Source: http://openjurist.org/223/f3d/328/diversified-energy-inc-v-tennessee-valley-authority
Timestamp: 2015-05-30 23:00:43
Document Index: 504010337

Matched Legal Cases: ['§ 601', '§ 601', '§ 1308', '§ 605', '§ 1308', '§ 605', '§ 1308', '§ 605', '§ 609', '§ 1300']

223 F3d 328 Diversified Energy, Inc. v. Tennessee Valley Authority | OpenJurist
223 F. 3d 328 - Diversified Energy, Inc. v. Tennessee Valley Authority	Home223 f3d 328 diversified energy, inc. v. tennessee valley authority
223 F3d 328 Diversified Energy, Inc. v. Tennessee Valley Authority 223 F.3d 328 (6th Cir. 2000)
Diversified Energy, Inc.,Plaintiff-Appellant/Cross-Appellee,v.Tennessee Valley Authority, Defendant-Appellee/Cross-Appellant.
Nos. 98-5857, 98-5935
Argued: August 13, 1999Decided and Filed: August 10, 2000
Appeal from the United States District Court for the Eastern District of Tennessee at Knoxville. No. 97-00223--Thomas G. Hull, District Judge.
Herbert S. Sanger, Jr., General Counsel, Charles W. VanBeke, WAGNER, MYERS & SANGER, Knoxville, Tennessee, for Appellant/Cross-Appellee.
Peter K. Shea, Edwin W. Small, James E. