Free Post Trial Brief - 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 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: September 2, 2005

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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 DEFENDANT'S CONTENTIONS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 I. The Nature Of The Breaches Found By The Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. The Breach Of Warranty Resulted From The Forest Service's Failure To Suspend Logging To Consult With The Fish and Wildlife Service During The Fall Of 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B. The Court Ruled That The MSO Suspensions Were A Breach Only Insofar As They Substantially Exceeded 135 Days . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 II. Precision Pine Has Failed To Present A Coherent Theory Of Damages . . . . . . . . . . . . . . 8 III. IV. Precision Pine Is Entitled Only To Damages For "Partial Breach" . . . . . . . . . . . . . . . 9 Precision Pine's Claimed Common Law Breach of Contract Damages . . . . . . . . . . 11 A. Precision Pine Is Not Entitled To Recover Lost Lumber Profits . . . . . . . . . . . . . . . . 12 1. Profits From The Sale Of Lumber Are Not Recoverable For Breach Of A Timber Cutting Contract Because The Production And Sale Of Lumber Products Constitutes A Collateral Undertaking . . . . . . . . . . . . . . . . 12 2. Precision Pine Misuses The "Lost Volume Seller" Concept, Which Is Inapplicable Here Because The United States Does Not Seek To Offset Profits From "Substitute Transactions" . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3. Even If Lumber Profits Were Potentially Recoverable, Precision Pine Failed To Make The Requisite Showing . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 a. Precision Pine's Brookbank, Jersey Horse, Kettle, Manaco, Monument, Mud, Saginaw-Kennedy, Salt and U-Bar Contracts Would Not Have Been Profitable During The MSO Suspensions . . . . . . . . 21 b. Precision Pine Has Failed To Establish That Its Alleged Lost Profits Were Directly And Primarily Caused By The MSO Suspensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 i

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(1) Precision Pine Failed To Show What Contracts Would Have Been Harvested Had The MSO Suspensions Not Occurred . . . . . . . . . . 24 (I) The Mud Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (ii) The Manaco Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (2) Any Lost Profits Suffered By Precision Pine Were Caused By Its Own Business Decisions ­ Not The Suspension Of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 c. The Loss Of Profits Resulting From A Suspension Was Not Contemplated By The Parties At The Time Of Contracting . . . . . . . . . . . . . 28 d. Precision Pine Has Not Established Lost Profits With Reasonable Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (1) Mr. Ness's Calculations Are Not Based Upon Valid "But For" Harvesting And Milling Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (I) Precision Pine Would Not And Could Not Have Followed Mr. Ness's Harvest Schedule . . . . . . . . . . . . . . . . . . . . . . . 32 (ii) The Milling Schedule Used By Mr. Ness Is Not Based Upon Precision Pine's Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (2) Mr. Ness Inflates Damages At Virtually Every Step Of His Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 (I) (ii) (iii) Lumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Roundwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Lumber By-Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

(3) Mr. Ness's Offset Calculations Understate Profits . . . . . . . . . . . . . . . . . 46 B. Precision Pine Is Not Entitled To Recover Alleged Sawmill Inefficiency Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 1. Precision Pine Has Not Established What Increased Sawmill Costs Were Directly and Primarily Caused By A Breach Of Contract . . . . . . . . . . . . . 49

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2. Sawmill Inefficiency Costs Were Not Legally Foreseeable . . . . . . . . . . . . . . . . 51 3. Precision Pine's Calculation Of Damages Is Flawed And Uncertain . . . . . . . . . 53 C. Precision Pine's Claim For Increased Log Hauling Costs Should Be Denied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 1. Any Increase In Hauling Costs Was The Direct Result Of Precision Pine's Business Decisions And The Forest Guardians Suspensions . . . . . . . . . 56 2. Increased Log Hauling Costs Were Not Legally Foreseeable . . . . . . . . . . . . . . . 59 3. Precision Pine Overstates The Change In Log Hauling Costs . . . . . . . . . . . . . . . 60 V. Precision Pine's Claims For Compensation Pursuant To CT 6.01 . . . . . . . . . . . . . . . . . . 61 A. Precision Pine's Claim For Employee Claim Preparation Costs Is Not Recoverable Under CT 6.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 B. Precision Pine's Claims For "Miscellaneous Costs" Pursuant To CT 6.01 Should Be Denied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 1. The United States Does Not Dispute Precision Pine's Claims For Bond Costs In The Amounts Previously Awarded . . . . . . . . . . . . . . . . . . . . . . . 64 2. Precision Pine Has Not Demonstrated An Entitlement To "Move Out" Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 3. Interest Is Not Payable Under CT 6.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4. Precision Pine Has Failed To Demonstrate An Entitlement To Snow Removal Costs Pursuant To CT 6.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5. Precision Pine Has Failed To Demonstrate An Entitlement To Log Transfer Costs Pursuant To CT 6.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 6. Overhead And Profits Are Not Recoverable Under CT 6.01 . . . . . . . . . . . . . . . 68 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

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TABLE OF AUTHORITIES Cases: Admiral Fin. Corp. v. United States, 378 F.3d 1336 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 61 Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 19, 62 Bighorn Lumber Co. v. United States, 49 Fed. Cl. 768 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36, 59 Bluebonnet Savings Bank, FSB v. United States, 339 F.3d 1341 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 17 Bohac v. Dept. of Agriculture, 239 F.3d 1334 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 59 California Fed. Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Cavalier Clothes, Inc. v. United States, 51 Fed. Cl. 399 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Chain Belt Co. v. United States, 127 Ct. Cl. 38, 115 F. Supp. 701 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 28, 29, 59 Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 10, 11, 15 Clary v. United States, 333 F.3d 1345 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 67 Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Croman Corp. v. United States, 44 Fed. Cl. 796 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Emeco Indus. v. United States, 202 Cl. Ct. 1006, 485 F.2d 652 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

