Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

PRECISION PINE & TIMBER, INC., Plaintiff, v. THE UNITED STATES, Defendant.

) ) ) ) ) ) ) ) ) )

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

PLAINTIFF'S MEMORANDUM OF FACTS AND LAW

Alan I. Saltman SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Counsel for Plaintiff OF COUNSEL: Richard W. Goeken SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Washington, D.C. 20006 (202) 452-2140 Dated: March 7, 2005

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TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES ......................................................................................................... iv I. CONTENTIONS OF FACT ................................................................................................1 A. For Years Prior to the Breach, Precision Pine Had Been Consistently Profitable By Purchasing Forest Service Timber Sales as Raw Material for Its Lumber Mills ..................................................................................1 But For the Breach, Precision Pine Would Have Harvested the Timber on the Breached Sales During the Ensuing 16-Month Suspension and Sold the Resulting Wood Products at a Profit ...............................5 It Was Foreseeable to the Forest Service that Precision Pine Would Suffer Lost Profits as a Result of a Protracted Suspension........................10 No "Offset" of Post-Suspension Profits from the Breached Sales Is Required, Because Precision Pine Was a Lost Volume Seller ..........................15 To the Extent that an Offset of Post-Suspension Profits Is Required, Precision Pine's Expert, Mr. Ness, Has Correctly Quantified the Post-Suspension Profits .........................................................................................17 As a Result of the Breach, Precision Pine Suffered Other Damages, Including Increased Timber Hauling Costs, Increased Manufacturing Costs and Employee Claim Preparation Costs.......................................................21 1. Precision Pine's Increased Hauling Costs on the Hay Sale are Recoverable..........................................................................................21 a. But for the Suspension, Precision Pine Would Not Have Incurred Increased Timber Hauling Costs on the Hay Sale ....................................................................21 That the Protracted Suspension Would Increase Precision Pine's Hauling Costs Was Foreseeable to the Forest Service.......................................................................23 The Amount of Precision Pine's Increased Timber Hauling Costs Has Been Calculated with Reasonable Certainty.........................................................................................25 i

B.

C. D. E.

F.

b.

c.

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2.

As a Result of the Breach, Precision Pine Suffered Increased Manufacturing Costs..................................................................................26 a. b. But for the Suspension, Precision Pine Would Not Have Incurred Increased Manufacturing Costs..............................26 It Was Foreseeable to the Forest Service That a Prolonged Suspension Would Have Increased the Cost of Precision Pine's Manufacturing Operations ..................................................28 The Amount of Precision Pine's Increased Manufacturing Costs Has Been Calculated with Reasonable Certainty.................30

c. 3.

As a Result of the Breach, Precision Pine Incurred the Cost of Preparing and Submitting Its CDA Claim Letters .....................................30 a. b. But for the Suspension, Precision Pine Would Not Have Incurred the Cost of Preparing Its CDA Claim Letters..................30 That the Forest Service's Protracted Suspension Would Cause Precision Pine to Incur Costs in Preparing CDA Claim Letters Was Foreseeable to the Forest Service ...................31 The Amount of Precision Pine's Cost in Preparing Its CDA Claim Letters Has Been Calculated with Reasonable Certainty.........................................................................................31

c.

II.

CONTENTIONS OF LAW ...............................................................................................31 A. Precision Pine is Entitled To Recover Its Lost Profits...........................................32 1. 2. But for the Suspension, Precision Pine Would Have Earned the Profits Claimed ....................................................................................32 Precision Pine's Lost Profits were Foreseeable by the Forest Service ......33 a. b. c. Precision Pine's Lost Profits were Objectively Foreseeable .........33 Lost Profits are Presumed to Occur in the Circumstances Here Present............................................................................................36 The Forest Service was Fully Aware of the Circumstances Surrounding Precision Pine's Use of Forest Timber .....................39

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d. e. 3. B.

No Special Circumstances Exist that the Forest Service Was Not Aware of .........................................................................40 The Test for Foreseeability of "Special Circumstances" Is Whether the Government was Aware of Them .............................41

Precision Pine Will Demonstrate the Amount of Its Lost Profits with Reasonable Certainty .................................................................................42

Precision Pine Is Entitled to Recover Its Damages for Its Increased Hauling Costs on the Hay Contract, Increased Manufacturing Costs and Costs It Incurred in Claim Preparation................................................................................47 1. Precision Pine Is Entitled to Recover Its Increased Hauling Costs ...........49 a. b. c. But for the Suspension, Precision Pine Would Not Have Incurred Increased Hauling Costs on the Hay Sale .......................49 The Increased Hauling Costs were Foreseeable to the Forest Service............................................................................................50 Precision Pine Will Prove Its Increased Hauling Costs with Reasonable Certainty .....................................................................52

C. D. III.

Precision Pine is Entitled to Recover Its Increased Manufacturing Costs.............52 Precision Pine is Entitled to Recover Its Costs Incurred in Preparing Its CDA Claim Letters..........................................................................................................54

ISSUES TO BE RESOLVED............................................................................................57

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TABLE OF AUTHORITIES CASES PAGE

Anchor Sav. Bank FSB v. United States, 59 Fed. Cl. 126 (2003) .......................................................................................................34 Bluebonnet Sav. Bank, F.S.B. v. United States, 339 F.3d 1341 (Fed. Cir. 2003)..........................................................................................46 California Federal Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005)..........................................................................................32 Ellerman Lines, Ltd. v. The President Harding, 187 F. Supp. 948 (S.D.N.Y. 1960).....................................................................................46 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002).................................................................................. passim Everett Plywood Corp. v. United States, 512 F.2d 1082 (Ct. Cl. 1975) ..................................................................................... passim Everett Plywood Corp. v. United States, 651 F.2d 723 (Ct. Cl. 1981) ...............................................................................................38 Forest Guardians v. Thomas, 967 F. Supp. 1536, aff'd sub nom., Forest Guardians v. Dombeck, 131 F.3d 1309 (9th Cir. 1997) ....................................19, 45 Fortis Corporate Insurance, S.A. v. M/V Cielo Del Canada, 320 F. Supp.2d 95 (S.D.N.Y. 2004)...................................................................................46 Gardner Displays Co. v. United States, 346 F.2d 585 (Ct. Cl. 1965) ...............................................................................................33 Glenn Distributors Corp. V. Carlisle Plastics, Inc., 297 F.3d 294 (3rd Cir. 2002) ..............................................................................................46 Greater Gila Biodiversity Project v. USFS, Civ. 95-0242-PCT-PGR.....................................................................................................14 Hawthorne Indus., Inc. v. Balfour Maclaine Int'l, Ltd., 676 F.2d 1385 (11th Cir. 1982) ..........................................................................................53 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001)....................................................................................21, 38 iv

