Free Memorandum of Contentions of Fact and Law - 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 PRETRIAL MEMORANDUM OF CONTENTIONS OF FACT AND 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 Trial Attorney 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: April 4, 2005

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TABLE OF CONTENTS QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF FACTS DEFENDANT EXPECTS TO PROVE AT TRIAL . . . . . . . . . . . . . 3 I. II. III. IV. Arizona Timber And Lumber ­ An Industry In Decline . . . . . . . . . . . . . . . . . . . . 3 Precision Pine's Strategy Of Aggressive Growth . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Precision Pine's Operations And Business Practices . . . . . . . . . . . . . . . . . . . . . . . 6 The Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. B. V. The Award Of Timber And Multi-Product Sale Contracts . . . . . . . . . . . . 7 The Contracts At Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Mexican Spotted Owl ("MSO") Suspensions . . . . . . . . . . . . . . . . . . . . . . . . 12 A. B. C. D. The Length Of The Suspensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Low Lumber Prices During The MSO Suspensions . . . . . . . . . . . . . . . . 12 No Outlet For Roundwood During The MSO Suspensions . . . . . . . . . . . 13 Profitability Of The Contracts During The MSO Suspensions . . . . . . . . 14

VI.

The Post-Suspension Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 A. B. C. Post-Suspension Contract Term Adjustments . . . . . . . . . . . . . . . . . . . . . 15 Precision Pine's Post-Suspension Harvesting . . . . . . . . . . . . . . . . . . . . . 15 Post-Suspension Releases Of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 17

VII. VIII.

Precision Pine's Claims Regarding The MSO Suspension . . . . . . . . . . . . . . . . . 18 Claims Currently Pending In This Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

DEFENDANT'S CONTENTIONS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 I. Precision Pine Is Entitled Only To Damages For "Partial Breach" . . . . . . . . . . . 21

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II.

Precision Pine Has Released The Government "From Any And All Liability Arising From The Suspension" Of The Brann, Hutch-Boondock, Monument, Mud and Saginaw-Kennedy Contracts . . . . . . . . 23 Precision Pine's Claimed Common Law Breach Of Contract Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 A. Precision Pine Is Not Entitled To Recover Lost Lumber Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1. Lost Profits For The Sale Of Lumber Are Not Recoverable For Breach Of A Timber Cutting Contract Because The Production And Sale Of Lumber Products Constitute A Collateral Undertaking . . . . . . . . . . . . . . 24 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" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Even If Lumber Profits Were Potentially Recoverable, Precision Pine Cannot Make The Requisite Showing . . . . . . . . . 30 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 . . . . . . . . . . . . 33 Precision Pine Cannot Establish That Its Alleged Lost Profits Were Directly And Primarily Caused By The MSO Suspensions . . . . . . . . . . . . . . . . . . . . . . . . 34 The Loss Of Profits Resulting From A Suspension Was Not Contemplated By The Parties At The Time Of Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Precision Pine Cannot Establish Lost Profits With Reasonable Certainty . . . . . . . . . . . . . . . . . . . . . . . 39 The MSO Suspensions Did Not Cause Precision Pine To Suffer A Loss Of Profits . . . . . . . . . . . . . . . . . . . 45

III.

2.

3.

b.

c.

d. e. B.

Precision Pine Is Not Entitle To Recover Alleged Sawmill Inefficiency Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ii

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1.

Precision Pine Cannot Establish What Increased Sawmill Costs Were Directly and Primarily Caused By A Breach Of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Sawmill Inefficiency Costs Were Not Legally Foreseeable . . . . . 48 Precision Pine's Damages Calculations Are Flawed . . . . . . . . . . 50

2. 3. C.

Precision Pine's Claim For Increased Log Hauling Costs Should Be Denied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 1. 2. The Court Lacks Jurisdiction To Entertain Precision Pine's Increased Hauling Costs Claim . . . . . . . . . . . . . . . . . . . . . 52 Precision Pine's Increased Log Hauling Costs Claim Is Without Merit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

IV.

Precision Pine's Claims For Compensation Pursuant To CT 6.01 . . . . . . . . . . . . 56 A. Precision Pine's Claims For The Cost It Allegedly Incurred In Preparing Claim Letters Should Be Denied . . . . . . . . . . . . . . . . . . . . . . . 57 1. 2. B. The Court Lacks Jurisdiction To Entertain Precision Pine's Claim Preparation Costs Claim . . . . . . . . . . . . . . . . . . . . . 58 Precision Pine's Claim For Employee Claim Preparation Costs Is Not Recoverable Under CT 6.01 . . . . . . . . . . . . . . . . . . 59

Precision Pine's Claims For "Miscellaneous Costs" Pursuant To CT 6.01 Should Be Denied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 1. 2. 3. 4. Overhead And Profits Are Not Recoverable Under CT 6.01 . . . . 60 Interest Is Not Payable Under CT 6.01 . . . . . . . . . . . . . . . . . . . . 60 Precision Pine Is Not Entitled To Recover Other Costs Sought Pursuant To CT 6.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Precision Pine Cannot Invoke CT 6.01 To Obtain Reimbursement Of Expenses In Connection With The Hay Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

