Free Trial Brief - District Court of Federal Claims - federal

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 1 of 54

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

__________________________________________ SCOTT TIMBER COMPANY, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) ) )

No. 05-708C (Judge Lettow)

PLAINTIFF'S MEMORANDUM OF CONTENTIONS OF FACT AND LAW

Gary G. Stevens SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Counsel for Plaintiff OF COUNSEL: Ruth G. Tiger Eric J. Pohlner SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Dated: May 7, 2008

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 2 of 54

TABLE OF CONTENTS PAGE Table of Authorities ....................................................................................................................... iv Table of Acronyms ..........................................................................................................................x INTRODUCTION ...........................................................................................................................1 QUESTIONS PRESENTED............................................................................................................1 BACKGROUND .............................................................................................................................2 The Northwest Forest Plan And Survey Program................................................................2 The Administrative Structure Of The Northwest Forest Plan .............................................4 Creation Of The Issue Resolution Team And Development Of The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive ......................................................................................................5 Events Subsequent To The Issuance Of The Agency Memoranda Adopting The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive .......................................................................................8 ARGUMENTS TO BE PRESENTED AT TRIAL .......................................................................10 I. As The Drafter Of The Contracts, The Forest Service Assumed The Risk Of Liability To Scott When It Awarded The Timber Sale Contracts Without The Required Category 2 Surveys And Then Had To Suspend Scott's Timber Sale Operations In Order To Perform Those Surveys And Failed To Include Any Exculpatory Provisions Or Disclaimers In The Contracts Or Require Scott To Execute Any Waivers Of Liability ........................................................................10 The Forest Service Breached Its Implied Warranty Of Specifications..................17 A. The Law Of Implied Warranty Of Specifications......................................17

II.

i

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 3 of 54

B.

Timber Sale Contracts Are Contracts Of Adhesion That Contain Detailed Timber Harvesting Specifications Which The Contractor Must Follow......................................................................19 The Forest Service Is Obligated To Design Timber Sale Contracts In Conformity With Federal Environmental Law......................................20 Where Delay Is Caused By Defective Specifications, That Delay Is Presumed To Be Unreasonable ...................................................23

C.

D.

III.

The Forest Service Breached The Contracts Because It Failed To Disclose To Scott That Its Timber Sales Were On ONRC Action's "At-Risk" Lists And That The Forest Service Had Secret Agreements With ONRC Action Regarding The Award Of The Contracts And Because The Forest Service Misled Scott Into Believing That The Sales Were Not Threatened By The ONRC Action Litigation .......................................24 The Forest Service Breached Its Implied Duties To Cooperate And Not To Hinder Scott's Operations .........................................................................27 A. The District Court Holding In ONRC Action That The Forest Service's Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive Are Arbitrary, Capricious And Contrary To Law Establishes That The Forest Service Unreasonably Caused The Suspensions Of Scott's Sales .................................................28 The Forest Service Was Unreasonable In Causing The Suspension Of Scott's Sales Because It Awarded The Contracts Without Conducting Category 2 Surveys Despite Having Been Put On Notice Repeatedly Prior To Award That Its Legal Rationale For Not Conducting The Surveys Was Deficient......................36 1. The Issue Resolution Team's Concerns And The Development Of "NEPA Decision Equals Implementation" And The Red Tree Vole Directive .................................................37 Warnings To The Forest Service In Public Comments, Administrative Appeals And In The ONRC Action Lawsuit ........39 Warnings To The Forest Service From The Department Of Justice And The Forest Service Regional Attorney After ONRC Action Was Filed......................................................41

IV.

B.

2.

3.

ii

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 4 of 54

4.

The Forest Service Awarded Scott's Contracts Despite Its Secret Knowledge That If Scott's Sales Were Operated They Would Trigger Motions For Injunctive Relief..............................................................................................43

CONCLUSION..............................................................................................................................44

iii

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 5 of 54

TABLE OF AUTHORITIES CASES PAGE

Al Johnson Constr. Co. v. United States, 854 F.2d 467 (Fed. Cir. 1988)............................................................................................18 Beauchamp Constr. Co., Inc. v. United States, 14 Cl. Ct. 430 (1988) .........................................................................................................23 Castle Constr. Co., ASBCA No. 28509, 84-1 BCA ¶ 17,045 (1984) ...............................................................18 Cedar Lumber, Inc. v. United States, 5 Cl. Ct. 539 (1984) ...........................................................................................................11 Chaney and James Constr. Co. v. United States, 421 F.2d 728 (Ct. Cl. 1970) ...............................................................................................23 C.J. Betters Corp. v. United States, 25 Cl. Ct. 674 (1992) ...................................................................................................15, 16 Dep't of Natural Res. and Conservation of Montana v. United States, 1 Cl. Ct. 727 (1983) .....................................................................................................11, 16 Everett Plywood Corp. v. United States, 651 F.2d 723 (Ct. Cl. 1981) ...................................................................................14, 21, 22 GAF Corp. v. United States, 932 F.2d 947 (Fed. Cir. 1991), cert. denied, 502 U.S. 1071 (1992) ..................................24 George A. Fuller Co. v. United States, 69 F. Supp. 409 (Ct. Cl. 1947)...........................................................................................16 Heartwood, Inc. v. United States Forest Service, 73 F. Supp. 2d 962 (S.D. Ill. 1999)....................................................................................32 Helene Curtis Industries, Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963) .........................................................................................24, 25 Hercules, Inc. v. United States, 516 U.S. 417 (1996)...........................................................................................................17

iv

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 6 of 54

H.N. Wood Products, Inc. v. United States, 59 Fed. Cl. 479 (2003) ...........................................................................................15, 28, 35 Huber, Hunt & Nichols, Inc., GSBCA No. GS-09B-C-7004-SF, 75-2 BCA ¶ 11,457 (1975) .........................................18 In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000)..........................................................................................29 J.A. Jones Constr. Co. v. United States, 390 F.2d 886 (Ct. Cl. 1968) ...............................................................................................25 J.L. Simmons Co. v. United States, 412 F.2d 1360 (Ct. Cl. 1969) .............................................................................................18 John E. Gallno, AGBCA No. 97-146-1, 98-1 BCA ¶ 29,616 (1998) ..........................................................19 John Woods Trucking, AGBCA No. 97-1-158, 98-1 BCA ¶ 29,644 (1998) ..........................................................19 Laburnum Constr. Co. v. United States, 325 F.2d 451 (Ct. Cl. 1963) .........................................................................................18, 23 Louisiana Pacific Corp. v. United States, 656 F.2d 650 (Ct. Cl. 1981) ...............................................................................................19 Luria Bros. & Co., Inc. v. United States, 369 F.2d 701 (Ct. Cl. 1966) .........................................................................................19, 23 Miller Elevator Co. v. United States, 30 Fed. Cl. 662 (1994) .......................................................................................................27 Munn v. Secretary of Dept. of Health and Human Services, 970 F.2d 863 (Fed. Cir. 1992)............................................................................................29 Northcoast Environmental Center v. Glickman, 136 F.3d 660 (9th Cir. 1998) .............................................................................................29 Oregon Natural Resources Council Action v. United States Forest Service, 59 F. Supp. 2d 1085 (W.D. Wash. 1999)................................................................... passim Ozark Dam Constructors v. United States, 127 F. Supp. 187 (Ct. Cl. 1955)...................................................................................14, 15 v

