Board of Contract Appeals
General Services Administration
Washington, D.C. 20405
_________________________
DENIED: September 22, 2000
_________________________
GSBCA 14165
WESTERN AVIATION MAINTENANCE, INC.,
Appellant,
v.
GENERAL SERVICES ADMINISTRATION,
Respondent.
Otto S. Shill, III, Bradley D. Weech, and Kelly G. Black of
Jackson White Gardner Weech & Walker, P.C., Mesa, AZ, counsel for
Appellant.
Michael J. Noble, Office of General Counsel, General
Services Administration, Washington, DC, counsel for Respondent.
Before Board Judges BORWICK, DeGRAFF, and GOODMAN.
DeGRAFF, Board Judge.
The General Services Administration (GSA) entered into five
contracts to sell five airplanes to Western Aviation Maintenance,
Inc. (Western Aviation). GSA did not deliver the airplanes and
Western Aviation sued for breach of contract. In an earlier
opinion, Western Aviation Maintenance, Inc. v. General Services
Administration, GSBCA 14165, 98-2 BCA 29,816, we held that
Western Aviation is not entitled to specific performance of its
contracts. We now hold that, even though GSA breached its
contracts with Western Aviation, Western Aviation has not
established that it is entitled to recover any damages for those
breaches.
Findings of Fact
GSA Issues an Invitation for Bids
In early 1996, GSA issued an invitation for bids for ten
surplus airplanes. The airplanes had been declared surplus
property by the Department of State and were in the custody of
the United States Air Force. Exhibits 1, 11, 24. The task of
selling these airplanes was among the duties of a warranted GSA
contracting officer whose responsibilities included disposing of
property that had been screened to determine that no other
Government agency had a use for it and that there was no
qualified party to whom the Government could donate the property.
Transcript at 5-8, 28-29. The airplanes listed in the invitation
for bids had cleared that utilization and donation screening
process. Exhibit 24; Transcript at 5-8.
The invitation listed the airplanes' serial numbers and said
that they were C-123s manufactured by Fairchild in 1954 or 1955.
The title page of the invitation contained the heading, "Scrap
and Salvage Aircraft," and the invitation stated that the
airplanes had been cannibalized to varying degrees and had been
exposed to the elements. Exhibit 1. GSA's regulations explained
that "scrap" property had no value other than its basic material
content, and that "salvage" property had some value greater than
its basic material content, although its condition was such that
its repair or rehabilitation would cost in excess of 65% of its
acquisition cost. 41 CFR 101-43.001-28, -29 (1995). Generally,
salvage airplanes contain some usable components, scrap airplanes
are useful only for their material content, and neither is
suitable for flying. Transcript at 230. Whether a scrap or
salvage airplane can be retrofitted or upgraded so that it is
flyable is a function of the amount of work that someone is
willing to do in order to obtain the necessary Federal Aviation
Administration (FAA) approvals. Although some airplanes have
been sold for scrap or salvage and then been modified to become
airworthy, GSA had no expectation that a purchaser would make
these airplanes flyable. Transcript at 233, 237. The invitation
stated that GSA did not represent that the airplanes could be
modified to meet FAA standards for airworthiness, and told
prospective purchasers who contemplated operating the airplanes
in the United States to consult the FAA before making a
commitment to purchase the airplanes. Exhibit 1.
The Defense Logistics Agency (DLA) determines property
disposal policy for the Department of Defense (DoD). When GSA
advertised the C-123s for sale, DLA had issued the Defense
Reutilization and Marketing Manual, which contained a list of
types of airplanes that were available for sale for commercial
use. The manual was an internal DoD document that applied to DoD
activities. Exhibits 12, 26, 136. Before GSA advertised the C-
123s for sale, the director of the property management division
for GSA Region 9 consulted the person at DLA who was responsible
for maintaining and issuing the list of commercially salable
airplanes. Transcript at 87-88. That individual said that
although the C-123 was not yet listed as an item available for
sale for commercial use, a decision had been made to classify it
as commercially salable and it would be listed as such the next
time that the manual was revised. Subsequently, GSA issued the
invitation for bids. Exhibit 12; Transcript at 14, 88. After
the sale at issue in this appeal occurred, the Defense
Reutilization and Marketing Manual was revised and listed the C-
123 as an item available for sale for commercial use. Transcript
at 68-69; Exhibits 26, 136.
The invitation for bids incorporated Standard Form 114C,
General Sale Terms and Conditions, which provided that the
purchaser was entitled to obtain the property upon full payment
therefor, unless the invitation stated otherwise. Exhibits 1,
2. The invitation did not place any limitations upon a
purchaser s ability to obtain the property, except to say that
the purchaser had to arrange for a removal date and time to load
or tow the airplanes from the base, and to coordinate the removal
with the Government s property custodian. Exhibit 1. The
purchaser could either move the airplanes or make arrangements
with a nearby contractor to move them. Exhibit 1; Transcript at
101, 248-49. Form 114C explained that if a purchaser failed to
remove its property, the Government could send a notice of
default and give the purchaser the option to cure the default by
removing the property within a specified time. Exhibit 2.
In the invitation for bids, GSA warranted that the property
listed in the invitation would conform to its description. The
invitation then stated:
DESCRIPTION WARRANTY: . . . If a misdescription is
determined before removal of the property, the
Government will keep the property and refund any money
paid. If a misdescription is determined after removal,
the government will refund any money paid if the
purchaser takes the property at his or her expense to a
location specified by the contracting officer. . . .
The amount of recovery under this provision is limited
to the purchase price of the misdescribed property.
The purchaser is not entitled to any payment for loss
of profit or any other money damages, special, direct,
indirect, or consequential.
Exhibit 1.
Form 114C contained the following clauses:
15. LIMITATION ON GOVERNMENT S LIABILITY
Except for reasonable packing, loading, and
transportation costs (such packing, loading, and
transportation costs being recoverable only when a
return of property at Government cost is specifically
authorized in writing by the Contracting Officer) the
measure of the Government s liability in any case where
liability of the Government to the Purchaser has been
established shall not exceed refund of such portion of
the purchase price as the Government may have received.
22. WITHDRAWAL OF PROPERTY AFTER AWARD
The Government reserves the right to withdraw for its
use any or all of the property covered by this
contract, if a bona fide requirement for the property
develops or exists prior to actual removal of the
property from Government control. In the event of a
withdrawal under this condition, the Government shall
be liable only for the refund of the contract price of
the withdrawn property or such portion of the contract
price as it may have received.
Exhibit 2.
The invitation for bids also incorporated Standard Form 114-
C-1, Special Sealed Bid Conditions, which provided:
D. AWARD OF CONTRACT
The contract will be awarded to that responsible Bidder
whose bid conforming to the Invitation will be most
advantageous to the Government, price and other factors
considered. A written award mailed (or otherwise
furnished) to the successful Bidder within the time for
acceptance provided in the Invitation shall be deemed
to result in a binding contract without any further
action by either party.
Exhibits 1, 3.
The invitation stated that potential bidders could inspect
the airplanes at Davis-Monthan Air Force Base, which is in
Tucson, Arizona, in early February 1996, and submit sealed bids
later that month. Bidders were required to submit a deposit of
twenty percent of their bids, and the successful bidder would be
required to pay the remaining balance within ten calendar days
after award of a contract. Exhibits 1, 11, 24.
GSA Awards Five Contracts to Western Aviation
Western Aviation, which is owned in part by Floyd Stilwell,
owns and operates aircraft primarily for use in fire fighting.
Mr. Stilwell also owns part of Marsh Aviation, which is a
manufacturing company that repairs, overhauls, rebuilds, and
modifies aircraft. Transcript at 110, 157. Western Aviation and
Marsh Aviation are located in the same facility in Mesa, Arizona,
but they are separate companies with different corporate
charters. Exhibits 4, 109; Transcript at 114-15. Mr. Stilwell
is the president of Western Aviation and the chief executive
officer of Marsh Aviation. Transcript at 175. The two companies
vigorously maintain separate books and records, and have
separate business operations as a mechanism for limiting each
company's potential liability. Transcript at 114, 175-76.
When Mr. Stilwell saw the invitation for bids for the C-
123s, he immediately made arrangements to see the airplanes. Mr.
Stilwell was interested in the airplanes because he and the
person who holds the design rights to the C-123 had been
discussing ways to upgrade the engines on the C-123 and equip the
airplane so that it could be used for fighting forest fires. In
Mr. Stilwell's opinion, there was an opportunity to use C-123s to
produce a 3000 gallon tanker aircraft that would compete
successfully for fire fighting contracts. Transcript at 116-17.
Mr. Stilwell went to see the C-123s twice before Western Aviation
made a bid for them. Transcript at 117-18. He went inside seven
airplanes, including five airplanes that Western Aviation
subsequently purchased. Transcript at 249. Western Aviation
submitted its bid, signed by Mr. Stilwell, for ten airplanes and
its accompanying deposit on February 26, 1996. The bid stated
that Western Aviation would pay for the airplanes and remove them
within thirty days after the bid opening date. Exhibit 4.
On February 29, 1996, GSA opened the bids for the airplanes
and determined that Western Aviation was the high bidder for
five of the airplanes. Exhibits 4, 5. Mr. Stilwell recalled
that, before he received written notice of Western Aviation's
high bids, he telephoned the contracting officer and learned that
Western Aviation was the successful bidder for five airplanes.
Transcript at 121-22. On March 7, 1996, GSA sent Western
Aviation five notices of award signed by GSA's contracting
officer. Each notice stated that after Western Aviation paid the
balance due for each airplane, GSA would issue a receipt that
would authorize Western Aviation to remove the airplane from the
base. The notices also stated that Western Aviation had to pay
the balances due and remove the airplanes by March 21, 1996.
Exhibit 6. Western Aviation paid the balances due by the March
21 deadline. The total price paid by Western Aviation for the
five airplanes was $87,500. The receipt that GSA provided to
Western Aviation stated that the airplanes would be released at
the request of Western Aviation. Exhibit 8.
The evidence does not establish that, at the time of
contracting, GSA had any reason to anticipate that Western
Aviation intended to refurbish the C-123s and equip them so that
they could be used for fighting fires. The GSA employees did not
know either Western Aviation's intentions regarding the airplanes
or its general line of business. This was the contracting
officer s first involvement with a sale of airplanes and he did
not know what Western Aviation s business was. He did not
remember having any contact with Mr. Stilwell before the sale at
issue here was completed.[foot #] 1 Transcript at 23-
24, 30-31, 246. The director of the property management division
for GSA Region 9 had a conversation with Mr. Stilwell in
approximately 1995, concerning a problem that arose when GSA
transferred some C-130 airplanes to another Government agency.
Mr. Stilwell told her that he was in the business of providing
either equipment or services to be used in fire suppression.