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In re Kellet Aircraft Corp., 186 F.2d 197 (3rd Cir. 1950) ..............................................................................................46 J.D. Hedin Construction Company v. United States, 347 F.2d 235 (Ct. Cl. 1965) ...............................................................................................45 Landmark Land Co., Inc. v. FDIC, 256 F.3d 1365 (Fed. Cir. 2001)..........................................................................................21 Madigan v. Hobin Lumber Co., 986 F.2d 1401 (Fed. Cir. 1993)..........................................................................................47 Marathon Oil Co. v. United States, 16 Cl. Ct. 332 (1989) .........................................................................................................48 Mass. Bay Transp. Auth. v. United States, 129 F.3d 1226 (Fed. Cir. 1997)....................................................................................48, 53 Matt Allen Logging, AGBCA No. 2002-124-1, 04-1 BCA ¶ 32,596 (April 8, 2004) ........................................57 Neely v. United States, 167 Ct. Cl. 407 (1964) .......................................................................................................37 Peck Iron & Metal Co., Inc. v. United States, 603 F.2d 171 (Ct. Cl. 1979) ...............................................................................................37 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) .......................................................................................................18 Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122 (2004) ............................................................................................... passim Precision Pine & Timber, Inc. v. United States, ___ Fed. Cl. ___, 2005 WL 352547 (Fed. Cl. Feb. 14, 2005) ...........................................32 Precision Pine & Timber, Inc. v. United States, No. 01-131C.......................................................................................................................45 Precision Pine & Timber, Inc. v. United States, No. 01-201C.......................................................................................................................18 v

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Reidhead Bros. Lumber Co., AGBCA No. 2000-126-1, 01-2 BCA ¶ 31,486, aff'd, Reidhead Bros. Lumber Mill v. Veneman, 36 Fed. Appx. 426 (Fed. Cir. 2002), reh'g denied (Sept. 10, 2002) ......................................................................................50, 55 Reliance Enterprises, ASBCA No. 27638, 85-2 BCA ¶ 18,045 (1985) ...............................................................46 Robert L. Rich d/b/a Unitranco, DOTBCA 1026, 82-2 BCA ¶ 15,900(1982) ......................................................................46 Scott Timber, Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003)..............................................................................52, 53, 56 Scott Timber Co. v. United States, COFC No. 94-784C ...........................................................................................................56 Stoner-Caroga Corp. v. United States, 3 Cl. Ct. 92 (1983) .................................................................................................37, 41, 42 Weaver-Bailey Contractors, Inc. v. United States, 19 Cl. Ct. 474 (1990) .........................................................................................................45 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996), cert. denied, 520 U.S. 1116 (1997)......................21, 37, 48 STATUTES AND REGULATIONS Organic Act of 1897, 16 U.S.C. §§ 473-482, 551 et seq. .....................................................................................10 16 U.S.C. § 475..................................................................................................................10 36 C.F.R. § 223.52 .........................................................................................................................13 36 C.F.R. § 223.160(f) (1989-90) ..................................................................................................11 36 C.F.R. § 223.186 (2000) ...........................................................................................................10 36 C.F.R. § 223.187(a)...................................................................................................................11 55 Fed. Reg. 50643 (Dec. 7, 1990) ................................................................................................13 MISCELLANEOUS 5 CORBIN ON CONTRACTS § 1011 (1964).................................................................................38, 48 vi

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11 SAMUEL WILLISTON & WALTER H.E. JAEGER, A TREATISE ON THE LAW OF CONTRACTS § 1344 (3d ed. 1968 & Supp. 2001).........................................................48 Robert L. Dunn, Recovery of Damages for Lost Profits (5th ed. 1998) § 2.4....................................................................................................................................38 § 118...................................................................................................................................38 RESTATEMENT (SECOND) OF CONTRACTS § 347...................................................................................................................................15 § 351 (1981).......................................................................................................................48 § 351, cmt. a (1981) ...............................................................................................34, 48, 53 § 351, cmt. b.......................................................................................................................40 § 351(1) (1981) ..................................................................................................................33 U.C.C. § 2-715, Official Comment 6.............................................................................................38

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The contentions of fact and law as well as any supporting exhibits identified below are not intended to be exhaustive or final and are subject to revision based on, among other things, the evidence adduced at trial. Moreover, although Appendix A, ¶ 14(a)(3) contemplates that a party make objections to witnesses and exhibits in, or concurrently with the filing of, the Memorandum of Fact and Law, at this time, plaintiff has not been provided with defendant's final exhibit list or its final witness list as is contemplated by Appendix A. Therefore, at this time plaintiff has not identified its objections to defendant's witnesses or exhibits, however, in accordance with this Court's pre-trial order of January 4, 2005, plaintiff reserves the right to file motions in limine as to defendant's witnesses and objections as to defendant's exhibits on April 18, 2005.

I.

CONTENTIONS OF FACT A. For Years Prior to the Breach, Precision Pine Had Been Consistently Profitable By Purchasing Forest Service Timber Sales as Raw Material for Its Lumber Mills.

Mr. Lorin Porter, President of Precision Pine & Timber Co., Inc. ("Precision Pine"), will testify at trial that Precision Pine was founded in 1984 in Heber, Arizona and that he has more than 29 years of employment experience in lumber manufacturing, including approximately 20 years of experience in the procurement of timber. Moreover, Mr. Porter's father was the owner/operator of a sawmill and was engaged in obtaining timber for the production and sale of lumber products in Northern Arizona and New Mexico. Accordingly, from a very young age, Mr. Porter participated in the family business of assessing and acquiring standing timber, all facets of sawmill operations as well as the production and sale of lumber products.

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Heber is located in a rural area of northeastern Arizona, in the heart of a swath of virtually unbroken Ponderosa Pine forest that extends in an arc from Flagstaff (located in northcentral Arizona) to Springerville, Arizona (located on the border of Arizona and New Mexico). Plaintiff's Exhibit ("PX") 104. However, approximately 42.1% of the State of Arizona is owned by the federal government and that percentage of ownership is even higher in northeastern Arizona.1 Precision Pine will present testimony indicating that it was at all times relevant to this case substantially dependant upon the Forest Service's commercial timber sale program for its supply of raw material. See also PX 272. Indeed, Precision Pine estimates that historically more than 75% of its supply of raw material was obtained from the Forest Service's timber sale program.