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 7 of 54

Pacific Rivers Council v. Thomas, 30 F.3d 1050 (9th Cir. 1994) .......................................................................................34, 35 Petrochem Services, Inc. v. United States, 837 F.2d 1076 (Fed. Cir. 1998)..........................................................................................25 Poston Logging, AGBCA No. 97-168-1, 99-1 BCA ¶ 30,188 (1998), recons. denied, AGBCA No. 99-143-R, 00-1 BCA ¶ 30,829 (2000) .........................................................19 Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001) ................................................................................................. passim Precision Pine & Timber, Inc., AGBCA No. 99-160-1, 00-2 BCA ¶ 30,942 (2000) ..........................................................19 Pyramid Lake Paiute Tribe of Indians v. U.S. Dept. of Navy, 898 F.2d 1410 (9th Cir. 1990) ...........................................................................................29 Seaboard Lumber Co. v. United States, 41 Fed. Cl. 401 (1998) .......................................................................................................14 Sergent Mechanical Systems, Inc. v. United States, 34 Fed. Cl. 505 (1995) .......................................................................................................23 Shawn Montee, Inc. dba Shawn Montee Timber Company, AGBCA Nos. 2003-132-1 through 2003-136-1, 04-1 BCA ¶ 32,564 (2004) ................................................................................................16 Silver v. Babbitt, 924 F. Supp. 976 (D.Ariz. 1995) .......................................................................................34 Southern California Edison v. United States, 58 Fed. Cl. 313 (2003) .......................................................................................................24 Spearin v. United States, 248 U.S. 132 (1918)...............................................................................................17, 18, 22 Superior Timber Co., Inc., IBCA No. 3459, 97-1 BCA ¶ 28,736 (1996) .....................................................................34 Tamarack Mills, LLC, AGBCA Nos. 2003-115-1 and 2003-116-1, 04-1 BCA ¶ 32,591 (2004) ....................15, 35

vi

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 8 of 54

Trinity River Lumber Co. v. United States, 66 Fed. Cl. 98 (2005) .......................................................................................15, 28, 28, 35 United States v. Seckinger, 397 U.S. 203 (1970).....................................................................................................11, 16

STATUTES AND REGULATIONS 5 U.S.C. § 706(2)(A)......................................................................................................................29 16 U.S.C. § 472a ............................................................................................................................23 16 U.S.C. § 472a(a)........................................................................................................................20 16 U.S.C. § 472a(e)(2)...................................................................................................................12 16 U.S.C. § 475..............................................................................................................................20 16 U.S.C. § 528..............................................................................................................................20 16 U.S.C. § 1600 et seq.......................................................................................................... passim 42 U.S.C. § 4321 et seq.......................................................................................................... passim 23 C.F.R. § 771.117 .........................................................................................................................6 36 C.F.R. Part 223..........................................................................................................................23 36 C.F.R. § 223.1 ...........................................................................................................................20 36 C.F.R. § 223.88 .........................................................................................................................12 36 C.F.R. § 223.100 .......................................................................................................................12

MISCELLANEOUS 2 Childress and Davis, STANDARDS OF REVIEW (1986).................................................................29 J. Cibinic, R. Nash, J. Nagle, ADMINISTRATION OF GOVERNMENT CONTRACTS (4th ed. 1995) .....................................................................................................................18

vii

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 9 of 54

M. Davis, A BASIC GUIDE TO STANDARDS OF JUDICIAL REVIEW, 33 S.D.L.Rev. 469 (1988)..................................................................................................29

viii

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 10 of 54

TABLE OF ACRONYMS APA BLM DN EA EIS ESA FONSI FS FWS FY IMG IRT LRMP NEPA NFMA NFP REO RIEC ROD RTV Directive S&M Administrative Procedure Act Bureau of Land Management Decision Notice Environmental Assessment Environmental Impact Statement Endangered Species Act Finding of No Significant Impact Forest Service Fish & Wildlife Service Fiscal Year Intermediate Management Group Issue Resolution Team Land Resource Management Plan National Environmental Policy Act National Forest Management Act Northwest Forest Plan Regional Ecosystem Office Regional Interagency Executive Committee Record of Decision Red Tree Vole Directive Survey and Manage

x

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 11 of 54

INTRODUCTION Plaintiff Scott Timber Company ("Scott") alleges that the Forest Service ("FS") breached three of its timber sale contracts, Pigout, Whitebird and Jigsaw. Sections I-III of this memorandum are premised on legal theories that require proof of the FS's erroneous acts or omissions but do not require inquiry by this Court into whether these acts or omissions were unreasonable. In Section IV Scott contends that the FS breached the contracts by violating its implied duties to cooperate and not to hinder. This legal theory, as articulated in Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001), and the cases which have followed, involves a determination that the FS failed to act reasonably. Each of the arguments in Sections I-IV constitutes an independent ground for ruling in favor of Scott on the issue of liability. In addition, all four arguments may be considered together as another basis for ruling on liability in favor of Scott.

QUESTIONS PRESENTED 1. Is the FS liable because as the drafter of the contracts it assumed the risk of

liability to Scott when it awarded the timber sale contracts without Category 2 surveys and then had to suspend Scott's timber sales to perform those surveys but failed to include any valid exculpatory provisions or disclaimers in the contracts or require Scott to execute any waivers of liability excusing FS fault? 2. Is the FS liable because it breached its implied warranty of specifications when it

had to suspend Scott's operations in order to reevaluate whether the original specifications

1

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 12 of 54

governing timber harvesting, road building and other ground-disturbing activities were adequate to protect Category 2 species? 3. Is the FS liable because it breached its obligation to Scott to disclose its superior

knowledge that (a) the timber sales were on ONRC Action's "at-risk" lists and (b) the FS had secret agreements with ONRC Action regarding the award of Scott's contracts, and because the FS misrepresented to Scott that the sales were not threatened by the ONRC Action litigation? 4. Is the FS liable because it breached its duties to cooperate and not to hinder by

suspending Scott's sales because it failed to conduct Category 2 surveys on those sales prior to contract award?