They did not discuss the source of the airplanes that he used.
She had no other contacts with Mr. Stilwell before the sale at
issue in this appeal, and before the contracts were awarded she
had no idea what Western Aviation's operations were. In fact,
she associated the name "Western" with an entirely different
company. Transcript at 89-92, 231, 233-34. GSA s property
disposal and aircraft utilization specialist had some contact
with Mr. Stilwell before the sale at issue. Transcript at 98.
She knew that Marsh Aviation was re-engining some airplanes for
the State of California, but she had never heard of Western
Aviation. Transcript at 240-41. According to Mr. Stilwell,
before the sale at issue in this appeal, he did not tell the
contracting officer what Western Aviation s business was.
Transcript at 162-63. In addition, when he spoke with the
director of the property management division for GSA Region 9,
Mr. Stilwell represented himself as working for Marsh Aviation.
Transcript at 163-64. Also according to Mr. Stilwell, prior to
the sale, GSA s property disposal and aircraft utilization
specialist probably did not know what Western Aviation did.
Transcript at 164. Mr. Stilwell testified that, before this
sale, he had dealt with GSA probably six to ten times. He did
not say that he dealt with GSA on behalf of Western Aviation.
Transcript at 110-11.
After the contracts were awarded, Mr. Stilwell and one or
two of his technicians came to see the airplanes. Transcript at
98-99; 122. On their first trip, they determined what they would
need to do in order to make the airplanes ready to be flown to
Mesa. Transcript at 122. On a subsequent trip, they measured
the interior of the airplanes so that they could determine where
to place the tanks that would hold 3,000 gallons of fire
retardant material, and how they could install the door system
that would be used to deliver the fire retardant material from
----------- FOOTNOTE BEGINS ---------
[foot #] 1 Mr. Stilwell thought that the contracting officer
visited his facility in 1993 or 1994, and saw work that Marsh
Aviation was performing. Transcript at 250-51. Even if
Mr. Stilwell's recollection is correct, this does not establish
that the contracting officer knew anything about Western
Aviation.
----------- FOOTNOTE ENDS -----------
the airplanes. Transcript at 122-25. They went inside the
airplanes several times. Transcript at 100, 103-04. In order to
fly the airplanes after he made his planned modifications, Mr.
Stilwell would have needed to comply with all of the FAA's
requirements for making structural changes and would have needed
to obtain a supplemental type certificate from the FAA, which
would have allowed the airplanes to be flown as modified.
Transcript at 124, 140-42.
Mr. Stilwell explained that contracts to lease airplanes for
fire fighting are awarded every three years. Because contracts
were to be awarded early the following year, Mr. Stilwell had a
short time within which to modify the airplanes, obtain the FAA s
approval for modifying the airplanes, and bid to supply airplanes
for fire fighting contracts. As soon as Western Aviation
received award of the contracts for the five airplanes, he began
designing a door system and a tank system that would fit in the
airplanes and operate satisfactorily. Transcript at 133-39. A
month or so after the designs were developed, Marsh Aviation
began building the tank and door system. Transcript at 134, 159.
Mr. Stilwell testified that Western Aviation signed a work order
for Marsh Aviation to design and retrofit the airplanes, that
Marsh Aviation billed Western Aviation for amounts due, and that
Western Aviation's obligation to Marsh Aviation was shown in
those bills. The record does not contain a copy of the work
order, but it does contain invoices from Marsh Aviation to
Western Aviation. Exhibits 112, 113, 123; Transcript at 158-60.
GSA's property disposal and aircraft utilization specialist
accompanied Mr. Stilwell and his technicians when they came to
see the airplanes after award. She testified that she was sure
that she and Mr. Stilwell discussed what he was planning to do
with the airplanes, but she did not recall exactly what Mr.
Stilwell told her. Transcript at 99-100. Mr. Stilwell testified
that they did not discuss the "specific details" of his plans,
but that they did discuss that he was taking measurements and
proceeding to manufacture hardware. Transcript at 128. In the
experience of the director of the property management division
for GSA Region 9, it was not the norm for a purchaser to expend
large amounts of money before taking delivery of airplanes.
Transcript at 234-35.
A Possible Contamination Problem Arises
In April 1996, GSA notified the Air Force of the sale of
nineteen C-123 airplanes. These included the ten airplanes that
GSA advertised for sale in early 1996, five of which were sold to
Western Aviation, plus nine additional C-123s that the Air Force
transferred to GSA in February 1996. Exhibits 9, 39; Transcript
at 34. On June 6, 1996, the Air Force wrote a letter to GSA
concerning the nineteen C-123s. The letter explained that the
Air Force had to "demilitarize" the airplanes before they could
be released. During that process, its employees smelled chemical
odors and experienced a burning sensation when working in two of
the airplanes, neither one of which had been purchased by Western
Aviation. The June 6 letter explained that the airplanes
possibly contained hazardous chemicals and that the Air Force
could not release the airplanes until they were tested for such
materials. The estimated cost of the tests was between $12,500
and $37,500 per airplane. Exhibit 9.
According to the Air Force official in charge of disposing
of the airplanes, the two airplanes in which employees smelled
chemical odors and experienced a burning sensation were equipped
with spray equipment. Transcript at 40. In order to determine
whether an airplane has been used for spraying, the Air Force can
inspect either the airplane itself or the records of the
airplane. Transcript at 213. The Air Force official in charge
of disposing of the nineteen C-123s did not recall precisely how
many of them had spray equipment, and he did not recall whether
those with spray equipment were among the airplanes purchased by
Western Aviation. Transcript at 37, 215-16. Mr. Stilwell's
recollection was that only two of the five Western Aviation
airplanes were equipped with spray tanks. Transcript at 118.
The records of the nineteen C-123s do not show what use was made
of the spray equipment, but the Air Force was concerned that it
might have been used to spray defoliants or insecticides
containing harmful chemicals. Exhibit 42; Transcript at 64. As
a result of the odors and burning sensation, the Air Force
required personnel to wear protective gear when working in the
airplanes that had spray equipment. Exhibit 29; Transcript at
39.
In early June 1996, the director of the property management
division for GSA's Region 9 telephoned Mr. Stilwell and told him
that there was going to be a delay in completing the sale of the
airplanes to Western Aviation. She explained that the delay was
due to suspected dioxin[foot #] 2 contamination, and
she offered Mr. Stilwell the option of canceling the contracts
and receiving a refund from GSA. Mr. Stilwell said that he was
willing to wait and see whether the situation could be
resolved.[foot #] 3 Transcript at 91-92, 235. At that time, the
----------- FOOTNOTE BEGINS ---------
[foot #] 2 Dioxins are a family of related chemicals and are
a common contaminant in Agent Orange. Transcript at 81, 189,
193, 198; Exhibit 46. Agent Orange is a herbicide that is
largely made up of two herbicides commonly known as 2,4-D and
2,4,5-T. Transcript at 196; Exhibit 46. Although dioxin
toxicity is documented in laboratory animals, there is
disagreement in the scientific community concerning the toxicity
of dioxin in humans. Transcript at 190-91; Exhibit 46.
[foot #] 3 Mr. Stilwell's recollection was that GSA
initially told him that the Air Force would have to demilitarize
the airplanes, and later told him about the possible
contamination problem. Transcript at 164-65. To the extent that
(continued...)
----------- FOOTNOTE ENDS -----------
director of the property management division for GSA Region 9
hoped that GSA would be able to deliver the airplanes to Western
Aviation. Transcript at 235. She spoke with Mr. Stilwell once
or twice more, in order to keep in touch and to continue to let
him know that GSA was willing to refund Western Aviation's money.
Transcript at 93.
At some point, probably in June, GSA's property disposal and
aircraft utilization specialist notified Mr. Stilwell that
Western Aviation could come and pick up two of the five airplanes
that it had purchased. She told Mr. Stilwell that he could
retrieve two of the airplanes because the Air Force had
determined that they had not been used for spraying. Mr.
Stilwell responded that he did not want to come and pick up only
two of the airplanes, and that he would rather come and pick up
all five at once. Transcript at 100-01, 241. Mr. Stilwell
explained that it is expensive to set up an operation to prepare
airplanes to be moved, and that he wanted to do this only one
time. Transcript at 129, 252-53. When this conversation
occurred, GSA's property disposal and aircraft utilization
specialist's understanding was that the delivery of the remaining
three airplanes was on hold, and not that they would never be
released. Transcript at 244.
The Air Force took swipe samples from some of the nineteen
C-123 airplanes and had those samples analyzed to determine
whether the planes were contaminated with hazardous materials.
Exhibits 30, 31. Two swipe samples were taken in May and sent to
a laboratory to be analyzed for dioxins in August. Traces of
dioxins were found in the samples. The record of the analysis
does not say which airplanes were the subject of the swipe
samples. Exhibits 31, 46; Transcript at 194. Also in August,
swipe samples from seventeen C-123s, including three of the
airplanes purchased by Western Aviation, were taken and were sent
to a laboratory to be analyzed for 2,4-D and 2,4,5-T. Exhibit
30. The Air Force official in charge of disposing of the
airplanes believed that samples were taken from all of the
airplanes equipped with spray apparatus. Transcript at 46. On
each of the seventeen airplanes tested, samples were taken from
two locations where the presence of 2,4-D and 2,4,5-T would have
been most likely. Transcript at 78-80. The amount, if any, of
the two herbicides in the samples taken from one of the three
Western Aviation airplanes was less than could be detected by the
analysis to which they were subjected. For each of the other two
airplanes, one sample showed detectable levels of herbicides and
the other sample did not. Exhibit 30; Transcript at 198-99, 203-
05. The laboratory that analyzed the August swipe samples
explained that the presence of 2,4-D or 2,4,5-T suggested, but
----------- FOOTNOTE BEGINS ---------
[foot #] 3 (...continued)
this conflicts with the testimony of the director of the property
management division, it is irrelevant to our disposition of this
appeal.
----------- FOOTNOTE ENDS -----------
did not prove, the presence of dioxin. Exhibit 30 at 22. The
Air Force toxicologist who studied the results of the
laboratory's analysis concluded that there was some dioxin in the
airplanes that were tested. Transcript at 198. He also
concluded that the level of contamination of individual airplanes
was unknown, and he recommended that a minimum of ten samples per
airplane be taken and analyzed in order to determine the level of
dioxin contamination of the airplanes. He estimated that it
would cost approximately $15,000 to evaluate each airplane. He
also recommended that airplanes with detectable levels of dioxin
be fully decontaminated before being transferred, and he
explained that the cost of decontamination was unknown. Exhibit
46.
