Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-14-01227/USCOURTS-ca13-14-01227-0/pdf.json

Parties Involved:
Department of Agriculture
Appellee
EM Logging
Appellant

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

EM LOGGING,

Appellant

v.

DEPARTMENT OF AGRICULTURE,

Appellee

______________________ 

2014-1227

______________________ 

Appeal from the Civilian Board of Contract Appeals in 

No. 2397, 2427, Administrative Judge Joseph A. Vergilio.

______________________ 

Decided: February 20, 2015 

______________________ 

RICHARD ALLAN PAYNE, Doney, Crowley, Bloomquist 

& Uda, Helena, MT, argued for appellant. 

ELLEN MARY LYNCH, Commercial Litigation Branch, 

Civil Division, United States Department of Justice, 

Washington, DC, argued for appellee. Also represented by 

STUART F. DELERY, ROBERT E. KIRSCHMAN, JR., BRYANT G.

SNEE. 

______________________ 

Before NEWMAN, MOORE, and TARANTO, Circuit Judges.

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2 EM LOGGING v. DEPARTMENT OF AGRICULTURE

MOORE, Circuit Judge.

EM Logging appeals from the Civilian Board of Contract Appeals’ (“the Board”) judgment that the United 

States Forest Service (“the Forest Service”) properly 

terminated a timber sale contract based on EM Logging’s

flagrant disregard of material contract provisions. Because the record does not contain substantial evidence to 

support the Board’s conclusion that EM Logging flagrantly disregarded the terms of the contract, we reverse. 

BACKGROUND

A. Contract and Course of Performance

On August 31, 2010, the Forest Service awarded EM 

Logging a timber sale contract for the Kootenai National 

Forest in Northern Montana. The contract included two 

provisions relevant to this appeal regarding EM Logging’s 

transportation of logs from the national forest to weighing 

locations. “C5.12# – Use of Roads by Purchaser” states in 

pertinent part that “[a]ll vehicles shall comply with 

statutory load limits unless a permit from the Forest 

Service and any necessary State permits are obtained 

prior to overload vehicle use,” (“the load limit clause”). 

J.A. 1217. “C6.849 – Route of Haul” states in pertinent 

part that “[a]ll products removed from Sale Area shall be 

transported over the designated routes of haul,” (“the haul 

route clause”). J.A. 668. It further required that “Purchaser shall notify Forest Service when a load of products, 

after leaving Sale Area, will be delayed for more than 12 

hours in reaching weighing location,” (“the notification 

clause”). Id. The contract also included a termination 

provision, under which the Forest Service terminated the 

contract at issue. “B9.31 – Termination for Breach” states 

in pertinent part that the “Contracting Officer, with the 

concurrence of the Regional Forester, may terminate this 

contract for breach in the event Purchaser . . . [h]as 

engaged in a pattern of activity that demonstrates flaCase: 14-1227 Document: 38-2 Page: 2 Filed: 02/20/2015
EM LOGGING v. DEPARTMENT OF AGRICULTURE 3

grant disregard for the terms of this contract,” (“the 

termination clause”). J.A. 1211. 

Before transporting logs, EM Logging sent the Forest 

Service a map highlighting the roads over which it would 

transport logs. The Forest Service requested, in addition 

to the map, written descriptions of the proposed haul 

routes. EM Logging provided written descriptions of the 

haul routes and requested that it be allowed 24 hours to 

transport logs to weighing locations because regulations 

on maximum working time for drivers would make it 

difficult to meet the notification clause’s 12-hour requirement. The Forest Service approved the written descriptions, but denied the request to vary the notification 

clause. 