BACKGROUND The Northwest Forest Plan And Survey Program In April 1994, the Secretary of the United States Department of Agriculture on behalf of the FS and the Secretary of the United States Department of the Interior on behalf of the Bureau of Land Management ("BLM") issued a Record of Decision ("ROD") for "amendments to [FS] and [BLM] planning documents within the range of the Northern Spotted Owl." This document amended the Land and Resource Management Plans ("LRMPs") governing the operation of the National Forests and BLM lands in Washington, Oregon and northern California where it was believed that populations of Northern spotted owls existed. This amendment became known as the Northwest Forest Plan ("NFP"). The Umpqua National Forest in Oregon on which Scott's Pigout, Whitebird, and Jigsaw sales were located was included within the area governed by the NFP.

2

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 13 of 54

The fundamental purpose of the NFP was to permit a predictable and sustainable level of timber sales and use of non-timber resources that would not degrade or destroy the environment or endanger the viability of a variety of species of plants and animals present on NFP forests. As part of the NFP ROD, Survey and Manage ("S&M") Standards and Guidelines were developed as mitigation measures for over 400 old-growth-related species where there was a concern for the continued persistence of these species across the landscape but where little knowledge existed of the species themselves. The NFP identified four survey strategies for the S&M species: (1) manage known sites; (2) survey prior to ground-disturbing activities; (3) conduct extensive surveys to find high priority sites for management; and (4) conduct general regional surveys to acquire additional information to determine necessary levels of protection. S&M species fall into one or more of these categories, also sometimes called "components" or "strategies." The Oregon red tree vole, five species of salamanders, and the Canada lynx were initially designated as Category 2 species. Prior to the award of the Pigout, Whitebird, and Jigsaw timber sale contracts to Scott, the Canada lynx was removed from the Category 2 species by the Regional Interagency Executive Committee ("RIEC") under a provision of the NFP which allowed for such a modification. Surveys for the red tree vole and the five salamanders in Category 2 were required for certain timber sales beginning October 1, 1996, the start of fiscal year ("FY") 1997. Approximately 71 invertebrate species, including certain bryophytes, lichens, fungi, mollusks, and vascular plants, were also designated as Category 2 species. Surveys for these species were required for certain timber sales beginning October 1, 1998, the start of FY

3

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 14 of 54

1999. Pigout, Whitebird, and Jigsaw were among the sales on which Category 2 surveys were required pursuant to the NFP. The Category 2 surveys required by the NFP were important to the environmental evaluation of the sales. The Category 2 surveys were the most restrictive of the NFP S&M surveys in terms of the potential impact on federal lands, including from FS timber sales. Category 2 surveys were designed for species at a high risk of extirpation and for which survey protocols existed or could be developed reasonably soon. For Category 2 species, it was necessary that surveys be conducted prior to ground-disturbing activities that could result in the destruction or impairment of habitat necessary for those species' survival. It was important to have survey information before the issuance of a decision document approving the sales as being in compliance with the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq., and to comply with the substantive requirements of the National Forest Management Act ("NFMA"), 16 U.S.C. § 1600 et seq. For this reason, one of the important objectives of the NFP was to develop as soon as possible the protocols necessary for the Category 2 "prior to grounddisturbing activities" surveys. The Administrative Structure Of The Northwest Forest Plan Under the NFP there were several government groups with various levels of authority for recommending and determining the intent and meaning of the NFP S&M requirements. There existed a "Survey and Manage Working Group" composed of representatives from the FS, the BLM and other agencies. Among other things, the purpose of the Survey and Manage Working Group was to coordinate the implementation of NFP wildlife and plant surveys.

4

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 15 of 54

Immediately above the Survey and Manage Working Group in the NFP administrative hierarchy was the Intermediate Management Group ("IMG"). The IMG included representatives of the FS and BLM. One purpose of the IMG was to act on and approve recommendations with regard to definitions, directions and interpretations of the survey requirements under the NFP when, in the view of the IMG members, such decisions could be made without referring the matter to the next higher level of authority, the Regional Interagency Executive Committee ("RIEC"). The RIEC represented the highest level of agency authority at the regional level within the NFP administrative hierarchy. The RIEC included the Regional Foresters of Regions 5 (California) and 6 (Oregon and Washington) of the FS and the Director of the Oregon State Office of the BLM or their designated representatives. Finally, there existed a Regional Ecosystem Office ("REO") under the direction of Donald Knowles, Executive Director, which functioned as the staff of the RIEC, coordinating certain agency actions and reporting thereon to the RIEC. Creation Of The Issue Resolution Team And Development Of The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive By at least January 1996, the Issue Resolution Team ("IRT") was a part of the NFP administrative structure. The IRT was charged with, among other things, developing and recommending interpretations of the NFP Category 2 survey requirements, including the interpretation of when Category 2 surveys were required to be performed. The IRT members principally involved in developing that interpretation and memoranda recommending the REIC adopt that interpretation were Tom Hussey (FS) and Larry Larsen (BLM). Randy Hickenbottom (FS) also played a role in this effort with Messrs. Hussey and Larsen. 5

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 16 of 54

In the summer and fall of 1996, Messrs. Hussey, Larsen and Hickenbottom collaborated in an effort which ultimately led to a recommendation to the RIEC that it officially adopt the interpretation, "NEPA decision equals implementation." By this it was meant that the NFP ROD was interpreted such that Category 2 surveys would not be required for FS timber sales where NEPA decision documents signifying approval of the environmental analyses preparatory to offering the sales to the public were signed by either the October 1, 1996 or October 1, 1998 trigger date.1 As early as 1996, the FS was aware there were serious legal risks involved in awarding timber sale contracts without Category 2 surveys based upon the interpretation "NEPA decision equals implementation." Members of the IRT considered this legal risk for several months while they developed the interpretation "NEPA decision equals implementation." Field personnel of the FS and BLM also expressed concern that adopting the interpretation "NEPA decision equals implementation" could result in a substantial number of contracts being awarded without Category 2 surveys and therefore increased both the risk of a legal challenge and biological risk to the species. There was so much concern about the possible adverse consequences of exempting timber sales from Category 2 surveys that the REO inquired into whether it was
1

