Free Post Trial Brief - District Court of Federal Claims - federal

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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)

PLAINTIFF'S POST-TRIAL BRIEF

Alan I. Saltman SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Counsel for Plaintiff OF COUNSEL: Richard W. Goeken Bryan T. Bunting SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Washington, D.C. 20006 (202) 452-2140 Dated: September 2, 2005

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TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES ......................................................................................................... iv I. Applicable Legal Standards .................................................................................................1 A. B. C. II. Causation..................................................................................................................1 Foreseeability...........................................................................................................2 Reasonable Certainty ...............................................................................................3

As A Preliminary Matter, Precision Pine's Damages Do Not Arise From Activities That Are Collateral To The Contracts At Issue ...................................................................4 A. B. Damages Incurred Due To The Unavailability Of The Use Of The Subject Of The Contract Are Recoverable Under The Law Of This Circuit........................4 The Manufacture And Sale Of Lumber From The Timber Under Contract Is Not Collateral Because It Is Contemplated By The Statue Establishing The National Forests, The Forest Service's Timber Sale Program, The Bidding Documents And The Timber Sale Contract...............................................8

III. IV. V.

As Another Preliminary Matter, The Breach Of All Eleven Contracts Occurred On August 25, 1995; It Did Not Occur 135 Days Later ....................................................11 Precision Pine's Right To Recover Its Expectancy Damages, Including Lost Profits, Is Not Limited Under The Law Relating To Partial Breach .................................13 Precision Pine's Lost Profits On Lumber And By-Products Are Recoverable .................15 A. B. C. But For The Suspension, Precision Pine Would Not Have Sustained Lost Profits With Regard To Lumber And By-Product Sales .......................................15 Precision Pine Introduced Ample Evidence That Its Lost Profits Were Foreseeable To The Forest Service........................................................................16 Precision Pine Has Proven Its Lost Profits With Reasonable Certainty................17 1. The Methodology Used To Calculate Lost Profits ....................................17 a. The Volume Of Sawlogs Remaining On The Breached Sales At The Time Of The Suspension ...................................................18 i

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b. c. d. e.

Harvest Schedule ...........................................................................19 Milling Schedule............................................................................21 Delivered Log Costs ......................................................................23 Calculation Of The Volume Of Each Lumber Product That Would Have Been Produced From The Breached Sales ...............24 i. ii. Precision Pine's Use Of A 1.25 Overrun Factor Is Reasonable And, If Anything, Conservative .................24 Precision Pine's Determination Of The Mix Of Lumber Products That Would Have Been Produced From The Ponderosa Pine On The Breached Sales During The Suspension Was Reasonable ..........................28

f. g.

The Determination Of Prices For Ponderosa Pine Lumber Products During The Suspension Period .......................................32 The Determination Of The Volume, Product Mix, And Pricing For Douglas-fir And Spruce Lumber Products During The Suspension Period ......................................................35 Defendant's Approach To Lumber Product Pricing And Product Mix Is Unreliable..............................................................36 Mr. Ness' Calculation And Deduction Of Freight Costs And Prompt Payment Discounts From Gross Lumber Revenue..........................................................................................39 Mr. Ness' Calculation And Deduction Of Manufacturing Costs From Net Lumber Sales Revenue ........................................40 Mr. Ness' Calculation Of Gross Profits-Lumber...........................41 Mr. Ness' Calculation Of By-Product Revenue (Lost Profits) ......41 Total Lost Gross Profits (Lost Market Opportunity) .....................42

h. i.

j. k. l. m.

ii

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D. E. VI.

Because Precision Pine Was A Lost Volume Seller, No Deduction For Post-Suspension Profits Is Required......................................................................44 Pulpwood Harvesting Would Not Have Prevented Profitable Operations On The Sales During The Suspension .........................................................................47

The Increased Manufacturing Costs That Precision Pine Experienced At Its Sawmills Due To The Suspension Are Recoverable .........................................................51 A. B. But For The Suspension, Precision Pine Would Not Have Incurred Increased Manufacturing Costs..............................................................................51 It Was Foreseeable To The Forest Service That A Prolonged And Widespread Suspension Would Increase The Cost Of Precision Pine's Manufacturing Operations .....................................................................................56 Precision Pine Has Established Its Increased Manufacturing Costs With Reasonable Certainty .............................................................................................56

C. VII.

Precision Pine's Increased Hauling Costs On The Hay Sale Are Recoverable.................57 A. B. C. But For The Suspension, Precision Pine Would Not Have Incurred Any Increased Timber Hauling Costs On The Hay Sale ...............................................57 It Was Foreseeable That The Protracted Suspension Would Increase Precision Pine's Hauling Costs..............................................................................60 Precision Pine Has Computed Its Increased Hauling Costs With Reasonable Certainty .............................................................................................62 1. 2. Increased Hauling Costs in 1996 & 1997 ..................................................62 Increased Hauling Costs in 1998 ...............................................................63

VIII. IX. X.

Precision Pine's Out-of-Pocket Expenses Incurred In Preparing Its Claim Letters Were A Direct Result of The Suspension..............................................................64 Credit For The Partial Cancellation Of The Mud Sale ......................................................67 Precision Pine Is Entitled To Recover Its "Miscellaneous Costs".....................................67

Conclusion .....................................................................................................................................70

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TABLE OF AUTHORITIES CASES PAGE

Am. Line Builders, Inc. v. United States, 26 Cl. Ct. 1155 (1992) .......................................................................................................60 Bank of America, FSB et al v. United States, __ Fed.Cl. __, 2005 WL 1792182 (Fed.Cl. July 21, 2005) ..............................................14 Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348 (Fed.Cir. 2001).............................................................................................2 Big Chief Drilling Co. v. United States, 26 Cl.Ct. 1276 (1992) ........................................................................................................64 Boston Edison Co. v. United States, 64 Fed.Cl. 167 (2005) ........................................................................................................14 California Fed. Bank, FSB v. United States, 245 F.3d 1342 (Fed.Cir. 2001).............................................................................................5 California Fed. Bank v. United States, 395 F.3d 1263, 1268 (2005), petition for cert. filed, 73 U.S.L.W. 3721 (May 19, 2005)................................................................................................................1, 2 Chain Belt Co. v. United States, 127 Ct.Cl. 38, 115 F.Supp. 701 (1953)................................................................................6 Cities Service Helex, Inc. v. United States, 211 Ct.Cl. 222, 543 F.2d 1306 (1976) ...............................................................................13 Citizens Federal Bank v. United States, 66 Fed.Cl. 179 (2005) ..........................................................................................................4 Coley Properties Corp. v. United States, 219 Ct.Cl. 227, 593 F.2d 380 (1979) .................................................................................66 Commercial Fed. Bank v. United States, 59 Fed.Cl. 388 (2004) ..........................................................................................................5 Cuyahoga Metro. Hous. Auth. v. United States, 65 Fed.Cl. 534 (2005) ........................................................................................................14