Mr. Stilwell spoke with GSA's contracting officer and GSA's
property disposal and aircraft utilization specialist several
times in the fall and asked what was happening with the release
of the airplanes. The contracting officer said that the Air
Force had not yet released the airplanes, but Mr. Stilwell did
not get the impression that Western Aviation would never receive
the airplanes. Transcript at 146. During the fall months, the
Air Force was trying to decide whether it should release the
airplanes, test them further, attempt to decontaminate them,
destroy them, or seal them and leave them in place. Exhibits 32-
39.
On December 18, 1996, the Air Force wrote a letter to GSA
concerning ten C-123s, including the five airplanes purchased by
Western Aviation. The letter stated that the airplanes were
possibly contaminated with dioxin and asked GSA to terminate
the sale due to public health concerns. The Air Force
explained that one of the ten C-123s had tested positive for
dioxin, and that it was prohibitively expensive to test all of
the airplanes properly. The letter stated that two of the
airplanes sold to Western Aviation had been used in Southeast
Asia and that no records were available to show how the other
airplanes had been used. In addition, the letter stated that the
C-123s should have never been advertised for sale because they
did not appear on the list of commercially salable airplanes
appended to the Defense Reutilization and Marketing Manual.
Exhibit 10. After sending this letter to GSA, the Air Force
continued to consider whether it would be possible to release the
airplanes. Exhibits 40-43.
GSA Terminates the Contracts
On January 8, 1997, GSA terminated its contracts with
Western Aviation because the Air Force would not release the
airplanes due to concerns about possible dioxin contamination
and, therefore, GSA could not deliver the airplanes. GSA
explained that it would refund Western Aviation s purchase price.
Exhibit 13; Transcript at 18, 22. The contracting officer
understood that the Air Force did not have any need for the
airplanes, and that it intended to seal up the airplanes and
store them. Transcript at 29.
Until Mr. Stilwell received GSA's January 8 letter, he
believed that he was going to be able to take at least two of the
airplanes. Transcript at 146-47. On January 13, 1997, Western
Aviation objected to the termination of its contracts. Western
Aviation explained that it had spent a great deal of money and
time to design a fire retardant system for the airplanes.
Western Aviation also said that it would be willing to sign a
release to protect the Air Force from any damage that it might
incur. Exhibit 14.
The Air Force wrote to Western Aviation on March 12, 1997,
and stated that it could not release the airplanes. According to
the Air Force s letter, three of the airplanes sold to Western
Aviation were used in Southeast Asia and all of the airplanes
contained spray apparatus, which led the Air Force to conclude
that all of the airplanes might possibly be contaminated with
dioxin. The Air Force explained that it would be prohibitively
expensive to test the airplanes in order to confirm any
contamination, and also explained that there were no established
remediation goals or acceptable clean-up levels for dioxin
contamination. Exhibit 17. The Air Force sealed the airplanes
and stored them at Davis-Monthan Air Force Base. Transcript at
218. GSA refunded Western Aviation's purchase price. Exhibit
19.
Western Aviation Claims Damages
In letters to GSA dated March 7 and 19, 1997, Western
Aviation again objected to the termination of the contracts. In
the March 19 letter, Western Aviation explained that it had spent
over $110,000 in order to develop and to market a fire retardant
system to be used in the C-123s for aerial forest fire fighting.
The letter did not say what costs were included in the $110,000.
Western Aviation also said that it had paid interest in excess of
$8000 during the time that GSA held Western Aviation's payment
for the airplanes. Western Aviation stated that it wanted to be
made whole if GSA could not perform the contracts. Exhibits 16,
21. GSA responded that its liability was limited to refunding
Western Aviation s purchase price and denied Western Aviation s
request for any additional money. Exhibit 22. Western Aviation
later certified a claim for damages of $500,000, but did not say
what costs were included in that figure. Exhibit 84.
In the complaint filed in this case, Western Aviation stated
that it had invested over $500,000 in its C-123 project. It said
that its damages consisted of the cost of arranging for a work
facility near Davis-Monthan Air Force Base, purchasing special
equipment to work on the airplanes, designing and building a tank
with a micro-processor controlled door system, developing an FAA
certification plan, researching the availability of and obtaining
spare parts, creating a marketing and financing plan, and the
cost of financing $87,500 for one year. The complaint did not
set out the costs that made up any of these individual elements
of damage. Exhibit 74.
In its responses to GSA's interrogatories, Western Aviation
stated that its damages included the cost of inspecting the
airplanes and preparing them to be removed from Davis-Monthan Air
Force Base; purchasing an aircraft tug and a tow bar; travel to
move the tow bar from Davis-Monthan Air Force Base and to store
it in Tucson, and travel to move the tow bar to Mesa; developing
a sales program for the engines and propellers, and defaulting on
the sale of the engines and propellers; research and travel to
locate and to bid on replacement engines and equipment for
upgrading the C-123s; purchasing a prototype C-123; studying the
design of an engine upgrade; designing and developing a tank;
developing an FAA certification plan; multiple trips to Tucson to
inspect and evaluate the five C-123s; interim storage of the
airplanes for preparation for flight to Mesa; and developing a
marketing program. The interrogatory responses did not set out
the cost of any of these individual elements of damage. Exhibit
114.
In a September 4, 1998 letter to counsel for GSA, Western
Aviation stated that its damages consisted of the following
elements and amounts:
Marsh Aviation invoice dated March 8, 1997
Parts $ 28,468.63
Mileage 705.00
Labor 179,600.00
Total $208,068.63
Floyd Stilwell services 2/5/96 - 3/8/97
$100,000.00
Tim Austin services 3/1/96 - 3/8/97
120,000.00
Move Tim Austin from Florida to Arizona 8,000.00
Move Tim Austin from Arizona to Florida 8,000.00
Ghislain Boivin, travel and expenses
2,400.00
Bob Gibson, deferred legal
20,000.00
Bill Walker, 1,000 hours 2/5/96 - 3/8/97
60,00
0.00
Total $318,400.00
Exhibit 123.
The March 8, 1997 Marsh Aviation invoice for $208,068.63
appended to Western Aviation's September 4, 1998 letter contains
a list of dollar amounts paid for supplies ordered by Marsh
Aviation between March 5, 1996, and March 7, 1997, for a total of
$28,468.63. Exhibit 123. Mr. Stilwell testified that these
supplies were used to build the tank and the door system.
Transcript at 137-38. Nearly all of the $28,468.63 is supported
by invoices from Marsh Aviation's suppliers.[foot #] 4
Exhibit 134; Transcript at 168. The invoices show that Marsh
Aviation spent $4289.70 for supplies that were ordered after GSA
terminated Western Aviation's contracts. Exhibits 123, 134.
The record does not contain any explanation of the $705 charge
for mileage set out in the Marsh Aviation invoice. The invoice
says that the $179,600 charge for labor represents 3592 labor
hours at $50 per hour. Exhibit 123. Attached to the invoice are
time sheets which Mr. Stilwell testified represented the hours
spent by the people who designed and fabricated the tank and the
door system. Transcript at 150-51. The labor hours listed on
the time sheets are for time worked between December 1995 and
March 1997, and total nearly 6000 hours instead of the 3592 labor
hours shown on Marsh Aviation's March 8, 1997 invoice. Exhibit
123. There is no explanation in the record of how Marsh Aviation
decided which of the hours listed on its time sheets were devoted
to work on Western Aviation's C-123 tank and door system.
Looking next at the $318,400 referred to in Western
Aviation's September 4, 1998 letter, we find no invoices, time
sheets, payroll records, bills, or any other documentary support
for the expenses included within this amount. The September 4
letter says that between February 29, 1996, and March 8, 1997,
Mr. Stilwell spent the majority of his time trying to locate
engines and propellers that could be installed in place of the
existing engines and propellers on the C-123s, trying to obtain
financing for the FAA certification program, and working with Tim
Austin to develop a marketing plan. Mr. Austin moved from
Florida to Arizona to devote all of his time to developing a
marketing and financing program for converted and upgraded
airplanes. Bill Walker is a test pilot who devoted his time to
FAA certification requirements. Bob Gibson is an attorney who
was hired to assist in obtaining financing and drafting contracts
for a C-123 program. Ghislain Boivin is the president of a
company that intended to act as an agent to negotiate operating
leases for the airplanes. Exhibits 109 at 10-11; 123.
Other than the September 4, 1998 letter, there is nothing in
the record to support the claimed costs of $318,400. During re-
direct examination, Mr. Stilwell's counsel asked him if the
damages reflected in the exhibits he had testified about were
those of Western Aviation. Mr. Stilwell answered that they are
obligations that Western Aviation has. Transcript at 179.
Although Mr. Stilwell testified about some of the attachments to
the September 4, 1998 letter, he did not testify about the
----------- FOOTNOTE BEGINS ---------
[foot #] 4 The items not supported by invoices are $55.60
listed as paid to DiEugenio; $87.30 listed as paid to Arizona Air
Tool; and $255.85 listed as paid to Jorgensen Steel. Exhibits
112, 134.
----------- FOOTNOTE ENDS -----------
$318,400 or any of the expenses included within that figure.
Transcript at 137-38, 150-51, 169.
In its post-hearing brief, Western Aviation claims damages
of between $4.2 and $18.7 million. This includes the $318,400
discussed in the preceding paragraph, the $28,468.63 for parts as
set out in the Marsh Aviation invoice discussed above dated March
8, 1997, plus the following amounts:
Labor costs $ 369,825.00
Computer costs 20,686.94
Equipment to move airplanes 7,620.00
Sale of parts from airplanes 298,550.00
Sale or lease of airplanes
Sale 3.5 to 18 million
Lease 4.9 million
Appellant s Post-Hearing Brief at 23-26.
In support of its post-hearing claim of $369,825 for labor
costs, Western Aviation relies upon a version of the March 8,
1997 Marsh Aviation invoice discussed above in connection with
the damages calculation that Western Aviation submitted to GSA
counsel on September 4, 1998. The March 8 invoice that Western
Aviation sent to GSA counsel shows labor costs of $179,600,
representing 3592 hours of work. Exhibit 123. The version of
the March 8 invoice relied upon by Western Aviation in its post-
hearing brief shows labor costs of $369,825, representing 7396.5
hours of work. Exhibit 112. The record does not explain why two
copies of the same invoice contain different figures for labor
costs and labor hours. In addition, the documents that Western
Aviation relies upon in its post-hearing brief to support the
invoiced 7396.5 hours of labor contain duplicative entries, do
not support that number of hours, and are different from the
documents relied upon to support the number of hours set out in
the copy of the invoice that Western Aviation submitted to GSA
counsel on September 4, 1998. Exhibits 123, 133.