NEPA requires the FS to prepare a decision document approving the environmental analyses before offering timber for sale to the public. A decision document can be either a Decision Notice ("DN") or a ROD. A DN is the decision document issued as part of the NEPA process where only an Environmental Assessment ("EA") is required. (An EA is the form of environmental analysis prepared for most FS timber sales.) A ROD is the decision document issued as part of the NEPA process where an Environmental Impact Statement ("EIS") is required. (An EIS is a more extensive undertaking than an EA.) Oregon Natural Resources Council Action v. United States Forest Service ("ONRC Action"), 59 F. Supp. 2d 1085, 1092 n.4 (W.D. Wash. 1999). In this case, the FS's decision documents that authorized the sale of Whitebird, Jigsaw, and certain units of Pigout were DNs. One unit of Pigout was authorized under a categorical exclusion, which is an action that does not affect the environment and therefore does not require any NEPA documentation. 23 C.F.R. § 771.117. 6

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 17 of 54

possible to do an assessment of the potential impact of the different implementation dates for surveys required under the NFP. The response was that there was no way of knowing whether delaying the Category 2 surveys would or would not cause the extirpation of a species. In the face of these concerns, the RIEC adopted the interpretation "NEPA decision equals implementation" and the RTV Directive effective October 1, 1996 and subsequently readopted them on September 11, 1998, effective October 1, 1998. This meant that if NEPA decision documents for planned timber sales were signed prior to the trigger dates, Category 2 surveys would not have to be performed even if those sales were offered to the public and awarded months or even years after the decision documents were signed. The effect of this interpretation was to exempt numerous FS and BLM timber sales from Category 2 surveys. ONRC Action, 59 F. Supp. 2d at 1093. Randy Hickenbottom of the FS and others were involved in developing the November 4, 1996 "Interim Guidance for Survey and Manage Component 2 Species: Red Tree Vole" (the "RTV Directive"). The RTV Directive was an interpretation of the Category 2 survey requirements that employed various parameters that resulted in exempting approximately 90% of the red tree vole habitat, including all of the red tree vole habitat in California, from the survey requirements. The rationale for this interpretation was the FS's belief that red tree vole surveys were not necessary where red tree vole habitat was abundant. Id. at 1094. The RTV Directive was in direct conflict with the specific direction in the NFP ROD that red tree vole surveys must be conducted "within the species' `known or suspected ranges and within the habitat types or vegetation communities associated with it.'" Id. at 1095.

7

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 18 of 54

In April 1998, the FS and BLM approached the RIEC with a request to consider a oneyear delay of survey implementation for several Category 2 species from FY 1999 (October 1, 1998) to FY 2000 (October 1, 1999). A procedure for such changes was authorized in the NFP ROD, but a change of this type required compilation of an EA or EIS before the ROD could be amended. The FS and BLM could have used, but chose not to use, this procedure to delay any or all of the 71 invertebrate Category 2 surveys rather than adopt the interpretation "NEPA decision equals implementation" without environmental analysis. Events Subsequent To The Issuance Of The Agency Memoranda Adopting The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive Various environmental groups and members of the public began filing comments and administrative appeals of the FS and BLM decision documents that did not include Category 2 surveys based upon the interpretation "NEPA decision equals implementation" and the RTV Directive. Such comments and administrative appeals were filed for Pigout, Whitebird, and Jigsaw. The ONRC Action lawsuit was filed on July 8, 1998, challenging, among other things, the FS's adoption of the interpretation "NEPA decision equals implementation" and the RTV Directive. The allegations of the complaint directed to both of these points were spelled out in further detail in a September 25, 1998 letter from ONRC Action to the Department of Justice. Edward (Ted) Boling, the chief trial lawyer for the government in ONRC Action, was initially leery of the FS's rationale for these two Category 2 survey interpretations. On or about November 24, 1998, Mr. Boling briefed his superior, Assistant Attorney General for the Environment and Natural Resources Lois Schiffer, and her immediate deputy, Peter Coppleman, on the ONRC Action allegations regarding "NEPA decision equals implementation." Both Ms.

8

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 19 of 54

Schiffer and Mr. Coppleman had strong concerns over the defensibility of the "NEPA decision equals implementation" interpretation. Ms. Schiffer was concerned that the FS may have rushed to sign decision documents in order to have timber sales offered to the public without Category 2 surveys. Ms. Schiffer indicated that she would need to have further discussions with high level agency officials before deciding whether the Department of Justice would defend the "NEPA decision equals implementation" interpretation in court. Ms. Schiffer's and Mr. Coppleman's concerns were communicated to agency attorneys and upper level management personnel for the FS in November and December of 1998. After the filing of ONRC Action, ONRC Action provided the government with several lists of "at-risk" or "problem sales" (which included sales not mentioned in the ONRC Action complaint). The purpose of these lists was to put the FS on notice that if it awarded any of the listed sales, ONRC Action would seek a temporary restraining order or a preliminary injunction. Later, the FS secretly agreed with ONRC Action that certain of the at-risk or problem sales could be awarded without the immediate threat of an injunction but that ONRC Action reserved the right to file a motion for a temporary restraining order or preliminary injunction if any grounddisturbing operations occurred on those sales. These secret lists, agreements and negotiations were not revealed to the public and in particular not to Scott. When the FS awarded Pigout, Whitebird, and Jigsaw on July 8, 1999, it represented implicitly to Scott that the sales were not under threat of injunction in the ONRC Action litigation, when in fact they were under explicit threat of injunction if any ground-disturbing operations took place after contract award. The district court's decision granting summary judgment to ONRC Action and enjoining the FS from allowing operations on nine specified timber sales was issued on August 2, 1999.