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Dale R. Horning Co. v. Falconer Glass Ind., Inc., 730 F.Supp. 962 (S.D. Ind. 1990) ......................................................................................64 Desonia Constr Co., Inc., ENGBCA No 3231, 73-1 BCA ¶ 9797 (Nov. 17, 1972) ...................................................66 District Concrete Co., Inc. v. Bernstein Concrete Corp., 418 A.2d 1030 (D.C. 1980) ...............................................................................................64 Draft Systems Inc. v. Rimar Manufacturing Inc., 524 F.Supp 1049 (E.D. Pa. 1981) ......................................................................................64 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed.Cir. 2002).........................................................................................1, 2 Entergy Nuclear Indian Point 2, LLC v. United States, 64 Fed.Cl. 515 (2005) ........................................................................................................14 Everett Plywood Corp. v. United States, 206 Ct.Cl. 244, 512 F.2d 1082 (1975) .................................................................................5 Everett Plywood Corp. v. United States, 651 F.2d 723 (Ct.Cl. 1981) ..................................................................................................7 Franconia Assocs. v. United States, 61 Fed.Cl. 718 (2004) ......................................................................................1, 2, 4, 52, 53 Gardner Displays Co. v. United States, 171 Ct.Cl. 497, 346 F.2d 585 (1965) .............................................................................3, 62 Glendale Fed. Bank v. United States, 43 Fed.Cl. 390 (1999) aff'd in part, vacated in part, and remanded, 239 F.3d 1374 (Fed.Cir. 2001).............................................................................................8 Globe Savings Bank, F.S.B. v. United States, 65 Fed.Cl. 330 (2005) ........................................................................................................53 Hawthorne Indus., Inc. v. Balfour Maclaine Int'l, Ltd., 676 F.2d 1385 (11th Cir. 1982)...........................................................................................51 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed.Cir. 2001).............................................................................................7 J.D. Hedin Constr. Co. v. United States, 171 Ct.Cl. 70, 347 F.2d 235 (1965) ...................................................................................59 v

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Kutner Buick, Inc. v. American Motor Corp., 868 F.2d 614 (3rd Cir. 1989) ..............................................................................................18 LaSalle Talman Fed. Bank v. United States, 317 F.3d 1363 (Fed.Cir. 2003).......................................................................................4, 30 Matt Allen Logging, AGBCA Nos. 2002-124-1, 04-1 BCA ¶ 32,596 (April 8, 2004) .......................................66 Miller v. Robertson, 266 U.S. 243, 45 S.Ct. 73 (1924).......................................................................................47 Morris v. United States, 33 Fed.Cl. 733 (1995) ........................................................................................................14 Neely v. United States, 167 Ct.Cl. 407, 1964 WL 8619 (1964) ................................................................................6 Olin Jones Sand Co. v. United States, 225 Ct.Cl. 741, 1980 WL 13211 (1980) ..........................................................................7, 8 Pacific Rivers v. Thomas, 30 F.3d 1050 (9th Cir. 1994) ..............................................................................................11 Peck Iron & Metal Co., Inc. v. United States, 221 Ct.Cl. 37, 603 F.2d 171 (1979) .....................................................................................6 Poston Logging, AGBCA No. 97-168-1, 99-1 BCA ¶ 30,188 (Dec. 15, 1998) ..................................... 63-64 Precision Pine & Timber, Inc. v. United States, 50 Fed.Cl. 35 (2001) ..................................................................................11, 12, 13, 16, 61 Precision Pine & Timber, Inc. v. United States, 63 Fed.Cl. 122 (2004) ................................................................................................ passim Reidhead Bros. Lumber Co., AGBCA No. 2000-126-1, 01-2 BCA ¶ 31,486 (June 29, 2001) ...........................61, 65, 66 Rocky Mountain Const. Co. v. United States, 218 Ct.Cl. 665 (1978), 1978 WL 8468 (1978) ....................................................................7 Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320 (Fed.Cir. 2003).............................................................................................7 vi

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San Carlos Irrigation and Drainage Dist. v. United States, 111 F.3d 1557 (Fed.Cir. 1997).............................................................................................1 Scott Timber Co. v United States, 333 F.3d 1358 (Fed.Cir. 2003)...............................................................................12, 51, 66 Scott Timber, Inc. v. United States, 64 Fed.Cl. 130 (2005) ................................................................................................1, 2, 56 Smith-Wolf Construction, Inc., v. Hood, 756 P.2d 1027 (Colo.App. 1988) .......................................................................................64 Smokey Bear, Inc. v. United States, 31 Fed.Cl. 805 (1994) ......................................................................................................7, 8 Snyder-Lynch Motors, Inc. v. United States, 154 Ct.Cl. 476, 292 F.2d 907 (1961) .................................................................................25 Stoner-Caroga Corp. v. United States, 3 Cl.Ct. 92 (1983) ................................................................................................................6 T.C. Bateson Constr. Co. v. United States, 162 Ct.Cl. 145, 319 F.2d 135 (1963) .................................................................................52 United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918)................................................................25 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed.Cir. 1996).......................................................................................4, 5, 6 White v. United States, 187 Ct.Cl. 564, 410 F.2d 773 (1969) .................................................................................15 Womack v. United States, 182 Ct.Cl. 399, 389 F.2d 793 (1968) .................................................................................25 Youngdale & Sons Constr. Co. v. United States, 27 Fed.Cl. 516 (1993) .................................................................................................. 59-60 STATUTES AND REGULATIONS 16 U.S.C. § 475................................................................................................................................9

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Uniform Commercial Code § 2-708, cmt. 2 ...................................................................................................................45 § 2-708(2)...........................................................................................................................64 § 2-715 ...............................................................................................................................64 MISCELLANEOUS U.S. Forest Service, Handbook No. 2409.15, Timber Sale Administration § 37.5 (Amendment 92-6, Aug. 3, 1992 ............................................................................69 U.S. Forest Service. Handbook No. 2409.15, Timber Sale Administration § 61.3 (Amendment 92-6 Aug. 3, 1992)............................................................................51 1 Robert A Dunn, RECOVERY OF DAMAGES FOR LOST PROFITS § 2.4 (5th ed. 1998).......................7 1 James J. White & Robert S. Summers, UNIFORM COMMERCIAL CODE § 6-3 at 298 (4th ed. 1998)..................................................................................................46 3 E. Allen Farnsworth, FARNSWORTH ON CONTRACTS § 12.9 (2nd ed. 1998)................................14 5 CORBIN ON CONTRACTS § 1011 (1964).........................................................................................7 13 Richard A. Lord, WILLISTON ON CONTRACTS § 39:32 (4th ed. 2000) .......................................14 29 Charles Alan Wright & Victor James Gold, FEDERAL PRACTICE AND PROCEDURE § 6273 (1997).................................................................................................38 RESTATEMENT (SECOND) OF CONTRACTS § 347, cmt. f (1981) ....................................................45

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I.