EM Logging began transporting logs under the contract in November 2010. J.A. 326. Between November 

2010 and March 2011, the Forest Service issued six 

Notifications of Breach. On November 30, the Forest 

Service issued a Notification stating that EM Logging 

breached the load limit clause and other terms of the 

contract not at issue in this appeal. With respect to the 

breach of the load limit clause, the Forest Service identified one truck load that exceeded 80,000 pounds gross 

vehicle weight and one truck and trailer load that exceeded 84,500 pounds gross vehicle weight. On January 14, 

2011, the Forest Service issued a Notification stating that 

EM Logging breached the load limit clause, identifying 

three truck loads that exceeded 80,000 pounds gross 

vehicle weight and four truck and trailer loads that 

exceeded 84,500 pounds gross vehicle weight. On January 14, the Forest Service also issued a Notification 

stating that EM Logging breached the haul route and 

notification clauses. It stated that EM Logging “had 12 

product loads . . . that have been documented as being 

delayed for more than 12 hours in transit to the approved 

scaling location,” that “[s]ome of these loads were transported over 13 miles one-way off of the approved haul 

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4 EM LOGGING v. DEPARTMENT OF AGRICULTURE

route and overnighted in Eureka,” and that “[r]equired 

notification about these loads has not been timely or very 

explicit.” J.A. 242. On January 21, the Forest Service 

issued a Notification stating that EM Logging breached 

the load limit clause because one of EM Logging’s drivers 

received a ticket on January 20 for exceeding Montana 

state weight limits. The Forest Service also issued Notifications on November 4, 2010, and March 2, 2011, stating

that EM Logging breached provisions of the contract

regarding washing of equipment, sanitation and servicing, and late payment. The breaches in these additional 

Notifications are not at issue in this appeal. 

With the Notification sent January 21, 2011, the Forest Service suspended operations and informed EM Logging that the Forest Service was considering terminating 

the contract for breach. The Forest Service terminated 

the contract on March 11, 2011, “for repeated and ongoing 

disregard for the terms of [the] contract almost from the 

start of logging and hauling operations . . . .” J.A. 326.

B. Board Appeal

EM Logging appealed the termination to the Board. 

The Board found that EM Logging breached the load 

limit, haul route, and notification clauses and that “[t]he 

purchaser’s actions with respect to violating the requirements for load limits, notice of delays, and haul routes, 

each independently establish a basis that alone supports 

the termination for breach.” J.A. 21, 30.

The Board determined that EM Logging breached the 

load limit clause because it exceeded weight limits established by Montana and the Forest Service. Although the 

Board found that the contract does not specify the meaning of “statutory load limits” in the load limit clause, it 

found that the load limits of a Forest Service Order and 

Montana state law applied. The Forest Service Order, 

issued by the Forest Supervisor of the Kootenai National 

Forest on February 24, 1986, prohibited trucks exceeding 

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EM LOGGING v. DEPARTMENT OF AGRICULTURE 5

80,000 pounds gross vehicle weight from travelling over

roads in the Kootenai National Forest. J.A. 23. The 

Board concluded that EM Logging breached the load limit 

clause because EM Logging hauled 31 loads over Forest 

Service roads exceeding the Order’s weight limit. J.A. 25. 

It concluded that EM Logging also breached the load limit 

clause because it exceeded Montana state weight limits, 

as evidenced by the ticket received on January 20, 2011, 

and exceeded the weight limits listed on registrations for 

EM Logging’s trucks and trailers. Id. 

The Board determined that EM Logging breached the 

haul route clause and the notification clause because it 

“deviated from the designated haul routes and violated 

the twelve-hour limitation.” J.A. 26. It also noted that 

EM Logging overnighted trucks at locations not approved 

by the Forest Service. Id. 

The Board concluded that these repeated violations 

“amount to blatant and flagrant violations of material 

contractual provisions, given that the purchaser had 

sought, but was denied, deviations, and often was reminded of the requirements.” J.A. 29. It therefore upheld 

termination of the contract. J.A. 30.

