Free Response - District Court of Federal Claims - federal

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No. 98-720C (Judge George W. Miller) ______________________________________________________________________________

IN THE UNITED STATES COURT OF FEDERAL CLAIMS PRECISION PINE & TIMBER, INC., Plaintiff, v. THE UNITED STATES, Defendant. ______________________________________________________________________________ DEFENDANT'S RESPONSE TO PLAINTIFF'S POST-TRIAL MEMORANDUM OF LAW ______________________________________________________________________________ PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director KATHRYN A. BLEECKER Assistant Director OF COUNSEL: LORI POLIN JONES PATRICIA L. DISERT Office of General Counsel U.S. Department of Agriculture 1400 Independence Ave., S.W. Washington, D.C. 20250 DAVID A. HARRINGTON MARLA T. CONNEELY Trial Attorneys Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 (202) 307-0277 Attorneys for Defendant Dated: November 14, 2005

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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 I. Ignoring Key Aspects Of The Court's July 30, 2001 Ruling, Precision Pine Inaccurately Describes The Breaches Found By The Court . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. The Court Found Breaches Of Warranty Because Timber Harvesting Was Suspended In August 1995, Rather Than August 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. The MSO Suspensions Were A Breach Of The Implied Duty Not To Hinder Only Insofar As They Lasted Substantially "More Than 135 Days" . . . . . . . . . . 4 II. The Manufacture And Sale Of Lumber From Forest Service Timber Constitutes An Independent And Collateral Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 III. IV. Precision Pine's Claim For Profits Is Barred By Cities Service Helex . . . . . . . . . . . . . . 12 Precision Pine Has Failed To Prove Its Claims For Common Law Damages . . . . . . . . . 15 A. Precision Pine's Claim For Alleged Lumber Profits Should Be Denied . . . . . . . . . . . . . 16 1. The Lost Volume Seller Concept Is Inapplicable Because The United States Does Not Seek An Offset Of Profits From Post-Suspension Timber Sale Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2. Precision Pine Has Not Established That Lost Lumber Profits Were Directly And Primarily Caused By The Suspensions . . . . . . . . . . . . . . . . . . . . . . . . 19 3. Lost Lumber Profits Are Not Legally Foreseeable As The Result Of A Contract Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4. Numerous Errors In Mr. Ness's Calculations Cause Lumber Profits To Be Grossly Overstated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 a. Lumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (1) Precision Pine Uses An Inaccurate Conversion Factor . . . . . . . . . . . . . . . . . 28 (2) Mr. Ness's Does Not Use Valid "But For" Harvesting And Milling Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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(a) Harvesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (b) Milling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (3) Delivered Log Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (a) Precision Pine's Stumpage Costs Are Understated . . . . . . . . . . . . . . . . . 32 (b) Precision Pine's Logging And Hauling Costs Are Understated . . . . . . . 33 (4) Mr. Ness Should Have Used A 1.08 Overrun Factor ­ The Overrun Precision Pine Actually Achieved In 1995 And 1996 . . . . . . . . . . . . . . . . . . 34 (5) Precision Pine Uses A Fundamentally Flawed Methodology To Derive Its Claimed Product Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 (a) Ponderosa Pine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 (b) Douglas Fir and Engleman Spruce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (6) Precision Pine Overstates Lumber Product Prices During The Period Of The MSO Suspensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 (a) Ponderosa Pine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 (b) Douglas Fir and Engleman Spruce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 (7) Lumber Manufacturing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 b. Roundwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 c. Lumber By-Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 (1) Chips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 (2) Bark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 (3) Grindings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 (4) Shavings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5. Precision Pine's Contracts Were Not Profitable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 B. Precision Pine's Claim For Sawmill Costs Should Be Denied . . . . . . . . . . . . . . . . . . . . 49 ii

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1. Precision Pine Has Not Proved That Higher Sawmill Costs Were The Direct And Primary Result Of A Contractual Breach . . . . . . . . . . . . . . . . . . . . . . . . 49 2. Increased Sawmill Costs Are Not The Legally Foreseeable Result Of The Suspension Of A Timber Sale Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3. Precision Pine's Calculations Are Flawed And Uncertain . . . . . . . . . . . . . . . . . . . . 56 C. Alleged Increased Hauling Costs On The Hay Timber Sale . . . . . . . . . . . . . . . . . . . . . . 58 1. Increased Hauling Costs Were Not The "Direct And Principal" Result Of The Suspension Of The Hay Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 2. Increased Log Hauling Costs Were Not Legally Foreseeable At The Time Of Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3. The Alleged Increase In Precision Pine's Log Hauling Costs Is Inaccurate . . . . . . . 63 V. Precision Pine Seeks To Rescind The Bi-Lateral Cancellation Of The Mud Sale In Order To Boost It Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 VI. Precision Pine's CT 6.01 Damages Claims Are Unsupported Or Unrecoverable . . . . . . 65 A. Precision Pine Is Not Entitled To Employee Claim Preparation Costs . . . . . . . . . . . . . . 65 B. Precision Pine's Claims For Miscellaneous Costs Are Unsupported . . . . . . . . . . . . . . . 67 1. Precision Pine's Claims For Additional Bond Costs Are Unsupported . . . . . . . . . . 67 2. Precision Pine Is Not Owed "Move Out Costs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 3. Precision Pine Is Not Entitled To The Payment Of Interest . . . . . . . . . . . . . . . . . . . 68 4. Precision Pine Is Not Entitled To Snow Removal Costs . . . . . . . . . . . . . . . . . . . . . . 68 5. Precision Pine Is Not Entitled To Log Transfer Costs . . . . . . . . . . . . . . . . . . . . . . . . 69 6. Under CT 6.01, Precision Pine Is Not Entitled To A Markup For Overhead And Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

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TABLE OF AUTHORITIES Cases: Abbott v. Federal Forge, Inc., 912 F.2d 867 (6th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Barron Bancshares, Inc. v. United States, 366 F.3d 1360 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Baskett v. United States, 8 Cl. Ct. 201 (1985), aff'd, 790 F.2d 93 (Fed. Cir. 1986), cert. denied, 478 U.S. 1006 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Big Chief Drilling v. United States, 26 Cl. Ct. 1276 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Bluebonnet Savings Bank, FSB v. United States, 339 F.3d 1341 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 6, 16, 64 Bohac v. Dept. of Agriculture, 239 F.3d 1334 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 55 California Federal Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Chain Belt Co. v. United States, 127 Ct. Cl. 38, 115 F. Supp. 701 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 24 Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 12, 13, 15 Cuyahoga Metro. Housing Auth. v. United States, 65 Fed. Cl. 534 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50, 52 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