Applicable Legal Standards. At trial, Precision Pine & Timber, Inc. ("Precision Pine") proved, among other elements

of damage discussed below, its entitlement to certain expectancy damages, the largest portion of which was lost profits. The well-established goal of expectancy damages is to provide the aggrieved plaintiff with the benefit he expected to receive from the breached transaction, Energy Capital Corp. v. United States, 302 F.3d 1314, 1324 (Fed.Cir. 2002), i.e., "to place the injured party in as good a position as he or she would have been had the breaching party fully performed." San Carlos Irrigation and Drainage Dist. v. United States, 111 F.3d 1557, 1562-63 (Fed.Cir. 1997). A plaintiff is entitled to lost profits for breach of a contract upon a showing by a mere preponderance of the evidence that: (1) the loss was the proximate result of the breach; (2) the loss of profits caused by the breach was within the contemplation of the parties because the loss was foreseeable or because the defaulting party had knowledge of special circumstances at the time of contracting; and (3) a sufficient basis exists for estimating the amount of lost profits with reasonable certainty. Energy Capital Corp., 302 F.3d at 1324-25. A. Causation.

The "but for" test as set forth in California Fed. Bank v. United States, 395 F.3d 1263, 1267-68 (2005), petition for cert. filed, 73 U.S.L.W. 3721 (May 19, 2005) (No. 04-1557), is the appropriate standard for causation and, furthermore, is wholly consistent with the "substantial factor" standard of causation, Scott Timber, Inc. v. United States, 64 Fed.Cl. 130, 138 n.2 (2005) (citing Precision Pine & Timber, Inc. v. United States, 63 Fed.Cl. 122, 128 (2004), i.e., lost profits that are the direct and primary result of a breach are recoverable. Franconia Assocs. v. United States, 61 Fed.Cl. 718, 747 (2004). As this Court also explained: 1

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The breach need not "be the sole factor or sole cause in the loss of profits. The existence of other factors operating in confluence with the breach will not necessarily preclude recovery based on the breach." Cal. Fed. Bank, 395 F.3d 1263, 1268. . . . Scott Timber, 64 Fed.Cl. at 183 n.2 (citations omitted). Thus, plaintiff need only show that the lost profits it claims as damages arose as a natural consequence of defendant's breach and that the breach was a proximate cause of the losses. See Cal. Fed. Bank, 395 F.3d at 1268; Franconia Assocs., 61 Fed.Cl. at 747 n.50, n.51. B. Foreseeability.

A plaintiff seeking expectancy damages must also establish by a simple preponderance of the evidence that "the loss of profits caused by the breach was within the contemplation of the parties because the loss was foreseeable or because the defaulting party had knowledge of special circumstances at the time of contracting." Energy Capital Corp., 302 F.3d at 1325 (emphasis added, citations omitted); see also Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed.Cir. 2001). As this Court found at summary judgment: A plaintiff's recovery is not contingent on a defendant's having actually foreseen the injury which occurred. Rather, The existing rule requires only reason to foresee, not actual foresight. It does not require that the defendant should have had the resulting injury actually in contemplation or should have promised either impliedly or expressly to pay therefor in case of breach. 63 Fed.Cl. at 130 (emphasis in original, citation omitted). From this, the Court concluded that "Precision Pine need not show that a particular type of breach was foreseeable, but must prove that both the general magnitude and type of damages were foreseeable." Id. Thus, Precision Pine's specific damages need not have been within the actual "contemplation" of the Forest Service at the time of contracting; rather, the Forest Service need only have been able to 2

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objectively anticipate that the general type of damages suffered by Precision Pine could result from a suspension of the magnitude and duration that the Forest Service imposed either at the time of contracting or at the time of breach.1 As demonstrated below, Precision Pine has provided ample factual evidence showing that the Forest Service had every reason to foresee (and in fact foresaw) that a protracted and widespread suspension such as the one that took place in this case could result in the type of damages sustained by Precision Pine. C. Reasonable Certainty.

With respect to the third element, reasonable certainty as to the amount of damages, this Court recently recognized that although a plaintiff must carry its burden by a preponderance of the evidence: The ascertainment of damages is not an exact science, and where responsibility for damage is clear, it is not essential that the amount thereof be ascertainable with absolute exactness or mathematical precision: `It is enough if the evidence adduced is sufficient to enable a court or jury to make a fair and reasonable approximation.'" Bluebonnet, 266 F.3d at 1355 (quoting Elec. & Missile Facilities, Inc. v. United States, 189 Ct.Cl. 237, 416 F.2d 1345, 1358 (1969) (internal quotation marks and citation omitted)). Where, as here, "`a reasonable probability of damage can be clearly established, uncertainty as to the amount will not preclude recovery,' and the court's duty is to `make a fair and reasonable approximation of the damages.'" Id. at 1356-57 (citing Ace-Federal Reporters, Inc. v. Barram, 226 F.3d 1329, 1333 (Fed.Cir. 2000) (quoting Locke v. United States, 151 Ct.Cl. 262, 283 F.2d 521, 524 (1960))) (emphasis added). "[C]omplete certainty and mathematical precision is not necessary once the fact of damages has been established." Peck Iron & Metal Co. v. United States, 221 Ct.Cl. 37, 603 F.2d 171, 174 (1979).