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Energy Capital Corp. v. United States, 47 Fed. Cl. 382 (2000), aff'd in part, rev'd in part, 302 F.3d 1314 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . 29 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 19 Everett Plywood Corp. v. United States, 512 F.2d 1082 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 First Heights Bank v. United States, ___ F.3d ___, 2005 WL 1962989 (Fed. Cir. Aug. 17, 2005) . . . . . . . . . . . . . . . . . . . . 13 Gulf Contracting, Inc. v. United States, 23 Cl. Ct. 525 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Hansen Bancorp, Inc. v. United States, 376 F.3d 1297 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 16, 17 Hi-Shear Tech. Corp. v. United States, 356 F.2d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 19, 22 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim International Air Response v. United States, 324 F.3d 1376 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 LaMirage, Inc. v. United States, 44 Fed. Cl. 192 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 LaSalle Talman Bank v. United States, 317 F.3d 363 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Library of Congress v. Shaw, 478 U.S. 310 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

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M.A. Mortenson Co. v. Brownlee, 363 F.3d 1203 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Marathon Oil Co. v. United States, 374 F.3d 1123 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Myerle v. United States, 33 Ct. Cl. 1 (1897) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim In re Nangle, 274 F.3d 481 (8th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Nicon, Inc. v. United States, 331 F.3d 878 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Pacific Rivers Counsel v. Thomas, 30 F.3d 1050 (9th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Petrofky v. United States, 203 Ct. Cl. 347, 488 F.2d 1394 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Pinewood Realty Limited Partnership v. United States, 223 Ct. Cl. 98, 617 F.2d 211 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 28, 47 Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 18, 47, 59 Precision Pine & Timber, Inc. v. United States, 64 Fed. Cl. 165 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Precision Pine & Timber, Inc. v. United States, No. 02-131 (Fed. Cl.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

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Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353 (1951), cert. denied, 343 U.S. 977 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14, 15 Rocky Mountain Constr. Co. v. United States, 218 Ct. Cl. 665 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Rumsfeld v. Freedom, N.Y., 329 F.3d 1320 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 San Carlos Irrigation & Drainage Dist. v. United States, 877 F.2d 957 (Fed. Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 15, 51, 52 Seaboard Lumber Co. v. United States, 308 F.3d 1283 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Singer Co. v. United States, 215 Ct. Cl. 281, 568 F.2d 695 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Southwest Center For Biological Diversity v. United States Forest Service, No. CIV-95-1927-PCT-RCB (D. Ariz.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Thompson v. Cherokee Nation, 334 F.3d 1075 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14, 15, 51 White v. United States, 187 Ct. Cl. 564, 410 F.2d 773 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Wilner v. United States, 23 Cl. Ct. 241 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Wilner v. United States, 24 F.3d 1397 (Fed. Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

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Statutes and Other Authority: 16 U.S.C. § 1536(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Restatement (Second) of Contracts § 347 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 17

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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 POST-TRIAL MEMORANDUM OF LAW INTRODUCTION At most, the Mexican Spotted Owl ("MSO") suspensions delayed the cutting and removal of timber from some of Precision Pine's timber and multi-product sale contracts. Yet Precision Pine has declined to seek delay damages under the common law. Given the failure to assert claims for the only recovery that Precision Pine might be entitled to receive, the Court should enter judgment in favor of the United States. Precision Pine has instead asserted a hodgepodge of claims that suffer from innumerable legal and factual deficiencies. Precision Pine (i) disregards key aspects of the Court's July 30, 2001 decision on liability, (ii) ignores its own decision to continue the contracts after the MSO suspensions were lifted, (iii) seeks profits based upon independent and collateral lumber manufacturing operations, and (iv) fails to present a true "but for" model upon which to base calculations. In addition, Precision Pine ignores its own historic practices and contemporaneous business records, as well as the risks inherent in the company's strategy of expanding operations in a declining market. Simply put, Precision Pine has failed to prove, and is not legally entitled to recover, the damages it seeks in this action.

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QUESTIONS PRESENTED 1. Whether Precision Pine, by electing to continue ­ not cancel ­ the contracts at

issue following the MSO suspensions, is limited to the recovery of damages for partial breach. 2. Whether the manufacture and sale of lumber products is a collateral undertaking

that is not recoverable for an adjudicated breach of a timber cutting contract. 3. Whether the claims for profits from the sale of lumber products asserted by

Precision Pine should be denied because: (a) Precision Pine has not developed a valid "but for" model upon which to base a calculation of damages; (b) Precision Pine's contracts would not have been profitable during the period of the MSO suspensions; (c) Precision Pine has not established that planned harvesting was prevented by the MSO suspensions because it cannot establish which contracts would have been harvested had the suspensions not occurred; (d) Precision Pine's business decision not to harvest contracts to completion after the MSO suspensions were lifted was the direct and primary cause of any loss of profits; (e) lost lumber profits do not result in the ordinary course from a delay of timber harvesting and, at the time of contracting, the Forest Service had been apprised of no special circumstances relating to the contracts at issue; or (f) lost lumber profits have not been proved with reasonable certainty. 2

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4.

Whether claims for sawmill costs are recoverable as damages for breach of a

timber cutting contract. 5. Whether Precision Pine's claim for increased log hauling costs with respect to the

Hay contract should be denied because: (a) the alleged increase in log hauling costs resulted from Precision Pine's business decisions; or (b) the alleged increase in log hauling costs was not foreseeable at the time of contracting. 6. Whether Precision Pine is entitled to recover employee claim preparation costs,

"overhead and profits," "interest" or other miscellaneous costs pursuant to contract clause CT 6.01. DEFENDANT'S CONTENTIONS OF LAW I. The Nature Of The Breaches Found By The Court The Court in this action found two independent breaches of the implied duty of good faith and fair dealing: (1) a breach of warranty with respect to the Brann, Brookbank, Kettle, Manaco, Monument, Mud and Saginaw-Kennedy contracts; and (2) a breach of the implied duty not to hinder with respect to the Brookbank, Hay, Jersey Horse, Kettle, Manaco, Monument, Mud, O.D. Ridge, Saginaw-Kennedy, Salt and U-Bar contracts. Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 73-74 (2001).1 Additionally, the Court held that, although the