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Entergy Nuclear Indian Point 2 v. United States, 64 Fed. Cl. 515 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Everett Plywood v. United States, 206 Ct. Cl. 224, 512 F.2d 1082 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim First Heights Bank v. United States, 422 F.3d 1311 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 8, 11 Hansen Bancorp, Inc. v. United States, 376 F.3d 1297 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5, 16, 64 Hawthorne Indus., Inc. v. Balfour Maclaine Int'l, 676 F.2d 1385 (11th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53-54 Hi-Shear Technology Corp. v. United States, 356 F.3d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 52, 60 Kozulin v. INS, 218 F.3d 1112 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Loesch v. United States, 227 Ct. Cl. 34, 645 F.2d 905 (1981), cert. denied, 454 U.S. 1099(1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim M.A. Mortenson Co. v. Brownlee, 363 F.3d 1203 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Marathon Oil Co. v. United States, 374 F.3d 1123 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Matt Allen Logging, AGBCA Nos. 202-124-1, 04-1 BCA ¶ 32,596 (Apr. 8, 2004) . . . . . . . . . . . . . . . . . . . 70 McClain v. Metabolife Int'l, Inc., 401 F.3d 1233 (11th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50, 54

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Morris v. United States, 33 Fed. Cl. 733 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Myerle v. United States, 33 Ct. Cl. 1 (1897) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 60 Neely v. United States, 167 Ct. Cl. 407 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Nicon, Inc. v. United States, 331 F.3d 878 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Owen v. United States, 20 Cl. Ct. 574, 584 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Pacific Rivers .v Thomas, 30 F.3d 1050 (9th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Peck Iron & Metal Company v. United States, 221 Ct. Cl. 37, 603 F.2d 171 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Precision Pine & Timber, Inc. v. United States, 64 Fed. Cl. 165 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Reidhead Bros. Lumber Company, AGBCA No. 2000-126-1, 01-2 BCA ¶ 31,486 (June 29, 2001) . . . . . . . . . 28, 62, 65, 70 Rocky Mountain Constr. Co. v. United States, 218 Ct. Cl. 665, 666 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Rumsfeld v. Freedom, N.Y., 329 F.3d 1320 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 vi

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San Carlos Irrigation & Drainage Dist. v. United States, 877 F.2d 957 (Fed. Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410 (7th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Scott Timber v. United States, 333 F.3d 1358 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53, 66 Sheperd v. American Honda Motor Co., 822 F. Supp. 625 (N.D. Cal. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Sierra Club v. Bosworth, Case No. C 05-00397 CRB, 2005 WL 2204986 (N.D. Cal. Sept. 9, 2005) . . . . . . . . . . 25 Singer Co. v. United States, 215 Ct. Cl. 281, 568 F.2d 695 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 18 Stoner-Caroga Corp. v. United States, 3 Cl. Ct. 92 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Sunward Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511 (10th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 10, 54 Western Radio Servs. Co. v. Epsy, 79 F.3d 896 (9th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Wilner v. United States, 24 F.3d 1397 (Fed. Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Yazel v. United States, 93 F. Supp. 1000 (Ct. Cl. 1950) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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Statutes: Fed. R. Evid. 602 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Fed. R. Evid. 602, 703 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Fed. R. Evid. 701 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Fed. R. Evid. 703 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 U.C.C. § 2-713 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Other Authorities: 13 Richard A. Lord, Williston on Contracts § 39:32 at 642-44 (4th ed. 2000) . . . . . . . . . . . . . 12 2 E. Allan Farnswroth, Farnsworth on Contracts § 8.15 at 437 (1990) . . . . . . . . . . . . . . . . . . . 13 11 Walter H.E. Jaeger, Willison on Contracts § 1293 at 28 (3d ed. 1968) . . . . . . . . . . . . . . . . 13 Restatement (Second) of Contracts § 347 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Restatement (Second) of Contracts § 351 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 55

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS PRECISION PINE & TIMBER, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 98-720C (Judge George W. Miller)

DEFENDANT'S RESPONSE TO PLAINTIFF'S POST-TRIAL MEMORANDUM OF LAW INTRODUCTION In this action, plaintiff, Precision Pine & Timber, Inc. ("Precision Pine"), presents a hodgepodge of claims under both the common law and contract clause CT 6.01 that are not legally viable, that seek double (or triple) recoveries, that ignore key aspects of the Court's 2001 ruling on liability and that are unsupported by record evidence. Under the common law, Precision Pine seeks lumber profits, sawmill costs and log hauling costs. Lumber profits simply are not recoverable because (1) Precision Pine chose to continue the timber sale contracts after the Mexican Spotted Owl ("MSO") suspensions were lifted, and (2) the production of lumber is independent of, and collateral to, the timber cutting contracts in this action. Equally problematic is Precision Pine's failure to take into account important aspects of the Court's July 2001 ruling, most notably, that the MSO suspensions were a breach only insofar as they substantially exceeded 135 days. And even if the Court were to reach the merits of the lumber profits claims, Precision Pine has failed to prove causation, establish legal foreseeability, and provide a reasonably accurate estimate of damages.

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Precision Pine's other common law claims fare no better. The claimed sawmill costs are not the direct result of the MSO suspensions and are legally remote. Similarly, the log hauling costs sought by Precision Pine were neither caused by the MSO suspensions nor legally foreseeable at the time of contracting. Accordingly, as explained below, Precision Pine is entitled only to reimbursement of certain out-of-pocket costs pursuant to CT 6.01. ARGUMENT I. Ignoring Key Aspects Of The Court's July 30, 2001 Ruling, Precision Pine Inaccurately Describes The Breaches Found By The Court A. The Court Found Breaches Of Warranty Because Timber Harvesting Was Suspended In August 1995, Rather Than August 1994

The Court's breach of warranty ruling is based upon the Forest Service's failure to conduct consultations (and suspend timber harvesting) pursuant to the Endangered Species Act upon receiving and reviewing the Pacific Rivers v. Thomas decision. See Pl.'s Br. at 11; Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 68 (2001) ("the Forest Service should have suspended all logging activities within Region 3 during the course of consultations"). Essentially, the Court ruled that the MSO suspensions in August 1995 should have occurred a year earlier. The belated suspension of timber harvesting, the Court concluded, constituted a breach of warranty with respect to seven contracts.1 Id. at 69 n.42. The Pacific Rivers decision was issued by the United States Court of Appeals for the Ninth Circuit on July 7, 1994. See 30 F.3d 1050 (9th Cir. 1994). Consequently, had the Forest Service seasonably initiated consultations, timber harvesting in Region 3 would have been

The date of breach with respect to plaintiff's breach of express warranty claims is August 25, 1995, i.e., the date of the suspensions that breached the supposed warranties. 2

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suspended from late summer through the end of the 1994 harvesting season. Precision Pine, 50 Fed. Cl. at 68; see also id. at 70 (explaining that applicable regulations provide 135 days to conduct consultations with the Fish and Wildlife Service). Precision Pine blithely ignores the Court's finding that it was the Forest Service's failure to suspend harvesting in 1994 that resulted in the breach of warranty. By ignoring this key aspect of the Court's ruling, Precision Pine disregards the substantial benefit the company obtained by harvesting during a superior lumber market in the Fall of 1994. See PX305. Indeed, it was the collapse of lumber markets in 1995 and 1996 that apparently prompted the Court to suggest that the Forest Service's breaches may have worked to Precision Pine's advantage. See Precision Pine, 50 Fed. Cl. at 73 (questioning "whether the Forest Service's failure to timely consult with the FWS was a `felix culpa' for the Plaintiff, who up until the suspensions were imposed may have, knowingly or not, benefitted"). In any event, any claim for breach of warranty damages must account not just for harm resulting from the MSO suspensions in 1995, but also for benefits accruing to Precision Pine from the ability to harvest Forest Service timber in the Fall of 1994. See Bluebonnet Savings Bank, FSB v. United States, 339 F.3d 1341, 1345 (Fed. Cir. 2003) ("the non-breaching party should not be placed in a better position through the award of damages than if there had been no breach"); Hansen Bancorp, Inc. v. United States, 376 F.3d 1297, 1315 (Fed. Cir. 2004) ("Courts should avoid bestowing an 'unfair windfall' on the plaintiff by compensating him or her above and beyond the losses suffered under the breached agreement."). Precision Pine has chosen not to acknowledge (much less quantify) such benefits.2

The only evidence adduced at trial shows that Precision Pine benefitted by having the suspensions required by Pacific Rivers delayed until the Fall of 1995. E.g., Tr. 1419-22, 1624(continued...) 3

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Consequently, Precision Pine has failed to prove any breach of warranty damages with reasonable certainty. See, e.g., Energy Capital Corp. v. United States, 302 F.3d 1314, 1325 (Fed. Cir. 2002) (the burden of proof rests with plaintiff). B. The MSO Suspensions Were A Breach Of The Implied Duty Not To Hinder Only Insofar As They Lasted Substantially "More Than 135 Days"

The Court found that the MSO suspensions, when they ultimately did occur, were unreasonably long as to 11 of 14 contracts. Precision Pine, 50 Fed. Cl. at 70-72. Significantly, it was the unreasonable length of the suspensions ­ not the mere fact that the suspensions occurred ­ that breached the implied duty not to hinder. Id. at 70 ("in order to hold that the Forest Service breached the implied duty not to hinder, the Court must determine whether . . . the length of the suspension was unreasonable"). Precision Pine nevertheless argues that the MSO suspensions should be treated as a breach of the implied duty not to hinder from day one. Pl.'s Br. at 12-13. Precision Pine's argument cannot be squared with the Court's ruling. Opening its analysis, the Court explained that "[t]here can be no doubt" that the Forest Service possessed authority to unilaterally suspend Precision Pine's timber sales. Id. at 58 (citing CT 6.01). In addition, the Court ruled that the Forest Service was required to suspend all contracts in Region 3 (i.e., Arizona and New Mexico) by the Endangered Species Act and the Pacific Rivers decision. Id. at 68. Plainly, where a suspension is required by a binding Court of Appeals decision, the length of the suspension cannot be unreasonable on day one.

(...continued) 25 (Porter) (testifying that Precision Pine was operating its sawmills at a substantial level in 1994); PX305 (showing that lumber prices were higher in 1994 than in 1995); see also DX549; DX753 (establishing that Precision Pine harvested numerous contracts during the Fall of 1994). 4

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This leaves the question of when the MSO suspensions became unreasonable ­ a question addressed and answered in the Court's liability decision. The Court first noted that regulations implementing the Endangered Species Act provide a 135 day period to conduct consultations with the Fish and Wildlife Service. Id. at 70 (citing 50 C.F.R. § 402.14). Additionally, the Court explained that the "the mere fact" that a suspension lasts "far longer" than 135 days does not by itself establish a breach. Id. Turning to the particular facts of this action, the Court found Forest Service suspensions lasting 467 days to be unreasonable. Id. at 70-71. On the other hand, suspensions of fewer than 135 days were not a breach of the implied duty not to hinder. Id. at 71. As the Court explained in addressing the Brann, Hutch-Boondock and St. Joe contracts, a "two month suspension" in light of regulations "prescribing consultations to be completed within 135 days, is reasonable." Id. Put simply, only that part of the MSO suspensions lasting "much more than 135 days" was found to breach the implied duty not to hinder.3 Precision Pine appears to contend that once a suspension is deemed unreasonably long, the entire period of the suspension should be treated as a breach. See Pl.'s Br. at 13. In other words, according to Precision Pine, if a suspension lasts 136 days when a suspension of 135 days is reasonable, damages should be based upon the entire 136-day period. Precision Pine provides no legal or logical basis for such a rule, which plainly would confer an unjustified windfall upon plaintiffs. Hansen, 376 F.3d at 1315 ("Courts should avoid bestowing an 'unfair windfall' on the plaintiff by compensating him or her above and beyond the losses suffered under the breached