In support of its post-hearing claim of $20,686.94 for
computer costs, Western Aviation relies upon a copy of a Marsh
Aviation invoice that lists amounts paid to Transource Computer
($10,382.50), to A.R.P. Inc. ($13,810), and to Courtaulds
Aerospace ($111.66). Exhibit 113. The only evidence in the
transcript concerning computer-related purchases is Mr.
Stilwell's testimony:
[W]e had to upgrade our computers so that we could get
the work done in the time frame we had allocated for
this program. All our work was done on computers with
the auto-CAD software which allows you to do two
dimensional plotting and planning and drawings.
Transcript at 137. The record contains two invoices from
Transource Computer showing that Marsh Aviation purchased two
personal computers in January 1996, for a total of $6765.28.
Exhibit 134 at 64, 65. There are two invoices from A.R.P. Inc.,
totaling $13,810, for consulting work for "water bomber door
control" engineering work done for Marsh Aviation in July 1996,
and August 1997. Exhibit 134 at 66, 68. There is also an
invoice showing that Marsh Aviation purchased something from
Courtaulds Aerospace for $111.66 in June 1997. Exhibit 134 at
67.
In support of its post-hearing claim of $7620 for equipment
to move airplanes, Western Aviation relies upon Exhibits 130 and
131, which show that Marsh Aviation purchased a tow bar for $310
on March 12, 1996, and a tow truck for $5750 in August 1996, and
spent $1600 in October 1996, to have the tow truck shipped to its
facility in Mesa, Arizona. Exhibits 130, 131. Tow bars are
sometimes designed to be used with one specific type of airplane,
and Marsh Aviation purchased its tow bar in order to move the C-
123s. Transcript at 102, 242. Mr. Stilwell testified that he
purchased a "tug" to tow the C-123s. Transcript at 248. Mr.
Stilwell testified that Marsh Aviation billed Western Aviation
for amounts due and that Western Aviation's obligation to Marsh
Aviation is reflected in those bills, but the record does not
establish that Marsh Aviation ever submitted a bill to Western
Aviation for the tow truck or the tow bar. Transcript at 159.
As mentioned above, Mr. Stilwell testified on re-direct
examination that Western Aviation's obligations were reflected in
the exhibits about which he testified. Transcript at 179. Mr.
Stilwell never testified about Exhibits 130 and 131, which show
that Marsh Aviation paid for the tow truck and the tow bar.
In support of its post-hearing claim of $298,550 from the
sale of parts from airplanes, Western Aviation relies upon a
booklet titled, "Marsh Aviation Company, Falcon Field Airport,
Mesa, Arizona, Proposed Purchase of Fairchild C-123 and C-123T
Aircraft." The booklet is dated February 15, 1996, and contains
Marsh Aviation's cash flow projections, based upon the assumption
that it acquired the C-123s that GSA advertised for sale.
Western Aviation is not mentioned in the booklet. The booklet
contains a cash flow projection showing sales prices and cost of
sales of the engines and propellers from the airplanes. The
amount claimed by Western Aviation in its post-hearing brief is
the difference between the projected sales prices of engines and
propellers, and the projected cost of sales, without taking into
account the projected acquisition cost of $72,500. The amount
claimed is overstated by $3150 because it includes projected
profits from an airplane that Western Aviation did not purchase
instead of projected profits from an airplane that it did
purchase.[foot #] 5 Of the amount claimed by Western
----------- FOOTNOTE BEGINS ---------
[foot #] 5 The two airplanes are identified on page 6 of
Exhibit 109 as Item 10 (the airplane that Western Aviation
purchased) and Item 11 (the airplane that Western Aviation did
not purchase).
----------- FOOTNOTE ENDS -----------
Aviation, Marsh Aviation projected receiving $200,000 from the
sales of propellers. Marsh Aviation explained in the booklet
that the propellers would sell for this amount only if they were
modified to be installed on a different type of airplane. An FAA
supplemental type certificate would be needed to permit this
modification and installation. Without such a modification,
Marsh Aviation said that the value of the propellers was low.
The booklet contains a general disclaimer, stating that the
projected sales and cost of sales, though believed to be
accurate, were not guaranteed. Exhibit 109. Mr. Stilwell
testified that Marsh Aviation had a buyer for the engines, and
that if Marsh Aviation instead of Western Aviation had sold these
items, the companies' books would have been straightened out
later. Transcript at 173-74. There is no evidence to show what
the buyer for the engines was willing to pay, or to show that an
FAA supplemental type certificate was ever obtained to permit the
propellers to be installed on a different type of airplane.
In support of its post-hearing claim of a profit of either
$3.5 to $18 million for sale of the airplanes or $4.9 for leasing
the airplanes, Western Aviation relies upon a booklet that was
jointly prepared by Marsh Aviation and Firestar Aircraft Company
in August 1996, for the purpose of attracting investors to the
project described in the booklet, which was to convert four types
of airplanes, including C-123s, into fire fighting aircraft.
Exhibit 110; Transcript at 131. The booklet explains that Marsh
Aviation had achieved substantial industry recognition, as well
as operational and financial success, in designing and producing
aerial fire fighting aircraft and components, and that Marsh
Aviation had a proven track record of obtaining FAA certification
for its products and selling converted airplanes for use in fire
fighting. The booklet says that Marsh Aviation and Firestar
Aircraft Company owned the airplane conversion program. It never
mentions Western Aviation, and speaks only of the manner in which
Marsh Aviation and Firestar Aircraft would utilize C-123s.
Exhibit 110.
The August 1996 booklet estimates that the C-123 project
would cost $6.5 million to complete, that converted C-123s could
each be sold for between $5 and $9 million depending upon the
components ordered by the customer, and that an operating profit
of 40% would be realized on each sale. Exhibit 110 at 86, 90-91.
The record contains no evidence of Western Aviation's
profitability. Western Aviation's post-hearing claim for between
$3.5 and $18 million for sales is calculated as follows. If five
airplanes each sold for between $5 and $9 million, total sales
would be between $25 and $45 million. Multiplying these sales
figures by an operating profit of 40% would result in profits of
between $10 and $18 million. If the entire $6.5 million project
completion cost is attributed to sales of airplanes and
subtracted from these figures, the profits realized from sales
would range from $3.5 million to $11.5 million. So, in its post-
hearing brief, Western Aviation claims that the least it could
have expected to profit from the sale of five airplanes was $3.5
million, and the most it could have expected to profit from the
sale was $18 million. The booklet does not, however, say that
five airplanes would be sold. To the contrary, the booklet
states that four of the five airplanes owned by Marsh Aviation
would be leased for fire fighting. Exhibit 110 at 87. The
booklet estimates that the net operating profit of a C-123 leased
for ninety days would be $432,250 in the United States and
$571,900 in other countries. Assuming that all five airplanes
could be leased for one year (four ninety-day periods), the
expected annual operating profit of all five airplanes would be
between $8,645,000 and $11,438,000. Exhibit 110 at 92. Mr.
Stilwell explained that airplanes are usually used from June
through mid-September in the northern hemisphere. Transcript at
135. If the entire $6.5 million project completion cost is
attributed to leases of airplanes and subtracted from these
figures, the profits realized from leasing would range from $2.1
million to $4.9 million.[foot #] 6
Discussion
The contracting officer had the authority to enter into
contracts with Western Aviation, and GSA breached those contracts
when it failed to turn over the five airplanes that Western
Aviation purchased. If Western Aviation is entitled to recover
monetary damages, the amount of those damages is not limited by
the exculpatory clauses contained in the contracts. The amount
recoverable is limited, however, to damages that were the
foreseeable result of a breach at the time the parties entered
into their contracts and that can be proved with reasonably
certainty.
----------- FOOTNOTE BEGINS ---------
[foot #] 6 In its post-hearing brief, Western Aviation's
estimated profits from leases are based upon figures found at
pages 93 and 94 of Exhibit 110. These figures, however,
represent the estimated profits from sales plus the estimated
profits from leases.
----------- FOOTNOTE ENDS -----------
The Contracting Officer's Authority
According to statute and regulation, contracting officers
have the authority to enter into contracts. 41 U.S.C. 601(3)
(1994); 48 CFR 2.101 (1995). The contracting officer who
awarded the contracts to Western Aviation held a contracting
officer's warrant of appointment and his duties included
disposing of property that had been screened, as had the C-123s
at issue here, to determine that it was not needed by another
Government agency and that there was no qualified party to whom
the Government could donate the property. There is no evidence
that the contracting officer's warrant itself contained any
language that limited his authority to enter into the contracts
with Western Aviation. According to GSA, however, the
contracting officer lacked the authority to enter into these
contracts.
GSA argues that the contracting officer's authority was
limited by the Defense Reutilization and Marketing Manual because
the manual did not list C-123s as items available for sale for
commercial use at the time of the sale to Western Aviation, and
was also limited by GSA regulations that prohibit selling items
that are contaminated with hazardous materials. Respondent's
Post-Hearing Brief at 21-27. We do not accept GSA's arguments,
as explained below.
The Defense Reutilization and Marketing Manual
We find no language in the Defense Reutilization and
Marketing Manual that limited the GSA contracting officer's
authority to enter into contracts with Western
Aviation.[foot #] 7 The manual contained a list of
airplanes that could be sold for commercial use and, at the time
of the sale to Western Aviation, the C-123 was not among the
airplanes listed. The manual, however, was an internal DoD
document and said that it applied to DoD activities. The manual
did not say that it applied to anyone employed by an agency other
than DoD, and did not mention the authority of a GSA contracting
officer to sell surplus property.
In addition to the manual's lack of an express limitation
upon a GSA contracting officer's authority, there is no evidence
to show that DLA, the agency that determines DoD's property
disposal policy and that issued the Defense Reutilization and
Marketing Manual, read the manual as limiting a GSA contracting
officer s authority to sell C-123s for commercial use. Before
the sale at issue here, GSA consulted with the DLA employee who
was responsible for maintaining and issuing the list of
----------- FOOTNOTE BEGINS ---------
[foot #] 7 Although our record does not contain a complete
copy of the manual, the parties placed portions of the manual in
the record, and those portions are presumably the ones that are
relevant to this case.
----------- FOOTNOTE ENDS -----------
commercially salable airplanes, about the salability of the C-
123s. He told GSA that a decision had been made to classify the
C-123 as commercially salable and that this decision would be
shown in the manual the next time it was revised. There is no
evidence that this DLA employee believed that the manual
restricted the authority of GSA's contracting officer to sell the
C-123s. Neither is there any evidence that the GSA contracting
officer or any of his supervisors believed that the manual
imposed a limitation upon his authority.