The Court noted that the implied duty not to hinder and the implied duty to cooperate are "subspecies" of the duty of good faith and fair dealing, see Precision Pine, 50 Fed. Cl. at 58-59 & n.31, and, additionally, that a breach of warranty is synonymous with a breach of the implied duty to cooperate, id. at 59. 3

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Hutch-Boondock and St. Joe contracts were suspended for a period of two months, they were not breached. Id. at 73-74. A. The Breach Of Warranty Resulted From The Forest Service's Failure To Suspend Logging To Consult With The Fish and Wildlife Service During The Fall Of 1994

In ruling on liability, the Court found that a breach of warranty resulted from the Forest Service's delay in suspending contracts in Region 3 after the decision of the United States Court of Appeals for the Ninth Circuit in Pacific Rivers Counsel v. Thomas, 30 F.3d 1050 (9th Cir. 1994). The Court explained: On July 7, 1994, the Ninth Circuit, in Pacific Rivers, held that LRMPs implemented prior to the listing of an endangered or threatened species were "agency action" for the purposes of the ESA, and therefore were required to be submitted for consultation with the FWS. Pacific Rivers, 30 F.3d at 1051- 52. In the face of this clear ruling, . . . Region 3 should have taken two actions. First, it should have submitted its pre-existing LRMPs for consultations with the FWS pursuant to 16 U.S.C. § 1536(a)(2). Second, to prevent "any irreversible and irretrievable commitment of resources," the Forest Service should have suspended all logging activities within Region 3 during the course of consultations as required by 16 U.S.C. § 1536(d). . . . Instead of . . . submitting its LRMPs for consultation, Region 3 of the Forest Service . . . prepar[ed] amendments to LRMPs and submitt[ed] only the amendments for consultation with the FWS. . . . [T]he Forest Service's failure to engage in formal consultations with the FWS in Region 3, from the Ninth Circuit's decision in Pacific Rivers onwards, was unreasonable. . . . Therefore, . . . the Forest Service breached an express warranty contained in those contracts . . . entered into after July 7, 1994, the date of the Ninth Circuit's decision in Pacific Rivers.

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Precision Pine, 50 Fed. Cl. at 68-70 (emphasis added). Thus, the Court concluded that the Forest Service's failure to suspend logging activities in Region 3 in July or August 1994 resulted in the breaches of warranty at issue here. Precision Pine was logging various Forest Service contracts during the fall of 1994. Compare DX753 (volumes harvested as of Aug. 31, 1994) with DX549 (volumes harvested as of Dec. 31, 1994); see also Tr. 1624-25 (Porter). The logging of these contracts would have been suspended by the Forest Service during the period of formal consultations with the Fish and Wildlife Service ("FWS") but for the Forest Service's breach. See Precision Pine, 50 Fed. Cl. at 70 (regulations provide for consultation with the FWS over a period of 135 days). Yet at trial, Precision Pine presented no evidence regarding the impact of a suspension of logging during the fall of 1994. Indeed, because the market for lumber was better in 1994 than in 1995 or 1996 (when the suspensions ultimately did occur), see PX305, and because it was Precision Pine's practice to build log inventories for winter operations during the fall, see Smith Dep. Tr. 24-25, Precision Pine likely benefitted by the Forest Service's failure to suspend logging operations in 1994. In any event, the burden of proving damages with reasonable certainty rests with Precision Pine. E.g., Energy Capital Corp. v. United States, 302 F.3d 1314, 1325 (Fed. Cir. 2002). Having presented no evidence whatsoever about the effect of a suspension of logging during the fall of 1994, Precision Pine has not met its burden with respect to any claims premised upon the breach of warranty.2

While Precision Pine does not state whether its claimed damages are based upon a breach of warranty or a breach of the implied duty to not to hinder, it is instructive that (1) Precision Pine seeks lost lumber profits upon the 11 contracts where the Court found a breach of the implied duty not to hinder, and (2) Precision Pine does not seek lost lumber profits upon the (continued...) 5

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B.

The Court Ruled That The MSO Suspensions Were A Breach Only Insofar As They Substantially Exceeded 135 Days

In ruling on liability, the Court also addressed whether the MSO suspensions were unreasonably long such that they breached the implied duty not to hinder. Precision Pine, 50 Fed. Cl. at 70-71. The Court found that the length of the suspensions of the Brann, HutchBoondock, and St. Joe contracts, which were approximately 60 days, were not unreasonable and were not a breach. The suspensions of the other contracts were found to be a breach.3 The Court explained its reasoning as follows: Under the regulations implementing the ESA, formal consultations are to last no more tha[n] 90 days. . . . The Biological Opinion is to be issued by the FWS within 45 days. . . . Thus, had the suspensions been conducted according to the regulations, the suspension should have not lasted much more than 135 days. In fact, the suspensions lasted from August 25, 1995, until December 4, 1996, for a total of 467 days. Notwithstanding the protracted length of the suspensions, the mere fact that the suspensions remained in effect far longer than provided for in the regulations does not in itself suggest that the length of the delay was unreasonable . . . . Precision Pine, 50 Fed. Cl. at 70 (citations omitted; emphasis omitted); see also id. at 61 ("even if the Forest Service had violated a statute or regulation, this would not ipso facto mean that there was an unreasonable delay"). After discussing the reasons for the delay, the Court turned to the suspensions of individual contracts.