9

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 20 of 54

By order dated August 26, 1999, the district court expanded the injunction to preclude the FS from allowing operations on other timber sales, including Pigout, Whitebird, and Jigsaw. The FS suspended sale operations on Pigout, Whitebird, and Jigsaw on or about August 31, 1999. Edward Boling recommended that the government not appeal ONRC Action because the agency rationale for the interpretation "NEPA decision equals implementation" was weak and the RTV Directive was in obvious tension with the explicit direction in the ROD. In December 1999, the government settled the ONRC Action lawsuit. Pursuant to this settlement agreement, the complaint was dismissed and the injunction dissolved; however, the FS agreed to continue its suspensions of all affected timber sales, including Pigout, Whitebird, and Jigsaw, until applicable Category 2 surveys had been completed and ONRC Action had been given an opportunity to review and object to Supplemental Information Reports on those surveys. The government also agreed as part of that settlement to pay ONRC Action's attorneys' fees in accordance with the Equal Access to Justice Act. Scott timely filed claims under the Contract Disputes Act for the damages it incurred as a result of the FS's suspensions of Pigout, Whitebird, and Jigsaw. ARGUMENTS TO BE PRESENTED AT TRIAL I. As The Drafter Of The Contracts, The Forest Service Assumed The Risk Of Liability To Scott When It Awarded The Timber Sale Contracts Without The Required Category 2 Surveys And Then Had To Suspend Scott's Timber Sale Operations In Order To Perform Those Surveys And Failed To Include Any Exculpatory Provisions Or Disclaimers In The Contracts Or Require Scott To Execute Any Waivers Of Liability

The FS had a fundamental obligation under each of Scott's contracts to make the timber available to Scott to harvest in a timely manner. The FS breached each of Scott's contracts because it failed to fulfill this basic obligation and was not excused from doing so by any valid 10

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 21 of 54

exculpatory clause or disclaimer or by any other provision in the contracts, including standard FS contract clause CT6.01. When the government is the drafter of a contract the courts will strictly construe that contract against the government and in favor of the contractor. See United States v. Seckinger, 397 U.S. 203, 210 (1970) (stating that contracts are "construed most strongly against the drafter"). This is particularly appropriate where the contractor has been damaged by delay or cost increases resulting from events within the government's control, and the government, as the drafter of the contract, has failed to protect itself with a valid exculpatory provision or effective disclaimer language in the contract. Dep't of Natural Res. and Conservation of Montana v. United States, 1 Cl. Ct. 727, 734 (1983); see Cedar Lumber, Inc. v. United States, 5 Cl. Ct. 539, 552 (1984). That is precisely the situation in the instant case. Years before making contract award, the FS was on notice that awarding timber sale contracts without Category 2 surveys entailed a significant risk of FS liability to the purchasers of those contracts. Government personnel involved in developing the interpretation "NEPA decision equals implementation" understood that there were serious risks of legal challenges and potential liability to purchasers of timber sales that were not surveyed if the FS and BLM adopted that interpretation. After the filing of the ONRC Action lawsuit on July 8, 1998, this risk of liability became very specific. In light of the concerns expressed by the government's chief trial counsel in ONRC Action and the Assistant Attorney General for the Environment and Natural Resources, among others, it should have been apparent to the FS at least by December 1998 that if it awarded timber sale contracts without Category 2 surveys the FS must include explicit exculpatory language to protect itself against liability in the event of suspensions.

11

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 22 of 54

On July 29, 1998, Robert Simmons, the Regional Attorney for Region 5 (California) of the FS, advised the Regional Foresters for Region 5 and Region 6 (which includes the Umpqua National Forest and the Pigout, Whitebird, and Jigsaw timber sales) that if certain timber sales threatened by the ONRC Action lawsuit were to be offered to the public, the FS should (1) notify all purchasers prior to the opening of the bids2 that ONRC Action had identified the sale as one where the FS has violated the NFP in preparing the sale, (2) include appropriate language in the contract limiting the government's liability in case of cancellation to holding costs, and notify the bidders of the inclusion of that language and instruct them to withdraw their bids at that time if the language was unacceptable, and (3) give all bidders the opportunity to withdraw their bids simply because of the litigation. For the contracts at issue in this action no direction was given regarding FS liability for suspensions. Nothing in the prospectuses or instructions to bidders for each contract mentioned possible suspensions or language being included in the contracts to limit the FS's liability in the event of suspension. No "appropriate language" was included in these contracts. Following the filing of the ONRC Action litigation and before contract award, Scott's Pigout, Whitebird, and Jigsaw timber sales were named on lists of "at-risk" sales provided by ONRC Action to the government. The FS kept the identity of the sales on these lists secret from the public, including Scott. By providing these lists of "at-risk" sales to the government, ONRC Action was putting the FS on notice that if it allowed harvesting or any other kind of grounddisturbing activities to proceed on these sales ONRC Action would immediately seek injunctive

Award of FS timber sale contracts follows the opening of sealed bids and often an oral auction conducted by the FS to determine the high bidder. See 16 U.S.C. § 472a(e)(2); 36 C.F.R. §§ 223.88 and 223.100. 12

2

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 23 of 54

relief. Brenda Woodard, the FS contracting officer for Pigout, Whitebird, and Jigsaw understood when these contracts were awarded that harvesting or ground-disturbing operations would likely prompt a motion for a temporary restraining order or a preliminary injunction. Despite this knowledge, the FS did not include clear and direct disclaimer or exculpatory language in the contracts to protect itself from liability in the event that Scott's sales were suspended because of the FS's failure to perform Category 2 surveys. In addition, the FS knew that it faced serious liability to purchasers if it awarded timber sale contracts that later had to be suspended for the completion of Category 2 surveys. For example, the FS Litigation Coordinator for Region 6, Sue Zike, warned that awarding such contracts could create monetary liability to the government if it lost ONRC Action because the FS had no provision in its timber sale contracts that allowed for suspensions for surveys and/or the discovery of S & M species. The FS awarded Pigout, Whitebird, and Jigsaw on July 8, 1999 ­ the one-year anniversary of the filing of ONRC Action and after the FS knew of the Department of Justice's serious doubts about the legal defensibility of the FS's Category 2 survey interpretations. Nevertheless, these contracts do not contain any language referencing the ONRC Action litigation or language clearly and directly disclaiming FS liability for suspensions resulting from the FS's failure to conduct Category 2 surveys. The award letters for these contracts also do not reference the ONRC Action lawsuit, and the FS did not impose as a condition of Scott's receipt of award any requirement that Scott waive any rights to damages in the event that its timber sales were suspended due to the FS's failure to conduct Category 2 surveys.