One judge dissented, stating that the government did 

not meet its burden of showing that EM Logging engaged 

in a pattern of activity that demonstrated flagrant disregard of the contract. J.A. 31. The dissenting judge concluded that the only weight limits applicable to the load 

limit clause were those under Montana law and the 

government only proved a single instance—when EM 

Logging’s driver was ticketed—where one of EM Logging’s 

trucks exceeded the Montana limit. J.A. 34–37. The 

judge concluded that the registrations for EM Logging’s 

trucks did not set forth the weight limits for the load limit 

clause because the parties never relied on the registrations to prove the weight limits and the registrations 

alone were inadequate to determine the trucks’ total 

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6 EM LOGGING v. DEPARTMENT OF AGRICULTURE

permissible weights. J.A. 35–36. The judge noted that

the single breach evidenced by the ticket did not demonstrate that EM Logging was in flagrant disregard of the 

contract, particularly because the driver testified that the 

truck would have complied with Montana limits if the 

truck had been reconfigured—an apparently common 

practice. J.A. 36–37. The judge concluded that the Forest 

Service did not meet its burden of proving that EM Logging violated the haul route clause because the driver 

adhered to the route map EM Logging submitted to the 

Forest Service and the government did not prove that the 

routes identified on the map were not approved. J.A. 39. 

The judge concluded that the timeliness of delay notifications pursuant to the notification clause should not be a 

reason to terminate the contract because even the Forest 

Service realized that, after many loads of products were 

not arriving within 12 hours, the parties should have 

entered into an agreement to allow overnighting of trucks. 

J.A. 39. Thus, the dissenting judge concluded that termination for flagrant disregard of the terms of the contract 

was not established. J.A. 41.

EM Logging appeals the Board’s decision. We have 

jurisdiction under 28 U.S.C. § 1295(a)(10). 

DISCUSSION

We review the interpretation of a government contract de novo. Lear Siegler Servs., Inc. v. Rumsfeld, 457 

F.3d 1262, 1266 (Fed. Cir. 2006). We, however, cannot set 

aside the Board’s factual determinations unless they are 

“(A) fraudulent, arbitrary, or capricious; (B) so grossly 

erroneous as to necessarily imply bad faith; or (C) not 

supported by substantial evidence.” 41 

U.S.C. § 7107(b)(2). 

A. Basis for Termination

The termination clause relied upon by the Forest Service allowed termination when EM Logging had “engaged 

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EM LOGGING v. DEPARTMENT OF AGRICULTURE 7

in a pattern of activity that demonstrates flagrant disregard for the terms of this contract . . . .” J.A. 1211. To 

uphold the termination, we must agree that substantial 

evidence in the record supports the Board’s decision that 

EM Logging flagrantly disregarded the terms of the 

contract. 

We must first consider the proper interpretation of 

“flagrant disregard.” Merriam-Webster defines “flagrant” 

as “so obviously inconsistent with what is right or proper 

as to appear to be a flouting of law or morality.” Merriam-Webster’s Collegiate Dictionary 475 (11th ed. 2003). 

This plain meaning is confirmed by the usage of “flagrant 

disregard” in the contract. In full, the termination clause 

states that the contract may be terminated if EM Logging: 

Has engaged in a pattern of activity that demonstrates flagrant disregard for the terms of this 

contract, such as, but not limited to, repeated suspensions for breach pursuant to B9.3, causing undesignated timber meeting Utilization Standards 

to be unnecessarily damaged or negligently or 

willfully cut, or causing other serious environmental degradation or resource damage

J.A. 1211–12. Examples of activity that demonstrate 

flagrant disregard include “repeated suspensions for 

breach” or causing “serious environmental degradation or 

resource damage.” Id. The plain meaning of flagrant and 

the context of its usage in the contract make clear that 

termination for “flagrant disregard” must be predicated 

on more than technical breaches of minor contract provisions or isolated breaches of material contract provisions

which caused no damage. The Forest Service, which

bears the burden of proof that it properly terminated the 

contract, must not only prove that EM Logging violated 

the contract, but that it did so in a way that was in flagrant disregard of the terms of the contract. 

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8 EM LOGGING v. DEPARTMENT OF AGRICULTURE

B. Violation of the Load Limit Clause

The load limit clause states that “vehicles shall comply with statutory load limits . . . .” J.A. 1217. The Board 

found that EM Logging violated the clause because several loads exceeded the limits set by a Forest Service Order 

and Montana law. 