(...continued) Brann contract ­ the one contract where the Court found a breach of warranty, but no breach of the implied duty not to hinder. In its opinion, the Court incorrectly states that the suspension of the other contracts lasted for 467 days. 50 Fed. Cl. at 70. The suspension of the Mud contract in fact lasted 198 days, i.e., from August 25, 1995 to March 11, 1996. See PX109. 6
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[T]he Court does not find that the length of the suspensions for the Brann, Hutch-Boondock, and St. Joe timber sale contracts were unreasonable. According to the order approving the joint stipulation between the environmental plaintiffs and the Forest Service in Silver v. Thomas, performance of timber sale contracts could proceed for those three contracts. . . . The two-month suspension of these contracts, in light of the regulations which normally would prescribe consultations to be completed within 135 days, is reasonable. [T]he Court finds that the length of the suspension was unreasonable and the fault of the Forest Service with respect to all contracts at issue with the exception of the Brann, HutchBoondock, and St. Joe contracts. Precision Pine, 50 Fed. Cl. at 71 (citations omitted). The Court thus concluded, under the particular circumstances of this case, that it was unreasonable for the suspensions to substantially exceed 135 days. On the other hand, a suspension "not last[ing] much more than 135 days" was not unreasonable and, therefore, was not a breach. See id. at 70-71. Precision Pine has previously argued that any delay in initiating consultations between the Forest Service and the FWS was "unreasonable" and, therefore, a suspension of any duration was a breach the implied duty not to hinder. Of course, if Precision Pine were correct, the Court would have found a breach of all 14 contracts. Plainly, it did not do so. Precision Pine, 50 Fed. Cl. at 71. In sum, then, the Court held that only that part of the suspensions that "lasted much more than 135 days" constituted a breach of the implied duty not to hinder.4 As discussed below,

The contracts were suspended on August 25, 1995. Thus, a suspension of 135 days would have ended on January 6, 1996, i.e., after the end of the 1995 operating season on Precision Pine's contracts. 7

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Precision Pine's damages claims fail to take this important aspect of the Court's ruling into account. II. Precision Pine Has Failed To Present A Coherent Theory Of Damages Precision Pine's damages claims fall into two broad categories: (1) damages for common law breach of contract; and (2) claims for reimbursement pursuant to contract clause CT 6.01. With respect to a given contract, these are alternative avenues of relief. Precision Pine may seek compensation pursuant to the common law or contract clause CT 6.01 ­ but not both. E.g., Admiral Fin. Corp. v. United States, 378 F.3d 1336, 1344 (Fed. Cir. 2004) (expectancy damages and restitution are alternatives). Similarly, Precision Pine's common law claims, which seek both profits and increased costs, 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). An expectancy damages claim for lost profits accounts for the difference between the plaintiff's actual costs and costs that the plaintiff would have incurred in a "but for" (i.e., non-breach) world. See LaSalle Talman Bank v. United States, 317 F.3d 363, 1371 (Fed. Cir. 2003). Thus, any increase in costs is captured by a claim for lost profits. Here, Precision Pine seeks lost lumber profits and, at the same time, asserts separate claims for increased log hauling costs and increased sawmill costs. Both log hauling and lumber manufacturing costs are included in Mr. Ness's lost profit analyses. See PX131 (tab 4); PX182 (tab 2). Consequently, allowing Precision Pine to recover both profits and increased costs would confer a double recovery contrary to the well-established principle that "the non-breaching party should not be placed in a better position through the award of damages than if there had been no 8

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breach." Bluebonnet Savings Bank, FSB v. United States, 339 F.3d 1341, 1345 (Fed. Cir. 2003); see also 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."). III. Precision Pine Is Entitled Only To Damages For "Partial Breach" In this action, the Court concluded that the duration of the MSO suspensions resulted in a breach of Precision Pine's timber and multi-product sale contracts.5 Precision Pine, 50 Fed. Cl. at 70-71. Upon breach, the injured party can elect to cancel the contract or continue it. Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306, 1313 (1976). Precision Pine elected to continue the Forest Service contracts affected by the MSO suspensions. Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635, 651 (2004) ("Precision waived its right to cancel the contracts . . . through its continued manifestation of an understanding that the contracts remained in effect."); Tr. 1479 (Porter); DX800; DX832; see also Joint Stip. of Facts ¶ 34 (stipulating that Precision Pine requested and received contract term adjustments upon each of its contracts after the MSO suspensions were lifted).6

While the Court also concluded that the Forest Service breached a warranty in clause CT 6.25 of seven of the contracts, Precision Pine, 50 Fed. Cl. at 70, 73, as discussed above, Precision Pine failed to present sufficient evidence of damages caused by the breach of warranty. Furthermore, the Court erred in finding clause CT 6.25 contains an express warranty and in ruling that reliance upon a warranty is not required. This latter ruling is directly contrary to the Federal Circuit's subsequent decision in Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003). Because Scott Timber is controlling precedent, the breach of warranty aspect of the liability decision is no longer viable. The doctrine of collateral estoppel bars Precision Pine from re-litigating this issue, which has already once been litigated and decided. E.g., International Air Response v. United States, 324 F.3d 1376, 1378 (Fed. Cir. 2004) ("Under the doctrine of collateral estoppel, . . . the (continued...) 9
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The implications of Precision Pine's decision to continue performance are significant ­ particularly with respect to the assessment of damages. As the Court of Claims explained in Cities Service Helex: If he 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 injured party may retain only a claim for damages for partial breach. 543 F.2d at 1313 (citing cases) (emphasis added); see also Pinewood Realty Limited Partnership v. United States, 223 Ct. Cl. 98, 617 F.2d 211, 214 (1980) (if a contract is breached but "the injured party ignores the breach, and continues to perform, it has waived its right to terminate the contract, and has only retained its claim for damages for partial breach"). This is because a party that elects to continue contract performance receives the benefit of the bargain through performance of the contract itself ­ not through a damages claim for lost profits. See Cities Service Helex, 543 F.2d at 1313. The "normal measure" of damages for a "partial breach" due to delayed performance is the difference in value between what was conveyed and what was supposed to have been conveyed. White v. United States, 187 Ct. Cl. 564, 410 F.2d 773, 779 (1969). Thus, in the case of the suspension of a timber sale contract for an unreasonable duration, damages for partial breach are measured as the difference between the contract price/market value differential for