13

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 24 of 54

Timber sale contracts are contracts of adhesion. E.g., Everett Plywood Corp. v. United States, 651 F.2d 723, 720 (Ct. Cl. 1981); Precision Pine, 50 Fed. Cl. at 66; Seaboard Lumber Co. v. United States, 41 Fed. Cl. 401, 408 (1998). The FS as the drafter of the Pigout, Whitebird, and Jigsaw timber sale contracts could have at least attempted to require that Scott execute an explicit release and waiver of all claims as a condition of receiving contract award. When the FS as the drafter of the contract fails to include explicit language necessary to insulate itself from liability for an event which it clearly foresaw and which it initially caused (i.e., the pre-award failure to survey), the FS is liable to the purchaser under the governing law of the Federal Circuit. See Ozark Dam Constructors v. United States, 127 F. Supp. 187, 191 (Ct. Cl. 1955). In the absence of any clear and direct exculpatory language in the contract itself or at a minimum, clear and direct language requiring Scott to waive any potential damages claim as a condition of its receipt of contract award, the FS assumed the risk of liability if Scott's timber sales were suspended because the FS elected not to perform Category 2 surveys before making contract award. Standard timber sale contract clause CT6.01 does not permit the FS to suspend sale operations with limited liability to the purchaser where, as here, FS fault caused the suspension.3

3

The Pigout, Whitebird, and Jigsaw contracts contain clause CT6.01 which provides:

CT6.01 ­ Interruption or Delay of Operations. (10/96) Purchaser agrees to interrupt or delay operations under this contract, in whole or in part, upon the written request of Contracting Officer: (a) To prevent serious environmental degradation or resource damage that may require contract modification under CT8.3 or termination pursuant to CT8.2; (b) To comply with a court order, issued by a court of competent jurisdiction; or 14

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 25 of 54

"[T]he efficacy of a limitation of liability clause does not extend to those situations where the breach arises out of events within the Government's control." C.J. Betters Corp. v. United States, 25 Cl. Ct. 674, 677 (1992) (citing Ozark Dam, 127 F. Supp. at 187). As articulated by the court in Precision Pine: If the Forest Service sought to exculpate itself from delays . . . caused by conduct within the Government's own control, there would need to be a clear expression of that intent in [clause CT6.01]. "It is not only reasonable, but it is required that where the government intends to exculpate itself from liability for its breach of contract, it must manifest that intent in direct and express language." Dept. of Natural Resources and Conservation of Mont. v. U.S, 1 Cl. Ct. 727, 734 (1983); see also Cedar Lumber, Inc. v. United States, 5 Cl. Ct. 539, 552 (1984) ("when the government intends to disclaim liability for breach of contract, it must employ clear and express language to effectuate its intent"). However, nowhere in [clause CT6.01] is such language to be found. Precision Pine, 50 Fed. Cl. at 58. Precision Pine and all the cases subsequently dealing with allegations that the FS breached its implied duties to cooperate and not to hinder by suspending timber sales under clause CT6.01 to satisfy pre-award environmental obligations have held that this clause is not a valid exculpatory clause. Trinity River Lumber Co. v. United States, 66 Fed. Cl. 98, 108 (2005); H.N. Wood Products, Inc. v. United States, 59 Fed. Cl. 479, 487 (2003); Precision Pine, 50 Fed. Cl. at 59, 64; Tamarack Mills, LLC, AGBCA Nos. 2003-115-1 and 2003(c) Upon determination of the appropriate Regional Forester, Forest Service, that conditions existing on this sale are the same as, or nearly the same as, conditions existing on sale(s) named in such an order as described in (b). Purchaser agrees that in event of interruption or delay of operations under this provision, that its sole and exclusive remedy shall be (i) Contract Term Adjustment pursuant to BT8.21, or (ii) when such an interruption or delay exceeds 30 days during Normal Operating Season, Contract Term Adjustment pursuant to BT8.21, plus out-of-pocket expenses incurred as a direct result of interruption or delay of operations under this provision. Out-of-pocket expenses do not include lost profits, attorney's fees, replacement cost of timber, or any other anticipatory losses suffered by Purchaser. Purchaser agrees to provide receipts or other documentation to the Contracting Officer which clearly identify and verify actual expenditures. 15

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 26 of 54

116-1, 04-1 BCA ¶ 32,591 (2004), at 161,228; Shawn Montee, Inc. dba Shawn Montee Timber Company, AGBCA Nos. 2003-132-1 through 2003-136-1, 04-1 BCA ¶ 32,564 (2004), at 161,073-74. Even assuming that the government could draft a valid exculpatory clause, such a clause would fundamentally alter the relationship between the parties, and therefore the government could do so only clearly, expressly and directly. Seckinger, 397 U.S. at 212 ("[I]f the United States expects to shift the ultimate responsibility for its negligence to its various contractors, the mutual intentions of the parties to this effect should appear with clarity from the face of the contract"); see George A. Fuller Co. v. United States, 69 F. Supp. 409, 412 (Ct. Cl. 1947) ("Indeed, so far as we have been able to find, it has never been doubted that the government is liable for delays caused by it, in the absence of a clause in the contract explicitly exempting it from liability therefor") (citations omitted) (emphasis added); C.J. Betters Corp. v. United States, 25 Cl. Ct. at 677 ("cases of inadequate or incomplete performance fall outside of the exculpatory reach of a limitation of liability provision"); Dep't of Natural Res. and Conservation of Montana, 1 Cl. Ct. at 734 ("it is required that where the government intends to exculpate itself from liability for its breach of contract, it must manifest that intent in clear, direct and express language"). There is no such clear and direct exculpatory language in Scott's contracts, and therefore the FS may not use clause CT6.01 to limit its liability for the damages Scott suffered as a direct result of the suspensions of Pigout, Whitebird, and Jigsaw. Years before awarding Scott's timber sale contracts, the FS was on notice that awarding timber sale contracts without Category 2 surveys entailed a significant risk of FS liability to the purchasers of those contracts. It should have been apparent to the FS at least by December 1998

16

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 27 of 54

that if it awarded timber sale contracts without Category 2 surveys the FS must include explicit exculpatory language to protect itself against liability in the event of suspensions. It did not do so, and it elected to award Scott's contracts months later without Category 2 surveys. For these reasons, the FS assumed the risk of liability to Scott. II. The Forest Service Breached Its Implied Warranty Of Specifications

When the government specifies the manner in which a contract must be performed, the government impliedly warrants to the contractor that it will be able to complete the contract satisfactorily by following those specifications. Spearin v. United States, 248 U.S. 132 (1918). In this case, the Pigout, Whitebird, and Jigsaw timber sale contracts contained many detailed specifications governing the manner in which the timber must be harvested and roads built and maintained in order to protect natural resources, including wildlife and plant species. After award, the FS was forced to re-examine the detailed specifications it drafted in order to determine whether they provided adequate protection for Category 2 wildlife and plant species that had not been surveyed prior to award. The FS suspended sale operations for substantial periods of time while these surveys were performed so that if Category 2 species were discovered the contract specifications could be revised, if necessary. Such suspensions fall directly within the ambit of the Spearin doctrine. A. The Law Of Implied Warranty Of Specifications