The 136th day of the MSO suspensions was January 8, 2005, which is after the close of the 1995 normal operating season. See PX169-179 (AT17). Consequently, alleged damages based upon the suspension of Precision Pine's contracts during the Fall of 1995 are unrecoverable. Precision Pine & Timber, Inc. v. United States, 64 Fed. Cl. 165, 166 (2005) (damages must result "directly and primarily" from "the breach"). 5

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agreement."); see also Bluebonnet Bank, 339 F.3d at 1345. Precision Pine's argument should, therefore, be rejected. II. The Manufacture And Sale Of Lumber From Forest Service Timber Constitutes An Independent And Collateral Undertaking Only profits that "would have accrued and grown out of the contract itself, as the direct and immediate results of its fulfillment" are "a just and proper item of damages." First Heights Bank v. United States, 422 F.3d 1311, 1318 (Fed. Cir. 2005); Rumsfeld v. Freedom, N.Y., 329 F.3d 1320, 1333 (Fed. Cir. 2003); Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1022-23 (Fed. Cir. 1996). Consequently, Precision Pine's claims for lumber profit are not viable. It is undisputed that Forest Service timber sale contracts do not concern or require the manufacture of lumber products.4 E.g., Tr. 1540-43 (Porter), 1762-63, 1765 (Reidhead), 3770 (Harris). Indeed, the Forest Service frequently awards contracts to purchasers who neither own nor have access to a sawmill. Tr. 1651 (Porter), 1762-63, 1765 (Reidhead). Forest Service contracts merely require purchasers such as Precision Pine to cut and remove timber from the sale area. Tr. 3770 (Harris); see also PX169-79 (BT2.1 & 2.2). Consequently, the manufacture of lumber constitutes an independent and collateral undertaking. Precision Pine's lumber profits claims are no different than a claim by a purchaser who planned to use logs from a Forest Service timber sale to build log homes, and sought profits from the anticipated sale of such homes as damages. The standard Forest Service contract permits a

The manufacture of lumber requires (i) debarking the raw logs, (ii) cutting the debarked logs in a sawmill, (iii) taking the resulting rough green lumber to a planing facility, (iv) planing the rough green lumber, (v) grading the resulting planed lumber, and (vi) drying the planed lumber. See Tr. 89-90, 96, 129, 391-92, 608 (Porter). This occurs weeks or months after the timber has been cut and removed from Forest Service land. See id. 6

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purchaser to use Forest Service timber to construct log homes. Tr. 4151-52 (Harris), 2920-21 (Matson) . Nevertheless, profits from the sale of log homes do not arise as "the direct and immediate result of [the] fulfillment" of a Forest Service contract. An independent and collateral undertaking ­ construction of the homes ­ must first occur. Thus, profits from the anticipated sale of log homes built by a purchaser of Forest Service timber would be unrecoverable. And, as Federal Circuit case law makes clear, the fact that the purchaser planned to build homes "in consequence and on the faith of the principal contract" does not alter this conclusion. E.g., Wells Fargo, 88 F.3d at 1022-23. First Heights Bank, a recent Federal Circuit case applying the holding in Wells Fargo, is instructive. In First Heights Bank, the plaintiffs appealed the trial court's denial of lost profits resulting from a Government breach. 422 F.3d at 1318. The plaintiffs alleged that funds lost as a result of the Government's breach were to have been used in their home building business. Id. The Government was generally aware of this potential use of funds during negotiations of the breached agreement. Id. Nevertheless, the Federal Circuit affirmed the denial of lost profits. We agree that whatever additional profits plaintiffs might have earned on whatever additional projects might have been undertaken had the government not breached the Assistance Agreement are too remote to be compensable. Although the government was aware of background information about Pulte being a profitable homebuilder, . . . [t]he subject of the contract in this case was simply money. Plaintiffs could have used the money in any number of ways, including, but not limited to, funding additional homebuilding projects. Accordingly, we conclude that the lost profits plaintiffs seek are not "such as would have accrued and grown out of the contract itself, as the direct and immediate results of its fulfillment" and, therefore, cannot be awarded. First Heights Bank, 422 F.3d at 1318 (quoting Wells Fargo, 88 F.3d at 1023) (emphasis added).

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The Federal Circuit's analysis is equally applicable here. The Forest Service was generally aware that Precision Pine owned and operated sawmills. Nevertheless, the subject of the contracts was simply the harvesting of timber. Precision Pine was free to use harvested timber in any number of ways, including, but not limited to, the manufacture of lumber products. E.g., Tr. 4151-52 (Harris), 2920-21 (Matson). Consequently, here, as in First Heights Bank, the profits Precision Pine seeks are too remote to be compensable. In its post-trial brief, ignoring First Heights Bank, Precision Pine cites a litany of cases that supposedly support the proposition that lumber profits do not result from a collateral undertaking. See Pl.'s Br. at 5-7. Precision Pine relies principally upon Everett Plywood v. United States, 206 Ct. Cl. 224, 512 F.2d 1082 (1975). Pl.'s Br. at 5-6. However, Everett, far from supporting the recovery of lumber profits, holds that the correct measure of damages (where the plaintiff has not procured replacement timber) is the difference between the contract price and the "fair market value" of timber under contract. Everett, 512 F.2d at 1091 (citing Dulien Steel Products, Inc. v. United States, 43 Ct. Cl. 484 (1958), and Uniform Commercial Code § 2-713). In Everett, the Forest Service was found to have breached a timber sale contract by denying a contract term extension.5 This prevented Everett from harvesting approximately three million board feet of timber. Everett sought damages based upon the market value that cut timber would have commanded if sold in the export market. Id. at 1091. However, Everett was not in the business of reselling logs for export. The Court ruled, therefore, that export market prices were not pertinent to the determination of damages. Id. In addition, because "the contract
5

After the contract term extension was denied, the Forest Service resold the timber remaining on Everett's contract. See 512 F.2d at 1086. As a result, unlike this action, the discussion of damages in Everett does not concern delayed harvesting of timber. 8