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TABLE OF AUTHORITIES Cases: Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 56 Bighorn Lumber Co. v. United States, 49 Fed. Cl. 768 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Bluebonnet Savings Bank, FSB v. United States, 339 F.3d 1341 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Bohac v. Department of Agriculture, 239 F.3d 1334 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 54 California Federal Bank v. United States, 395 F.2d 1263 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-35, 40, 47, 54 Cavalier Clothes, Inc. v. United States, 51 Fed. Cl. 399 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Chain Belt Co. v. United States, 127 Ct. Ct. 38, 115 F. Supp. 701 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . 31, 37-38, 54 Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306 (1976) . . . . . . . . . . . . . . . . . . . . . . . 19, 21-22, 27, 46 Clary v. United States, 333 F.3d 1345 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52-53, 58 Croman Corp. v. United States, 44 Fed. Cl. 796 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52-53, 58 Dairyland Power Co-op. v. United States, 16 F.3d 1197 (Fed. Cir.1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 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) . . . . . . . . . . . . . . . . . . . 38 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Everett Plywood Corp. v. United States, 512 F.2d 1082 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Gulf Contracting, Inc. v. United States, 23 Cl. Ct. 525, 532 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Hansen Bancorp, Inc. v. United States, 376 F.3d 1297 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Hi-Shear Tech. Corp. v. United States, 356 F.2d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 31, 34, 44 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . 35-37, 45, 47, 54, 56 International Air Response v. United States, 324 F.3d 1376 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 37-39, 48, 54-55 M.A. Mortenson Co. v. Brownlee, 363 F.3d 1203 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Marathon Oil Co. v. United States, 374 F.3d 1123 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

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Micro Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Myerle v. United States, 33 Ct. Cl. 1 (1897) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 35-36, 47, 56 In re Nangle, 274 F.3d 481 (8th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Nicon, Inc. v. United States, 331 F.3d 878 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Petrofky v. United States, 203 Ct. Cl. 347, 488 F.2d 1394 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Pinewood Realty Limited Partnership v. United States, 223 Ct. Cl. 98, 617 F.2d 211 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 32, 45, 47 Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 17, 21, 45 Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 30, 44, 54, 58 Precision Pine & Timber, Inc. v. United States, ___ Fed. Cl. ___, 2005 WL 352547 (Feb. 14, 2005) . . . . . . . . . . . . . 31, 35-36, 47, 54 Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353 (1951), cert. denied, 343 U.S. 977 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-27 Reynolds v. Commissioner, 296 F.3d 607 (7th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Rocky Mountain Constr. Co. v. United States, 218 Ct. Cl. 665 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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Rumsfeld v. Freedom, N.Y., 329 F.3d 1320 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SAI Industrial Corp. v. United States, 63 Fed. Cl. 1 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 San Carlos Irrigation & Drainage District v. United States, 877 F.2d 957 (Fed. Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Santa Fe Engineers, Inc. v. United States, 818 F.2d 856 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 27, 32, 48-49 Seaboard Lumber Co. v. United States, 308 F.3d 1283 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 45 Seaboard Lumber Co. v. United States, 48 Fed. Cl. 814 (2001), aff'd, 308 F.3d 1283 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Singer Co. v. United States, 215 Ct. C 568 F.2d 695 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Thompson v. Cherokee Nation, 334 F.3d 1075 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-27, 48 White v. United States, 187 Ct. C 410 F.2d 773 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Wilner v. United States, 23 Cl. Ct. 241 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

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Docketed Cases: Precision Pine & Timber, Inc. v. United States, No. 02-131 (Fed. Cl.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-44 Precision Pine & Timber v. United States, No. 01-415C (Fed. Cl.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Statutes, Regulations And Other Authority: 41 U.S.C. § 605 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 58 41 U.S.C. § 609 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 58 Fed. R. Evid. 701 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Restatement (Second) of Contracts § 347 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 30 Restatement (Second) of Contracts § 351 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 49

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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 PRETRIAL MEMORANDUM OF CONTENTIONS OF FACT AND LAW Pursuant to the Court's January 4, 2005 order, and ¶ 14(b) of Appendix A of the Rules of the United States Court of Federal Claims ("RCFC"), defendant, the United States, respectfully submits the following memorandum of contentions of fact and law regarding the claims of plaintiff, Precision Pine & Timber, Inc. ("Precision Pine"). QUESTIONS PRESENTED 1. Whether Precision Pine, by electing to continue ­ not cancel ­ the contracts at

issue following the Mexican Spotted Owl suspensions ("MSO suspensions"), is limited to the recovery of damages for partial breach. 2. Whether Precision Pine released the United States from liability for the claims

asserted upon the Brann, Hutch-Boondock, Monument, Mud, and Saginaw-Kennedy contracts. 3. Whether the claims for gross profits from the sale of lumber products asserted by

Precision Pine should be denied because: (a) the manufacture and sale of lumber products is a collateral undertaking that is not recoverable for breach of a timber cutting contract; (b) Precision Pine is not a lost volume seller;

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(c)

Precision Pine's contracts would not have been profitable during the MSO suspensions;

(d)

Precision Pine cannot establish which timber sales would have been operated had no suspensions occurred;

(e)

Precision Pine's business decision not to harvest the contracts to completion after the MSO suspensions were lifted was the direct and primary cause of any loss of profits;

(f)

lost lumber profits do not result in the ordinary course from a delay in timber harvesting and, at the time of contracting, the Forest Service had been apprised of no special circumstances relating to the contracts at issue;

(g) (h)

lost profits have been not established with reasonable certainty; or Precision Pine could have earned greater profits by fully harvesting the contracts during the post-suspension period.

4.

Whether claims for increased 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) Precision Pine submitted no claim for increased log hauling costs to the contracting officer; (b) the alleged increase in log hauling costs resulted from Precision Pine's business decisions; and (c) the alleged increase in log hauling costs was not foreseeable at the time of contracting. 2

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6.