At summary judgment this Court also found that in appropriate circumstances, such as those present here, the issue of foreseeability could also be determined as of the time of the breach. 63 Fed.Cl. at 131 (citing Gardner Displays Co. v. United States, 171 Ct.Cl. 497, 346 F.2d 585, 586-87 (1965)). 3

1

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Citizens Federal Bank v. United States, 66 Fed.Cl. 179, 199 (2005); accord Precision Pine, 63 Fed.Cl. at 131. The courts of this Circuit have been careful not to allow the calculation of damages to devolve into "a quixotic quest for delusive precision or worse, an insurmountable barrier to any recovery." Franconia Assocs., 61 Fed.Cl. at 746. Thus, the risk of limited available evidence to prove damages must fall on the breaching party, not the aggrieved party. See LaSalle Talman Fed. Bank v. United States, 317 F.3d 1363, 1374 (Fed.Cir. 2003) (citations omitted). These salutary rules have special application where, as here, defendant's breach necessitates a "what if" analysis. Defendant should not, therefore, be heard to complain about the reasonable and, if anything, conservative, approach employed by Precision Pine to quantifying the harm it sustained. II. As A Preliminary Matter, Precision Pine's Damages Do Not Arise From Activities That Are Collateral To The Contracts At Issue. A. Damages Incurred Due To The Unavailability Of The Use Of The Subject Of The Contract Are Recoverable Under The Law Of This Circuit.

At trial, defendant argued that virtually any activity beyond felling and removing the timber from the forest is "collateral" to the contracts at issue. Tr. at 3200-04, 3244 (Harrington). In doing so, defendant relied heavily on Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1022-1023 (Fed.Cir. 1996) (see Tr. 3156-60 (Harrington)), for the proposition that if lost profits would have been realized from "other independent and collateral undertakings" they are not recoverable. However, defendant's reliance on Wells Fargo to support its position is belied by the case itself as well as numerous precedents in this Circuit decided both before and after Wells Fargo was issued. As Wells Fargo itself recognizes, the recovery of lost profits "on the use of the subject of the contract itself" is appropriate. Id. at 1023 (emphasis added). The court in Wells Fargo held that the plaintiff bank was entitled to recover lost profits it would have made 4

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on a loan to a third party had the government not breached its contract to issue a loan guarantee to plaintiff. Id. at 1523-34. Wells Fargo has not proved to bar recovery even in the Winstar context (where lost profits have sometimes been difficult to recover). See Cal. Fed. Bank v. United States, 245 F.3d 1342, 1349 (Fed.Cir. 2001) ("Profits on the use of the subject of the contract itself, here supervisory goodwill as regulatory capital, are recoverable as damages"); see also Commercial Fed. Bank v. United States, 59 Fed.Cl. 388, 345-46 (2004) (The court, citing Wells Fargo, ruled in the plaintiff's favor because even though the profit being sought was to have been made on collateral undertakings, such as mortgage loan activity, those profits were the result of the use of the subject of the contract itself). Wells Fargo and its focus on the use to which the subject of the contract would have been put is also fully in accord with the law of this Circuit that where the government is supplying materials (such as timber) to one in the business of manufacturing and reselling a resulting product (such as lumber), the activities associated with the manufacture of the raw materials and their subsequent sales to third parties are not collateral to the contract. In Everett Plywood Corp. v. United States, 206 Ct.Cl. 244, 512 F.2d 1082 (1975), the Court of Claims did not believe that the sale of lumber products manufactured from the timber which was the subject of the Forest Service contract at issue was somehow too remote or somehow broke the causal chain for damages to be recoverable. See id. at 1091. Although the Court of Claims did reject plaintiff's lost profit claim, which had been premised on resale of the logs into the export market, the court did not do so because such a transaction was "collateral" to the timber sale contract. To the contrary, the court denied plaintiff's claim because plaintiff was a manufacturer of plywood, and had no track record of selling logs into the export market. Id. The court noted that Everett 5

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purchased timber to supply its plywood operations, not for export. Id. The clear implication of the court's decision was that had the plaintiff sought to recover its lost profits on plywood sales that would have been made in the usual course of its business, such damages, if proven, would have been entirely appropriate. Accord Neely v. United States, 167 Ct.Cl. 407, 1964 WL 8619 (1964) (per curiam) (Government breached a lease by virtue of its refusal to allow plaintiff to strip mine coal on the leased property, and the Court of Claims awarded plaintiff the estimated profits it would have made on its resale of the mined coal to third parties); Peck Iron & Metal Co., Inc. v. United States, 221 Ct.Cl. 37, 603 F.2d 171, 175-81 (1979) (Due to the government's wrongful cancellation of a contract to deliver a surplus aircraft carrier, the Court of Claims awarded plaintiff its lost profit on ten types of metal that the plaintiff would have salvaged from the aircraft carrier and resold to third parties); Stoner-Caroga Corp. v. United States, 3 Cl.Ct. 92, 93, 96 (1983) (plaintiff, who was in the business of buying, repairing and reselling mobile homes, contracted to purchase two surplus mobile homes from the government for $456 and was found to be entitled to its lost profits (which plaintiff alleged were $10,800) in selling refurbished mobile homes to third parties); see also Chain Belt Co. v. United States, 127 Ct.Cl. 38, 115 F.Supp. 701, 718 (1953) (The government's breach of contract by failing to timely vacate a portion of plaintiff's manufacturing plant was the direct and proximate cause of plaintiff's lost profits on unfilled orders to third parties). These long-standing precedents in this Circuit are consistent with the view that where a contract to supply raw materials to one in the business of manufacturing is breached, lost profits on manufactured goods that would have been produced are not collateral to the contract: One who has contracted to supply a factory with machinery necessary to run it, or with special materials necessary to the product of the factory and not obtainable elsewhere, is likely to have reason to foresee that his failure to supply as agreed 6

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will cause the factory to cease production and to prevent the making of profits from the operation of the factory and the sale of its product. . . . There are cases holding that for breach of the supplier of necessary materials the manufacturer can recover damages for his loss of operating profits. 5 CORBIN ON CONTRACTS § 1011 (1964). See also 1 Robert A. Dunn, RECOVERY OF DAMAGES
FOR LOST PROFITS