In each and every year from its inception to 1995, Precision Pine bid on and was awarded contracts by the Forest Service for the harvesting of timber, harvested timber pursuant to those contracts, paid the Forest Service for the timber removed, manufactured that timber into lumber and by-products and sold the lumber and by-products at a profit. Indeed, prior to the suspension, Precision Pine was consistently profitable.

As the Court is well aware, on August 25, 1995, the Forest Service suspended performance on all of the Forest Service contracts that had been awarded to Precision Pine. See Precision Pine & Timber, Inc. v. United States, 63 Fed. Cl. 122, 126 (2004). This suspension

The State of Arizona owns an additional approximately 12.8% of the land base in Arizona. PX 270. 2

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resulted in Precision Pine's filing claims for the breach of 14 contracts and the Court's finding that the Forest Service had, in fact, breached 12 of those contracts. Id.

At the time of the suspension in 1995, Precision Pine was operating three sawmills strategically located in Heber, Eagar and Winslow, Arizona. The Heber sawmill, constructed in 1984, drew its timber supply primarily from the Tonto and the western-portion of the ApacheSitgreaves National Forests. The Heber sawmill had the capacity to produce approximately 10 million board feet2 of lumber per year when operating one eight-hour shift per day. PX 271.

The Winslow facility had been obtained from Duke City Lumber Company in 1991. The Winslow sawmill drew its timber supply primarily from the Coconino and Kaibab National Forests and had the capacity to produce approximately 14 million board feet of lumber per year on a one shift basis. PX 271. The Winslow facility also housed a planer mill and kilns, where rough green lumber products from all of Precision Pine's sawmills were surfaced and dried. The Winslow planer and kilns had an annual capacity well in excess of the combined annual output of Precision Pine's sawmills.

Finally, the Eagar sawmill drew on the supply of timber sold by the Forest Service on the eastern-portion of the Apache-Sitgreaves National Forest. During the period of the suspension, the Eagar sawmill had the capacity to produce approximately 11 million board feet of lumber per year on a one shift basis. PX 271. A board foot is a board measuring 1 foot long by 1 foot wide by 1 inch thick. The volume of Forest Service timber sales are often calculated in "thousand board feet," which is abbreviated as "MBF." "MMBF" denotes one million board feet. 3
2

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As noted, in 1997, Precision Pine submitted claims under the Contract Disputes Act ("CDA") for breach of contract with respect to 14 of its Forest Service timber sale contracts that had been suspended beginning on August 25, 1995 and seeking, among other things, lost profits. See Precision Pine, 63 Fed. Cl. at 126. The suspension of 10 of those contracts lasted for some 16 months, i.e., until December 1996. Id. The remaining volume of sawlogs on the 14 suspended sales regarding which Precision Pine submitted claims was 31.5 million board feet and represented an approximately 13.5-month supply of sawlogs for the company's sawmills. In the final decisions on Precision Pine's claims, the government disclaimed liability for the breach of contract as well as for Precision Pine's lost profit claim and paid Precision Pine a total of $18,242.78 in out-of-pocket expenses for the protracted suspension of the contracts pursuant to contract clause CT6.01. Id.3

At summary judgment in this matter, 12 of the 14 timber sale contracts were held to have been breached by Forest Service. See Precision Pine, 63 Fed. Cl. at 126. One of the breached contracts, the Brann multi-product timber sale, was only suspended for a period of approximately

The Forest Service, however, failed on some contracts to compensate Precision Pine for certain small suspension expenses items that are regularly compensated by it, i.e., total costs (including markup) of maintaining performance bonds during the suspension, the total cost (including markup) of having to move off the Brookbank contract on which it was operating at the time of the suspension, and interest on cash deposits, effective purchaser road credits and downpayments held by the Forest Service during the suspension. See PX 131 at ex.2. The Forest Service also failed to compensate Precision Pine for several other small items, i.e., the necessary cost to remove snow in the winter of 1996 in order to access badly needed timber and the cost in October 1996 of transferring logs from a mill forced to close by the suspension to an operating mill. At trial, Precision Pine will demonstrate that each of these costs were incurred and that they are of the type normally compensated by the Forest Service in the circumstances here present. 4

3

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eight weeks before being released. Id. Although the Brann contract was breached, Precision Pine has not sought lost profits with respect to the breach of that contract. At the time of the suspension, the 11 breached contracts for which lost profit damages are sought had sawlog volumes in the following amounts: Sale Name Monument: Ponderosa Pine Mud: Ponderosa Pine Saginaw-Kennedy: Ponderosa Pine U-Bar: Ponderosa Pine U-Bar: Douglas Fir Brookbank: Ponderosa Pine Jersey Horse: Ponderosa Pine Manaco: Ponderosa Pine Salt: Ponderosa Pine Hay: Ponderosa Pine Hay: Douglas Fir Kettle: Ponderosa Pine O.D. Ridge: Ponderosa Pine O.D. Ridge: Douglas Fir O.D. Ridge: Englemann Spruce PX 131 at Ex. 9, p. 1 and PX 290. Volume In CCF 1,461 CCF 6,199 CCF 2,268 CCF Sold in MBF Sold in MBF 2,711.3 CCF 3,040 CCF 5,002 CCF 4,460 CCF Sold in MBF Sold in MBF Sold in MBF Sold in MBF Sold in MBF Sold in MBF Volume In MBF 730.50 MBF 3,099.5 MBF 1,134 MBF 1,824.45 MBF 1,361 MBF 1,355.65 MBF 1,520 MBF 2,501 MBF 2,230 MBF 3,561.67 MBF 257.55 MBF 2,741.97 MBF 1,921 MBF 441 MBF 264 MBF

B.

But For the Breach, Precision Pine Would Have Harvested the Timber on the Breached Sales During the Ensuing 16-Month Suspension and Sold the Resulting Wood Products at a Profit.