Whether Precision Pine is entitled to reimbursement pursuant to CT 6.01 for time

allegedly spent by employees preparing Precision Pine's claim letters where: (a) Precision Pine submitted no claim for employee claim preparation costs to the respective contracting officers; and (b) Precision Pine has produced no receipts or other documents verifying outof-pocket costs resulting from the preparation of claim letters by its employees. 7. Whether Precision Pine is entitled to recover "overhead and profits," "interest"

and other miscellaneous costs pursuant to contract clause CT 6.01. STATEMENT OF FACTS DEFENDANT EXPECTS TO PROVE AT TRIAL I. Arizona Timber And Lumber ­ An Industry In Decline 1. In terms of volume and value, Arizona is a relatively small producer of timber and

lumber. As of 1992, the total timberland in Arizona was approximately 4 million acres. More than two-thirds of that area was designated as national forest. In terms of volume of available sawtimber, the percentage of public ownership is even higher. DX776. 2. While the timber and timberland in Arizona are predominately public owned,

timber production in the state has largely been from private sources. For instance, less than 30 percent of the timber processed by Arizona sawmills in 1996 came from public lands. DX776. 3. Production of lumber from Arizona sawmills fell in every year from 1988 to 1996,

from 447 million board feet in 1998 to 105 million board feet in 1996. This decline in production continued after 1996. In fact, by 1998, lumber production in Arizona had fallen to 78 million board feet. DX776.

3

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4.

Logging restrictions on national forest land have been largely responsible for the

downward trends in Arizona production volumes. While Federal timber sales in Arizona have been limited since the late 1980s, these limitations have become increasingly restrictive over time. As a result, the amount of timber on national forest land offered for sale declined significantly during the late 1980s and throughout the 1990s. DX776. 5. Offers of timber on Federal lands in Arizona were approximately 250 million

board feet in 1988, down from more than 300 million board feet in 1984 and 1985. By 1995, the amount of timber offered for sale had fallen below 70 million board feet. Since 1997, Forest Service timber offers have averaged approximately 60 million board feet per year. In terms of the volume of timber cut, amounts have fallen from approximately 280 million board feet in 1988, to approximately 40 million in 1995. Annual harvests have averaged about 30 million board feet per year since 1997. DX776. II. Precision Pine's Strategy Of Aggressive Growth 6. While Arizona timber and lumber markets were largely on the decline throughout

the early and mid-1990s, Precision Pine chose to embark on a rapid expansions of its operations. DX776; DX761 (interrog. no. 20 & 21). As part of this strategy, Precision Pine purchased a number of sawmills from other companies. Id. 7. As of 1990, Precision Pine operated a single sawmill in Heber, Arizona. See

DX761. This was Precision Pine's original mill and it was first opened in 1984. Joint Stip. ¶ 2. Precision Pine also owned and operated a planer in Snowflake, Arizona. DX781. 8. In December 1991, Precision Pine purchased a sawmill and planer in Winslow,

Arizona, from Duke City Lumber Company. Precision Pine operated the Winslow sawmill until September 1998. Joint Stip. ¶¶ 3-4; DX781. 4

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9.

In October 1992, Precision Pine purchased a sawmill in Williams, Arizona, from

Grand Canyon Forest Industries. Precision Pine operated the Williams sawmill until October 1994. The equipment from the Williams sawmill was sold at auction shortly thereafter. DX781. 10. In June 1993, Precision Pine purchased a sawmill in Payson, Arizona, from

Kaibab Forest Products Company. Precision Pine never operated the Payson sawmill. The Payson sawmill's equipment was sold at auction in or about August 1993. DX781. 11. Prior to June 1991, Precision Pine had purchased a sawmill in Show Low,

Arizona. Precision Pine never operated the Show Low sawmill. DX781. 12. Prior to June 1991, Precision Pine had purchased a sawmill in Clay Springs,

Arizona. Precision Pine operated the Clay Springs sawmill for only a short period and closed the sawmill in the early 1990s. DX781. 13. In 1993, Precision Pine assembled a sawmill in Eagar, Arizona using equipment

from the Show Low and Clay Springs sawmills. Precision Pine opened the Eagar sawmill in or about October 1993. DX781. 14. 15. 16. Precision Pine closed its planer in Snowflake, Arizona in March 1995. DX781. Precision Pine closed the Eagar sawmill in August 1997. DX781. In order to secure raw material for its sawmills from increasingly restricted

sources of supply, Precision Pine bid on timber and multi-product sale contracts offered by the Forest Service in the early and mid-1990s. Precision Pine also bid upon timber sale contracts offered by the State of Arizona, Indian tribes and private landowners. DX776. 17. Precision Pine paid a broad range of prices for the timber acquired under its

contracts. DX776. Precision Pine's bidding strategy was aggressive as evidenced by the bid premiums the company paid over and above minimum bid prices. DX776; see also DX554. 5

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18.

While Precision Pine's aggressive bidding practices enabled the company to win

many contracts upon which it bid and secure timber for its expanded mill operations, it also meant that the company had to pay high prices for timber that might never be economical. DX776. 19. This exposed the company to considerable market risk. This market risk was

especially acute during periods in which lumber prices were depressed because the lower the market prices for lumber products, the greater the number of Precision Pine's contracts that would be rendered unprofitable. DX776. III. Precision Pine's Operations And Business Practices 20. Precision Pine harvested no more that 25.4 mmbf of timber in a single year.