"When the Government provides specifications directing how a contract is to be performed, the Government warrants that the contractor will be able to perform the contract satisfactorily if it follows the specifications." Hercules, Inc. v. United States, 516 U.S. 417, 425 (1996). This black letter rule of law has its origin in the Spearin case and has become known as

17

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 28 of 54

the "Spearin rule" or "Spearin doctrine." Over the ensuing decades the Spearin doctrine has been regularly applied and expanded in the Federal Circuit. Al Johnson Constr. Co. v. United States, 854 F.2d 467, 468 (Fed. Cir. 1988) ("The Spearin doctrine is much alive today, and we have recently had occasion to extend and apply it in a case other than a construction contract dispute"). The "Spearin rule is not dependent on a finding of independent fault or negligence. The Spearin rule originates and is inherent in the Government's undertaking to prepare adequate plans and specifications." J.L. Simmons Co. v. United States, 412 F.2d 1360, 1383 (Ct. Cl. 1969) (internal quotations omitted). The government's inclusion of a contract specification that runs afoul of laws and regulations is a breach of the implied warranty of specifications. Huber, Hunt & Nichols, Inc., GSBCA No. GS-09B-C-7004-SF, 75-2 BCA ¶ 11,457 (1975), at 54,572 (contractor awarded damages incurred as a result of complying with more costly municipal Department of Water and Power requirements which conflicted with contract specifications prepared by the government); Castle Constr. Co., ASBCA No. 28509, 84-1 BCA ¶ 17,045 (1984), at 84,859 (government's preparation of specifications that did not comply with national plumbing standards breached the implied warranty of specifications and entitled contractor to damages); accord J. Cibinic, R. Nash, J. Nagle, ADMINISTRATION OF GOVERNMENT CONTRACTS at 279-80, 282 (4th ed. 1995) ("The government also assumes the risk if its detailed specifications require performance contradictory to local codes or ordinances. . . .") The case law also establishes that where the government's defective specifications cause a delay in a contractor's performance, the contractor is entitled to recover the costs it has incurred as a result of that delay. Laburnum Constr. Co. v. United States, 325 F.2d 451, 457 (Ct.

18

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 29 of 54

Cl. 1963) ("If faulty specifications prevent or delay completion of the contract, the contractor is entitled to recover damages for the defendant's breach of its implied warranty. . . " (citations omitted)); Luria Bros. & Co., Inc. v. United States, 369 F.2d 701, 707-08 (Ct. Cl. 1966) ("When, as here, defective specifications delay completion of the contract, the contractor is entitled to recover damages for defendant's breach of this implied warranty. . . " (citations omitted)). B. Timber Sale Contracts Are Contracts Of Adhesion That Contain Detailed Timber Harvesting Specifications Which The Contractor Must Follow

Tribunals have consistently recognized that FS timber sale specifications cover all aspects of the contractor's operations under the contract. Louisiana Pacific Corp. v. United States, 656 F.2d 650, 654 (Ct. Cl. 1981). See John Woods Trucking, AGBCA No. 97-1-158, 981 BCA ¶ 29,644 (1998), at 146,887, where the Board referred to all three divisions of the standard FS timber sale contract (Division A ­ Specific Conditions, Division B ­ Standard Provisions and Division C ­ Special Provisions) as "specifications." Accord Precision Pine & Timber Inc., AGBCA No. 99-160-1, 00-2 BCA ¶ 30,942 (2000), at 152,726 (contract "specifies" normal operating season); Poston Logging, AGBCA No. 97-168-1, 99-1 BCA ¶ 30,188 (1998), at 149,374, recons. denied, AGBCA No. 99-143-R, 00-1 ¶ BCA 30,829 (2000) ("[i]ncluded timber was defined in the [contract] specifications"); John E. Gallno, AGBCA No. 97-146-1, 981 BCA ¶ 29,616 (1998), at 146,762 (contract specified the number of trees per acre to be left and the spacing between those trees). FS timber sale contracts are offered on a "take it or leave it basis" with only the price term being open to the bidder to specify. E.g., Precision Pine, 50 Fed Cl. at 66. The three timber sale contracts at issue in this action are of this same type and contain similarly detailed specifications.

19

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 30 of 54

C.

The Forest Service Is Obligated To Design Timber Sale Contracts In Conformity With Federal Environmental Law

Like many government contracts, FS timber sale contracts are designed to achieve management goals in keeping with the agency's statutory mission. Much as the specifications for the construction of a nuclear submarine are designed to advance the Navy's role in meeting the needs of national defense, a FS timber sale contract is part of a statutorily mandated program developed over more than a century to improve timber stand productivity across the National Forest System, manage fire, conserve fish and wildlife habitat, develop a road system (with its attendant increase in access to the forest for recreational and other purposes), regulate water flows and improve other resources. See Organic Administration Act, 16 U.S.C. § 475; MultipleUse Sustained-Yield Act, 16 U.S.C. § 528; NFMA, 16 U.S.C. § 472a(a); 36 C.F.R. § 223.1. The process by which a timber sale comes into being starts with planning and the preparation of a preliminary document, i.e., a timber sale project plan, in which the feasibility of proceeding with the project which may contain one or more sales is verified. The plan must present appropriate data needed by the responsible FS official to determine whether or not to proceed with the environmental analysis and project design. Such data is to include current surveys, current aerial photos, and inventories plus on-the-ground reviews of the project areas to verify existing data. The next step is for the FS to conduct an intensive field investigation within and adjacent to the proposed project area, the purpose of which is to develop an environmentally sound and cost-efficient project under NEPA and to develop a design for field lay out of the project. As part of this step, the FS is to perform its statutory obligations under NEPA ­ complete the appropriate environmental analysis (typically either an EIS or an EA); prepare alternatives, 20