GSA points out that the Air Force read the manual to say
that the sale of the C-123s by GSA for commercial use was not
authorized. The Air Force's interpretation of the manual is not
persuasive, however, because the Air Force was not the agency
responsible for either determining the property disposal policy
of DoD or maintaining the manual. In addition, the Air Force
first provided GSA with its view of the manual nine months after
the sale, when it was attempting to persuade GSA to terminate
Western Aviation's contracts. Also, after expressing this
opinion, the Air Force continued to consider whether the
airplanes could be released to Western Aviation, which is
inconsistent with reading the manual to say that it eliminated
the GSA contracting officer's authority to sell the C-123s.
In summary, we find no facts to support the argument that
the Defense Reutilization and Marketing Manual limited the GSA
contracting officer's authority. Although the manual did not
list C-123s as items available for sale for commercial use at the
time of the sale to Western Aviation, the manual applied to DoD
activities and did not impose any express limitation upon the GSA
contracting officer's authority. In addition, there is no
evidence that either DLA or GSA read the manual as containing
such a limitation. For these reasons, we conclude that the
contracting officer's authority was not limited by the Defense
Reutilization and Marketing Manual.
The Hazardous Materials Regulations
Although published regulations provide that agencies cannot
dispose of items that are contaminated with hazardous materials
without following certain procedures,[foot #] 8 the
evidence does not establish that the five airplanes sold to
Western Aviation were contaminated. The airplanes in which Air
Force employees smelled chemical odors and experienced a burning
sensation were not among those sold to Western Aviation. The
record does not establish whether any of the Western Aviation
airplanes were tested for dioxin. Two of the Western Aviation
airplanes were not tested to determine whether they were
contaminated with 2,4-D or 2,4,5-T. Even though swipe samples
were taken from the remaining three Western Aviation airplanes in
the areas most likely to be contaminated with the two herbicides,
----------- FOOTNOTE BEGINS ---------
[foot #] 8 41 CFR pts. 101-42, -45 (1995).
----------- FOOTNOTE ENDS -----------
if there was any amount of 2,4-D and 2,4,5-T present in the
samples from one airplane, it was below detectable levels. For
each of the other two Western Aviation airplanes, one sample
showed detectable levels of herbicides and the other sample did
not. The laboratory that analyzed the samples for the presence
of 2,4-D and 2,4,5-T noted that the presence of these two
herbicides did not establish that dioxin was present. The Air
Force toxicologist who studied the results of the tests believed
that there was some dioxin in the airplanes, but concluded that
the level of contamination of individual airplanes was unknown.
Although he recommended that a minimum of ten samples per
airplane be taken and analyzed in order to determine the level of
contamination of the airplanes, no further samples were taken.
The record contains conflicting evidence as to how many of the
airplanes sold to Western Aviation were used in Southeast Asia,
and does not establish whether any of the airplanes were used to
spray Agent Orange. Similarly, the evidence is conflicting as to
whether the five Western Aviation airplanes contained spray
equipment at the time of the sale or at any prior time.
GSA contends that even though some tests showed no
detectable levels of herbicides, this does not establish that no
dioxin was present because there is no "minimum level of
contamination for dioxin." Respondent's Post-Hearing Brief at
25. In other words, even though testing showed no detectable
levels of herbicides, this did not establish the absence of
dioxin and so the airplanes were contaminated and should not have
been sold. We reject GSA's contention. If we were to follow
GSA's logic, all surplus property would have to be considered to
be contaminated with dioxin because even if it showed no
detectable levels of 2,4-D and 2,4,5-T, this would not establish
the absence of dioxin.
In summary, the evidence does not establish that the five
airplanes sold to Western Aviation were contaminated with
hazardous materials, so we cannot conclude that the contracting
officer's authority to enter into contracts to sell the airplanes
was limited by regulations concerning the disposal of hazardous
materials.
Breach of Contract
Unless some contract provision authorized GSA to refuse to
turn over the five airplanes to Western Aviation, GSA s action
constitutes a breach of contract. Binding contracts existed when
GSA sent Western Aviation notices of award. The contracts
provided that Western Aviation was entitled to obtain the
airplanes when it paid for them in full, and Western Aviation
satisfied this requirement. The only restriction placed upon
Western Aviation s right to obtain the airplanes after it paid
for them was set out in the invitation for bids, which provided
that Western Aviation had to arrange for a removal date and time.
Although Western Aviation did not remove the airplanes, this was
due to the actions of GSA and not due to any fault of Western
Aviation. GSA told Western Aviation that it could not remove
three of the five airplanes. Although GSA gave Western Aviation
permission to remove the remaining two airplanes, GSA effectively
rescinded that permission when it terminated the contracts for
those airplanes.[foot #] 9
The Description Warranty clause contained in the invitation
for bids authorized GSA to retain the airplanes if they were
misdescribed in the invitation. The invitation described the
airplanes as C-123s, which is correct, and accurately listed the
serial numbers of the airplanes. Because the airplanes were not
misdescribed in the invitation for bids, the Description Warranty
clause did not authorize GSA to withhold the airplanes from
Western Aviation.
GSA argues that it was authorized to refuse to turn over the
airplanes by the Withdrawal of Property After Award clause, which
permitted the Government to retain the airplanes for its use . .
. if a bona fide requirement for the property develops or exists
prior to actual removal of the property from Government control.
Exhibit 2. GSA contends that it was permitted to withhold the
airplanes from Western Aviation because the clause permits the
Government to withdraw property in order to save money and
permits the Government to withdraw property after award unless it
does so with the intent to resell it. Respondent's Post-Hearing
Brief at 31-33.
In support of its reading of the clause, GSA relies upon
Peck Iron & Metal Co. v. United States, 496 F.2d 543 (Ct. Cl.
1974), and Convery v. United States, 597 F.2d 727 (Ct. Cl.
1979).[foot #] 10 In Peck, the Court held that the
clause did not permit the Government to withdraw an entire
aircraft carrier when it needed only a small part of the
carrier's equipment and intended to resell the remainder. The
Court stated that the clause was meant to apply when the
Government actually needed the property to use for its own
purposes, and not when it intended to resell the property. In
Convery, the Court decided that an agency had a bona fide
requirement for a machine that it used as a trade-in when it
----------- FOOTNOTE BEGINS ---------
[foot #] 9 If GSA had wanted to terminate these two
contracts based upon Western Aviation's failure to remove the
airplanes, it would have needed to send Western Aviation a notice
of default, as provided in Standard Form 114C, General Sales
Terms and Conditions. GSA did not terminate these two contracts
based upon Western Aviation's failure to remove the two
airplanes.
[foot #] 10 GSA also cites to Chesapeake Salvage Corp.,
_________________________
ASBCA 24861, 81-1 BCA 15,020. Although the board there
discussed the Withdrawal of Property After Award clause, it
explained that the clause was not involved in that case because
the agency did not withdraw any property from the award.
----------- FOOTNOTE ENDS -----------
purchased a new machine that was badly needed. The Court decided
that the agency did not have to establish that it had a physical
use for the withdrawn property, and it found support for its
decision in a statute that permitted agencies to acquire new
property by using old property for a trade-in allowance. The
Court also noted that using the old machine for a trade-in
resulted in a substantial savings to the Government.
Consistent with the language of the Withdrawal of Property
After Award clause, Peck and Convery establish that although the
clause does not require the Government to have a physical use for
withdrawn property, it does require that the Government have some
use for property that it withdraws from award, due to a bona fide
requirement for the property. The cases do not hold that the
clause permits the Government to withdraw property from award
unless it does so with the intent to resell it, or that the
Government may withdraw property simply to save money. According
to Peck, when the Government intends to resell property that it
withdraws after award, it is not withdrawing the property for its
use due to the existence of a bona fide requirement. According
to Convery, when the Government intends to use withdrawn property
as a valuable trade-in for badly needed new property, it is
withdrawing the property for its use due to the existence of a
bona fide requirement.
In addition to Peck and Convery, other decisions explain the
circumstances in which the Government will be found to have
withdrawn property for its use due to the existence of a bona
fide requirement. For example, the Government had a bona fide
requirement to use five scrap armored personnel carrier hulls
that the Marine Corps planned to convert to heavy duty tank hull
trailers (Coast Iron & Metal Co., ASBCA 14082, 70-2 BCA 8392);
a refueling tank from a truck when half of the refueling tanks at
one Air Force base were inoperable (Garry E. Pugh, ASBCA 25819,
82-2 BCA 15,834); a machine that the Navy intended to
incorporate into its anchor chain testing program (Coordinated
Equipment Co., ASBCA 27164, 83-2 BCA 16,555); and antenna
controls that the Defense Nuclear Agency needed to use to fulfill
a treaty commitment (Eric Bjorgum, ASBCA 49988, 00-1 BCA 30,695
(1999)). The Government did not have a bona fide requirement to
use a brake press machine that it withdrew from a sale because
the machine should never have been included in the sale in the
first place (Merchants and Traders Group, Inc., ASBCA 15993, 71-2
BCA 8960), or a gun turret that it withdrew from a sale because
the invitation for bids inaccurately stated the demilitarization
requirements and the weight of the turret (Clyde Kirby, ASBCA
20558, 76-2 BCA 12,059).
GSA has not established that it withdrew the airplanes after
award for the Government s use due to the existence of a bona
fide requirement for the airplanes. GSA contends that the Air
Force had a bona fide need for the airplanes because it would
have been costly to test them thoroughly and because it needed to
protect the public by preventing the release of dioxin-
contaminated airplanes. Respondent's Post-Hearing Brief at 31-
33. As explained earlier in our discussion of the contracting
officer's authority, GSA has not established that the airplanes
purchased by Western Aviation were contaminated. The Air Force's
concerns about the cost of testing do not establish that the
Government actually made any use of the airplanes because a
requirement existed for them, and so these concerns do not
provide a basis for applying the Withdrawal of Property After
Award clause. The contracting officer correctly understood that
the Air Force did not have any need for the airplanes and that it
intended to seal them and store them. None of the precedent
concerning the Withdrawal of Property After Award clause would
support a conclusion that sealing and storing an airplane amounts
to using an airplane. So far as our record shows, no agency
developed any bona fide requirement for the airplanes and no one
is making any use of them. In such circumstances, the Withdrawal
of Property After Award clause did not authorize GSA to refuse to
turn over the airplanes to Western Aviation.
GSA s refusal to permit Western Aviation to take possession
of the airplanes constitutes a breach of contract because the
contract entitled Western Aviation to the airplanes when it paid
for them in full, which it did, and when it made arrangements to
pick them up, which it was prevented from doing by GSA. Although
the Description Warranty clause contained in the invitation for
bids and the Withdrawal of Property After Award clause contained
in the General Sale Terms and Conditions authorized GSA to
withdraw the airplanes from the sale in some circumstances, those
circumstances were not present in this case.