(...continued) judgment in the prior suit precludes relitigation of issues actually litigated and necessary to the outcome of the first action.") (citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5 (1979)); In re Nangle, 274 F.3d 481, 485 (8th Cir. 2001). 10

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timber at the time of breach (i.e., on the date when the suspension became unreasonable) and the contract price/market value differential when the suspension was lifted. See Everett Plywood Corp. v. United States, 512 F.2d 1082 (1975) ("The usual measure of damages for the failure to deliver goods is the difference between the contract price the buyer was to pay and the fair market value of those goods."); Uniform Commercial Code § 2-713 (providing compensation for the differential between contract and market value). For instance, if the purchaser had a contract price for timber $15.00/mbf less than market value at the time of breach, but had a contract price of only $10.00/mbf less than market value when the suspension was lifted, the purchaser's damages for partial breach (i.e., delay) would be $5.00/mbf. Precision Pine has made no attempt to quantify such damages for partial breach. Instead, Precision Pine persists in seeking lost profits ­ the very measure of damages that is barred by the Cities Service Helex decision. 543 F.2d at 1313. Accordingly, the Court should enter judgment in favor of the United States on Precision Pine's common law claim for lost profits. IV. Precision Pine's Claimed Common Law Breach of Contract Damages Precision Pine has subdivided its common law breach claims into three separate categories: (1) gross profits from the sale of lumber products; (2) sawmill inefficiency costs; and (3) increased log hauling costs. As we explain below, each of Precision Pine's common law claims suffers from fatal flaws that preclude Precision Pine's recovery in this action.

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A.

Precision Pine Is Not Entitled To Recover Lost Lumber Profits 1. Profits From The Sale Of Lumber Are Not Recoverable For Breach Of A Timber Cutting Contract Because The Production And Sale Of Lumber Products Constitutes A Collateral Undertaking

The contracts at issue are timber cutting contracts. Each contract requires the purchaser to cut and remove designated timber and (for multi-product sales) roundwood by the contract's termination date. Each contract prescribes the manner in which logging, hauling and land restoration work is to be performed. And each contract establishes a pricing mechanism for the timber and roundwood that is to be cut and removed. E.g., Tr. 3791-92, 3796-99, 3803 (Harris); PX169-79 (clauses AT2, AT5, and BT 2.2). On the other hand, the contracts do not require that timber or roundwood be processed at the purchaser's sawmill ­ or, for that matter, any sawmill ­ after it is removed from Forest Service land. E.g., Tr. 3770 (Harris), 1540-43 (Porter); PX44; PX169-79. Indeed, purchasers of Forest Service timber sales frequently do not own or have access to a sawmill. See Tr. 1762-63, 1765 (Reidhead) (testifying that Tri-Star was awarded and performed Forest Service timber sale contracts, but never owned or operated a sawmill or planer); Tr. 1651 (Porter) (Zellner Firewood bid on, was awarded, and performed Forest Service multi-product sale contracts, though Zellner did not own or operate a sawmill). Purchasers are free to (and often do) put logs from Forest Service contracts to various uses.7 See, e.g., Tr. 1651 (Porter) (Zellner sold logs from its Forest Service contracts as firewood); Tr. 2920-21 (Matson) (it is up to the purchaser to decide how to use harvested timber). Simply put, any milling and

Precision Pine itself took advantage of the flexibility afforded by its Forest Service contracts. Some logs from Precision Pine's contracts were milled and planed, and the resulting lumber sold. Other logs were not processed by Precision Pine at all, but instead were (i) sold to third parties for use in their own mills, (ii) sold to third parties for use as pulpwood, (iii) sold to third parties to use as firewood, or (iv) stacked and left unused. See, e.g., DX477; DX553. 12

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planing of logs taken from a Forest Service sale is independent of, and collateral to, the purchaser's contractual obligations. See PX169-79. Profits upon "independent and collateral undertakings" are not recoverable under the common law. E.g., First Heights Bank v. United States, ___ F.3d ___, 2005 WL 1962989 (Fed. Cir. Aug. 17, 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); see also Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741, 743-44 (1980) (damages based on future contracts "too remote and speculative to be recoverable" when Government wrongdoing caused contractor to lose bonding capacity and thus be unable to obtain 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."). In Wells Fargo, for instance, the Federal Circuit considered whether a bank could recover profits on loans it would allegedly have made but for the unavailability of capital occasioned by the defendant's breach. 88 F.3d at 1022-23. Using capital to make loans was a part of the bank's regular business operations and the bank asserted that it anticipated profits upon the loans it was unable to make. Id. at 1023. The Federal Circuit nevertheless held that such loans constituted a collateral undertaking upon which profits were unrecoverable as a matter of law. Quoting Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353, 357-58 (1951), cert. denied, 343 U.S. 977 (1952), the Federal Circuit first explained: 13

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The profits lost from the corporation's over-all business activities . . . may not be recovered . . . . The lost profits of these collateral undertakings, which the corporation was unable to carry out, are too remote to be classified as a natural result of the Government's delay . . . . "[T]here is a distinction by which all question[s] of this sort can be easily tested. If the profits are such as would have accrued and grown out of the contract itself, as the direct and immediate results of its fulfillment, then they would form a just and proper item of damages, to be recovered against the delinquent party upon a breach of the agreement. . . . But if they are such as would have been realized by the party from other independent and collateral undertakings, although entered into in consequence and on the faith of the principal contract, then they are too uncertain and remote to be taken into consideration as a part of the damages occasioned by the breach of the contract in suit." Wells Fargo, 88 F.3d at 1022-23 (quoting Ramsey, 101 F. Supp. at 357-58 (quoting Myerle v. United States, 33 Ct. Cl. 1, 26 (1897))) (emphasis added). The Federal Circuit then held that the reasoning in Ramsey was "equally applicable to the present case." Id. at 1023. Here the Court of Federal Claims awarded damages for the profits Wells Fargo allegedly would have made on the additional loans it could have made if the guarantee had been issued. Like the lost profits in Ramsey, Wells Fargo's loss of interest on additional loans it allegedly could have made had there been no breach is "too uncertain and remote to be taken into consideration as a part of the damages occasioned by the breach of the contract in suit." 88 F.3d at 1023. Like the plaintiffs in Wells Fargo and Ramsey, Precision Pine seeks profits upon its "over-all business activities," namely, profits derived from the sale of lumber produced by its lumber manufacturing operations ­ operations that were, in turn, supplied logs from Forest Service (and other) timber sales.8 However, Precision Pine's Forest Service contracts required