DX559. The volume of timber Precision Pine had under contract was declining during the 1990s. DX559. 21. Precision Pine had log inventories at its sawmills and lumber inventories at its

planing facilities that varied from month to month. DX478-500. 22. The lumber prices used in Precision Pine's gross profit calculations are

inconsistent with Precision Pine's Winslow Sales Record and, as a result, overstate gross profits by approximately $650,000. DX776. 23. For a variety of reasons, including the skill of the sawyer, the efficiency of

sawmill equipment, the size and quality of logs being milled, and the types of lumber products being produced, the volume of lumber in mbf (known as "lumber tally") produced by a given sawmill commonly exceeds the volume of logs in mbf (known as "log scale") used by the sawmill. The ratio of the volume of lumber (in mbf (l.t.)) to the volume of logs used to produce that lumber (in mbf (l.s.)) is commonly referred as the "overrun factor." 6

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24.

According to a contemporaneous analysis conducted by Precision Pine, the

overrun factor achieved at the Winslow sawmill in 1995 and 1996 was 1.08. DX547. 25. The overrun factor that Precision Pine used for its own profit projections in July

1995 was 1.10. DX521-27; DX530-39. 26. In accordance with the terms of its contracts, in early 1995 Precision Pine

submitted to the Forest Service an annual operating schedule. The 1995 annual operating schedule describes harvesting plans for 1995. DX294. 27. Other than its 1995 annual operating schedule, Precision Pine developed no

business plan, scheduling plan, operating plan or other plan that described planned timber harvesting in 1995 and 1996. 28. Precision Pine had no plan for the production of a specified volume of lumber at

any of its mills. DX784. 29. Precision Pine has no documents or other data that shows what mix of lumber

products was produced from logs from a particular timber sale. DX784. IV. The Contracts A. 30. The Award Of Timber And Multi-Product Sale Contracts Forest Service timber sale contracts and multi-product sale contracts are generally

competitively bid and awarded to the highest bidder. Joint Stip. ¶ 10. 31. From the standpoint of potential bidders, a timber sale commences when the

Forest Service issues an advertisement and prospectus that describe the timber to be harvested, the estimated volume of sawtimber and (for multi-product sales) roundwood being sold, and the dates bids must be submitted. Included in the advertisement is a minimum bid price. See

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generally Seaboard Lumber Co. v. United States, 48 Fed. Cl. 814, 816 (2001), aff'd, 308 F.3d 1283 (Fed. Cir. 2002). 32. A prospectus and sample contract are made available to interested bidders. The

prospectus identifies the length of time the contractor will be allowed to perform the contract, establishes the contract's operating season, specifies the timing of contractor payments for the sawtimber, and, for multi-product sales, states the fixed price for the sale's roundwood component. Interested parties are invited to examine the site and available timber prior to bidding. Id. 33. In Forest Service contracts, "sawtimber" generally is defined as trees larger than 9

inches in diameter at breast height ("dbh"). See, e.g., DX1, DX26. "Roundwood" refers to smaller trees that are between 5.0 and 8.9 inches dbh. Id. 34. The price of roundwood for multi-product sales is an administratively-established,

fixed price set by the Forest Service. As a result, the contract's bid price affects only the stumpage price paid for sawtimber harvested from the sale. See, e.g., DX1, DX26. 35. Bidders on Forest Service timber and multi-product sale contracts need not own or

have access to a sawmill, a planer, kilns or other facilities for processing logs harvested from the sale. B. 36. The Contracts At Issue This action concerns 14 contracts: (1) the O.D. Ridge timber sale; (2) the Kettle

multi-product sale; (3) the Hay timber sale; (4) the Brookbank multi-product sale; (5) the Jersey Horse timber sale; (6) the Salt multi-product sale; (7) the Manaco multi-product sale; (8) the St. Joe timber sale; (9) the Hutch-Boondock multi-product sale; (10) the Mud multi-

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product sale; (11) the Saginaw-Kennedy multi-product sale; (12) the Brann multi-product sale; (13) the U-Bar timber sale; and (14) the Monument multi-product sale. Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 38 (2001); see also DX1; DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. 37. The contracts are spread across four National Forests: (1) the Apache-Sitgreaves

National Forest; (2) the Coconino National Forest; (3) the Kaibab National Forest; and (4) the Tonto National Forest. See DX1; DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. 38. Precision Pine bid upon and was awarded the O.D. Ridge, Kettle, Brookbank,

Jersey Horse, Salt, Manaco, Hutch-Boondock, Mud, Saginaw-Kennedy Brann, U-Bar, and Monument contracts on various dates between August 14, 1992 and July 20, 1995. Joint Stip. ¶¶ 11-23. Precision Pine did not inform the Forest Service of any special circumstances relating to these contracts at or before their award. 39. The Hay contract originally was awarded to Reidhead Lumber Company, Inc., on

January 17, 1990. Joint Stip. ¶ 24. The Hay contract was transferred to Precision Pine by contract modification on June 24, 1991. Id. ¶25. Precision Pine did not inform the Forest Service of any special circumstances relating to the Hay contract at or before its award. Precision Pine first notified the Forest Service that it intended to haul timber from the Hay sale to a sawmill in Eagar, Arizona in April 1994. DX76. 40. The St. Joe contract originally was awarded to Grand Canyon Forest Industries

("GCFI") on April 14, 1992. Joint Stip. ¶ 26. The St. Joe contract was assigned to Precision

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Pine by GCFI on October 16, 1992. Id. ¶ 27. Precision Pine did not inform the Forest Service of any special circumstances relating to the St. Joe contract at or before its award. 41. Each of Precision Pine's Forest Service contracts contain similar terms. See DX1;

DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. However, the Hay contract, unlike the other contracts, is a scaled timber sale. DX54. The Hay contract does not contain contract clause CT 6.01. DX54. 42. The contracts each establish a normal operating season in which harvesting

operations are to be performed. The contracts require the purchaser to submit to the Forest Service an annual operating schedule. The contracts also require the purchaser to meet with the Forest Service prior to commencing or restarting harvesting operations to discuss their operating plan, as well as issues unique to the sale and sale area. See DX1; DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. 43. Each contract requires the purchaser to harvest cut and remove all sawtimber and

(for multi-product sales) roundwood by the contract's termination date. Each contract prescribes the manner of conducting logging and hauling operations, as well as land restoration work. Each contract establishes a pricing mechanism for sawtimber and a fixed price for roundwood. The price for sawtimber is frequently based upon the Inland Rocky Mountain Ponderosa Pine index published by the Western Wood Products Association. Generally, payment for timber and roundwood occurs when the logs are cut and removed from the sale area. However, each Forest Service contract contains a midpoint payment date that requires an initial payment even if no work on the contract has occurred. The contracts require the purchaser to make a down payment and to maintain payment and performance bonds. See DX1; DX26; DX54; DX105; DX125;

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DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435; Joint Stip. ¶ 32. 44. The sale area for each contract is divided into payment units. Payment units are

further subdivided into cutting units. At any given time, operations are allowed to occur only upon a set number of payment units. Only when all work on a payment unit (i.e., all cutting and hauling of timber and roundwood, and all land restoration work) is completed may the next payment unit be opened and work commence. See DX1; DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. 45. Forest Service contracts do not require the purchaser to process logs from the sale

at its sawmill or at any sawmill whatsoever. Once the purchaser has cut, removed and paid for the logs, subject only to statutory and regulatory constrains such as the statutory prohibition on exporting unprocessed logs from Federal lands, the purchaser is free to put harvested logs to any use it chooses. See DX1; DX26; DX54; DX105; DX125; DX149; DX176; DX211; DX238; DX284; DX318; DX342; DX395; DX435. 46. Precision Pine took advantage of this flexibility. At times, Precision Pine milled

logs and planed and sold the resulting lumber. At other times, logs were (1) milled and sold as rough cut (unplaned) lumber products, (2) sold to third parties for use in their own milling or manufacturing operations, (3) sold for use as pulpwood, (4) sold as firewood, (5) sold for resale as vigas or firewood, and (6) stacked and left unused. E.g., DX468-71; DX553; DX795.

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V.

The Mexican Spotted Owl ("MSO") Suspensions A. 47. The Length Of The Suspensions On August 25, 1995, in order to comply with an injunction entered by a Federal

district court in litigation brought by an environmental group concerning the Mexican Spotted Owl, the Forest Service suspended the Brann, Brookbank, Hay, Hutch-Boondock, Jersey Horse, Kettle, Manaco, Monument, Mud, O.D. Ridge, Saginaw-Kennedy, Salt, St. Joe and U-Bar contracts. Joint Stip. ¶ 29. 48. On October 18, 1995, the Forest Service lifted the suspension of the Brann,

Hutch-Boondock and St. Joe contracts. See Joint Stip. ¶ 30; DX236; DX281; DX393. 49. On March 11, 1996, the Forest Service lifted the suspension of the Mud contract.

DX300; DX316. 50. On December 4, 1996, the Forest Service lifted the suspension of the Brookbank,

Jersey Horse, Kettle, Manaco, Monument, Mud, O.D. Ridge, Salt, Saginaw-Kennedy, and U-Bar contracts. DX23; DX52; DX101; DX123; DX144; DX173; DX207; DX340; DX432; DX452. 51. Precision Pine was free, subject to the terms and conditions of its contracts, to

harvest timber and roundwood once the MSO suspensions were lifted. B. 52. Low Lumber Prices During The MSO Suspensions The price for wood products hit bottom during the MSO suspensions. Prices were

better both before the suspension in 1993 and 1994 and after the suspension in 1997. DX776; see also DX781 (interrog. no. 34) (stating that the relevant "annual average lumber price index

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published by the Western Wood Products Association Rocky Mountain Ponderosa Pine" was: $367.39 in 1995; $370.45 in 1996; $415.17 in 1997; $348.83 in 1998; and $374.35 in 1999). 53. Due to this major downturn in lumber prices in 1995 and 1996, the Forest Service

offered Precision Pine contract term adjustments on several contracts in March 1996. DX27172. Precision Pine accepted market-related term adjustments on the Hutch-Boondock, O.D. Ridge and Monument contracts. DX2; DX239; DX436. C. 54. No Outlet For Roundwood During The MSO Suspension The only substantial purchaser of the roundwood component of Precision Pine's

multi-product sale contracts was Stone Container Corporation, a/k/a Stone Forest Industries ("Stone"). See, e.g., DX566; DX570. 55. Precision Pine and Stone never had an arrangement that obligated Stone to

purchase all roundwood from all of Precision Pine's multi-product sale contracts. Rather, from time to time, Precision Pine and Stone would execute contracts providing that Stone would buy a fixed quantity of roundwood harvested from a particular multi-product sale contract. See DX468-71. 56. In early 1995, Stone agreed to purchase 20 loads of roundwood from the Manaco

multi-product sale contract. DX469. At about the same time, Stone agreed to purchase 500 cords of roundwood from the Brookbank contracts. DX472. By the end of August 1995, Precision Pine had delivered most or all of this roundwood to Stone. See DX109; DX186; DX588-92. 57. In September 1995, shortly after the MSO suspensions had begun, Lewis Tenney

sent a letter to Stone stating that he had recently heard that Stone was interested in purchasing roundwood. DX474. Mr. Tenney expressed "surprise" that no one at Stone had contacted 13