§ 2.4 (5th ed. 1998).2 Accordingly, where, as here, profits are prevented by a

breach of a contract to supply raw material to one in the business of manufacturing that raw material and reselling the resulting products, such lost profits are recoverable. The cases cited by defendant in its pre-trial Memorandum of Facts and Law as precluding the recovery of damages on "collateral" undertakings are readily distinguishable from the instant case. None of the cases address a situation such as the instant one where the government is a seller providing raw material to one in an established business of processing that material and reselling the resulting products. Rather, in three of the cases cited by defendant, the government, as a buyer of goods or services, was simply obliged to make payment under the contract for services rendered/goods provided, and as such, the court refused to award the plaintiff profits that could have been made on another, wholly unrelated transaction.3 The government's reliance on Smokey Bear, Inc. v. United States, 31 Fed.Cl. 805 (1994), is misplaced. In that case the government entered into a license agreement to permit This view is also found in Official Comment 6 to U.C.C. § 2-715: "In the case of sale of wares to one in the business of reselling them, resale is one of the requirements of which the seller has reason to know. . . ." (emphasis added). The U.C.C. has been applied as an aid in interpreting Forest Service timber sale contracts, e.g., Everett Plywood Corp., 651 F.2d at 729, 733, and has deemed to be a "useful guidance" in applying general contract principles. Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed.Cir. 2001). Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1333 (Fed. Cir. 2003); Olin Jones Sand Co. v. United States, 225 Ct.Cl. 741, 1980 WL 13211 (1980); Rocky Mountain Const. Co. v. United States, 218 Ct.Cl. 665 (1978), 1978 WL 8468 (1978). 7
3 2

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plaintiff to market merchandise using the Smokey the Bear logo. After the government breached the contract, plaintiff was allowed to proceed to trial to recover its lost profits on sales to third parties that were contemplated by the license agreement. Id. at 808-09 (distinguishing, inter alia, Olin Jones Sand Co., 225 Ct.Cl. 741)). As demonstrated below, Smokey Bear supports Precision Pine's position in the present litigation because in both situations the government by contract was providing something that it anticipated (if not desired) would be the subject of other activities on which its contracting partner might earn profits. B. The Manufacture And Sale Of Lumber From The Timber Under Contract Is Not Collateral Because It Is Contemplated By The Statue Establishing The National Forests, The Forest Service's Timber Sale Program, The Bidding Documents And The Timber Sale Contract.

Not only would the lost profits here in issue have been earned as a result of the use of the subject of the breached contracts themselves (i.e., timber) but the contracts and the program under which they were authorized refer both expressly and implicitly to the production of lumber from the subject of the contracts.4 Ever since the National Forests were established in the late 19th century, one of their primary purposes has been to supply timber for the use of the American public. Indeed, the Organic Act of 1897 which authorized the creation of National Forests provides that no national forest "shall be established, except to improve and protect the forest . . ., or for the purpose of securing favorable conditions of water flows, and to furnish a continuous supply of timber for the

In Glendale Fed. Bank v. United States, 43 Fed.Cl. 390, 398 (1999) aff'd in part, vacated in part, and remanded, 239 F.3d 1374 (Fed.Cir. 2001), the trial court stated that in determining the limits on the recoverability on lost profits that "Critical to the inquiry, then, is what the purpose of the contract is. . . . The question is not whether the profits are to be derived from undertakings with third parties, but what the subject and purpose of the contract is." 8

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use and necessity of citizens of the United States." 16 U.S.C. § 475 (emphasis added). PPFF 168. The means by which the Forest Service meets this statutory duty is its commercial timber sale program. At all times relevant to this case, an objective of the Forest Service's commercial timber sale program as recognized by the Forest Service's own manual was to provide a continuous flow of raw material to local forest industries. PPFF 170. The Forest Service was also well aware that sawmill owners were the primary customers for Forest Service timber sales. PPFF 171. Additional evidence that the use of Forest Service timber to produce lumber at a sawmill is not collateral to the instant contracts was presented in the form of the Forest Service's bid documents and contract provisions. For example, in bidding on Forest Service timber sale contracts a prospective purchaser is required to identify whether or not it is a manufacturer (PPFF 175) and in each of the bids Precision Pine submitted on the breached contracts, Precision Pine identified itself as a manufacturer, i.e., a company with the ability to process logs into lumber. PPFF 176. Moreover, in other documents submitted as part of the standard Forest Service bid package, a potential purchaser must also identify the plant at which the timber is to be processed into lumber and agree to advise the Forest Service if there is to be a change in the plant to which the logs are to be delivered. PPFF 178. The provisions of the standard Forest Service timber sale contract also demonstrate that the manufacture of the timber and sale of the resulting wood products is not collateral to the contracts. For example, pursuant to standard clause C(T)8.212, which is included in each of the contracts at issue, the Forest Service provides a purchaser with additional time within which to harvest the timber on the contract if there is a significant downturn in the lumber market. PPFF 9

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189. The Forest Service's purposes in adopting this contract provision included maintaining plant capacity to supply the country with construction lumber, and the retention of a viable, established industry capable of supplying the wood fiber needs of the public for housing and other products. PPFF 190. Additionally, standard contract clause C(T)8.641 requires a purchaser to certify that timber removed under the contract will not be exported and will be domestically processed into lumber (PPFF 187), to specifically identify where the timber will be processed (id.) and to advise the Forest Service if there is a change in the location where the timber is to be processed. Id. The Forest Service also requires purchasers to certify annually where timber from each of its Forest Service timber sale contracts has been processed. PPFF 188. Contract clauses B(T)8.21 and C(T)8.21, which are also standard provisions contained in all of the contracts at issue, also provide a contractor with additional time to harvest the timber covered by the contract when unforeseen events such as fire, flood and strike "affect the disposition or processing of included timber" (emphasis added). PPFF 185-186.5 As further evidence that the production of lumber from the timber sold pursuant to Forest Service timber sales is not collateral to the contracts, plaintiff introduced the sworn statements of Forest Service officials which demonstrate that the Forest Service was fully aware that a suspension, such as the one here at issue, that affected a large number of sales across the region

That clause B(T)8.21 refers to "disposition or processing" demonstrates that the Forest Service is aware that a sale may be purchased by a logger, in which case "disposition" would be impacted by a sawmill shutdown or by a sawmill owner, in which case "processing" would be impacted by the sawmill shutdown. Therefore, regardless of who purchases a timber sale the Forest Service is aware that the availability of a sawmill is pivotal to the "disposition or processing" of the timber. 10