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price . . . was reasonably reflective of fair market value," the Court concluded that Everett "suffered no compensable damages by the denial of the timber." Id. at 1092. Precision Pine asserts that the "clear implication" of Everett is that the recovery of "lost profits on plywood sales . . . would have been perfectly appropriate." Pl.'s Br. at 6. The Court in Everett implied no such thing.6 Rather, the Court ruled that the proper measure of damages for breach of a timber sale contract is "the extent the contract price was below [the] fair market value" of timber. Id. at 1092 (explaining that "plaintiff is entitled to the benefit of its bargain as measured by that difference"). Further undermining Precision Pine's assertion is the fact that, in the 30 years since Everett was decided, there is no instance in which this Court has awarded lumber profits for breach of a timber sale contract, much less cited Everett as the basis for such an award. Simply put, Everett demonstrates that Precision Pine's damages claims should be based upon the difference between the contract price and the fair market value of timber ­ not putative profits from the sale of lumber products. The other cases cited by Precision Pine are equally unavailing. In Neely v. United States, 167 Ct. Cl. 407 (1964), the Government was found to have breached a lease agreement by refusing to permit the strip mining of coal on the leased property. Id. at 407. As damages, the plaintiff was awarded the sum that would have been earned from selling coal that would have been mined but for the breach. The Court did not award profits derived from using the coal in a manufacturing operation. Neely affords no support to Precision Pine. The mined coal in Neely

The plaintiff in Everett never claimed profits on the sale of plywood. Consequently, the Court had no need to consider whether plywood manufacturing would constitute "an independent and collateral undertaking." See 512 F.2d at 1091. Of course, even if the Court had discussed the viability of a claim for lost plywood sales, its discussion would be mere dicta. 9

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is analogous to harvested logs. The United States has never contended that Wells Fargo would bar damages based upon the fair market value of harvested logs.7 See Def.'s Br. at 10-11 (citing Everett). Only profits from Precision Pine's independent and collateral lumber manufacturing operations are precluded. Peck Iron & Metal Company v. United States, 221 Ct. Cl. 37, 603 F.2d 171 (1979), is similar. In Peck, the Government wrongfully cancelled the sale of a surplus aircraft carrier for scrap. Id. at 172. Had the contract not been cancelled, the purchaser would have extracted various kinds of scrap metal from the ship. See id. at 175-76. While the Court awarded Peck the sum that would have been obtained from the sale of scrap metal, it did not award Peck profits upon products manufactured from scrap metal obtained from the aircraft carrier. Id. Scrap metal extracted from the ship is analogous to timber cut and removed pursuant to a timber sale contract. Consequently, like Neely, Peck merely stands for the proposition that Precision Pine should base its claims upon the market value of harvested timber, not the sale of lumber products manufactured from that timber.8
7

Of course, as we also explain, the recovery of any profits would have to take into account the fact that Precision Pine elected to continue its contracts. As a result, only damages resulting directly from a delay in harvesting the logs would be compensable. Precision Pine also identifies Stoner-Caroga Corp. v. United States, 3 Cl. Ct. 92 (1983), and Chain Belt Co. v. United States, 127 Ct. Cl. 38, 115 F. Supp. 701 (1953). Pl.'s Br. at 6. In Stoner-Caroga, the plaintiff resold the very product (mobile homes) that it had purchased from the United States. The case did not involve (or seek profits for) the manufacture of a new product. As a result, the Court did not address whether profits arose from an independent and collateral undertaking. Similarly, Chain Belt, which was decided decades before the seminal Wells Fargo decision, does not discuss whether damages arose from an independent and collateral undertaking. The cases, therefore, provide no guidance on this issue. Precision Pine refers to certain non-judicial sources as well. Pl.'s Br. at 7 (citing 5 Corbin on Contracts § 1011 (1960), and the official comment to U.C.C. § 2.715). The cited (continued...) 10
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Precision Pine also discusses Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805 (1994).9 Smokey Bear concerned the alleged breach of a license issued to plaintiff "to use the Smokey Bear logo to promote the sale of clothing and various other items." Id. at 806. The plaintiff's license in Smokey Bear was granted in return for royalties generated from the sale of merchandise bearing the Smokey Bear logo. The future sale of licensed merchandise was, thus, part and parcel of the license agreement itself. Forest Service contracts are not analogous. Precision Pine's payment to the Forest Service does not depend upon the manufacture of lumber products. Precision Pine's contracts only concern the cutting and removal of timber from Forest Service land. The fact that one of the many permissible uses for cut timber is the production of lumber is immaterial. See, e.g., First Heights Bank, 422 F.3d at 1318. Precision Pine also refers the Court a motley assortment of documents, statues and contract provisions that merely indicate a general awareness of the unremarkable proposition that cut timber might ultimately be used to produce lumber. See Pl.'s Br. at 8-11 (pointing out, for example, that one purpose of the National Forest system is "to supply timber for the use of the American public"). Yet, Precision Pine identifies no authority ­ contractual or otherwise ­ that compels the use of timber at the purchaser's sawmill. See, e.g., Tr. 2920 (Matson) ("it is up to the purchaser . . . to determine how it wants to dispose of its harvested timber"). In the absence (...continued) authorities do not address the availability of profits earned from "independent and collateral undertakings." Rather, they concern the question of legal foreseeability. Legal foreseeability is a different and distinct inquiry. See section IV.A.3., infra. Precision Pine's reference to this authority is, therefore, misplaced. In Smokey Bear, the Court denied the defendant's motion to dismiss. No damages were awarded. The Court was clear, however, that denial of the motion was based upon the need to develop a full factual record. 31 Fed. Cl. at 809 (concluding that the damages claims should not be dismissed "without a factual inquiry"). 11
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of such authority, Precision Pine cannot establish that lumber profits accrue as the direct and immediate result of fulfilment of its timber sale contracts. In sum, it is the production of cut timber that results from the direct and immediate fulfillment of a Forest Service timber sale contract. Lumber, log homes, and other products that might be made from trees taken from a Forest Service sale are produced only through independent, collateral undertakings. Profits from the sale of such products are, therefore, unavailable as a matter of law. Accordingly, the Court should enter judgment in favor of the United States on Precision Pine's claim for lumber profits. III. Precision Pine's Claim For Profits Is Also Barred By Cities Service Helex When a contract is breached in the course of performance, the non-breaching party may elect to either continue the contract or cancel the contract. See Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306, 1313 (1976); 13 Richard A. Lord, Williston on Contracts § 39:32 at 642-44 (4th ed. 2000) (the non-breaching party "has the choice of one of two alternative and inconsistent . . . remedies, and in choosing one necessarily foregoes the other"). This election has significant ramifications for the recovery of damages. As the Court of Claims explained: [When the non-breaching party] decides to close the contract and so conducts himself, both parties are relieved of their further obligations and the injured party is entitled to damages to the end of the contract term (to put him in the position he would have occupied if the contract had been completed). If he elects instead to continue the contract, the obligations of both parties remain in force and the [non-breaching] party may retain only a claim for damages for partial breach. 543 F.2d at 1313 (emphasis added). The distinction between damages for total breach and partial breach is described by Farnsworth as follows: 12