As noted in the above chart, the remaining total of sawlogs on the 11 breached sales regarding which Precision Pine suffered lost profits was 24,943 MBF (LS)4 (i.e., 24.9 million board feet) or approximately an 11-month supply of sawlogs for Precision Pine's mills. PX 158. But for the suspensions, Precision Pine would have harvested this 11-month supply (24.9 million "LS" refers to "log scale" or the volume of board feet contained in a log. By contrast, "LT" refers to "lumber tally" or the board feet of lumber that can be produced from a log. The two are not identical, and board feet produced at sawmill in lumber tally typically exceeds (and in Precision Pine's operations did exceed) board feet in log scale. 5
4

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feet) during the 16-month period from August 25, 1995 to December 1996. See PX 102. Indeed, this volume was a critical portion of its raw material supply. Moreover, by the end of April 1997, Precision Pine would have manufactured all of those sawlogs into lumber and byproducts of the type it normally produced, sold those products to its usual customers and made a profit in doing so. PX 131. These lost profit damages have been quantified in the Expert Report of Robert Ness as $6,865,541. PX 131 at exs. 1, 4-7.

Defendant may attempt to argue that the calculation of Precision Pine's lost profits is not reasonably certain and that, had there been no suspension, Precision Pine would not necessarily have harvested any of the timber on the breached contracts during the period August 1995 through December 1996 because on the eve of the suspension, Precision Pine did not have a written plan demonstrating in detail precisely when each of the breached contracts was to be harvested and the resulting sawtimber to be run through Precision Pine's sawmilling operations. Defendant's argument, however, ignores that the breached contracts contained a very substantial portion of the timber that Precision Pine had available at the time of the suspension, that the breached sales plus the other timber that Precision Pine was able to obtain and operate on during the suspension would have brought its operations to near capacity, PX 131, as well as the testimony of Precision Pine's President that he would have operated the breached sales plus the other timber available to him during the period of the suspension. See PX 102.

Defendant will likely also attempt to argue that aspects of Precision Pine's lost profits calculation are flawed and/or might have been calculated another way. However, once the evidence is presented and all testimony adduced, it will become clear that Precision Pine's 6

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approach to quantifying the magnitude of the considerable damage imposed on it by defendant's breaches of contract is sound and, if anything, is quite conservative.

More specifically, defendant will probably contend that Precision Pine could not have harvested the sawlogs on the contracts in issue between August 1995 and December 1996 as it alleges because seven of the eleven breached sales were "multi-product sales" which contained both sawlogs and pulpwood. See PX 102. The basis for defendant's position is that at various times during that period, Stone Container Corporation ("Stone"), Precision Pine's primary buyer of pulpwood, would not accept pulpwood and/or would not accept pulpwood from Precision Pine. Defendant's argument, of course, has no application to the four sales (Hay, Jersey Horse, U-bar, and O.D. Ridge) which, as of the date of the suspension, contained 45% (11,150 mbf (LS) of the 24,900 mbf (LS)) of sawlogs remaining on the breached contracts but no pulpwood. See PX 102. Moreover, the evidence and testimony at trial will show that: (1) the situation that existed intermittently between Stone and Precision Pine between August 1995 and December 1996 vis-à-vis pulpwood was nothing new, but this fact notwithstanding, Precision Pine had always been able to harvest both the sawlogs and pulpwood on its Forest Service multi-product sales in full conformity with its obligations under those contracts and to dispose of virtually of all that pulpwood to Stone (It was able to dispose of this pulpwood both by waiting to harvest or remove pulpwood until Stone's needs increased, as is permitted by the terms of each of Precision Pine's timber sale contracts, and by selling the pulpwood to its loggers who in turn sold it to Stone); (2) Precision Pine intended to dispose of pulpwood on the seven subject contracts to Stone by selling the pulpwood to its primary logger, Tri-Star Logging, who had an excellent long-term relationship with Stone, and, who, in turn would continue to sell it to Stone; and (3) in 7

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fact, during and after the suspension, Precision Pine was able to dispose of pulpwood to Stone both through direct sales and by selling the timber to its loggers who in turn sold it to Stone. See PX 114, 117, 223.

It appears that the government will also attack Precision Pine's calculation of the profits it would have made with respect to the eleven breached sales during the period August 1995 through April 1997 if there had been no suspension with various challenges to those calculations, e.g., Precision Pine's projection of the total volume of lumber that it would have produced, the quantities of particular lumber products that it would produced, and the prices at which it would have sold those products. The government will also likely challenge more generally the profitability of the sales. The evidence and testimony that will be adduced at trial will, however, demonstrate that Precision Pine's approach to damages is fully supported consistent with the evidence and considerably more accurate than the approaches taken by the government.

Indeed, in contrast to the government's assertions, Precision Pine will demonstrate that its calculation of the total volume of lumber that it would have produced from the 24,900 mbf (LS) of sawlogs remaining to be harvested on the eleven breached contracts as of August 25, 1995 was not only reasonable but conservative. See PX 51. Precision Pine will demonstrate that the factors it applied to calculate the total volume of lumber that it would have produced from the sawlogs on these breached contracts (most notably by using an overrun/lumber recovery factor of 1.25) was a good deal more conservative than that set forth by the Forest Service itself in the pre-bid documents for each of the contracts in issue (see PX 1-27) and that the substantially

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lower overrun/lumber recovery factor for which the government has advocated is simply incorrect.

While the government will attempt to introduce reports from its so-called experts, and will likely try to produce hours of testimony critical of the manner in which Precision Pine calculated the quantities of particular lumber products that it would have produced from these contracts from August 1995 through April 1997 had there been no suspension (i.e., Precision Pine's lumber product mix for this hypothetical production), at the end of the day the testimony and evidence adduced at trial will demonstrate that Precision Pine's projected product mix is quite accurate. E.g., PX 288.

The government's will in all likelihood also try to attack the accuracy of prices at which Precision Pine has indicated that it would have sold the various lumber products that it would have produced from these sales from August 1995 through April 1997 had there been no suspension. However, Precision Pine will demonstrate that these prices are consistent with the prices at which these products were, in fact, sold during the period of the suspension and that by contrast the pricing methodology utilized by the government is inaccurate. PX 287.

Finally, the government's probable general criticism of the size of the profit that Precision Pine would have made had it been permitted to harvest and process the sawlogs on the eleven breached sales without interference will also be shown to be unfounded. That is, the testimony and exhibits that Precision Pine will present will show that the lumber production rate that, but for the suspension, Precision Pine would have been achieved from August 1995 through 9

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April 1997, i.e., 35,000 mbf (LT) (35 million board feet of lumber) per year, and that the lumber market was such that throughout the suspension profits would have been achieved. E.g., PX 131, 168.

C.