Availability of Monetary Damages and Applicability of Exculpatory
Clauses
A Government agency can have the best possible motive for
deciding not to fulfill the terms of a contract, but a good
motive does not eliminate the agency s responsibility for
compensating the contractor for a breach. In Everett Plywood
Corp. v. United States, 651 F.2d 723 (Ct. Cl. 1981), the
Government terminated a contract due to concerns about
environmental damage. In considering whether the Government s
desire to protect the environment meant that it could cancel the
contract without being liable for breach damages, the Court
explained:
There can therefore be no doubt that high reasons of
public policy do not endow public officials with
authority to repudiate contracts, though they may
influence courts to refrain from interference by way of
specific performance, etc., and from awarding damages
that exceed a reasonable compensation for the lost
contract rights.
. . . .
Clearly, the government ought not to have stood idly by
and continued with the contract if unacceptable damage
to the environment were foreseen. On the other hand,
whether the government can terminate the contract and
escape making compensation is another issue, the issue
we are concerned with.
651 F.2d at 728, 729. Accord Sun Oil Co. v. United States, 572
F.2d 786 (Ct. Cl. 1978). The issue that concerned the Court in
Everett Plywood is also the issue that concerns us in this
appeal.
Even though the Air Force suspected that some of the
airplanes sold to Western Aviation might have been contaminated
with a hazardous substance, GSA s actions constituted a breach.
Although Western Aviation is not entitled to obtain specific
performance of its contract, Western Aviation Maintenance, Inc.
v. General Services Administration, GSBCA 14165, 98-2 BCA
29,816, Western Aviation might be able to collect monetary
damages. Before we examine Western Aviation's request for
damages, however, we first determine whether any contract clause
limits the amount of Western Aviation's recovery.
In certain circumstances, the Description Warranty clause
and the Withdrawal of Property After Award clause limit the
amount of money damages that a contractor can recover to a refund
of whatever amount the contractor paid to GSA. When a contract
contains clauses such as these, the Government s ability to use
them to limit its liability is curtailed by the strict and narrow
construction of the clauses. If the facts of a case do not bring
it within the confines of the clauses, however, the limitations
on liability contained in the clauses do not apply. Peck Iron
and Metal Co. v. United States, 496 F.2d 543 (Ct. Cl. 1974);
Benjamin v. United States, 348 F.2d 502 (Ct. Cl. 1965); Deep Run
Salvage, ASBCA 45152, 94-1 BCA 26,371 (1993) (denying motion
for summary relief); Clyde Kirby, ASBCA 20558, 76-2 BCA 12,059;
Merchants and Traders Group, Inc., ASBCA 15993, 71-2 BCA 8960.
As explained in the previous section of this opinion, GSA did not
misdescribe the C-123s and did not withdraw them from the sale
for the Government's use due to the existence of a bona fide
requirement for the airplanes, so neither the Description
Warranty clause nor the Withdrawal of Property After Award clause
operates to limit the amount of Western Aviation's recovery to a
refund of its purchase price.
The Limitation on Government s Liability clause can, in some
circumstances, limit recovery to a refund of the amount paid by a
successful bidder. The Government cannot, however, always use a
limitation on liability clause to limit its liability for breach
damages to a refund, because the use of the clause is restricted
by public policy considerations and fundamental principles of
contract law that require contracts to be supported by mutuality
of obligation and consideration that is not illusory. The clause
was designed to be used to limit the Government s liability to a
refund when (1) a need for the property develops after it has
been declared surplus and offered for sale, or (2) a serious
mistake has been made, such as a grave price discrepancy between
the true value of the item and the amount bid. Freedman v.
United States, 320 F.2d 359, 362 (Ct. Cl. 1963). The clause
should not be construed as absolving the Government from all
damages where it breaches the contract, without having one of
the two good reasons enumerated above, because to read the clause
as completely relieving the Government for liability for breach
damages "would come close to (if not reach) the pit of voidness.
Id. at 366. Accord Thuresson v. United States, 453 F.2d 1278
(Ct. Cl. 1972); Stoner-Caroga Corp. v. United States, 3 Cl. Ct.
92 (1983).
The Limitation on Government's Liability clause does not
limit Western Aviation's recovery to a refund of the amount that
it paid to GSA. As discussed in the previous section of this
opinion, no Government need for the C-123s developed after the
airplanes were declared surplus and offered for sale. GSA
contends that it made a serious mistake when it sold the C-123s,
because the Defense Reutilization and Marketing Manual did not
list that type of airplane as commercially salable at the time
the sale to Western Aviation occurred. Respondent's Post-Hearing
Brief at 33-34. The evidence does not show that the provisions
of the manual applied to sales made by GSA, and so does not
establish that the GSA contracting officer made a mistake when he
sold the C-123s. DLA authored the manual and the DLA employee
who maintains and issues the list of commercially salable
airplanes told GSA before the sale that a decision had been made
to classify the C-123 as commercially salable and that it would
be listed as such the next time the manual was revised, which it
was. There is no evidence that any DLA or GSA employee believes
that it was a mistake to sell the C-123s. We are not convinced
that GSA made a mistake, much less a serious mistake, when it
advertised and sold the C-123s. In addition, given the public
policy considerations that caution against a broad application of
the clause, it is not surprising that no precedent supports
invoking the Limitation on Government's Liability clause based
upon a mistake such as the one that GSA contends occurred here
concerning a limitation upon the contracting officer's
authority.[foot #] 11
----------- FOOTNOTE BEGINS ---------
[foot #] 11 When a contracting officer's authority is
limited by either a statute or a regulation published in the Code
of Federal Regulations, disregard of that limitation is a mistake
serious enough to void the terms of a contract. Total Medical
_____________
Management, Inc. v. United States, 104 F.3d 1314 (Fed. Cir.),
__________________________________
cert. denied, 522 U.S. 857 (1997); Urban Data Systems v. United
____________ _____________________________
States, 699 F.2d 1147 (Fed. Cir. 1983). Absent unusual
______
circumstances, however, disregard of a limitation imposed by an
unpublished, internal agency directive is not so eventful. Texas
_____
Instruments Inc. v. United States, 922 F.2d 810 (Fed. Cir. 1990);
_________________________________
(continued...)
----------- FOOTNOTE ENDS -----------
Western s Damages
As explained in our findings of fact, Western Aviation's
damages claims have been revised several times. We accept the
version of the claim set out in Western Aviation's opening post-
hearing brief as the final revision of its claim. In that brief,
Western Aviation argues that it is entitled to recover either its
expectation interest damages or its reliance interest damages.
The expectation interest damages claimed by Western Aviation
consist of its potential profits from sales of airplanes ($3.5 to
$18 million), sales of parts ($298,550), and leases of airplanes
($4.9 million). The reliance interest damages claimed by Western
Aviation amount to $745,000.57, which consists of $318,400 for
salaries, moving expenses, travel expenses, and legal expenses,
and $28,468.63 for parts as set out in Western Aviation's
September 4, 1998 letter to GSA counsel; plus $369,825 for labor,
$20,686.94 for computer costs, and $7620 for equipment to move
airplanes as set out in Western Aviation's opening post-hearing
brief. Appellant's Post-Hearing Brief at 44-
45.[foot #] 12
Expectation interest damages and reliance interest damages
are available as alternative forms of recovery. Expectation
interest damages give a non-breaching party the benefit of the
bargain by placing it in as good a position as it would have
occupied if the breaching party had performed the contract.
Expectation interest damages can include profits. Reliance
damages include expenditures the non-breaching party made in
performance or in anticipation of performance of the contract
that was breached. Reliance interest damages reimburse the non-
breaching party for the loss caused by its reliance upon the
contract by placing the party in as good a position as it would
have occupied if the contract had never been made. Reliance
interest damages do not include profits. Laka Tool and Stamping
Co. v. United States, 650 F.2d 270 (Ct. Cl.), cert. denied, 454
U.S. 1086 (1981); ATACS Corp. v. Trans World Communications,
Inc., 155 F.3d 659, 669 (3rd Cir. 1998); Landmark Land Co. v.
----------- FOOTNOTE BEGINS ---------
[foot #] 11 (...continued)
Howard Nettleton, PSBCA 3454, 94-3 BCA 27,038; A-1 Garbage
_________________ ___________
Disposal & Trash Service, ASBCA 30623, 89-1 BCA 21,323; Kurz &
________________________ ______
Root Co., ASBCA 17146, 74-1 BCA 10,543.
________
[foot #] 12 Western Aviation does not claim the difference
between the fair market value of the airplanes at the time of the
breach and the contract price, which would be the traditional
measure of damages for a breach such as occurred here. Globe
_____
Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540 (1903); Miller
____________________________________ ______
v. United States, 140 F. Supp. 789 (Ct. Cl. 1956). This is just
_________________
as well, however, because there is no evidence to establish that
there was any difference between the fair market value at the
time of the breach and the contract price, and GSA refunded the
contract price after it terminated the contracts.
----------- FOOTNOTE ENDS -----------
United States, 46 Fed. Cl. 261 (2000); California Federal Bank v.
United States, 43 Fed. Cl. 445 (1999); Dolmatch Group, Ltd. v.
United States, 40 Fed. Cl. 431 (1998); Restatement (Second) of
Contracts 344, 349 (1981).
In order to recover for breach of contract, the non-
breaching party must establish that its damages were caused by
the breach. The principle of legal causation employed in
contract cases is foreseeability, much the same as proximate
cause is the principle used in most tort cases. Breach damages
are recoverable only if, at the time the contract was made, the
breaching party had reason to foresee that such damages were the
probable result of a breach. Damages are foreseeable either if
they are the natural and ordinary consequence of a breach, or if
they are due to special circumstances of which the breaching
party was aware at the time of contracting. Exxon Co., U.S.A. v.
Sofec, Inc., 517 U.S. 830, 839-40 (1996); Wells Fargo Bank v.
United States, 88 F.3d 1012 (Fed. Cir. 1996), cert. denied, 520
U.S. 1116 (1997); Landmark Land Co. v. United States, 46 Fed. Cl.
261 (2000); California Federal Bank v. United States, 43 Fed. Cl.
445 (1999); S.N. Nielsen Co., GSBCA 4916, 81-1 BCA 14,921;
Hadley v. Baxendale, 156 Eng. Rep. 145 (Ex. 1854); Restatement
(Second) of Contracts 344, 351 (1981). Lost profits that the
non-breaching party claims it would have realized from other
independent and collateral contracts, if not for the
Government s breach, are not recoverable because such profits are
not directly caused by the breach and are not the natural and
ordinary consequence of the breach. Myerle v. United States, 33
Ct. Cl. 1, 26 (1897); Wells Fargo Bank v. United States, 88 F.3d
1012 (Fed. Cir. 1996), cert. denied, 520 U.S. 1116 (1997); Morris
v. United States, 39 Fed. Cl. 7 (1997), aff'd, 178 F.3d 1307
(Fed. Cir. 1998) (table).