8

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only the cutting and removal of trees from Forest Service lands ­ not the milling, planing, drying or sale of lumber products. See PX169-79. As a result, like the additional loans in Wells Fargo, Precision Pine's manufacture of lumber products constitutes "an independent and collateral undertaking . . . entered into in consequence and on the faith of the principal contract." 88 F.2d at 1022. The recovery of alleged lost profits from lumber manufacturing operations is, therefore, "too uncertain and remote to be taken into account" for breach of a timber cutting contract. Id. at 1023; see also Ramsey, 101 F. Supp. at 358 (lost profits must be "part and parcel of the contract itself"); Scott Timber, Inc. v. United States, 333 F.3d at 1372 (increased sawmill manufacturing costs "are not directly related" to the suspension of a timber sale contract). 2. Precision Pine Misuses The "Lost Volume Seller" Concept, Which Is Inapplicable Here Because The United States Does Not Seek To Offset Profits From "Substitute Transactions"

Precision Pine's attempt to invoke the lost volume seller concept in this action is misplaced. While the MSO suspension may have delayed the harvesting of timber, it did not prevent Precision Pine from harvesting timber on the contracts at issue. To the contrary, by choosing to continue the contracts, Precision Pine reaffirmed its contractual obligations, including the obligation to fully harvest all timber upon the contracts. See Cities Service Helex, 543 F.2d at 1313. Because Precision Pine was entitled (and indeed obligated) to harvest all timber on the contracts after the suspensions were lifted, it received the very timber for which it had bargained.

(...continued) and its own lands, as well as from the Forest Service. Tr. 1653, 2037 (Porter). 15

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As explained above, Precision Pine's decision to go forward with the contracts should preclude the recovery of lost profits. See section III, supra. However, even if Precision Pine possessed a viable claim for lost lumber profits, claimed damages would, at a minimum, have to be reduced by the amount Precision Pine actually earned from harvesting in the post-suspension period.9 A failure to take into account revenues from post-suspension harvesting would place Precision Pine in a better position through litigation than through full performance of its contracts, because Precision Pine would obtain profits once by performing the contracts and a second time through this lawsuit. Tr. 3411-15 (Neuberger); DX796. The law does not bestow such a windfall. Hansen, 376 F.3d at 1315. An analysis of the example quoted by the Court in its summary judgment decision illustrates the basic fallacy of Precision Pine's putative lost volume seller claim. A contracts to pave B's parking lot for $10,000. B repudiates the contract and A subsequently makes a contract to pave a similar parking lot for $10,000. A's business could have been expanded to do both jobs. Unless it is proved that he would not have undertaken both, A's damages are based on the net profit he would have made on the contract with B, without regard to the subsequent transaction. Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122, 133 (2004) (quoting Restatement (Second) of Contracts § 347 illus. 16 ("Restatement § __")). If A is a lost volume seller, it could have performed both contracts, and the subsequent contract should have no effect

As explained in greater detail below, Precision Pine should also be precluded from seeking damages based upon volumes that were not harvested. Precision Pine had a contractual obligation to harvest all timber under contract. Precision Pine should not be permitted to use its failure to harvest ­ in breach of its contractual duties ­ to increase its damages claims. Indeed, if Precision Pine had fully harvested the contracts, it would have earned more revenue from postsuspension operations than its claimed revenue during the MSO suspension. E.g., DX834. 16

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upon damages claimed against B. A's damages are, therefore, net profits upon the contract with B. This action is not analogous to the example in the illustration because there is no subsequent contract. The United States has not argued that profits upon other timber sale contracts should offset damages in the post-suspension period. Other timber sale contracts would be analogous to the subsequent paving contract entered into by A. Rather, the United States argues that post-suspension profits earned upon the once-suspended contracts must be taken into account. These contracts are analogous to the original contract between A and B. Since Precision Pine actually earned profits upon these contracts after the suspension, it must, at a minimum, reduce its claimed damages by the amount of post-suspension profits.10 See, e.g., Hi-Shear Tech. Corp. v. United States, 356 F.2d 1372, 1382 (Fed. Cir. 2004) ("[T]he recovery of damages must not serve as a windfall to the non-breaching party."). In addition, Precision Pine has failed to establish as a factual matter that it is a lost volume seller. Precision Pine's lost volume seller claim is predicated upon the factual allegation that, but for the MSO suspensions, Precision Pine would have harvested and processed all timber

To make the illustration analogous to this action, assume that after A contracts with a third party to pave its parking lot, B changes its mind and reinstates the contract with A. A as a volume seller can perform both contracts. In this situation, A's profits earned on the eventual performance of the contract with B must offset any claim for damages against B. Otherwise, A would get paid twice for its contract with B ­ once from the eventual performance, and once again when it sued. See DX796. Likewise, here, if Precision Pine's claimed damages are not reduced by post-suspension profits, Precision Pine would be paid twice ­ once when it earns profits by harvesting and processing the contracted-for timber, and once again through this action. Id. Neither the common law nor the lost volume seller concept authorizes such a double recovery. 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."). 17