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would have very serious impacts on timber contractors and their sawmills. PPFF 194, 195; see also PPFF 196-202. Finally, for the five contracts at issue in this case with escalated and de-escalated pricing, it is simply impossible to even determine the price to be paid for the Forest Service timber under the contract without reference to lumber product prices established by the Western Wood Products Association ("WWPA"). PPFF 191. Based on the above, it is clear that the Forest Service timber sale contract was designed with the production and sale of lumber from the timber in mind. As such, lumber production and sale cannot be termed "collateral" to the Forest Service timber sale contracts at issue in this case. III. As Another Preliminary Matter, The Breach Of All Eleven Contracts Occurred On August 25, 1995; It Did Not Occur 135 Days Later. In its decision on liability in this case, the Court found a breach of the duty to cooperate and a separate breach of the duty not to hinder. Precision Pine & Timber, Inc. v. United States, 50 Fed.Cl. 35, 59 n.31 (2001). With respect to the former, the Court found that in light of the decision in Pacific Rivers v. Thomas, 30 F.3d 1050 (9th Cir. 1994), the Forest Service's decision thereafter to offer and award seven of the timber sale contracts without having first entered into consultation under the Endangered Species Act (ESA) breached the warranty contained in contract clause C(T)6.25. The contracts that were subject of this breach were Mud, Monument, Saginaw-Kennedy, Brann, Manaco and Brookbank. 50 Fed.Cl. at 69 n.42. With the exception of Brann, Precision Pine seeks breach damages with regard to each of these contracts. Precision Pine, of course, also seeks breach damages with regard to six other timber sale contracts, i.e., Kettle, Hay, Jersey Horse, O.D. Ridge, Salt, and U-Bar. As to each of these six sales (plus five where the duty of cooperation had also been breached), the Court found that the 11

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Forest Service breached its implied duty not to hinder the performance of the contract. Id. at 7072. The test laid out by the Court in this regard was whether: (1) the hindrance was caused by the fault of the government, and (2) in the surrounding circumstances of the contract, the length of the suspension was unreasonable. Id. at 70. With respect to the first prong, the Court reiterated its holding that the Forest Service's failure to enter into consultation under the ESA until ordered to do so by the Arizona District Court on August 24, 1995 was unreasonable and was a basis to hold the Forest Service culpable for the suspension of all 14 contracts. Id. at 70. Regarding the second prong of the test, the Court concluded that: [T]he Plaintiff's operations were significantly hindered. Therefore, the Court finds that the Forest Service breached its implied duty not to hinder the performance of all contracts at issue with the exception of the Brann, HutchBoondock, and St. Joe contracts [which were released some eight weeks after being suspended]. Id. at 72. At trial, defendant argued that because of the distinction that the Court made between the two duties, the Forest Service was entitled to 135 days to consult under the ESA for which Precision Pine could recover no damages for a breach of the duty not to hinder. Tr. 46, 5453-34 (Harrington).6 This contention is fallacious in several respects. First, as the Federal Circuit found in Scott Timber Co. v United States, 333 F.3d 1358, 1369 (Fed.Cir. 2003), because the provisions of the ESA are not incorporated into standard Forest Service timber sale contracts, a government violation of the time period specified in the statute is only one factor in whether the suspension is reasonable. Given this reasoning, there is no basis to conclude, as defendant suggests, that the converse is somehow true, i.e., compliance At most, defendant's contention would apply to the five sales (Hay, O.D. Ridge, U-Bar, Jersey Horse and Salt) for which Precision Pine seeks breach damages and regarding which the Court found that only the duty not to hinder had been violated. Id. at 73-74. 12
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with the deadlines specified in the ESA for consultation would render a suspension reasonable per se or give the Forest Service carte blanche to hinder a contractor's performance for 135 days. Indeed, that the Court did not intend the anomalous result now urged by defendant is evident from the fact that it determined that the delay between the district court's order of August 24, 1995 and the initiation of formal consultation that was caused by the Forest Service's failure to provide the information necessary to begin consultation until 77 days later was, in and of itself, "unreasonable." 50 Fed.Cl. at 70. Moreover, even assuming that, irrespective of an agency's conduct during the consultation, completion of consultation within 135 days renders a suspension of that length reasonable per se, the fact remains that here the Forest Service did not complete consultation within 135 days, but rather engaged in unreasonable and dilatory conduct throughout the protracted consultation, thereby prolonging the suspension period. Id. at 47-51. As a result, the suspension did not last 135 days or less but rather lasted from August 25, 1995 to December 4, 1996, a total of 466 days. PPFF 21. IV. Precision Pine's Right To Recover Its Expectancy Damages, Including Lost Profits, Is Not Limited Under The Law Relating To Partial Breach. In its pre-trial memorandum and again at trial, defendant asserted that because Precision Pine continued with the breached contracts once the suspension was lifted, it is limited to the recovery of damages for "partial breach," citing Cities Service Helex, Inc. v. United States, 211 Ct Cl. 222, 543 F.2d 1306 (1976). Defendant offers numerous views at to what these damages might consist of nearly all of which have in common, of course, that Precision Pine would

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recover little. The law is, however, not as draconian as defendant wishes it to be. As expressed by the commentators: When one party commits a material breach of contract the other party . . . can either elect to allege a total breach, terminate the contract and bring an action, or, instead, elect to keep the contract in force, declare the default only a partial breach, and recover those damages caused by that partial breach. 13 Richard A. Lord, WILLISTON ON CONTRACTS § 39:32 at 645 (4th ed. 2000) (emphasis added). In this regard, ". . . an election is not [as the defendant asserts] a waiver of any rights under the contract." Id. at 646. Indeed, the non-breaching party is to be compensated "for the loss caused by the shortfall in the other party's performance." 3 E. Allen Farnsworth, FARNSWORTH ON CONTRACTS § 12.9 at 201 (2nd ed. 1998). It is well-established that among the damages available for a partial breach are a plaintiff's expectancy damages. Entergy Nuclear Indian Point 2, LLC v. United States, 64 Fed.Cl. 515, 522 (2005) (citing Boston Edison Co. v. United States, 64 Fed.Cl. 167, 179-80 (2005)); accord Morris v. United States, 33 Fed.Cl. 733, 740, 749 (1995); see also Cuyahoga Metro. Hous. Auth. v. United States, 65 Fed.Cl. 534, 561 (2005).7 Defendant has provided no authority for its view that damages for "partial breach" do not include all of the damages sought by Precision Pine, including its lost profits. Defendant did

Defendant even admitted that expectancy damages are recoverable for a partial breach of contract during a dialogue with the Court by agreeing that if Precision Pine had been able to affect cover in the wake of the Forest Service's suspension, the increased costs of cover would have been recoverable. Tr. 3161-2. Given that the purpose of providing compensation for the increased cost of cover is the same as providing for the recovery of lost profits (as it is for all expectancy damages), i.e., to put the plaintiff in the same economic position it would have been in had there been no breach, there is no basis for the distinction that defendant attempts to create as to why lost profits are not recoverable for a partial breach. See Bank of America, FSB et al v. United States, __ Fed.Cl. __, 2005 WL 1792182 *8, n.21 (Fed.Cl. July 21, 2005) (Noting the absence of authority or compelling reason to distinguish between cover damages, one subset of expectancy damages, and lost profits, another subset of expectancy damages). 14