In addition to being recoverable only if they are the
foreseeable result of a breach, breach damages are recoverable
only in the amount that can be established with reasonable
certainty. Reasonable certainty does not mean mathematical
certainty. However, in order for the Board to make an award of
damages, the appellant must present sufficient evidence to permit
us to make a "fair and reasonable approximation" of the amount of
damages. Locke v. United States, 283 F.2d 521, 524 (Ct. Cl.
1960); Restatement (Second) of Contracts 352 (1981).
Western Aviation argues that GSA should be estopped from
denying that the damages sought by Western Aviation were the
foreseeable result of a breach. Equitable estoppel is used "to
bar a party from raising a defense or objection that it otherwise
would have, or from instituting an action which it is entitled to
institute." American Maritime Transport, Inc. v. United States,
18 Cl. Ct. 283, 292 (1989) (quoting Jablon v. United States, 657
F.2d 1064, 1068 (9th Cir. 1981)). In order to establish an
estoppel, four elements must be present:
(1) the party to be estopped must know the facts; (2)
he must intend that his conduct shall be acted on or
must so act that the party asserting the estoppel has a
right to believe it is so intended; (3) the latter must
be ignorant of the true facts; and (4) he must have
relied on the former's conduct to his injury.
Emeco Industries, Inc. v. United States, 485 F.2d 652, 657 (Ct.
Cl. 1973) (quoting United States v. Georgia-Pacific Co., 421 F.2d
92, 96 (9th Cir. 1970)).
Western Aviation argues that estoppel should be applied
because (1) GSA knew in June 1996, of the expenditures being made
by Western Aviation and also knew at that time that two of the
airplanes could be released; (2) GSA told Western Aviation that
two of the airplanes could be released and intended for Western
Aviation to act upon that information; (3) Western Aviation did
not know that the Air Force might not release the two airplanes;
and (4) Western Aviation spent money in reliance upon GSA's
representation that two airplanes would be released. Appellant's
Post-Hearing Brief at 47. After considering Western Aviation's
argument, we conclude that there is no basis for applying the
doctrine of estoppel in this case.
We are not convinced that Western Aviation seeks to utilize
the doctrine of estoppel in the correct manner. In order to
recover any damages, Western Aviation must establish that, when
it entered into its contracts with GSA, its claimed damages were
the foreseeable result of a breach of those contracts. This is
part of Western Aviation's burden of proving its case. Robert J.
DiDomenico, GSBCA 5539, 82-2 BCA 16,093 at 79,901; G P
Construction & Development Corp., ASBCA 33121, 91-3 BCA 24,302
at 121,440. Instead of using estoppel to bar GSA from raising a
defense or objection that it otherwise would have, Western
Aviation wants to use estoppel in order to avoid carrying its
burden of proof. In essence, Western Aviation's estoppel
argument is that its damages should be recoverable even if GSA,
at the time of contracting, had no reason to foresee that the
damages claimed by Western Aviation would occur in the event of a
breach. This is not the law and we know of no precedent to
support the proposition that estoppel can work to make this the
law.
Even if Western Aviation is seeking to utilize the doctrine
appropriately, it has not established the first, second, and
third elements of estoppel. As for the second element, Western
Aviation has not shown that GSA intended for Western Aviation to
take any action as the result of GSA's statement that the
airplanes were available to be retrieved, other than pick up the
airplanes. Looking at the first and third elements, we see that
Western Aviation has not shown that it was ignorant of any facts
known to GSA. Western Aviation correctly states that in June
1996, GSA knew that two of the five C-123s could be released to
Western Aviation. Western Aviation, however, also knew in June
that the airplanes could be released because GSA told Western
Aviation that it could come and get them. Western Aviation says
that in June 1996, GSA also knew of the expenditures being made
by Western Aviation. The evidence shows that GSA and Western
Aviation did not discuss the specific details of Mr. Stilwell's
plans for the airplanes, although they did discuss that he was
taking measurements and proceeding to manufacture hardware. GSA
could have inferred that Western Aviation was spending some
money, but the evidence does not establish that GSA had any idea
of the extent of the expenditures being made by Western Aviation.
Western Aviation, of course, knew precisely what it was spending.
Finally, Western Aviation says that it did not know that the Air
Force might not release the two airplanes. Likewise, GSA did not
know that the Air Force might not release the two airplanes.
Western Aviation has not established that any grounds exist for
estopping GSA from denying that Western Aviation's damages were
foreseeable.
Expectation interest damages
Western Aviation's claimed expectation interest damages
consist entirely of lost profits. It claims that it would have
profited from sales of airplanes, leases of airplanes, and sales
of parts, if not for GSA's breach. Damages consisting of lost
profits from sales and leases of airplanes were not the
foreseeable result of a breach, and the amounts claimed have not
been proved with any degree of certainty. Although some damages
for lost profits from sales of parts were the foreseeable result
of a breach, the amount claimed is just as uncertain as are the
amounts requested for lost profits from sales and leases of
airplanes.
Lost profits from sales and leases of airplanes
Western Aviation claims that it could have sold or leased
the C-123s after it converted them to air tankers, and that GSA's
breach caused either $3.5 to $18 million of lost profits from
sales or $4.9 million of lost profits from leases. The lost
profits were not the foreseeable result of a breach because they
would have only been realized if Western Aviation had entered
into independent, collateral contracts for the sale or lease of
the airplanes. Western Aviation cannot establish that any of
these contracts would have materialized, so it cannot prove that
these losses resulted from GSA's breach. In addition, when GSA
entered into the contracts to sell the C-123s, it had no reason
to anticipate that a breach would cause such damages. GSA
advertised the airplanes as scrap or salvage airplanes, neither
of which is suitable for flying. Scrap property has no value
other than its basic material content. Although salvage property
has some value greater than its basic material content, its
condition is such that its repair cost will be more than 65% of
its acquisition cost. It may well be possible to retrofit or
upgrade any scrap or salvage airplane so that it is airworthy.
However, there was no reason for GSA to anticipate that whoever
purchased these five airplanes would spend money, especially
before taking delivery of the airplanes, to prepare to convert
them so that they could be used for fighting fires and to develop
a marketing program for the airplanes. In the great multitude of
cases in which airplanes are sold as scrap or salvage under
ordinary circumstances, the consequences that occurred here would
not, in all probability, have occurred. Damages resulting from
Western Aviation's inability to sell or lease converted C-123s
were not the foreseeable result of a breach of the contracts with
GSA because they were not the natural consequence of a breach of
a contract to sell scrap or salvage airplanes, so they are not
recoverable.
These claimed lost profit damages flow entirely from the
fact that Western Aviation intended to do something not generally
done with scrap or salvage airplanes. Not only did it intend to
refurbish them for flying, it also intended to convert them so
that they could be used to fight fires and to develop a program
for selling and leasing the airplanes for that purpose. At the
time of contracting, however, GSA was not aware of Western
Aviation's plans. The contracting officer did not know the
nature of Western Aviation's business. The director of the
property management division for GSA Region 9 spoke with Mr.
Stilwell a year or so before GSA issued the invitation for bids
for the C-123s, but Mr. Stilwell represented that he worked for
Marsh Aviation and the director had no idea what Western
Aviation's operations were. GSA's property disposal and aircraft
utilization specialist had never heard of Western Aviation,
although she knew of Mr. Stilwell and Marsh Aviation. No
evidence establishes that anyone from GSA knew that Western
Aviation had a unique plan for utilizing these scrap or salvage
airplanes, which included refurbishing the airplanes, converting
them into air tankers, and then leasing or selling them. Western
Aviation asserts that GSA's familiarity with Mr. Stilwell
establishes that it knew what Western Aviation intended to do
with the C-123s. Mr. Stilwell had dealt with GSA perhaps six to
ten times before the sale at issue here and some GSA employees
knew him as a representative of Marsh Aviation. Even if they had
been quite familiar with Marsh Aviation's business, and we are
not convinced that they were, they did not know anything about
Western Aviation's business. The damages that Western Aviation
claims it incurred due to its inability to sell and lease
airplanes were not the foreseeable result of a breach because
they were due to special circumstances of which GSA was not aware
at the time of contracting. Thus, those damages are not
recoverable.
Even if lost profits from sales and leases of air tankers
had been the foreseeable result of a breach at the time of
contracting, they would not be recoverable because it is
uncertain whether any of these profits would have ever been
realized or, if they had, that they would have accrued to Western
Aviation. In order to determine that Western Aviation would have
realized any profits from sales or leases, we have to make one
rather important initial assumption. That is, we have to assume
that Western Aviation would have been able to obtain the
necessary FAA approval for its conversion of the C-123s to air
tankers. Unless the FAA approved Western Aviation's
modifications to the C-123s and issued a supplemental type
certificate, no projected profits from either sales or leases
would have ever materialized. We do not know whether Western
Aviation had received such approvals in the past, and we have no
basis upon which to conclude that the FAA's approval was likely.
The estimate for lease profits includes an additional assumption,
which is that all of the airplanes could be leased for 360 days
per year. The usual season for fire fighting in the northern
hemisphere is only three and one-half months, and there is no
evidence to show that it was reasonable to assume that the five
converted C-123s could have been leased for 360 days each year.
The only evidence we have of projected profits from sales or
leases is the August 1996 booklet that was prepared by Marsh
Aviation and Firestar Aircraft for the purpose of attracting
investors to a project that involved converting four different
types of airplanes to be used for fire fighting. The booklet's
estimated profits from sales of converted C-123s range from a low
of $3.5 million to a high of $18 million. The uncertainty of the
estimate is evident, given its wide range, and the estimate is
not supported by any evidence concerning actual sales or expense
data or experience. In addition, there was no established market
for leasing or selling converted C-123s for fire fighting
tankers, so we do not know whether they could have been leased or
sold as projected by Marsh Aviation and Firestar Aircraft. Also,
the booklet upon which Western Aviation relies in support of its
claim for lost profits never mentions Western Aviation.
According to the booklet, it was Marsh Aviation and Firestar
Aircraft that would reap the benefits of any sales or leases of
the airplanes. Finally, the record contains no evidence of
Western Aviation's past profits and so, even in the absence of
the other uncertainties mentioned here, we would have no basis
upon which to conclude how profitable a venture the conversion of
the C-123s might have been for Western Aviation.
Lost profits from sales of parts
Western Aviation s expectation interest damages also include
$298,550 from the sale of engines and propellers from the
airplanes. Although it was foreseeable that GSA s breach would
lead to the loss of any profits to be made from the sale of parts
from the airplanes, Western Aviation has not established either
that the damages it claims were entirely the foreseeable result
of a breach or that those damages would have amounted to
$298,550, so these damages are not recoverable.