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Precision Pine. Id. He offered to sell Stone 1000 cords of roundwood from the Park timber sale ­ a multi-product sale that had been awarded to Precision Pine by the State of Arizona. Id. 58. On October 3, 1995, Stone turned down Mr. Tenney's offer of roundwood from

Precision Pine and explained that Stone was "not looking to make any new commitments" for roundwood during the 1995-96 season. DX475. 59. During the remainder of the MSO suspensions, Stone continued to refuse to

purchase roundwood from Precision Pine. See DX21; DX41; DX47; DX242-43; DX263; DX279-80; DX306; DX309; DX313; DX339; DX348-49; DX374-75; DX392; DX403; DX454-55; DX461; DX553; DX555. In fact, in early 1996, Stone refused to take roundwood from a third-party upon learning that the roundwood had come from one of Precision Pine's multi-product sales. DX454. As a result, Precision Pine repeatedly informed the Forest Service that it had no outlet for roundwood. E.g., DX263; DX454; DX555. 60. Stone continued to decline to purchase roundwood from Precision Pine until

September 1997 when it began accepting deliveries as part of its purchase of the Kettle contract from Precision Pine. See DX553 (accepting roundwood that had been taken from the Kettle contract and decked (i.e., stacked) at the Eagar mill). D. 61. Profitability Of The Contracts During The MSO Suspensions The Brookbank, Jersey Horse, Kettle, Manaco, Monument, Mud, Saginaw-

Kennedy, Salt and U-Bar contracts were unprofitable during the period of the MSO suspensions because of depressed lumber prices and the unavailability of an outlet for the roundwood component of multi-product sales. DX521-27; DX530-39; DX777; DX792. 62. Precision Pine voluntarily defaulted upon the Park timber sale ­ a multi-product

sale awarded to Precision Pine by the State of Arizona ­ in October 1996. DX699; DX705. 14

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VI.

The Post-Suspension Period 63. When the MSO suspensions were lifted, Precision Pine elected to continue ­ not

cancel ­ its contracts. E.g., Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635, 651 (2004); Joint Stip. ¶ 34; DX276. Thus, Precision Pine chose to reaffirm its contractual obligations, including the obligation to harvest all sawtimber and roundwood. Id. A. 64. Post-Suspension Contract Term Adjustments After the suspensions were lifted, Precision Pine requested contract term

adjustment for each contract affected by the MSO suspensions. Joint Stip. ¶ 34. The Forest Service granted each of these requests for contract term adjustments. Id. Accordingly, Precision Pine was provided term adjustments equivalent to the number of days lost during the contract's normal operating season as a result of the MSO suspensions. Id. B. 65. Precision Pine's Post-Suspension Harvesting The Forest Service lifted the suspension and, subject to the terms and conditions

of the contracts, made the Brann, Hutch-Boondock and St. Joe contracts available for harvesting by Precision Pine on October 18, 1995. See Joint Stip. ¶ 30; DX236; DX281; DX393. Precision Pine did not complete harvesting the Hutch-Boondock and Brann contracts by December 4, 1996. DX251; DX361. 66. The Forest Service lifted the suspension and, subject to the terms and conditions

of the contract, made the Mud contract available for harvesting by Precision Pine on March 11, 1996. DX300; DX316. Precision Pine did not complete harvesting the Mud contract by December 4, 1996. DX291. 67. The Forest Service lifted the suspensions and, subject to the terms and conditions

of the contracts, made the Brookbank, Hay, Jersey Horse, Kettle, O.D. Ridge, Manaco, 15

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Monument, Saginaw-Kennedy, Salt and U-Bar contracts available for harvesting by Precision Pine on December 4, 1996. DX23; DX52; DX101; DX123; DX144; DX173; DX207; DX340; DX432; DX452. 68. In December 1996, Precision Pine requested and was granted permission by the

Forest Service to operate the Hay timber sale outside of the contract's normal operating season. See DX54; DX91. Timber harvesting upon the Hay sale began later in December 1996. DX68. Precision Pine did not seek to operate any of the other contracts at issue in late 1996 or early 1997. 69. Precision Pine kept key employees at its Eagar sawmill on salary during the MSO

suspensions. DX788. Precision Pine decided not to reopen the Eagar sawmill until January 1997. DX96-97. Precision Pine elected to haul timber from the Hay sale to the Winslow sawmill after the Eagar mill was reopened. DX97. 70. During the post-suspension period (i.e., between December 4, 1996 and July 31,

2000), Precision Pine completed harvesting upon the Hay and Mud contracts. DX68; DX291. 71. During the post-suspension period, Precision Pine partially harvested the Kettle

multi-product sale contract and, in August 1997, sold the remaining sawtimber and roundwood in unopened payment units to Stone. DX31; DX477. 72. During the post-suspension period, Precision Pine partially harvested the

Brookbank, Jersey Horse, Manaco, O.D. Ridge and U-Bar contracts. DX3; DX109; DX128; DX186; DX407. 73. During the post-suspension period, Precision Pine conducted no harvesting upon

the Monument, Saginaw-Kennedy, and Salt multi-product sale contracts. DX780.

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74.

