Free Response - District Court of Federal Claims - federal

Case 1:98-cv-00621-ECH

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS COMMONWEALTH EDISON COMPANY, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) )

No. 98-621C (Into which has been consolidated No. 04-103C) (Judge Hewitt)

PLAINTIFFS' RESPONSE TO THE COURT'S JUNE 1, 2004 ORDER REGARDING SUPPLEMENTAL BRIEFING ON HOLTEC INTERNATIONAL Plaintiffs Exelon Generation Company LLC and Commonwealth Edison Company (collectively "Exelon" or the "Plaintiff") respectfully submit this response to the Court's June 1, 2004 Order directing supplemental briefing on Defendant's Motion to Compel Production of Documents from Holtec International ("Holtec").

Holtec's Supplemental Brief After reviewing Holtec's supplemental brief filed June 8, 2004, Exelon does not desire to make any supplemental argument concerning, or further respond to, the arguments in the supplemental brief.

The Issues The Court Asked Exelon To Address 1. The Law Of Contract Damages Does Not Impose An Overall

"Reasonableness" Requirement. Your Honor has correctly focused on the key issue whether the Government's supposed purpose in seeking the Holtec information ­ to challenge the overall "reasonableness" of the amounts of Exelon's past and future expenditures ­ has a legal justification. It does not.

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"The most basic principle of contract remedies is that damages should put the plaintiffs `in as good a position pecuniarily as [they] would have been in if the contract had been completely performed.'" Home Sav. of America, F.S.B. v. United States, 57 Fed. Cl. 694, 723 n.47 (2003) (citations omitted). The basic, black letter damages measure that applies to Exelon's breach of contract claim is the expectation interest measure. Under that measure: [W]hen a court concludes there has been a breach of contract, it enforces the broken promise by protecting the expectation that the injured party had when he made the contract. It does this by attempting to put [the injured party] in as good a position as [the injured party] would have been in had the contract been performed, that is, had there been no breach. American Capital Corp. v. United States, 59 Fed. Cl. 563, 573 (2004) (Braden, J.) (quoting Restatement (Second) of Contracts § 344 cmt. a). "Expectation damages are generally measured by the `loss in the value to [the injured party] of the other party's performance caused by its failure or deficiency, plus . . . any other loss, including incidental or consequential loss, caused by the breach . . . .'" Home Sav. of America, 57 Fed. Cl. at 723 n.47 (citations omitted). As Your Honor has held, "[e]xpectancy damages are available as a remedy for a breach of contract when the damages are reasonably foreseeable to the breaching party at the time of contracting, the breach is a substantial causal factor in the damages, and the damages are shown with reasonable certainty." Coast Federal Bank, FSB v. United States, 48 Fed. Cl. 402, 408 (2000), modified on other grounds, 49 Fed. Cl. 11 (2001); accord Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97, 101 (2004) (Hewitt, J.) (quoting Bluebonnet Sav. Bank, FSB v. United States, 266 F.3d 1348, 1355 (Fed. Cir. 2001), subsequent appeal, 339 F.3d 1341 (Fed. Cir. 2003)). In this case, Exelon seeks expectation interest damages, which have no overall "reasonableness" requirement. As Your Honor knows, one of the two principal categories of