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upon the suspended contracts during 1995 and 1996, and that it would have purchased, harvested, and processed a similar volume of Forest Service timber in 1997 and 1998. See Pl.'s Pretrial Br. at 16-17. However, at trial, Mr. Porter explained that Precision Pine did not stop bidding on Forest Service contracts. After the MSO suspensions, Precision Pine bid on and was in fact awarded various contracts in 1997 and 1998. Tr. 671-76, 1089 (Porter). Mr. Porter was unable to identify a single additional contract that Precision Pine would have bid on had the MSO suspensions had not occurred. Tr. 1288-89 (Porter). Nor was Mr. Porter able to identify any additional contracts that Precision Pine would have been awarded but for MSO suspensions. Tr. 1288-89 (Porter); see also Tr. 1278 (Porter) (bidding on timber contracts was always competitive). Precision Pine has, therefore, failed to establish the factual predicate necessary under its own lost volume seller theory, i.e., that it would have bid on and been awarded additional Forest Service timber sale contracts in 1997 and 1998 but for the MSO suspensions.11 Finally, Precision Pine has presented no viable calculation of damages under its lost volume seller theory. The Court ruled that a lost volume seller is entitled to recover only "net profit." Precision Pine, 63 Fed. Cl. at 133. Precision Pine's expert, Robert Ness, calculated only "gross profit before manufacturing overhead." Tr. 2428, 2666-67 (Ness); see also PX1012. Mr. Ness did not make any deduction for manufacturing overhead, general and administrative expenses, other income and expenses, or taxes ­ deductions that would be required to provide a

In ruling upon the United States' motion for summary judgment, the Court held that the question of whether subsequent transactions are substitutes for the breached contracts can present difficult factual issues. Precision Pine, 63 Fed. Cl. at 133 (quoting Restatement § 347 cmt. f). Precision Pine has identified no "subsequent transaction" that could potentially be a substitute for Precision Pine's timber sale contracts. See id. at 133. For this additional reason, Precision Pine cannot prevail upon its lost volume seller claim. 18

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figure for net profits. Tr. 2592-94, 2717 (Ness); PX1012; see also Tr. 2586 (Ness) (net income is equivalent to net profit). Thus, even if Precision Pine's lost volume theory were viable, it failed to proffer a net profit figure as damages. 3. Even If Lumber Profits Were Potentially Recoverable, Precision Pine Failed To Make The Requisite Showing

To recover lost profits, or indeed any damages, it is insufficient for the plaintiff simply to establish a contractual breach. See Alaska Pulp, 59 Fed. Cl. 400 (awarding no damages upon plaintiff's $8.7 billion claim notwithstanding the Government's breach of a 50-year timber sale contract); Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97 (2004) (rejecting plaintiff's damages claims, including a claim for lost profits, where a breach had previously been established). Where a plaintiff seeks alleged lost profits, "it [first] must be 'definitely established' that without the government's breach there would have been a profit." Hi-Shear, 356 F.3d at 1379 (quoting California Fed. Bank v. United States, 245 F.3d 1342, 1349 (Fed. Cir. 2001)). In addition, the plaintiff must establish, by a preponderance of the evidence, that (1) the breach caused the loss of profits "'directly and primarily,' and 'inevitably and naturally, not possibly or probably;'" (2) the loss of profits was foreseeable as a probable result of the breach because it follows from the breach in the ordinary course of events, or as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know, and (3) a sufficient basis exists for determining the amount of lost profits with reasonable certainty. Precision Pine & Timber, Inc. v. United States, 64 Fed. Cl. 165, 166 (2005) (citing California Fed. Bank v. United States, 395 F.3d 1263, 1278-79 (Fed. Cir. 2005)); Energy Capital Corp. v. United States, 302 F.3d 1314, 1326 (Fed. Cir. 2002) (citing Chain Belt Co. v.

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United States, 127 Ct. Cl. 38, 58, 115 F. Supp. 701, 714 (1953)); Landmark Land Co. v. FDIC, 256 F.3d 1365, 1378 (Fed. Cir. 2001). The starting point for the Court's analysis of Precision Pine's claims for lost profits is the nature of the breach in this action. Although Precision Pine's contracts were suspended for varying periods of time, the MSO suspensions did not prevent Precision Pine from harvesting the timber that it purchased. To the contrary, after the suspensions were lifted, Precision Pine elected to continue performance of the contracts and, accordingly, was able (and obligated) to harvest timber upon the once-suspended contracts. Thus, at most, the MSO suspensions delayed the harvesting of timber.12 Additionally, this Court did not rule that the suspensions of Precision Pine's contracts were unauthorized; rather, the Court found that the length of the suspensions (as to 11 of the 14 contracts) was unreasonable and, thus, constituted a breach. See Precision Pine, 50 Fed. Cl. at 70-71. Precision Pine's 11 lost profits claims are deficient for numerous reasons. First, due to low prices for lumber products and the lack of an outlet for roundwood during the period of the MSO suspensions, most of the contracts at issue were not profitable. Second, Precision Pine has failed to establish that planned harvesting on any given contract was prevented by the MSO suspensions. Third, at the time of contracting, lost lumber profits were not legally foreseeable as the probable result of a contract's suspension. Fourth, Precision Pine's damage estimates are so badly flawed that they fail to provide reasonably certain estimates of lost profits. Fifth, according to its own numbers, if Precision Pine had fully harvested the contracts after the MSO

Precision Pine in fact harvested timber and/or roundwood from the O.D. Ridge, Kettle, Hay, Brookbank, Jersey Horse, Manaco, St. Joe, Hutch-Boondock, Mud, Brann and U-Bar sales after the suspension of the respective contracts was lifted. See, e.g., DX791; DX800; DX821. 20

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suspensions were lifted (as it was contractually obligated to do), it would have earned more than the claimed lost revenues during the period of the MSO suspensions. See DX834 (showing increased revenue per mbf post-suspension). Accordingly, for each of these reasons, the 11 claims for lost lumber profits asserted by Precision Pine in this action are properly rejected. a. Precision Pine's Brookbank, Jersey Horse, Kettle, Manaco, Monument, Mud, Saginaw-Kennedy, Salt and U-Bar Contracts Would Not Have Been Profitable During The MSO Suspensions