It Was Foreseeable to the Forest Service that Precision Pine Would Suffer Lost Profits as a Result of a Protracted Suspension.

The National Forests were established under authority of the Organic Act of 1897, 16 U.S.C. §§ 473-482, 551 et seq., which provides that "[n]o national forest shall be established, except to improve and protect the forest within the boundaries, or for the purpose of securing favorable conditions of water flows, and to furnish a continuous supply of timber for the use and necessities of citizens of the United States[.]" 16 U.S.C. § 475 (emphasis added). This is also one of the fundamental premises for the existence of the Forest Service's commercial timber sale program. Indeed, the Forest Service Manual currently states (and at the time of contracting stated) that: [S]pecific objectives for commercial timber sales are . . . [t]o provide a continuous flow of raw material to local forest industries. PX 132-134. From its inception and at all times relevant to this case, the Forest Service, through its commercial timber sale program, has knowingly engaged in providing raw material to industry for the manufacture of wood products. Everett Plywood Corp. v. United States, 512 F.2d 1082, 1091 (Ct. Cl. 1975).

As one would expect, the timber sale contracts awarded to Precision Pine reflected this knowledge in many ways. That is, not only was the primary item being sold pursuant to the subject contracts "sawlogs" (see PX 169-179) but each of the Forest Service's commercial 10

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timber sale contracts actually contained provisions that required Precision Pine to process the timber it harvested under the contract in a domestic sawmill,5 to notify the Forest Service of the sawmill where the specific timber was to be processed and of any changes in this regard, to certify where processing had occurred, and warned that the failure to process the timber at a domestic sawmill would constitute a breach of contract.6 Id. Moreover, each of the bid forms for the contracts here in issue required that the bidder indicate whether or not it was a manufacturer, i.e., an entity that processed timber into wood products such as lumber or plywood, e.g., PX 135-136. Accordingly, in its bid for each of the timber sale contracts in issue, Precision Pine indicated that it was a "manufacturer." Indeed, the Forest Service was aware that Precision Pine was a manufacturer (PX 272, 275) as well as the fact that manufacturers used timber to produce wood products including lumber (PX 273, 274, 275, 276). See also 36 C.F.R. § 223.160(f) (1989-90), 36 C.F.R. § 223.187(a).

In this regard, as the Court found in its ruling denying the government's motion for summary judgment: In fact defendant concedes that `in its bid for each of the timber sale contracts at issue, Precision Pine indicated that it was a `manufacturer.' . . . The Forest Service was aware In the forest products industry and to the Forest Service, "processing" and "manufacturing" mean the same thing. See 36 C.F.R. § 223.186 (2000) ("Manufacturing facility means a permanently located processing plant used to convert unprocessed timber into products"). As discussed below, Precision Pine regularly certified to the Forest Service both before and after contracting that it was processing the timber from its Forest Service timber sale contracts at its sawmills. PX 21-27. Moreover, contract clause CT8.641 required that the contractor ensure that the timber is domestically processed, i.e., prior to delivering the timber to another party, Precision Pine was required to execute an agreement acceptable to the Forest Service with that party which shall "specify domestic processing for the timber. . . ." PX 169-179. 11
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of this fact . . . as well as the fact that manufacturers used timber to produce wood products including lumber." Precision Pine, 63 Fed. Cl. at 130. Indeed, the Forest Service knew that Precision Pine had sawmills at Eagar (PX 272, 273, 275) and Heber (PX 272, 273, 274, 275) and a sawmill and planer at its Winslow facility. (PX 272, 275, 276). The Forest Service knew that Precision Pine produced lumber at its sawmills. PX 272, 273, 274, 275. Moreover, at the time of award, the Forest Service anticipated that sawlogs from Precision Pine's contracts would be sent to sawmills for processing. PX 274, 275, 276. The Forest Service also knew that Precision Pine was substantially dependant on the Forest Service commercial timber sale program as its source of sawlogs to supply its mills. PX 272.

The contracts themselves also reflect the Forest Service's understanding that Forest Service timber was being purchased to be manufactured into lumber. That is, clause B(T)8.21 of each of Precision Pine's timber sale contracts also required the Forest Service to grant additional time within which the contractor could harvest the timber on the sale if the contractor's "primary timber processing facilities," i.e., the sawmill where it intended to process the timber, were destroyed or damaged by fire, flood, or similar cause. See PX 169-179. If the ability to successfully perform sawmill operations and produce lumber were not integral to the performance of the timber sale contract, there would have been no reason for Forest Service to have included such a clause in the contracts.

Additionally, since 1990, each Forest Service commercial timber sale contract, including those here in issue, has contained clause C(T)8.212 providing for the addition of time to the term 12

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of the contract when the Chief of the Forest Service determines that adverse market conditions have resulted in a drastic reduction of wood product prices for two or more consecutive quarters.7 See PX 169-178; 36 C.F.R. § 223.52. The stated purpose for the inclusion of such a contract provision was the Forest Service's recognition of the need to avoid purchaser defaults in periods of severe economic downturn, because: Such economic distress broadly affects community stability and the ability of industry to supply construction lumber and other products for public use and threatens the maintenance of plant capacity necessary to meet future needs of the Nation for wood products from domestic sources. Accordingly, in order to insure the retention of a viable established industry capable of supplying the wood fiber needs of the public for housing and other products, the Chief of the Forest Service has determined that if there is a drastic reduction in wood product prices . . . it would be in the substantial overriding public interest to extend the contract term (36 C.F.R. 223.115(b)). 55 Fed. Reg. 50643 (Dec. 7, 1990) (emphasis added), PX 222.

Furthermore, in Certifications of Timber Domestically Processed submitted to the Forest Service annually, both before and after all of the sales in issue were awarded, Precision Pine certified that all sawtimber it removed from Forest Service sales was processed at its sawmills. PX 272, 273, 274. See also PX 144-146, 275, 276.