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assert in its pretrial memorandum that the "`normal measure' of damages for `partial breach' due to delayed performance is the difference between value of what was conveyed and what was supposed to be conveyed." Defendant's Memorandum of Fact and Law at 22 (April 4, 2005) (citing White v. United States, 187 Ct.Cl. 564, 410 F.2d 773, 779 (1969)). White, however, is inapposite because it did not address damages for delayed performance of a contract to supply raw materials. Rather, White involved defective performance of a contract to convey real property, i.e., the government's failure to provide all that it had it promised -- title to land subject to a railroad easement for two tracks, rather than title subject to an easement for four tracks, which is what it timely delivered. Id. at 773-75. Whatever the rule may be for delivery of less than the specified title to real property, as demonstrated above, there is ample authority for the proposition that expectancy damages, including lost profits, are an entirely appropriate remedy for a partial breach of contract to supply raw material to a manufacturer. V. Precision Pine's Lost Profits On Lumber And By-Products Are Recoverable. A. But For The Suspension, Precision Pine Would Not Have Sustained Lost Profits With Regard To Lumber And By-Product Sales.

At the time of the suspension on August 25, 1995, the remaining volume of sawtimber on the 11 breached sales for which Precision Pine seeks lost profits was some 25,000 mbf "Log Scale" (LS). PPFF 23. These 11 sales would have been harvested between August 25, 1995 and December 4, 1996. PPFF 246. The unavailability of the timber from these sales resulted in the closure of Precision Pine's Eagar sawmill as of December 1, 1995 and the shutdowns during the suspension of Precision Pine's other sawmills at Winslow and Heber. PPFF 390. By causing a protracted suspension, the Forest Service directly and proximately caused Precision Pine to lose

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profits on the sale of lumber and by-products manufactured from the timber on the breached sales that would have been harvested in late 1995 and in 1996. B. Precision Pine Introduced Ample Evidence That Its Lost Profits Were Foreseeable To The Forest Service.

Many of the facts that demonstrate that Precision Pine's sawmill operations and lumber sales were not collateral to its timber sale contracts also demonstrate that it was entirely foreseeable to the Forest Service that its protracted and widespread breach would lead to lost profits. These facts are set forth in § II, supra, and will not be repeated here. A great deal with respect to foreseeability has also already been addressed by the Court and is now law of the case. That is, it has already been determined "that the Defendant was aware that the Plaintiff's operations would be significantly hindered by the delay," 50 Fed.Cl. at 71, and that, "[t]he Forest Service was [also] aware of the effects of the suspension of the timber sales contracts on the timber industry as a whole within Region 3." Id. at 71, 47. In documents prepared just days after it imposed the suspension, the Forest Service stated that it was aware of the impact of the suspensions on the profitability of the timber companies to which it sold timber, and that a suspension of even a few months could result in permanent mill closures. PPFF 196. In fact, in denying defendant's motion for summary judgment last November, the Court found that such evidence: Reflects facts likely long known to the Forest Service, i.e., the logging season is restricted and a suspension can cause a contractor to lose an entire year of production and such a loss can result in lost profits and several sawmills going out of business permanently. 63 Fed.Cl. at 131. Moreover, in denying the government's motion to "clarify" the decision on liability, after reiterating the fact that shortly after the suspensions were imposed Precision Pine

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had notified the Forest Service that it was suffering economic harm and had been forced to shut down its sawmills as a result of the suspensions, this Court stated that: It is simply not credible that the Forest Service would somehow be unaware that the Plaintiff's performance of the contract[s] would be significantly hindered in the face of a 2-year suspension. Order of November 20, 2001 at 2 (emphasis added). Based on the above, there is more than sufficient factual evidence to establish that the Forest Service could reasonably have foreseen (or actually foresaw) that the probable result of its widespread and protracted suspensions would be Precision Pine's lost profits on lumber and by-product sales. C. Precision Pine Has Proven Its Lost Profits With Reasonable Certainty. 1. The Methodology Used To Calculate Lost Profits.

The general approach taken by Precision Pine's damage expert, Mr. Robert Ness, for determining Precision Pine's lost profits for lumber and by-products that it would have produced and sold in 1995, 1996 and early 1997 from the timber harvested under the contracts was to calculate "what would have changed" between what Precision Pine actually did during the period of the suspension and ensuing winter and what Precision Pine would have done but for the Forest Service's breach. PPFF 63. In broad terms, to calculate lost profits, Mr. Ness determined the gross profits before manufacturing overhead that Precision Pine would have earned in 1995, 1996 and early 1997 from producing and selling lumber and by-products from the timber on the breached sales that, but for the breach, Precision Pine would have harvested between August 25, 1995 and December 4, 1996. PPFF 64. To do so, he calculated what Precision Pine's total revenue would been with regard to the sawtimber harvested from the breached sales during this period, and then deducted

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the various direct manufacturing costs Precision Pine would have also incurred had it harvested that timber and produced lumber and by-products from the sales as planned. Id. In Mr. Ness' expert accounting opinion, gross profits before manufacturing overhead is the appropriate measure of damages in this case, because manufacturing overhead as well as general & administrative expenses remained static irrespective of the suspension. PPFF 66. In other words, to calculate what "would have changed" between the situation that Precision Pine actually experienced because of the breach, and the scenario that Precision Pine would have faced had there been no breach, Mr. Ness did not need to include these static costs. PPFF 66.8 At trial, Precision Pine presented ample evidence demonstrating the reasonableness of its lost profit calculations for lumber and by-products, which is summarized below: a. The Volume Of Sawlogs Remaining On The Breached Sales At The Time Of The Suspension.