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 31 of 54

including a no-action alternative; decide which alternative to select; and document the decision in a decision document, either a DN and finding of no significant impact ("FONSI") or a ROD.4 At the conclusion of this phase of the process, a responsible FS line officer must execute a certification as to what has been done. The FS Manual makes clear that it is the duty of the Forest Supervisor to ensure that sale planners consider the environmental effects both in the environmental and sale preparation processes. The FS's process of planning and preparing timber sales should result in harvest specifications prepared in accordance with the procedural requirements of NEPA and the substantive requirements of NFMA, and which would permit operations under the resulting contract both to proceed and to be accomplished in a timely manner. Contract specifications of this type include: prescribing helicopter logging rather than tractor logging for certain parts of a sale area, the specification of limited operating periods to protect certain species, and specifying which trees to cut or not to cut in the sale area. With regard to the sales here in issue, the district court in ONRC Action found that the FS had not conducted certain pre-award Category 2 species surveys which were designed to ensure the viability of the species. 59 F. Supp. 2d at 1092. Without these surveys, the FS could not know if its specifications were adequate. Ultimately, therefore, it was doubt about the efficacy of the FS's contract specifications prepared without the guidance provided by Category 2 surveys that was the primary cause of the suspensions of performance, not any court order. In Everett Plywood, a case analogous to the one at bar, the FS terminated a timber sale contract when it was discovered after award that "road construction and logging planned for

4

See supra note 1. 21

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 32 of 54

units 3 and 4 would result in massive mantle failures with resulting soil and watershed damage, thereby making difficult the re-establishment of the timber stand." 651 F.2d at 726. The FS and the purchaser in that case were unable to agree upon a modification of the contract specifications. There was no termination for convenience clause in that case (and none in the instant case), and therefore the FS, believing that the adverse environmental consequences of road construction under the specifications as awarded would be in conflict with the FS's statutory environmental obligations, unilaterally cancelled the contract. The trial court initially ruled in favor of the government in Everett Plywood, finding that because the FS had certain environmental objectives in connection with the timber sale contract but not stated in the contract, the FS could cancel the contract with no liability to the purchaser based upon the common law doctrine of frustration of purpose. Id. at 727. On appeal, the Court of Claims rejected this theory, holding that the government had assumed the risk that its specifications might be defective or inadequate to accomplish their environmental purposes because the FS as "owner of the tracts to be harvested would be presumed to be the party informed as to soil conditions, and geologic structure that might indicate that logging would endanger the environment." Id. at 730-31. The Court of Claims found it unnecessary to decide whether the Spearin doctrine should be applied directly in Everett Plywood but ruled that "the fact that the government did design the specified roads is relevant for purposes of allocating the risk of environmental damages caused by the construction of these roads." Id. at 731. The Court of Claims concluded that "the contract allocated the risk to the government." Id. This same reasoning applies with respect to the FS's defective plans and specifications in Pigout, Whitebird, and Jigsaw.

22

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 33 of 54

D.

Where Delay Is Caused By Defective Specifications, That Delay Is Presumed To Be Unreasonable

Where a delay is caused by deficient specifications that delay is per se unreasonable for purposes of the standard suspension of work clause.5 Sergent Mechanical Systems, Inc. v. United States, 34 Fed. Cl. 505, 526 (1995) ("The case law has held that any delay is per se unreasonable for the purpose of applying the standard suspension clause if the delay is caused by a deficient specification in the contract" (citing Chaney and James Constr. Co. v. United States, 421 F.2d 728, 731 (Ct. Cl. 1970)); Luria Bros., 369 F.2d at 707-08; Laburnum Constr., 325 F.2d at 453-54; see Beauchamp Constr. Co., Inc. v. United States, 14 Cl. Ct. 430, 438 (1988). This case, where a court concluded that the FS could not continue performance of the contract because the specifications it had prepared could detrimentally affect Category 2 species habitat and therefore were deficient, is not substantively different from the more common situation where the specifications which the government has provided a contractor are functionally defective and unperformable. In both instances, governmental failure to do that which was needed before putting the contract out for bid resulted in defective specifications and a contract that could not be performed.

General principles of federal government contract law are routinely applied to timber sale contract disputes even though the FS enters into timber sale contracts pursuant to NFMA, 16 U.S.C. § 472a, and its implementing regulations, 36 C.F.R. Part 223, rather than pursuant to the federal procurement statutes and regulations. 23

5

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 34 of 54

III.

The Forest Service Breached The Contracts Because It Failed To Disclose To Scott That Its Timber Sales Were On ONRC Action's "At-Risk" Lists And That The Forest Service Had Secret Agreements With ONRC Action Regarding The Award Of The Contracts And Because The Forest Service Misled Scott Into Believing That The Sales Were Not Threatened By The ONRC Action Litigation

The FS breached its implied affirmative duty "to disclose superior knowledge that is required for the performance of a contract to which it is a party" by failing to disclose to Scott the vital knowledge it possessed that its sales were explicit targets of the pending ONRC Action litigation and misleading Scott to the contrary. Southern California Edison v. United States, 58 Fed. Cl. 313, 325 (2003). Specifically, the FS awarded the subject timber sale contracts to Scott without informing it that the FS knew that these sales were named targets of ONRC Action and that the commencement of operations was virtually certain to provoke applications for temporary restraining orders or other injunctive relief by ONRC Action which the Forest Service believed were likely to be successful. The FS also failed to inform Scott that before deciding to make contract award it had weighed the risk of likely injunctive action against these sales by ONRC Action and evaluated the strength of the government's case on the merits as to each. A government agency cannot remain silent where, as here, it has a duty to share information. See Helene Curtis Industries, Inc. v. United States, 312 F.2d 774, 778 (Ct. Cl. 1963). To show a breach under the superior knowledge doctrine, a contractor must prove that it (1) undertook the contract without vital knowledge of a fact that affects performance costs or direction, (2) the government was aware the contractor had no knowledge of and had no reason to obtain such information, (3) any contract specification supplied misled the contractor, or did not put it on notice to inquire, and (4) the government failed to provide the relevant information. GAF Corp. v. United States, 932 F.2d 947, 949 (Fed. Cir. 1991), cert. denied, 502 U.S. 1071 24

Case 1:05-cv-00708-CFL

Document 48

Filed 05/07/2008

Page 35 of 54

(1992) (internal citations omitted); see, e.g., Petrochem Services, Inc. v. United States, 837 F.2d 1076, 1078-79 (Fed. Cir. 1988); J.A. Jones Constr. Co. v. United States, 390 F.2d 886 (Ct. Cl. 1968); Helene Curtis, 312 F.2d at 774. In this case, the standard is easily met. As Scott will prove at trial, (1) when Scott accepted award of the subject timber sale contracts, it did not have the vital knowledge that the sales were explicit targets in the ONRC Action litigation, (2) the FS knew that Scott had no knowledge that its sales were explicit targets of ONRC Action or on "at-risk" lists and no reason to seek that information because the FS actively pursued a strategy of keeping the information secret from Scott, (3) by entering into the standard timber sale contracts it