Given the above, it was objectively foreseeable to the Forest Service that the probable result of a protracted suspension of 12 of Precision Pine's sales was reduced sawmill operations and lost profits on the lumber that Precision Pine intended to produce. This fact is supported by

To determine if a drastic reduction in wood product prices had occurred, the Forest Service elected to track wood product prices (i.e., lumber prices, not prices bid for standing timber) as determined by the Bureau of Labor in its producer price indices. Id. 13

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sworn statements of other Forest Service officials in Region 3 where all of the breached contracts were located. For example, in a declaration made to the United States Court of Appeals for the Ninth Circuit, Milo Larson, the then Director of Forestry and Forest Health for Region 3, stated that: When many timber sale contracts in a large geographic area are affected for a long period of time, there is the potential to destroy businesses that cannot operate any of their contracts and consequently their manufacturing plants. Because the individual contract delay provisions were not envisioned to be applied to more than one contract at a time, the government could face potentially broad damages for businesses being unable to operate enough of their contracts to avoid loss[es] from mill closings and other losses outside an individual contract. This could result in millions of dollars in damages being paid by the government. PX 49 (¶ 6) (emphasis added). Similarly, Alan Lucas, the then Timber Sale Preparation and Sale Administration Forester for Region 3, submitted an affidavit on behalf of the government to the United States District Court for the District of Arizona in Greater Gila Biodiversity Project v. USFS, Civ. 95-0242-PCT-PGR (a case that involved a request for an injunction pending the Forest Service's compliance with NEPA), which stated that if the injunction were issued necessitating the Forest Service to suspend operations on timber sale contracts "[e]xpenses associated with the interruption or shutdown and Start-up of [a] Purchaser's sawmill . . ." were costs for which the Forest Service could expect claims. PX 50.

Perhaps most importantly, this Court has already found in denying defendant's motion for summary judgment that evidence presented by Precision Pine: Reflects facts likely long known to the Forest Service, i.e., the logging season is restricted and a suspension can cause a contractor to lose an entire year of production and such a loss can result in lost profits and several sawmills going out of business permanently.

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Precision Pine, 63 Fed. Cl. at 131. Based on the above, there is more than sufficient factual evidence to establish that the Forest Service actually foresaw or could have foreseen that the probable result of its protracted suspensions and breach of Precision Pine's contracts would be lost profits.

D.

No "Offset" of Post-Suspension Profits from the Breached Sales Is Required, Because Precision Pine Was a Lost Volume Seller.

The government may argue that a deduction for profits made in post-suspension harvesting of some of the timber on the contracts at issue should be made. However, as this Court has already determined: "In the event that Precision Pine is a `lost volume seller,' it would not be required to offset the profits from its post-suspension harvesting." Precision Pine, 63 Fed. Cl. at 133. Here, the facts demonstrate that Precision Pine was a lost volume seller and, therefore, no offset is required.

At all times relevant, Precision Pine was a regular volume dealer in sawlogs, and processor of those sawlogs into lumber. That is, consistent with the tests laid out in § 347 of the Restatement, Precision Pine regularly dealt with significant quantities of sawlogs, i.e., in the years preceding the breach, it annually purchased millions of feet of sawlogs and used that substantial volume of sawlogs to manufacture lumber products at its sawmills. PX 246. Indeed, at the time of the breach, on average, each of these sawmills had the capacity to produce approximately one million board feet of lumber per month on a one shift basis, i.e., a total of 3536 million feet of lumber annually. PX 271.

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In fact, had there been no suspension, in the 16 months between the time that the government breached the contracts in August 1995 and December 1996, Precision Pine would have harvested the 11-month supply of sawlogs (24,900 MBF) on the breached sales and by the end of April 1997 would have manufactured all of it into lumber. PX 130, 131. Moreover, once the injunction was dissolved in December of 1996, the Forest Service did start selling timber again. PX 156-157. From this other timber put out for bid, including the 80,000 MBF offered by the Forest Service between December 1, 1996 and December 31, 1998 by the four national forests on which Precision Pine operated, id., Precision Pine would have purchased a similar volume, i.e., enough sawlogs to keep its mills in operation for a comparable period throughout 1997 into 1998. Such being the case, but for the breach, Precision Pine would have had the opportunity to make a profit on lumber sales both during the period of the suspension in 1995-96 and in the ensuing years of 1997-98.

Put slightly differently, because Precision Pine would have made the lumber sales that it did after April 1997 whether or not the Forest Service had breached the contracts in issue, offsetting a portion of any post-suspension profits against profits that were lost on timber that could not be harvested from August 1995 to December 1996 as a result of the suspension, will leave Precision Pine in a considerably worse position than it would have been in had there been no breach. This is due to the fact that, absent the breach, Precision Pine would have earned both the profits on the timber from the 11 breached sales that would have been harvested during August 1995-December 1996 and the profits that it would have earned on an equal volume of timber harvested from other sales in 1997-98. In short, absent the breach, after August 25, 1995 Precision Pine would have made $X in profits on the sale of lumber made from sawlogs 16

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harvested on the 11 sales at issue and would have made $Y in profits on the sale of lumber made from an equal volume of other sawlogs which it would have processed thereafter, i.e., Precision Pine's total profit would thus have been $X+$Y. However, by offsetting any actual postsuspension profits that Precision Pine would have earned in any event ($Y) against the profits that Precision Pine lost due to the suspension, Precision Pine would obtain only $X-$Y in profit, a far lesser sum. Thus, the government's proposed offset would put Precision Pine in a worse position than it would have been in had there been no breach.

E.

To the Extent that an Offset of Post-Suspension Profits Is Required, Precision Pine's Expert, Mr. Ness, Has Correctly Quantified the Post-Suspension Profits.

At summary judgment, this Court determined that if Precision Pine is found not to be a lost volume seller it will have to account for the profits from post-suspension harvesting. Precision Pine, 63 Fed. Cl. at 133. In a report dated February 7, 2005, plaintiff's accounting expert Mr. Robert Ness calculated the post-suspension profits, if any, that Precision Pine made on the sale of lumber and by-products from the breached contracts in the post-suspension period. See Post­Suspension Report of Robert A. Ness ("Ness Post-Susp. Report"), PX 182. Mr. Ness employed the same basic methodology that had been used in calculating Precision Pine's damages during the suspension period. That is, during the post-suspension period Precision Pine conducted at least some harvesting on eight of the 11 breached sales. (PX 182 at ex. 4, p.3).8 In all, some 11,092 MBF (LS) of sawlogs were removed by Precision Pine from the breached sales

No post-suspension harvesting was conducted on the Saginaw-Kennedy, Salt or Monument contracts (PX 182 at ex. 4, p. 3) while the Hay and Mud contracts where harvested to completion and the Kettle sale, after some harvesting by Precision Pine in 1997 (id. at ex. 4, p. 3), was transferred to another purchaser. Id. at ex. 1, p. 1. 17