Precision Pine would have been unable to earn a profit upon most of its timber and multiproduct sale contracts during the MSO suspensions. During the period of the suspensions, market prices for lumber products were low. PX305; DX776; see also DX271; DX570. Indeed, prices were markedly higher both before the suspensions in 1993 and 1994, and after the suspensions in 1997. PX305; DX776. Furthermore, during the MSO suspensions, Precision Pine had no outlet for roundwood. DPFOF ¶¶ 65-66. The unavailability of an outlet for roundwood during the suspensions adversely affected the profitability of Precision Pine's multiproduct sale contracts because, in order to harvest sawtimber for its mills, Precision Pine was obligated to cut and remove both roundwood and sawtimber components. See, e.g., Tr. 1827, 2025 (Porter); PX172 (clause BT 2.2). With no outlet for roundwood, Precision Pine would have incurred stumpage, harvesting and hauling costs, but would have earned no offsetting revenues from roundwood sales. Thus, during the MSO suspensions, the roundwood component of Precision Pine's multi-product sale contracts was a dead loss, not the break-even proposition Precision Pine was hoping to achieve. This caused many of Precision Pine's contracts to be unprofitable during the suspensions.

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According to analyses that Precision Pine itself conducted just over a month before the MSO suspensions, many of Precision Pine's contracts were not profitable, including the Jersey Horse, Salt and U-Bar contracts.13 See DX519, DX521-45. Moreover, Precision Pine's contemporaneous analyses do not take into account the roundwood component of multi-product sales and make no deductions for corporate overhead (i.e., they reflect gross profit ­ not net profit). See DX521-527; DX530-539. Precision Pine lacked an outlet for roundwood during the period of the MSO suspensions. DPFOF ¶¶ 65-66. Had Precision Pine actually harvested its contracts without an outlet for roundwood, according to figures developed by Precision Pine's own expert, the company would have incurred losses on roundwood of not less than $75 per ccf. DPFOF ¶ 561; DX131; Tr. 2597-99, 2754, 2843 (Ness). Consequently, when roundwood losses are taken into account, nine of Precision Pine's contracts (Brookbank, Jersey Horse, Kettle, Manaco, Monument, Mud, Saginaw-Kennedy, Salt, and U-Bar) show no gross profit. See DX521-527; DX530-539; PX131. Deducting general overhead to obtain a net profit figure would increase the projected loss still further. In sum, as a result of depressed lumber prices and Precision Pine's lack of an outlet for roundwood, only the Hay and O.D. Ridge timber sales would have been profitable to harvest during the period of the MSO suspensions. Consequently, Precision Pine's lost profits claims for its other nine contracts are not viable. See Hi-Shear, 356 F.3d at 1379 (the contract's profitability in the absence of the breach must be "definitely established" by the plaintiff);

The analysis of Precision Pine's claims by former DCAA auditor, Wayne G. Moosman, confirms that most of Precision Pine's contracts were not profitable during the MSO suspensions. Tr. 4866, 4919, 4923-24, 4927 (Moosman); DX777 at 15 (showing negative contribution margins for Precision Pine's contracts before taking into account roundwood losses and general overhead). 22

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California Federal Bank v. United States, 395 F.3d 1263, 1368 (Fed. Cir. 2005) ("The inability to prove by a preponderance of the evidence that profits would have been made but for the breach will . . . preclude recovery on a lost profits theory."). b. Precision Pine Has Failed To Establish That Its Alleged Lost Profits Were Directly And Primarily Caused By The MSO Suspensions

The Federal Circuit recently reaffirmed that the "but for" standard of causation applies in a breach of contract action. California Federal, 395 F.3d at 1368. Consequently, as this Court explained, a breach must cause the alleged injury "directly and primarily." Precision Pine, 64 Fed. Cl. at 166; see also Myerle, 33 Ct. Cl. at 27 ("There must not be two steps between cause and damage."). Further, the plaintiff must show that alleged lost profits resulted "inevitably and naturally, not possibly nor even probably" from the breach. California Federal, 395 F.3d at 1267 (quoting Myerle, 33 Ct. Cl. at 27); Precision Pine, 64 Fed. Cl. at 166. And while the existence of "other factors operating in confluence with the breach" do "not necessarily preclude recovery," see California Federal, 395 F.2d at 1268 (emphasis added), damages are unrecoverable if they are due to an intervening cause, 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 ("there must appear no intervening incident . . . to complicate or confuse the certainty of the result between the cause and the damage"). Here, as a threshold matter, Precision Pine must show that it would have harvested each of the contracts 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) "but for" 23

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the MSO suspensions. California Federal, 395 F.3d at 1268; Precision Pine, 64 Fed. Cl. at 166. Further, for each of these contracts, Precision Pine must establish that the loss of profits resulted "directly and primarily" from the unreasonable duration of the suspension. Id. Precision Pine has not met this burden. (1) Precision Pine Failed To Show What Contracts Would Have Been Harvested Had The MSO Suspensions Not Occurred

Precision Pine has failed to establish that the MSO suspensions prevented planned timber harvesting in 1995 or 1996 had the MSO suspensions not occurred. Precision Pine prepared no business plan, scheduling plan, operating plan, or other contemporaneous documents describing anticipated harvesting. Tr. 2089 (counsel); Tr. 1441 (Porter). While Precision Pine did give the Forest Service an annual operating schedule pursuant to the terms of its timber sale contracts in early 1995, see DX294, Mr. Porter testified that this schedule misrepresented company plans.14 Tr. 1630-31, 1633 (Porter). As a result, there is no document from which company plans for harvesting can be derived. Tr. 1441 (Porter). Moreover, Precision Pine's witnesses were unable to provide this essential information. Precision Pine's president, Lorin