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If the injured party chooses to terminate the contract, it is said to treat the breach as total. The injured party's claim for damages for total breach takes the place of its remaining substantive rights under the contract. Damages are calculated on the assumption that neither party will render any further performance. . . . If the injured party does not terminate the contract, . . . the injured party is said to treat the breach as partial. The injured party has a claim for damages for partial breach, in addition to its remaining substantive rights under the contract. Damages are calculated on the assumption that both parties will continue to perform in spite of the breach. They therefore compensate the injured party for the loss it suffered as the result of the delay or other defect in performance that constituted the breach, not for the loss of the balance of the return performance. 2 E. Allan Farnswroth, Farnsworth on Contracts § 8.15 at 437 (1990) (italics in original, underlining added). Thus, where a party elects to continue the contract, partial breach damages are based upon the assumption that performance of the contract will be completed. Cities Service Helex, 543 F.2d at 1313; Farnsworth on Contracts § 8.15 at 438; 11 Walter H.E. Jaeger, Willison on Contracts § 1293 at 28 (3d ed. 1968) ("if the breach is not such as will involve the non-performance of the contract altogether, the damages recovered will be calculated on the assumption that the contract will be carried out in the future"). Losses that result directly from the defect in performance that constituted the breach, e.g., delay, are compensable. Precision Pine, 64 Fed. Cl. at 166 (damages must result "directly and primarily" from "the breach"). On the other hand, prospective profit is obtained from continued performance ­ not a damages award. See Cities Service Helex, 543 F.2d at 1313; Farnsworth on Contracts § 8.15 at 438. It is undisputed that Precision Pine chose to continue its Forest Service contracts once the MSO suspensions were lifted. E.g., Tr. 1479 (Porter). Profits available from completing the contracts are, therefore, not recoverable. Cities Service Helex, 543 F.2d at 1313; 2 Farnsworth,

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Farnsworth on Contracts § 8.15 at 438. Yet, this is precisely what Precision Pine's claims for lumber profit seek. See PX131 (claiming profits derived from timber that was available to cut in the post-suspension period after Precision Pine chose to continue contract performance). Precision Pine responds that "expectancy damages" are available for a partial breach. Pl.'s Br. at 14. This argument is a strawman. The United States has never disputed that true delay damages ­ a particular form of expectancy damages ­ would, if proved, be available in this action. As explained in our principal brief, the measure of damages for "partial breach" resulting from delayed performance is the difference in value between what was conveyed and what was supposed to have been conveyed on the date of breach. Def.'s Br. at 10 (citing White v. United States, 187 Ct. Cl. 564, 410 F.2d 773, 779 (1969)). Precision Pine attempts to distinguish White on the ground that it does not concern a contract for the sale of "raw materials." Pl.'s Br. at 15. However, Precision Pine offers no reason that this supposed distinction should affect a calculation of delay damages. Id. Indeed, the "difference in value" approach in White is the same approach used by the Court of Claims in Everett. Everett, 512 F.2d at 1091 (the remedy for breach of a timber sale contract is the difference between the contract price and the "fair market value" of timber on the date of breach); see also id at 1092 ("plaintiff is entitled to the benefit of its bargain as measured by th[e] difference"); U.C.C. § 2-713 (using a "difference in value" measure of damages for private timber sale contracts). Moreover, Precision Pine identifies no case awarding prospective lost profits to a party that elected to continue a breached contract. See Pl.'s Br. at 14. The cases cited by Precision

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Pine simply permit the recovery of delay damages.10 In Entergy Nuclear Indian Point 2 v. United States, 64 Fed. Cl. 515 (2005), for example, plaintiff filed suit concerning the delayed availability of a Government repository for highly radioactive nuclear waste. The plaintiff, rather than cancelling its contract for waste storage, asserted a claim for partial breach. The Court concluded that the plaintiff had standing to seek increased costs resulting from the delay, including the cost of designing and constructing a storage facility, the cost of procuring storage containers and ancillary equipment, and the cost of private fuel storage. Id. at 522. Thus, Entergy Nuclear stands for the unremarkable proposition that where contract performance is delayed (and the contract is not cancelled), costs resulting directly from the delay are compensable. In sum, Precision Pine's claims for lumber profits are the very kind of claim barred by the company's election to continue its contracts. Precision Pine's position is that there is no difference between total breach and partial breach damages. See Pl.'s Br. at 13. This position is not only contrary to White and Everett, it would render meaningless the ruling in Cities Service Helex that the "only" recovery where a party chooses to continue contract performance is "damages for partial breach." 543 F.2d at 1313. Accordingly, the Court should enter judgment for the United States upon Precision Pine's lumber profit claims. IV. Precision Pine Has Failed To Prove Its Claims For Common Law Damages Precision Pine asserts claims under common law for both profits and increased costs. Because manufacturing cost increases are captured by a claim for profits, Precision Pine's
10

Other cases contain nothing more than a restatement of the holding in Cities Service Helex or a boilerplate statement that expectancy damages are available for partial breach. See Morris v. United States, 33 Fed. Cl. 733, 751 (1995); Cuyahoga Metro. Housing Auth. v. United States, 65 Fed. Cl. 534, 543, 561 (2005). As noted above, this latter principle has no bearing upon the pertinent issue. 15