EM Logging argues that the record only contains a 

single violation of Montana law. It argues that Montana 

law, specifically Section 61-10-107 of the Montana Code, 

limits the weight of a truck based on the truck’s number 

of axles and the distance between the axles. EM Logging 

argues that the Board erred in concluding that EM Logging violated the load limit clause by exceeding the weight 

limit set by the Forest Service Order because both parties 

interpreted “statutory load limits” to include only Montana state limits. It argues that the Forest Service only

proved a single violation of Montana law because, except 

for the ticket it received on January 20, 2011, the record 

does not contain evidence of the number of axles or distance between axles for other loads, which are required to 

determine whether a truck exceeds Montana state limits. 

Thus, it argues that the government has only proven a 

single violation of the load limit clause. 

Moreover, EM Logging argues that the employee who 

was driving the truck which received the ticket testified 

that he had forgotten to reconfigure the truck to increase 

the length between the axles after coming down a mountain with sharp hairpin turns and that, had he reconfigured the truck that day, he would have not received the 

ticket because the distance between his axles would have 

brought him into compliance with Montana law. In short, 

EM Logging argues that it was simply a mistake not to 

reconfigure the truck. This single instance, EM Logging 

argues, cannot be considered flagrant disregard. 

The government argues that substantial evidence 

supports the Board’s decision. It argues that the Forest 

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EM LOGGING v. DEPARTMENT OF AGRICULTURE 9

Service Order applies to roads over which EM Logging 

travelled. It argues that the Forest Service understood 

that the Order was a statutory load limit because the 

Forest Service advised EM Logging in the Notifications 

for Breach that EM Logging needed to comply with load 

limits for travelling over Forest Service roads and bridges

and the Order, rather than Montana law, applies to 

Forest Service roads and bridges. It argues that although 

EM Logging only received a single ticket, only receiving 

one ticket does not mean that EM Logging only exceeded 

Montana weight limits once. The government argues that 

EM Logging’s actions, including the numerous violations 

of the Forest Service Order, demonstrate a pattern of 

flagrant disregard because the violations, including the 

ticket, came after the Forest Service repeatedly warned 

EM Logging in the Notifications. 

We agree with EM Logging that the government has 

only proven one violation of the load limit clause. The 

clause requires EM Logging to comply with “statutory” 

load limits. J.A. 1217. The Forest Service Order is not a 

“statute.” It is an Order, issued by the Forest Supervisor 

on February 24, 1986, under 36 C.F.R. §§ 261.50 and 

261.54. As such, any violation of the Forest Service Order 

is not a breach of the load limit clause. Similarly, exceeding the limits listed on EM Logging’s registrations, which 

the Board relied upon, does not breach the load limit 

clause because they do not define statutory limits. Therefore, the only violation of the load limit clause in the 

record is the ticket issued to EM Logging on January 20, 

2011, one day before the contract was suspended and 

ultimately terminated. This single isolated violation does 

not independently rise to the level of flagrant disregard. 

To be clear, we are not sanctioning the violation of the 

Forest Service Order, which the government argues was 

predicated on safety concerns. The only question before 

us is whether the government established “flagrant 

disregard” of contract terms, and if failure to comply with 

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10 EM LOGGING v. DEPARTMENT OF AGRICULTURE

the Forest Service Order is not a violation of a contract

term, it cannot justify the government’s decision to terminate pursuant to this particular provision. 

C. Violation of the Haul Route and 

Notification Clauses

The haul route and notification clauses require that 

EM Logging transport logs over a designated haul route

and notify the Forest Service when deliveries will take 

more than 12 hours to reach a weighing location. J.A. 

668. The Board found that EM Logging deviated from the 

written haul plan and violated the 12 hour requirement 

when EM Logging overnighted trucks off the haul route. 

J.A. 26–27.

EM Logging argues that it did not violate the haul 

route and notification clauses because it travelled over 

roads highlighted on the map it provided to the Forest 

Service before starting work and always informed the 

Forest Service as soon as practicable when a load would 

be delayed. It argues that even the alleged violations of 

the haul route and notification clauses do not demonstrate flagrant disregard. It argues that even if it 

breached the haul route clause when one of its drivers 

took a detour on December 20, 2010, it was a minor 

violation because the detour was necessitated by illness. 