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between the time that the suspension was lifted until the 2nd Quarter of 2000. Id. at ex. 4, p. 3.9 Mr. Ness calculated the profit that was made on the sale of lumber, pulpwood and by-products from the breached sales during this period and from that profit Mr. Ness deducted the costs associated with manufacturing the lumber from those sales, including the contract costs (stumpage, road maintenance deposits, etc.) (id. at ex. 6), logging and hauling costs (id. at ex. 4, p. 4), manufacturing costs (id. at ex. 7), unabsorbed manufacturing overhead costs (id. at ex. 9), as well as unabsorbed General & Administrative Costs. Id. at ex. 12. On an "income before tax basis," Precision Pine lost money on the lumber produced from the breached sales (and, indeed, for the first time as a company) in each of its fiscal years ending 1998, 1999, and 2000. Id. at ex. 14A-C. This was due in large part to the considerable inefficiencies that Precision Pine experienced in the post-suspension period. Even on a slightly modified gross profit basis (i.e., reflecting the amount of unabsorbed manufacturing overhead and G&A experienced by the company in the post-suspension period (id. at exs. 9 and 12) and the default damages assessed with respect to the contracts but not reflecting that portion of the company's manufacturing overhead and G&A that would have been incurred in the normal course of operations (see id. at ex. 1), the total profit attributable to the breached contracts was only $803,353.12. Id. at ex. 1.

In the summer of 2000, the remaining eight breached contracts were put into default by the government because Precision Pine was unable to replace its surety for the contracts after the government removed the surety from its approved list. The resolution of the government's breach claim is pending in Precision Pine & Timber, Inc. v. United States, No. 01-201C, currently pending before this Court. As found by this Court in its order of October 29, 2004 the government had calculated its damages incorrectly and is now in the process of recalculating them, a task it is to complete no later than six months after the entry of that order. Precision Pine & Timber, Inc. v. United States, 62 Fed. Cl. 635, 656 (2004). It is Precision Pine's contention that the Forest Service's claim for default damages on the breached contracts represents a loss that Precision Pine sustained on the timber remaining on the breached contracts. 18

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The government may assert that among the reasons that these contracts generated no or limited profits in the post-suspension period were events that its breach did not cause and for which it is not responsible, e.g., the suspension of seven of these contracts in whole or part from May 30 to December 15, 1997 in order to comply with an injunction wrongfully issued in Forest Guardians v. Thomas, 967 F. Supp. 1536, 1544, aff'd sub nom., Forest Guardians v. Dombeck, 131 F.3d 1309 (9th Cir. 1997), the permanent closure of Stone, Precision Pine's primary buyer of chips and pulpwood, in early 1998, and the fire later that same year which destroyed Precision Pine's Winslow sawmill. Thus, the government may try to argue that the post-suspension profits that Precision Pine could have earned on these sales in a perfect world is considerably higher. However, $803,352 is what Precision Pine actually earned on the breached sales in the postsuspension period and, while perhaps more could have been earned had circumstances in the post-suspension period been other than they were, as the case law discussed in the Contentions of Law, infra, makes clear, where a government suspension forces a contractor into a period where the contractor's operations are hampered or prevented by events not caused by the government directly, the government nonetheless remains responsible for the full amount of damages resulting from its suspension.

The government may also argue that any lost profits that Precision Pine suffered were caused by its decision to forego profits and not harvest the sales in 1997 and thereafter, i.e., after the suspensions were lifted. The government made such an assertion in its motion for summary judgment based on the premise that lumber product prices "were markedly higher in 1997"10 and

This statement is not totally accurate. See Ex. 3 of the report of one of defendant's putative experts. Defendant's Preliminary Ex. 776. 19

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that, despite this good market, Precision Pine simply decided (for no apparent reason) not to harvest these sales and make a profit on them. In making this argument, defendant asks this Court to believe that the owners of Precision Pine were either blithering idiots or masochists. Not surprisingly, for a company that was consistently profitable before the Forest Service's breach of its contracts, neither is the case.

Although not relevant for purposes of determining Precision Pine's entitlement to profits lost as a result of the Forest Service's suspensions of harvesting operations in 1995 and 1996, subsequent to the lifting of the suspensions in December 1996 Precision Pine did attempt to dig out from the devastation that the August 1995-December 1996 suspensions caused the company and to get back to some semblance of normal operations. However, as it attempted to do so, it was hit seriatim with a number of obstacles beyond its control. First, the suspensions were lifted in December, when, as the Forest Service itself recognizes, through April, it is usually too wet and not cold enough in Arizona to provide good winter logging conditions. Subsequently, after logging conditions had improved, the Forest Service again suspended operations on a number of the company's most critical sales, and shortly after those suspensions were lifted in December 1997, Stone, Precision Pine's customer for chips and roundwood, stopped buying anything other than recycled paper for its operations. PX 125, 126. To make matters even worse, thereafter, in September of 1998, Precision Pine suffered a major fire at its sawmill in Winslow. PX 128, 129.

These events alone belie the picture that defendant attempts to paint (no matter how irrelevant) of a company that simply decided to forgo profitable operations after the suspensions, which are at the center of this case, were lifted in December 1996. 20

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F.

As a Result of the Breach, Precision Pine Suffered Other Damages, Including Increased Timber Hauling Costs, Increased Manufacturing Costs and Employee Claim Preparation Costs.

As this Court determined at summary judgment, "actual damages that are the natural and probable consequence of the asserted breach are recoverable." Precision Pine, 63 Fed. Cl. at 134, citing Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed. Cir. 2001); Landmark Land Co., Inc. v. FDIC, 256 F.3d 1365, 1378 (Fed. Cir. 2001); Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1021 (Fed. Cir. 1989). As demonstrated below, the facts here amply demonstrate that Precision Pine's claimed increased timber hauling costs, increased manufacturing costs, and its employee claim preparation costs were caused by the suspension, were foreseeable and have been calculated with reasonable certainty.

1.

Precision Pine's Increased Hauling Costs on the Hay Sale are Recoverable. a. But for the Suspension, Precision Pine Would Not Have Incurred Increased Timber Hauling Costs on the Hay Sale.