During the post-suspension period, Precision Pine cut and removed approximately

45 percent of the sawtimber available from the Brookbank, Hay, Jersey Horse, Kettle, Manaco, Monument, Mud, O.D. Ridge, Saginaw-Kennedy, Salt and U-Bar contracts. DX795; DX797. Precision Pine did not cut the remainder for "business reasons." DX781; DX784-85; DX791. 75. Precision Pine could have earned more by fully harvesting the contracts during the

post-suspension period than it claims it would have earned during the period of the MSO suspensions. DX797. 76. Precision Pine failed to comply with contractual obligations upon the Brann,

Brookbank, Hutch-Boondock, Jersey Horse, Manaco, Monument, O.D. Ridge, SaginawKennedy, Salt and U-Bar contracts. As a result, these contracts were terminated for default by the Forest Service. See Precision Pine, 62 Fed. Cl. at 636; DX570. 77. Precision Pine did not forego bidding on Government timber sale contracts or

forego any other opportunities to acquire additional timber for its mills as a result of the MSO suspensions. DX780 (request no. 10). C. 78. Post-Suspension Releases Of Liability In 1997, the Forest Service offered timber purchasers contract term adjustments

for certain contracts awarded before January 1, 1995. The adjustments offered by the Forest Service deferred the periodic payment date by one year and extended the contract completion date by one year. In order to receive such an adjustment, the timber purchaser was required to execute a release of liability. 79. Precision Pine was offered such contract term adjustments upon the Brann, Hay,

Hutch-Boondock, O.D. Ridge, Monument, Mud and U-Bar contracts. See DX386. Precision Pine requested and received the offered contract term adjustments upon the Brann, Hutch17

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Boondock, Monument, Mud and U-Bar contracts. DX343 (Brann); DX239 (Hutch-Boondock); DX436 (Monument); DX285 (Mud); DX319 (Saginaw-Kennedy). Each release was executed by the Forest Service contracting officer and Precision Pine's president, Lorin Porter. Id. 80. The release executed by Precision Pine in order to receive the requested term

adjustments upon these contracts reads in pertinent part: Purchaser, Precision Pine & Timber, hereby releases the Government from any and all liability arising from the suspension, modification, or cancellation (in whole or in part) of contract no. [applicable contract number] in order to protect sensitive, threatened, or endangered species, or for any other environmental reasons. DX239; DX285; DX319; DX343; DX436. VII. Precision Pine's Claims Regarding The MSO Suspensions 81. Between August 15, 1997, and November 17, 1997, Precision Pine sent to the

Forest Service claims letters seeking compensation as a result of the MSO suspensions. DX23; DX52; DX101; DX123; DX144; DX173; DX207; DX236; DX281; DX316; DX340; DX393; DX432; DX452. The claim letters were submitted pursuant to the Contract Disputes Act ("CDA") and were certified by Precision Pine's president, Lorin Porter. Id. 82. Precision Pine's claim letters did not include claims for compensation for time

spent by company employees preparing the claim letters. See DX23; DX52; DX101; DX123; DX144; DX173; DX207; DX236; DX281; DX316; DX340; DX393; DX432; DX452. 83. Precision Pine's claim letter with respect to the Hay contract did not include a

claim for compensation for increased log hauling costs. DX101. 84. Between November 28, 1997, and March 16, 1998, Precision Pine received final

decisions from Forest Service contracting officers that granted in part, and denied in part, the

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claims that had been submitted. DX25; DX53; DX104; DX124; DX148; DX175; DX210; DX237; DX283; DX317; DX341; DX394; DX434; DX453. Precision Pine was awarded, and the Forest Service paid, total compensation in the amount of $16,278.85 in connection with the claims. DX25; DX53; DX104; DX124; DX148; DX175; DX210; DX237; DX283; DX317; DX341; DX394; DX434; DX453; see also DX792 (exhibit 2). VIII. Claims Currently Pending In This Lawsuit 85. In this action, Precision Pine currently seeks the following damages: · · · · · Gross Profits from the Sale of Lumber and By-Products: $6,865,541.21 Increased Lumber Manufacturing Costs: Increased Log Hauling Costs on the Hay Contract: Claim Preparation Costs by Precision Pine Employees: Miscellaneous Items: $380,711.20 $176,162.32 $17,910.00 $19,954.53 $7,460,279.26

Thus, Precision Pine seeks damages in the total amount of: See DX792 (exhibit 1); Pl.'s Pretrial Br. at 31 (citing PX180). DEFENDANT'S CONTENTIONS OF LAW

Precision Pine has failed to assert claims for the proper measure of damages in this action. Precision Pine elected to continue the contracts at issue after the MSO suspensions were lifted. As a result, Precision Pine has retained only claims for "damages for partial breach." Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306, 1313 (1976). Precision Pine fails to acknowledge this fundamental limitation upon its claims and, consequently, asserts no claims seeking compensation for a partial breach. As a result, Precision Pine fails to meet its burden of proof in this action.

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Furthermore, Precision Pine has executed releases that relieve the Government of liability with respect to the suspension of five of the contracts at issue ­ the Brann, Hutch-Boondock, Monument, Mud and Saginaw-Kennedy contracts. DX239; DX285; DX319; DX343; DX436. Precision Pine is therefore entitled to no compensation for the suspension of the Brann, HutchBoondock, Monument, Mud and Saginaw-Kennedy contracts. Precision Pine's damages claims would be properly rejected even if its theories of liability were viable. This action concerns suspensions of 14 different timber and multi-product sale contracts that resulted from the listing of the Mexican Spotted Owl as an endangered species. The contracts were awarded on different dates, concern operations on different national forests, involve different volumes and different qualities of timber, and frequently (though not always) require the removal of substantial quantities of roundwood. The contracts were suspended for different periods ranging from 8 weeks to 16 months. Twelve of the contracts were found to have been breached and Precision Pine asserts a claim for lost profits with respect to 11 of these contracts. After the MSO suspensions were lifted, Precision Pine completely harvested some contracts, chose to partially harvest other contracts, and elected to perform no harvesting on still other contracts. Simply put, Precision Pine's claims are highly fact-dependent and cannot be feasibly addressed in the aggregate, but rather, must be assessed on a contract-by-contract basis. 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 measures of relief. For example, with respect to the O.D. Ridge contract, Precision Pine may seek compensation pursuant to either the common law or contract clause CT 6.01 ­ but not both. The United States discusses specific