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theories are incompatible. See, e.g., Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400, 402 (2004) (the "theories of expectancy, . . . reliance, and restitution" are "alternative measures"); Tr. 3315, 3357-60 (Neuberger). Specifically, Precision Pine seeks lumber profits and, at the same time, asserts independent claims for alleged increases in log hauling costs and sawmill costs. Both log hauling costs and sawmill costs are accounted for in Mr. Ness's lost profit analyses. See PX131 (tab 4); PX182 (tab 2). Thus, if Precision Pine's lumber profit claims were viable, allowing Precision Pine to recover both profits and increased costs would confer a double recovery. This would be improper. See Bluebonnet, 339 F.3d at 1345; Hansen, 376 F.3d at 1315. A. Precision Pine's Claim For Alleged Lumber Profits Should Be Denied 1. The Lost Volume Seller Concept Is Inapplicable Because The United States Does Not Seek An Offset Of Profits From Post-Suspension Timber Sale Contracts

The lost volume seller concept comes into play where a breached contract is cancelled and the non-breaching party subsequently enters into a contract that is performed. See Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122, 133 (2004) (quoting Restatement (Second) of Contracts § 347 illus. 16 ("Restatement § __")). As the Court explained, this raises the question whether the subsequent transaction is a substitute for the breached contract. Id. Whether a subsequent transaction is a substitute for the broken contract sometimes raises difficult questions of fact. If the injured party could and would have entered into the subsequent contract, even if the contract had not been broken, and could have had the benefit of both, he can be said to have "lost volume" and the subsequent transaction is not a substitute for the broken contract. The injured party's damages are then based on the net profit that he has lost as a result of the broken contract. . . . Id. (quoting Restatement § 347, cmt. f). 16

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There exists no judicial precedent that applies the lost volume seller concept where, as here, the breached contract was not cancelled. See, e.g., Sheperd v. American Honda Motor Co., 822 F. Supp. 625, 633 (N.D. Cal. 1993) ("a lost-volume seller . . . brings a breach of contract action against a reneging buyer based on a lost sale"). Additionally, the United States does not seek to offset profits from "subsequent transactions" such as post-suspension contracts awarded to Precision Pine.11 See Def.'s Br. at 17. Precision Pine's misplaced reference to the lost volume seller doctrine concerns something very different. In its post-trial brief, Precision Pine argues that it should be entitled to profits from two different sets of contracts. Precision Pine contends that it would have "made $X in profits" from the 11 contracts affected by the MSO suspensions (the "MSO contracts"). Pl.'s Br. at 44. Precision Pine contends that it also would have "made $Y in profits" from contracts it would have entered into in the post-suspension period had the MSO suspensions not occurred (the "post-suspension contracts"). Pl.'s Br. at 44, 45. The MSO contracts are the proper focus of this action. Once the MSO suspensions were lifted, in the exercise of sound business judgment, Precision Pine was able to harvest and process timber from the MSO contracts. Consequently, as explained in our post-trial brief, at a minimum, the actual profits earned upon the MSO contracts after the suspensions were lifted must be taken into account. Def.'s Br. at 17; see also sections II & III, supra (explaining that lost lumber profit claims are precluded by Cities Service Helex and Wells Fargo).

Because the United States does not seek to offset profits from post-suspension contracts, Precision Pine's argument regarding the burden of proof in lost volume seller cases is irrelevant. See Pl.'s Br. at 45-47. This argument nevertheless highlights another peculiarity of Precision Pine's claim, namely, that an offset would necessarily be based upon phantom post-suspension contracts, i.e., timber sale contracts that Precision Pine did not bid on and was not awarded. 17

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On the other hand, Precision Pine's claim for "$Y in profits" upon hypothetical postsuspension contracts is legally and factually unsound. It is well-established that profits upon future contracts that allegedly would have been executed but for a breach are "too remote and speculative to be recoverable." E.g., Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741, 743-44 (1980) (damages based upon future contracts are "too remote and speculative to be recoverable" even when Government's breach allegedly caused contractor to be unable to obtain such contracts); Rocky Mountain Constr. Co. v. United States, 218 Ct. Cl. 665, 666 (1978) (damages based on future contracts are "too remote, indirect and speculative to permit recovery" when, absent Government delay, contractor would have been able to bid on other contracts); Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805, 808 (1994) ("Damages for the loss of future profits and lost profitable business opportunities arising from potential contracts with others are per se unrecoverable."). Further, Precision Pine introduced no evidence that it in fact elected to forego timber sale contracts in the post-suspension period. Tr. 671-76, 1089, 1288-89 (Porter) (testifying that he was unaware of any contracts that Precision Pine did not bid on as a result of the MSO suspensions). Precision Pine's attempt to invoke the lost volume seller concept to obtain profits upon the post-suspension contracts should, therefore, be rejected. Precision Pine's putative lost volume seller claim should fail for the additional reason that Precision Pine did not suffer "lost volume" as a result of the MSO suspensions. According to Mr. Ness, the underpinning of Precision Pine's claim is that the company lost production volumes during the MSO suspensions and could not make up those lost volumes in the postsuspension period. See Pl.'s Br. at 44, 47 n.32. This underlying proposition is belied by the facts. During cross-examination, Mr. Porter conceded that Precision Pine did not operate its

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sawmills at their supposed 35 million board foot capacity in the post-suspension period. See Tr. 1074, 1080-82 (Porter). In fact, Precision Pine produced only 8.3 million board feet from April 1997 to March 1998 (FYE1998), and only 6.5 million board from April 1998 to March 1999 (FYE1999). PX182 (exhibit 8). Consequently, Precision Pine had ample sawmill capacity in 1997 and 1998 to produce lumber from both newly-purchased contracts and the once-suspended contracts.12 Therefore, even if Precision Pine's dubious take on the lost volume seller doctrine were accepted, its lost volume claims still should be denied. 2. Precision Pine Has Not Established That Lost Lumber Profits Were Directly And Primarily Caused By The Suspensions