It was foreseeable that if GSA breached its contracts,
Western Aviation would be damaged if it could not sell parts from
the scrap or salvage airplanes that it purchased. Scrap and
salvage items are expected to be worth at least their basic
material content, so in the normal course of events, it is
probable that a purchaser would sell the material that made up
the scrap or salvage airplanes and whatever parts could be
reclaimed from the airplanes. As discussed in the following
paragraph, however, the bulk of Western Aviation's claimed
damages consist of lost profits from sales of modified
propellers. Marsh Aviation intended to modify the propellers,
obtain the FAA's approval to install them on an airplane other
than a C-123, and then sell them. These damages were not the
natural and ordinary consequence of a breach of a contract to
sell scrap or salvage airplanes, and there is no evidence to
suggest that GSA was aware of Western Aviation's special plans
for the propellers. Thus, damages consisting of lost profits
from the sale of modified propellers were not the foreseeable
result of a breach of contract.
In addition to not being entirely the foreseeable result of
a breach, the claimed damages are uncertain in amount. The
support for Western Aviation's claim for lost profits from the
sale of parts is a February 1996 booklet that contains Marsh
Aviation s cash flow projections, based upon the assumption that
it purchased the C-123s from GSA. Western Aviation's claim is
overstated by $3150 because it includes projected profits from an
airplane that Western Aviation did not purchase instead of
projected profits from an airplane that it did purchase. In
addition, in arriving at its claimed amount, Western Aviation did
not subtract the projected cost of acquiring the engines and
propellers, which was $72,500. Marsh Aviation projected that
$200,000 of its projected profit would come from the sale of
propellers, but only if the FAA would issue a supplemental type
certificate to permit the modification of the propellers so that
they could be installed on an airplane other than a C-123.
Without such a modification, the booklet said, the value of the
propellers was low. We do not know whether the FAA would have
approved the propeller modification that Marsh Aviation proposed
and we have no evidence of the value of the propellers without
the modification. Although Mr. Stilwell testified that Marsh
Aviation had a buyer for the engines, there is nothing in the
record to show whether the price that the buyer was willing to
pay was anywhere near Marsh Aviation's projection, or to show how
much Marsh Aviation would have remitted to Western Aviation. We
do not know whether Western Aviation had a history of profits or,
if it did, how profitable selling the engines and propellers
would have been. Neither the testimony nor the Marsh Aviation
booklet establishes with any degree of certainty what profits
would have been realized by Western Aviation from the sales of
engines and propellers.
Reliance interest damages
Western Aviation's claimed reliance interest damages consist
of $318,400 for salaries, moving expenses, travel expenses, and
legal expenses; $28,468.63 for parts; $369,825 for labor;
$20,686.94 for computer costs; and $7620 for equipment to move
airplanes. These damages are not recoverable, either because
they were not the foreseeable result of a breach or because the
amount of damages was not proven with any degree of certainty.
Western Aviation claims that it spent $318,400 for salaries,
moving expenses, travel expenses, and legal expenses in order to
further the program to market refurbished C-123s as air tankers;
$28,468.63 for parts used to build a tank and door system for a
modified C-123; and $369,825 for labor to fabricate the tank and
door system. These damages were not the foreseeable result of a
breach because they resulted from Western Aviation's efforts to
convert C-123s to air tankers that could be used for fighting
fires and to develop a marketing program for the converted
airplanes. As explained above in our discussion of expectation
interest damages, such damages are not recoverable because they
were not the natural and ordinary consequence of a breach of a
contract to sell scrap or salvage airplanes, and were due instead
to special circumstances of which GSA was not aware at the time
of contracting. In addition, to the extent that some of these
costs were incurred before the parties entered into their
contracts and others were incurred after GSA terminated the
contracts, they are not damages caused by the breach.
In addition to not being the foreseeable result of a breach,
the claimed amount of $318,400 is uncertain. The figure is not
supported by any invoices, time sheets, payroll records, bills,
or any other documentary evidence which should have been readily
available to support these claimed damages. There is no
testimony concerning either the $318,400 figure or the expenses
that are included within that amount. Even if GSA had been able
to foresee that such damages would flow from a breach, there is
no evidence to establish the amount of these damages with any
degree of certainty.
The claimed amount of $369,825 for labor is also uncertain,
in addition to not being the foreseeable result of a breach of
contract. This amount is supported by a March 8, 1997 invoice
from Marsh Aviation to Western Aviation. The record, however,
contains two versions of this invoice. One shows a charge of
$179,600 representing 3592 hours of work and the other shows a
charge of $369,825 representing 7396.5 hours of work. The record
does not explain why two copies of the same invoice contain
different figures. In addition, the labor records that are in
evidence contain duplicative entries and do not support the
number of hours on either invoice, and different records are
offered to support the different versions of the invoice.
Neither version of the March 8 invoice is certain enough to serve
as a basis for an award of damages, even if the damages had been
foreseeable.
The $20,686.94 claimed for computer costs is supported by an
invoice for computers purchased months before GSA awarded the
contracts to Western Aviation; by invoices for consulting work,
some of which was done after GSA terminated the contracts; and by
an invoice for some unidentified item that was purchased after
GSA terminated the contracts. Western Aviation has not explained
how the consulting work is related to a claim for computer costs,
or how costs incurred before the contracts were awarded and after
they were terminated were the probable result of a breach. In
addition, to the extent that the computers were purchased and the
consultants were hired in order to pursue a program to convert
the C-123s to air tankers, these damages were not the foreseeable
result of a breach, as explained earlier in this opinion.
Finally, Western Aviation claims $7620 for a tow truck and a
tow bar. The contracts between the parties required Western
Aviation to move the airplanes from Davis-Monthan Air Force Base
or to hire someone to move them, so it was a natural and ordinary
result of a breach that Western Aviation would be damaged if it
spent any money in anticipation of moving the airplanes. GSA
questions whether Western Aviation is entitled to be reimbursed
for the $7620, however, because this money was spent by Marsh
Aviation. Respondent's Post-Hearing Brief at 28.
Western Aviation asserts that it is liable for the money
that Marsh Aviation spent because the "undisputed evidence
establishes the formation of a contract between Western and Marsh
Aviation." Appellant's Reply at 46. The evidence upon which
Western Aviation relies, however, does not establish the
existence of a contract between the two companies that would
obligate Western Aviation to pay Marsh Aviation for the tow truck
and tow bar. Mr. Stilwell testified that Western Aviation hires
Marsh Aviation to perform work for it, but that testimony was a
general description of the relationship between the two companies
and did not relate either to the five airplanes at issue here or
to the tow truck and tow bar. Transcript at 114-15. He
testified that Western Aviation hired Marsh Aviation to prepare a
manual specifying how to install a particular engine on the C-
123, but this does not evidence any contract other than perhaps
one to prepare the manual. Transcript at 130. He testified that
Western Aviation hired Marsh Aviation to design and build the
tank system, and explained that Western Aviation's obligation to
Marsh Aviation was reflected in the bills that Marsh Aviation
sent to Western Aviation. A contract to design and build a tank
system is not a contract to purchase a tow truck and a tow bar,
and Marsh Aviation never billed Western Aviation for either the
tow truck or the tow bar. Transcript at 158-59. Mr. Stilwell
said that there was a signed work order between the two
companies, but he did not know whether there was a contract
between them. The work order is not in our record, and we do not
know its terms. Transcript at 158-59. He testified that the
work of stripping the paint from the airplanes would have been
done by Marsh Aviation, under a subcontract, and that Marsh
Aviation would have probably been the sales agent for selling
parts from the airplanes. Nothing shows that either a contract
to strip paint or to sell parts would include purchasing a tow
truck or a tow bar for Western Aviation. Transcript at 171, 174.
Finally, in response to a question posed by his counsel during
his re-direct examination, Mr. Stilwell testified that Western
Aviation's obligations were reflected in the exhibits about which
he testified. This testimony is not evidence of a contract with
Marsh Aviation, and Mr. Stilwell never testified about the
exhibits related to the tow truck and the tow bar. Transcript at
179. The evidence relied upon by Western Aviation falls short of
establishing that it entered into a contract with Marsh Aviation
that required Marsh Aviation to purchase a tow truck and a tow
bar and also required Western Aviation to reimburse Marsh
Aviation for such a purchase.
As Mr. Stilwell explained, Western Aviation and Marsh
Aviation are two separate companies with different corporate
charters. They conduct separate business operations and use
their separate corporate structures as the mechanism for limiting
liability in case of a loss. They vigorously maintain separate
books and records, and Marsh Aviation billed Western Aviation for
amounts due to Marsh Aviation. The only invoices from Marsh
Aviation to Western Aviation are dated March 8, 1997, one year
after Marsh Aviation purchased the tow bar, six months after it
purchased the tow truck, two months after GSA terminated the
contracts, and six weeks before this appeal was filed. If Marsh
Aviation intended to invoice Western Aviation for the tow truck
and tow bar, it had ample time to do so. Yet Marsh Aviation
never billed Western Aviation for either purchase. The
obligations of Marsh Aviation do not automatically become the
obligations of Western Aviation, even though the two companies
have some common ownership. The evidence does not establish that
Western Aviation was obligated to reimburse Marsh Aviation for
the purchase of the tow truck and the tow bar, so the evidence is
not sufficient to establish that Western Aviation sustained $7620
of reliance interest damages due to GSA's breach.
Summary
The result in this case might seem discordant. Even though
GSA breached its contracts with Western Aviation, Western
Aviation is not entitled to recover any damages. However, not
every breach results in an award of damages. San Carlos
Irrigation and Drainage District v. United States, 111 F.3d 1557,
1563 (Fed. Cir. 1997); Wells Fargo Bank v. United States, 88 F.3d
1012, 1022 (Fed. Cir. 1996), cert. denied, 520 U.S. 1116 (1997).
The legal rules that we apply in order to reach our result are
not new.[foot #] 13 Applying those rules, we conclude
that the evidence of record in this appeal does not establish
that Western Aviation is entitled to recover any of the amounts
that it claims are due as a result of GSA's breach.
Decision
The appeal is DENIED.
__________________________________
MARTHA H. DeGRAFF
Board Judge
We concur:
__________________________________ ______________________________
____
ANTHONY S. BORWICK ALLAN H. GOODMAN
Board Judge Board Judge
----------- FOOTNOTE BEGINS ---------
[foot #] 13 "While the inquiry we are about to make is
important, it is by no means a novel one, and does not open up
any new field of legal investigation. It involves, not the
discussion of any new principle but merely the application of one
of some antiquity to the actual facts of this case." Winston
_______
Cigarette Machine Co. v. Wells-Whitehead Tobacco Co., 53 S.E.
----------- FOOTNOTE BEGINS ---------
885, 887 (N.C. 1906).