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shortcomings with Precision Pine's claims in these two general categories below. See section III, infra (common law claims); section IV, infra (CT 6.01 claims). I. 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.1 Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 70-71 (2001). Upon breach, the injured party can choose between canceling the contract or continuing it. Cities Service Helex, Inc. v. United States, 211 Ct. Cl. 222, 543 F.2d 1306, 1313 (1976). It has already been established that, here, Precision Pine chose to continue the contracts affected by the MSO suspension. Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. at 651 ("Precision waived its right to cancel the contracts . . . through its continued manifestation of an understanding that the contracts remained in effect.");2 see also Joint Stip. of Facts ¶ 34 (stipulating that Precision Pine sought and received contract term adjustments upon each of its contracts after the MSO suspension was lifted).

The Court also concluded that the Forest Service breached a warranty in clause CT 6.25 in seven of the contracts. See Precision Pine & Timber, 50 Fed. Cl. at 70, 73. We respectfully maintain that the Court erred in finding clause CT 6.25 contains an express warranty. Furthermore, the Court's ruling that reliance upon a warranty is not required 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, this 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 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). 21
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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"). A party that elects to continue contract performance receives the benefit of the bargain through the contract itself ­ not through the recovery of expectancy damages. 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 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."). For instance, if the purchaser had a contract price for timber 22

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$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 would be $5.00/mbf. Precision Pine has made no attempt to quantify damages for partial breach. As a result, Precision Pine cannot satisfy its burden of proof in this action. II. Precision Pine Has Released The Government "From Any And All Liability Arising From The Suspension" Of The Brann, Hutch-Boondock, Monument, Mud and Saginaw-Kennedy Contracts In 1997, Precision Pine executed a series of releases of liability in order to obtain additional contract term adjustments. See DX239 (Hutch-Boondock); DX285 (Mud); DX319 (Saginaw-Kennedy); DX343 (Brann); DX436 (Monument). Each release was signed by the Forest Service contracting officer and Precision Pine's president, Lorin Porter. The operative language of the releases reads: Purchaser, Precision Pine & Timber, hereby releases the Government from any and all liability arising from the suspension, modification, or cancellation (in whole or in part) of contract no. 006577 in order to protect sensitive, threatened, or endangered species, or for any other environmental reasons. DX343 (Brann); accord DX239 (Hutch-Boondock); DX285 (Mud); DX319 (SaginawKennedy); DX436 (Monument). The plain language of the releases relieves the Government from "any and all liability arising from the suspension" in this action. Accordingly, Precision Pine is entitled to no recovery upon claims asserted with respect to the Brann, Hutch-Boondock, Monument, Mud and Saginaw-Kennedy contracts. E.g., Dairyland Power Co-op. v. United States, 16 F.3d 1197, 1203 (Fed. Cir.1994) ("the execution of an unrestricted release, pursuant to a government contract, bars the later assertion of claims against the government with respect to that contract"). 23

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III.

Precision Pine's Claimed Common Law Breach of Contract Damages In its pretrial brief, Precision Pine subdivides its common law breach claims into three

separate categories: gross profits from the sale of lumber products; sawmill inefficiency costs; and increased log hauling costs. See Pl.'s Pretrial Br. at 31-53. Precision Pine embeds within its gross profits calculations alleged increases in sawmill costs and log hauling costs. See DX792; DX796. By asserting increased sawmill and log hauling costs in its gross profits claims and as independent claims, Precision Pine seeks a double recovery. Furthermore, 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. A. Precision Pine Is Not Entitled To Recover Lost Lumber Profits 1. Lost Profits For The Sale Of Lumber Are Not Recoverable For Breach Of A Timber Cutting Contract Because The Production And Sale Of Lumber Products Constitute A Collateral Undertaking

The contracts at issue are timber cutting contracts. Each contract requires the purchaser to cut and remove from the sale's units fixed quantities of timber and roundwood. The contracts prescribe the manner in which logging and hauling (and subsequent land restoration work) is to be performed. The contracts establish a pricing mechanism for the timber and roundwood that are to be cut and removed. And the contracts each establish a fixed time during which all contract work is to be completed. See generally DX1. On the other hand, the contracts do not require that any timber or roundwood be processed at the purchaser's sawmill or, for that matter, at any sawmill whatsoever. Precision Pine was free to ­ and did ­ put logs from its contracts to varied uses. Some logs from Precision Pine's Forest Service 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 24

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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. Simply put, milling and planing were collateral to ­ not a part of ­ Precision Pine's contractual obligations. Profits upon "independent and collateral undertakings" are not recoverable under the common law. E.g., 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 other 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:

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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 from the sale of lumber products manufactured by the company's milling and planing operations ­ operations that were, in turn, supplied logs from Forest Service (and other) timber sales.3 Precision Pine's Forest Service contracts required only the cutting and removal of trees from Forest Service lands ­ not the milling, planing, drying or

Precision Pine obtained timber from the State of Arizona, Indian tribes, private parties, and its own lands, as well as from the Forest Service. 26

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sale of lumber products. As a result, like the additional loans in Wells Fargo, Precision Pine's manufacture of lumb