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damages that Exelon seeks is the expenses Exelon has incurred and will incur to construct alternate facilities to store SNF as Exelon's wet pools for storing the SNF fill up. These expenses fall into the general category of the expectation interest measure of damages ­ Exelon's proper expectation was that the Government's timely performance would have obviated any need to incur these additional expenses for dry storage ­ and Exelon will ask the Court to "attempt[] to put [Exelon] in as good a position as [Exelon] would have been in had the contract been performed" by awarding Exelon these additional expenses. While Exelon does not believe that further "categorization" is necessary for this Court to award those damages,1 Exelon's expenses for alternate storage facilities may be thought of constituting at least two particular species of expectation damages ­ (1) mitigation costs, and/or (2) substitute performance or cover.2 First, because the consequences of the Government's breach would be so economically severe absent action by Exelon, Exelon has pointed out that it is proper to think about its expenses for providing alternate dry storage facilities as mitigation expenses. As we have noted, if Exelon had done nothing to address the direct consequences of the Government's breach, the result would have been the need to shut down Exelon's reactors when their SNF pools filled up ­ at a loss many times greater than the damages sought here. As a matter of law, Exelon's mitigation expenses are recoverable as expectation damages. Chain Belt Co. v. United States, 115 F. Supp. 701, 714 (Ct. Cl. 1953). Second, the alternate dry storage facilities can also be classified as partial substitute performance (or partial cover). The alternate dry storage facilities are substitute performance because, had the Government timely performed, it would have
As Exelon previously demonstrated in our response to the Government's motion for summary judgment on acceptance rate issues filed in August 2002 (at 28-34), the costs of providing additional at-reactor storage were clearly forseeable to the DOE at the time that it executed the Standard Contract. Exelon will also demonstrate at trial that the Government's breach caused the damages and that they can be determined with reasonable certainty. 2 While we believe these are at least two subcategories into which fall some of the damages Exelon has suffered and will suffer, by articulating these subcategories, Exelon makes no election or representation that these are the only theories under which its damages may be characterized. Exelon respectfully and expressly reserves the right to argue that its expectancy damages may also be characterized in other ways.
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provided storage for the SNF; Exelon has had to obtain substitute performance because the SNF remains at Exelon's stations.3 The expense of that cover or substitute performance is also compensable as expectation damages as a matter of law. Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed. Cir. 2001). Returning directly to the Court's question, with that background, the law on the expectation interest measure simply does not impose an overall "reasonableness" of costs requirement. As noted above, in reciting the quantum of proof required, Your Honor has referenced the concept of reasonableness. Specifically, the Court has recited that the damages must be shown with proof to a "reasonable certainty"; the Court has also noted that damages must be "reasonably foreseeable" to the Government. Coast Federal Bank, 48 Fed. Cl. at 408. In the mitigation or cover context, reasonableness plays some role because a party must use a "reasonable substitute under the circumstances." Hughes, 271 F.3d at 1066. Also, Your Honor has noted that the concept of "reasonableness" enters into the mitigation inquiry because "an injured party `need not, for example, make other risky contracts, incur unreasonable expense or inconvenience or disrupt his business.'" Westfed Holdings, Inc. v. United States, 52 Fed. Cl. 135, 156 (2002) (Hewitt, J., emphasis supplied) (quoting Restatement (Second) Contracts § 350 cmt. g). The non-breaching party merely is required to act "reasonably and promptly given the circumstances," Ketchikan Pulp Co. v. United States, 20 Cl. Ct. 164, 166 (1990); the party's actions are "judged by the facts and circumstances at the time the action is taken." Id. The breaching party bears the burden of demonstrating that the injured party' mitigative efforts were s unreasonable. Id. But none of these references support the Government's efforts to challenge the overall reasonableness of the amount of damages incurred by Exelon, and in our independent
The substitute performance is, however, only partial, because the value of the Government's performance is to remove and dispose of Exelon's SNF, and Exelon could not obtain substitute performance of that obligation from any other source.
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research, we have been unable to find any other support for the Government's position that it is entitled to challenge Exelon's damages as "unreasonable." An attempt to determine whether Exelon's damages are "reasonable" is not a proper justification for imposing the burdens the Government seeks to impose on Holtec. 2. The Government's Request From Holtec Is Not Relevant To Any Portion Of,