In an action for breach of contract, the "but for" standard of causation applies. California Federal, 395 F.3d at 1368. Under this standard, while the existence of "other factors operating in confluence with the breach" do "not necessarily preclude recovery," see id., the breach must cause the alleged harm "directly and primarily," Precision Pine, 64 Fed. Cl. at 166; see also Myerle v. United States, 33 Ct. Cl. 1, 27 (1897) ("There must not be two steps between cause and damage."). Further, alleged harm must result from the breach "inevitably and naturally, not possibly nor even probably." California Federal, 395 F.3d at 1267 (quoting Myerle, 33 Ct. Cl. at 27); Precision Pine, 64 Fed. Cl. at 166. Thus, an intervening cause or incident will render claimed damages unrecoverable. See Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060, 1071 (Fed. Cir. 2001) (holding that the plaintiff's "independent business decision" constituted an intervening cause that precluded damages); Myerle, 33 Ct. Cl. at 27

According to Precision Pine's own allegations, the company had spare capacity of 26.7 mmbf (lumber tally) in FYE 1998, and 28.5 mmbf (l.t.) in FYE1999. See Tr. 94, 106, 1074 (Porter); PX182 (exhibit 8). 19

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("there must appear no intervening incident . . . to complicate or confuse the certainty of the result between the cause and the damage"). In this action, if the Court considers that Precision Pine's lumber profits claim, Precision Pine must prove that "but for" the MSO suspensions it would have fully harvested each contract for which it seeks lost profits (i.e., the Brookbank, Hay, Jersey Horse, Kettle, Manaco, Monument, Mud, O.D. Ridge, Salt, Saginaw-Kennedy and U-Bar contracts) during the suspension period. California Federal, 395 F.3d at 1268; Precision Pine, 64 Fed. Cl. at 166. Further, for each contract, Precision Pine must demonstrate that the loss of profits resulted directly and primarily from the unreasonable duration of the suspension. Precision Pine, 64 Fed. Cl. at 166 (claimed loss must result "directly and primarily" from "the breach"). Precision Pine has not met this burden. Precision Pine has provided no direct evidence that it would have completed any of the contracts at issue had the MSO suspensions not occurred. The scheduling of timber harvesting was the sole responsibility of company president Lorin Porter. At trial, Mr. Porter testified that he did not know what contracts Precision Pine would have harvested but for the suspensions. Tr. 1442-48 (Porter). In addition, Precision Pine offers no harvesting plans, operating schedules, business plans, notes or other written records indicating which contracts it would have harvested. Despite the utter failure to offer any documents or relevant witness testimony, Precision Pine argues that the Court should infer that it would have fully harvested all of its contracts. See Pl.'s Br. at 20. Such an inference is not reasonable. To harvest all of the contracts at issue during the suspension period, Precision Pine would have had to ramp up its sawmill operations, and deplete virtually the entire inventory of timber

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under contract. See Tr. 2284 (Ness) (basing calculations on increased production of 34.7 mmbf). However, there is no evidence that it intended to increase the level of its sawmill operations in late 1995 or 1996. At the time of the MSO suspensions, Precision Pine had been operating its sawmills at substantially less than their putative 35 million board foot capacity.13 DX802 (showing lumber production of only 12.3 mmbf from April to September 1995); see also Tr. 1410, 2144 (Porter) (admitting that Precision Pine was not operating at 35 mmbf per year); DX559 (showing timber harvesting of only 18.7 mmbf in 1994 and 11.0 mmbf in 1995). Not only did Precision Pine operate its sawmills at less than capacity before the MSO suspensions, it continued to do so after the MSO suspensions were lifted. Tr. 1074, 1080-82 (Porter). This is significant because lumber prices ­ the motivation for high levels of sawmill production ­ were higher before the suspensions in 1993 and 1994 and after the suspensions in 1997. PX305; DX776 (exhibit 3). Thus, there is absolutely no reason to conclude that Precision Pine would have substantially increased lumber production at a time of poor market conditions in late 1995 and 1996. Simply put, Precision Pine's actions before, during and after the MSO suspensions belie the claims fashioned for this litigation. In its post-trial brief, Precision Pine makes several arguments that the Court should infer ­ despite the utter lack of direct evidence ­ that Precision Pine would have completely harvested the contracts at issue between August 25, 1995 and December 4, 1996. See Pl.'s Br. at 20. None withstand scrutiny.

Even at this lower level of operations, the amount of timber Precision Pine had under contract had been declining steadily since 1992. DX559 (showing a decline from 51.5 mmbf to 34.3 mmbf). 21

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First, Precision Pine asserts that the contract completion date (on seven unidentified contracts) would have required the company to complete timber harvesting by December 31, 1996. See Pl.'s Br. at 20. Precision Pine is mistaken. As the Court is aware, Precision Pine actually sought and obtained contract extensions through a variety of mechanisms that permitted contract completion dates to be extended through 2001. See Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635, 638 (2004) (affirming the termination for default of Precision Pine's contracts on January 9, 2001). Indeed, as explained at trial, Precision Pine was offered 60 day contract term adjustments in March 1996 as the result of the poor lumber market. DPFOF ¶ 75. And Precision Pine was entitled to additional term adjustments as the result of fire closures from May to July 1996. DPFOF ¶¶ 77-80. A contract term adjustment of, for example, 60 days provides an additional 60 days to harvest during the normal operating season. Consequently, in the "but for" world, Precision Pine was eligible for term adjustments for most, if not all, of 1997.14 Precision Pine was, therefore, under no contractual obligation to complete harvesting on any of the contracts at issue by December 31, 1996. Second, Precision Pine asserts the suspended sales represented only a 10.5 month supply of timber and, therefore, that it needed to cut all of the timber in order to run its mills at capacity. See Pl.'s Br. at 20. As an initial matter, Precision Pine's assertion the contracts at issue contain only a 10.5 month supply of timber is factually inaccurate as the statement is based upon an

The O.D. Ridge contract has a normal operating season that runs from May 15 through October 15. PX171 (AT17). Consequently, assuming this contract had a December 31, 1996 termination date, a 60-day term adjustment for market conditions would permit harvesting to continue through July 14, 1997. An additional 64 day term adjustment for fire closures in 1996 would permit harvesting through September 16, 1997. The O.D. Ridge contract would also have been eligible for term adjustments due to other occurrences such as, for example, the Forest Guardians suspensions. See PX171 (BT8.21) 22

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inflated 35 million board foot annual sawmill capacity ­ a level of operation that the company did not achieve before, during or after the