Precision Pine has claimed the additional costs it paid to haul timber harvested on the Hay sale to another of its sawmills after the suspension of the Hay sale was lifted in December of 1996 because its Eagar sawmill was not operating. PX 163. This claim is premised on the fact that, but for the suspension, Precision Pine would have hauled the logs from the Hay sale to its Eagar mill which was proximate to the sale. Indeed, Precision Pine had built the Eagar mill in large measure to handle the timber from the Hay sale rather than incurring the costs to haul the timber from the Hay sale a greater distance to another of Precision Pine's sawmills. PX 259. Prior to the suspension, Precision Pine had hauled timber from the Hay sale to its Eagar mill. PX 260-261. However, due to the suspension and the resulting shortage of sawlogs, the Eagar 21

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sawmill was shut down on or about December 1, 1995 and remained closed throughout the suspension (PX 163), and as a result Precision Pine consolidated its manufacturing operation at the Winslow facility during the suspension. Immediately after the suspensions were lifted, Precision Pine was allowed to and began harvesting on the Hay timber sale, which unlike most sales, was at an elevation at which extended winter logging was possible outside of the Normal Operating Season. PX 257, 258, 262. However, until it could reassemble a crew and reopen the Eagar mill in 1997, Precision Pine had to haul the sawlogs removed from the Hay sale to its Winslow sawmill which, due to the suspension, was also in need of logs at the time.

The nexus between the suspensions that resulted in sawmill closings and concomitant additional costs to haul sawlogs from the timber sale site to a mill that remains in operation can be seen in the fact that the Forest Service takes the cost of hauling sawlogs to a sawmill into account in establishing the minimum acceptable bid price for the sawlogs on any given timber sale. PX 1-17. In fact, the contracting officers for the subject sales confirmed at deposition that the Forest Service appraisals take into account the estimated cost that a contractor would incur to haul sawlogs from a timber sale to the nearest sawmill (PX 273, 275, 276), and that if the nearest sawmill did not have a planer facility to finish the resulting lumber, the Forest Service would make a further adjustment in the appraisal to recognize the additional cost of hauling green lumber to the planer. (PX 273, 276, 277). In fact, the Forest Service's appraisal of the Hay sale included a cost component for hauling the timber to a mill in Eagar. PX 1.11 Thus, at the time of contracting the Forest Service knew that there were costs associated with hauling timber from a

11

The appraisal was prepared based on a haul to Stone's sawmill in Eagar. Id. 22

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sale to even the nearest mill and that, if additional hauling were required beyond the distance to that mill, the purchaser would incur additional costs.

b.

That the Protracted Suspension Would Increase Precision Pine's Hauling Costs Was Foreseeable to the Forest Service.

It was entirely foreseeable to the Forest Service that the prolonged suspension of the contracts at issue would result in sawmill shutdowns such as the one that occurred at Eagar. As this Court found in denying the government's motion for summary judgment on this issue, "The parties agree that the `Forest Service knew that Precision Pine had sawmills at Eagar.'" Precision Pine, 63 Fed. Cl. at 134, citing Def.'s Resp. to Pl.'s Additional Proposed Findings of Uncontroverted Fact ¶ 68. The appraisal prepared by the Forest Service for the Hay sale anticipated that the sale would be hauled to a sawmill in Eager. PX 1. Additionally, as noted above, the nexus between the suspensions that resulted in sawmill closings and the resulting additional costs to haul sawlogs from the timber sale site to a mill that remains in operation can be seen in the fact that the Forest Service takes the cost of hauling sawlogs to a sawmill into account in establishing the minimum acceptable bid price for the sawlogs on any given timber sale (PX 1-17) that the contracting officers for the subject sales confirmed at deposition that the Forest Service appraisals take into account the estimated cost that a contractor would incur to haul sawlogs from a timber sale to the nearest sawmill (PX 273, 275, 276), and that if the nearest sawmill did not have a planer facility to finish the resulting lumber, the Forest Service would make a further adjustment in the appraisal to recognize the additional cost of hauling green lumber to the planer. (PX 273, 276, 277).

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Furthermore, in documents cited by Chief Judge Damich in his decision on liability, the Forest Service recognized just after the injunction was issued that if the injunction (and resulting suspension of ongoing sales and proposed sales in Region 3) continued for just two to three months, "that many mills will have to shut down for extended periods" and that "due to low availability of logs to process, this injunction could cause mills to close permanently." Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 47 (2001). This is entirely consistent with the statement in Mr. Lewis' declaration, which he will iterate at trial, that he and his colleagues in the Forest Service were aware that a prolonged suspension of harvesting Forest Service timber sales could likely cause purchasers to take steps to minimize their losses such as shutting down sawmills (or even closing them permanently), consolidating manufacturing operations at a single facility, and that doing so would result in purchasers incurring, among other things, additional hauling costs in the process. Thus, the Forest Service knew that there were costs associated with hauling timber from a sale to even the nearest mill, that the suspension was causing mills to shut down and, if additional hauling were required beyond the distance to the nearest mill, the purchaser would incur additional costs.

During harvesting of the Hay sale in the period prior to the suspension, Precision Pine had informed the Forest Service that timber was going from that sale to its Eagar mill. (Letter dated November 23, 1994 from Lewis Tenney to Charles Denton stating "We plan to haul all timber from the Hay sale to our Eagar, Arizona plant," PX 260). Moreover, as soon as the suspension was lifted in December of 1996, Precision Pine sought Forest Service approval to haul timber from the Hay sale to its Winslow mill, instead of to the shutdown mill at Eagar as Precision Pine had originally informed the Forest Service that it would do. PX 257. The Forest 24

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Service approved the requested new haul route of timber from the Hay sale to the Winslow mill and logs from the Hay sale were delivered to the Winslow mill in December of 1996 and into 1997. PX 263. Similarly, in 1998, the Forest Service approved Precision Pine's request that scaling (i.e., measuring the volume) of logs from the Hay sale be performed by Forest Service scalers at Precision Pine's Heber mill (PX 266) and the logs were, in fact, hauled to the Heber mill. PX 268.12

Since it was clear to the Forest Service that a suspension of even a few months would result in the closure of sawmills, with this knowledge came the certain realization that timber that was to have gone to a mill that was now closed would, in all likelihood, have to be hauled greater distances to a mill that remained open. Moreover, the Forest Service was actually advised by Precision Pine that the timber for the Hay sale which was to have been hauled to the Eagar mill was instead being hauled to the Winslow mill in 1997 and to the Heber mill in 1998.

c.

The Amount of Precision Pine's Increased Timber Hauling Costs Has Been Calculated with Reasonable Certainty.

Mr. Porter calculated the increased hauling cost on the Hay sale by applying a conservative estimate of the cost per mile to haul timber from the Hay sale and applying this cost to the MBF of logs that were hauled from the Hay