There, the driver fell ill while driving the truck to a 

weighing station and turned around so that he could see a 

doctor. He was later diagnosed with bronchial pneumonia. It argues such a violation does not demonstrate 

flagrant disregard. EM Logging further argues that, even 

if its notifications were untimely, they do not demonstrate 

flagrant disregard because they were sent as soon as 

practicable given the paucity of cell phone service in rural 

Montana. 

The government argues that the Board’s decision is 

supported by substantial evidence. It argues that the 

written haul plan submitted by EM Logging, rather than 

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EM LOGGING v. DEPARTMENT OF AGRICULTURE 11

the map it initially submitted, defined the approved haul 

route. Thus, it argues that EM Logging breached the 

haul route clause on December 20, 2010, when one of its 

drivers deviated from the written haul plan even though 

the driver’s route was on the haul map. It argues that 

EM Logging violated the notification clause because delay 

notifications were untimely and points to a single notification sent 13 days after a late delivery as unreasonable. 

The government argues that these breaches demonstrate flagrant disregard because after EM Logging 

sought and was denied deviations EM Logging breached 

the contract. It notes that EM Logging requested the 

ability to haul on any road highlighted on the map it first 

submitted to the Forest Service, but was required to 

submit a written haul plan to designate routes. It argues 

that EM Logging’s actions thus demonstrate flagrant 

disregard of the haul route clause because EM Logging 

did not adhere to the written haul plan on December 20, 

2010. It notes that EM Logging requested the ability to 

increase the hauling period from 12 to 24 hours, which 

was denied. It argues that EM Logging’s actions demonstrate flagrant disregard of the notification clause because 

when EM Logging was unable to comply with the 12 hour 

requirement, it did not timely notify the government of 

delay. 

We agree with EM Logging that its actions do not 

provide substantial evidence for a conclusion that EM 

Logging was in flagrant disregard of the contract. The 

government’s only alleged route deviation was a single, 

isolated event necessitated by illness. This single instance does not rise to the level of flagrant disregard. The 

alleged notification violations similarly do not demonstrate flagrant disregard. The parties agree that EM 

Logging did not need to notify the Forest Service before 

the 12-hour period expired, but should have done so 

within a reasonable period after EM Logging became 

aware of a delay. The record contains evidence of a single 

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12 EM LOGGING v. DEPARTMENT OF AGRICULTURE

instance in which EM Logging notified the government 13 

days after a delayed load was delivered. The record 

contains evidence of a second instance where EM Logging 

notified the government four days after a delayed load 

was delivered. Both deliveries arrived within 48 hours. 

EM Logging sent both of the delay notifications in November before the Forest Service issued a Notification of 

Breach for the notification clause. Thus, the record 

contains two delayed notifications, both sent before the 

government raised its concerns with EM Logging, and no 

delayed notifications after the government raised a concern. Two instances of delayed notifications, before the 

government even noted that such a delay in notification 

was unreasonable, is not substantial evidence to support 

a conclusion that EM Logging was in flagrant disregard. 

The government is not arguing that EM Logging breached 

the contract by not delivering within 12 hours—the issue 

is not when did the trucks arrive—the issue is only when 

did EM Logging notify the government that the delivery 

of the load took more than 12 hours. These two minor, 

technical violations of the notification clause do not substantiate termination for flagrant disregard. 

D. Termination 

There was one instance of route deviation necessitated by illness, one load limit violation, and two instances of 

delayed notifications. None of the alleged violations 

independently substantiate the Board’s finding of flagrant 

disregard. Even together, the four violations are not 

substantial evidence of a pattern of activity demonstrating that EM Logging’s actions were in flagrant disregard 

of the contract. Substantial evidence does not support the 

Board’s conclusion that EM Logging’s actions demonstrated flagrant disregard of contract terms. 

Because we conclude that substantial evidence does 

not support the Board’s conclusion that EM Logging 

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EM LOGGING v. DEPARTMENT OF AGRICULTURE 13

flagrantly disregarded the terms of the contract, we need 

not reach EM Logging’s other arguments. 

REVERSED

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