The starting point for the calculation of lost profits on lumber and by-products is the determination of the volume of sawtimber remaining on the breached sales at the time of the

There would appear to be no real disagreement between the parties that calculation of the lost opportunity that the suspension caused Precision Pine by determining the gross profits without regard to manufacturing overhead and general & administrative expenses is appropriate. In this regard, defendant's expert, Dr. Neuberger, conceded that if costs below the gross profits (before manufacturing overhead) line, i.e., manufacturing overhead and G&A, on an "actual world" income statement were no different than the costs below that line for the same period of time on a "but for" world statement of income, then subtracting the "actual" numbers from the "but for" numbers the items below the gross profits before manufacturing overhead line would net out. PPFF 205; Tr. 3589-90 (Neuberger). This common sense approach was endorsed in Kutner Buick, Inc. v. American Motor Corp., 868 F.2d 614 (3rd Cir. 1989), which involved lost profits resulting from AMC's breach of an agreement giving Kutner an exclusive franchise. In determining the amounts to which Kutner was entitled, the court stated that fixed costs remain the same over a relevant range of activity; as such they are irrelevant to a determination of loss of net profit and the only proper focus is the revenue that would have been generated less the variable costs of doing so. Id. at 617-18. 18

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suspension. During the trial the parties reached a stipulation as to that volume. Third Joint Stipulation of Fact, June 3, 2005. Although the Forest Service traditionally denoted the volume of the timber sold in its contracts in mbf (LS), during the time in which the Forest Service prepared and awarded the contracts at issue in this case, it was changing to another unit of volume measurement called hundred cubic feet ("ccf") (PPFF 207). As a result, for eight of the breached contracts the volume of timber was denoted by the Forest Service in ccf. See PX 320. To compute its damages, Precision Pine had to convert the volume remaining on those eight contracts at the time of the suspension into mbf (LS). PPFF 207. Precision Pine did so by using a factor of 2 ccf per mbf (LS). PPFF 208. The next step in computing lost profits was to determine when that volume would have been harvested, milled and sold. b. Harvest Schedule.

As required by standard contract clause B(T)6.31, each year Precision Pine submitted tentative annual operating schedules to the Forest Service. PPFF 241. The clause permits the contractor to make changes in the tentative schedule due to a wide variety of circumstances, including changes in the market for lumber products to be produced from the timber (PPFF 241), and Precision Pine seldom, if ever, followed its operating schedules nor did the Forest Service treat the schedules submitted as binding. PPFF 241. Moreover, in the decade prior to the suspension, during which time Precision Pine was continuously profitable (PPFF 8), it had never prepared or followed fixed, long term schedules for harvesting the sales it had under contract. PPFF 242. Given the above, Mr. Porter testified that, as part of preparing Precision Pine's claims in 1997, after he determined how much timber 19

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remained on the breached sales at the time of the suspension, he figuratively had to go "back in time," i.e., to August 24, 1995, in order to ascertain in which quarters the timber on the breached sales Precision Pine would have been harvested had there been no suspension.9 PPFF 245. In making this projection Mr. Porter testified that he considered operating restrictions contained in the contract, contract termination dates, and the needs of the Precision Pine's sawmills at various points in time, including the need to maintain a proper mix of large and small sawlogs at each of the mills. PPFF 245. With regard to his projection, Mr. Porter further explained that all of the remaining timber on the breached sales would have been harvested between August 25, 1995 and December 4, 1996, because: a. Seven of the eleven sales were going to expire by the end of December 1996. PPFF 246; b. The volume of sawlogs remaining on these sales represented only an approximately 10.5-month supply of timber to Precision Pine's mills, while the period of the suspension plus the ensuing winter, i.e., the period for which Precision Pine would need timber was nearly 20 months long. PPFF 246; c. Precision Pine was in the business of producing and selling lumber and thus wanted to keep its mills supplied so that they could run at their capacity. PPFF 246; and d. During the nearly 20-month period between August 25, 1995 and April 15, 1997, after bottoming out in the January-February 1996, the market for Ponderosa Pine lumber products took off like a rocket. PPFF 246. Mr. Ness' understanding of the total volumes remaining on the breached sales at the time of the suspension by species was:

These same quarterly harvest projections numbers are set forth in DX 1004, were provided to Mr. Ness by Precision Pine (see footnote to PPFF 245), and used by him in his damage computation. Footnote to PPFF 245. 20

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Ponderosa Pine: 22,620 mbf (LS) Douglas Fir: 2,060 mbf (LS) Spruce: 264 mbf (LS) TOTAL: 24,944 mbf (LS) PPFF 71.10

After determining the total volume of sawtimber remaining on the 11 breached sales at the time of the suspension, using the quarterly harvest projection prepared by Mr. Porter for each affected sale, Mr. Ness distributed the slight adjustments to the volume remaining at the time of breach that he had made pro rata across each quarter. PPFF 72. Mr. Ness also confirmed with Mr. Porter that the harvesting schedule itself was feasible, that sufficient harvesting capability existed and discussed other general parameters to make sure that the harvesting projection was reasonable. PPFF 72. The harvest schedule upon which Mr. Ness' report is based did not change Mr. Porter's original projection of the quarter in which harvesting of the breached sales would have taken place had there been no suspension. PPFF 73. c. Milling Schedule.

In initially calculating its damages, Precision Pine had used the overly-simplistic assumption that sawlogs on a sale would have been harvested, milled and sold all in the same quarter. PPFF 282. Because of this, Mr. Ness was required to develop a more accurate model of when milling of the timber on the breached sales would have taken place. PPFF 282. Mr. Ness' milling schedule was prepared on the basis that, but for the suspension, during the period from August 25, 1995 through April 15, 1997, Precision Pine would, for many This was slightly different than the volume which Precision Pine had calculated. PPFF 72. However, based on the Third Joint Stipulation of Facts entered into by the parties during the trial, and assuming a ccf-mbf conversion factor of 2, the total remaining volume of sawlogs on the 11 sales was 25,062 mbf (LS). PPFF 23; see PX 1013. 21
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reasons, have operated its mills at or near capacity. See PPFF 283. Moreover, Mr. Porter confirmed that is what Precision Pine would have done. PPFF 283. Mr. Ness then determined that the total anticipated production for all three sawmills operating at or near capacity for the 19¾ months from August 25, 1995-April 15, 1997 would have been 57,134 mbf (LT) (PPFF 69) which represented lumber production at an annual rate of 34,714 mbf (LT) (PPFF 69) and confirmed with Mr. Porter that Precision Pine could have produced lumber at that rate. PPFF 70. Mr. Ness also independently confirmed the feasibility of this rate of production based on Precision Pine's having produced in excess of 30,000 mbf (LT) in each of the two fiscal years preceding the suspension (PPFF 70) and that at the time of the suspension Precision Pine was making improvements to its sawmills. PPFF 70.11 Next, in determining the available capacity at each mill during the suspension to saw timber from the breached sales, Mr. Ness started with the total quarterly capacity at each sawmill and subtracted from that Precision Pine's actual quarterly lumber production during the suspension. PPFF 77, 285. Mr. Ness then assigned a volume of timber that, absent the breach, would already have been harvested from one or more of the breached sales destined for a particular sawmill as a volume of additional timber that would have been milled in the quarters when there would have been remaining capacity at the sawmill. PPFF 79, 80. He did so until the volume to be sawn in a particular quarter reached the mill's anticipated production for the quarter. PP