor’s damages expert and instead constructed its own alternative calculation. This, the Federal Circuit holds, is entirely permissible—the U.S. Court of Federal Claims was not required to accept the timber harvesting contractor’s calculations in their entirety else enter judgment for the United States.
Here the Federal Circuit explains that in a “jury verdict” a judge may find for a party without fully crediting that party’s methodology, provided that the evidence is sufficient to allow the judge to make a “fair and reasonable approximation” of the damages.
The judge is the fact finder in a bench trial and may decide what evidence to credit or reject, and what result to reach. “Just as jury may find for a party without believing everything that party’s witnesses say, a judge may award damages, even if he does not fully credit that party’s methodology.” Fact findings by a trial judge may not be set aside unless they are clearly erroneous, and these fact findings which minimized the effect of uncertainty and arbitrary assumptions were not.