Or Legal Theory Authorizing, Exelon's Damages. The Court has also asked whether there is some other context, besides mitigation, in which the information sought from Holtec might be relevant, or whether Exelon's "entire damages claim [is] attributable to its mitigation efforts." (Order at 2.) The answer to the Court's question is that Exelon's damages are not all properly categorized as mitigation expenses, and the information the Government seeks from Holtec is not relevant to any of Exelon's damages. In the first instance, Holtec's information has no relevance to Exelon's second principal category of damages (as opposed to the first category of alternative dry storage costs discussed above) ­ additional post-shutdown operating and maintenance costs. This category of damages consists of the additional operating and maintenance costs that Exelon will incur because the SNF will remain at Exelon power stations longer after shutdown than the SNF would have remained if the Government had timely performed. These are expectation interest damages that really do not relate to any mitigation effort. For example, these damages include costs for payroll and benefits for Exelon employees and contractors, security costs, materials, supplies, services, administrative costs, and regulatory fees to provide SNF storage for the extended period that SNF will remain on site as a direct result of the Government's breach. These damages do not include any goods or services that are contemplated to be supplied by Holtec or a vendor in a similar segment as Holtec. Consequently, Exelon respectfully submits that information

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regarding Holtec's goods or services is not relevant to the additional post-shutdown operating and maintenance costs Exelon seeks. With regard to the first principal category of damages (the costs related to alternative SNF dry storage facilities), as explained above, these are straightforward expectation measure damages that can be thought of as falling under at least two alternative remedial rubrics: costs of mitigation and/or partial substitute performance. Regardless of how they are conceived, however, the information sought from Holtec is not relevant. Presumably, the Government wants to argue that Exelon's damages are too high because Exelon could have or will be able to obtain casks or other related equipment at a lower cost. However, as we explained in our initial response to the Government's motion to compel, the Government already has from Exelon all of the information it needs to make those arguments (if, contrary to fact, they were plausible here) ­ documents relating to Exelon's lengthy decisionmaking process before it proceeded with dry storage, and the bidding process which reasonably assured Exelon that it could not obtain comparable goods for less expense. Holtec's costs, and/or its ultimate profitability, have no relationship to whether Exelon could have obtained comparable services for less money from Holtec or other vendors. The underlying Holtec cost and profit information the Government seeks ­ information which was not available to Exelon in making past purchases and will not be available to Exelon in making future purchases ­ is therefore irrelevant to Exelon's claims, whether they be thought of generally as expectation damages, mitigation efforts or the cost of cover. See also Bluebonnet Savings Bank, 266 F.3d at 1357 (it "is not the duty of courts to second-guess the terms of a bargained-for exchange" in assessing damages incurred because of a breach of contract).

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Conclusion Exelon respectfully requests that the Court consider the above information concerning the relevance of the discovery materials sought when ruling on the Government's Motion. Dated: June 15, 2004 Respectfully submitted, By: s/ David A. Handzo (by /s Christopher Tompkins) DAVID A. HANDZO Jenner & Block LLP 601 Thirteenth Street, N.W. Suite 1200 South Washington, D.C. 20005 (202) 639-6000 telephone (202) 639-6066 fax COUNSEL FOR PLAINTIFFS EXELON GENERATION COMPANY LLC and COMMONWEALTH EDISON COMPANY, on their own behalf and on behalf of MidAmerican Energy Company, successor-in-interest to IowaIllinois Gas and Electric Company Of Counsel: Donald R. Cassling Norman M. Hirsch David Jiménez-Ekman Christopher Tompkins Jenner & Block LLP One IBM Plaza Chicago, IL 60611 (312) 222-9350 Thomas S. O'Neill Exelon Nuclear Cornerstone II 5th Floor 4300 Winfield Road Warrenville, IL 60555 (630) 657-3770

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Certificate of Filing & Certificate of Service I hereby certify that on this 15th day of June, 2004, a copy of the foregoing "Plaintiffs' Response To The Court's June 1, 2004 Order Regarding Supplemental Briefing On Holtec International" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. I also hereby certify that on this 15th day of June, 2004 I caused a copy of the foregoing "Plaintiffs' Response To The Court's June 1, 2004 Order Regarding Supplemental Briefing On Holtec International" to be served by Facsimile and U.S. Mail on: Francis P. Maneri Dilworth Paxson LLP 457 Haddonfield Rd, Suite 700 Cherry Hill, NJ 08034

s/ Christopher Tompkins Christopher Tompkins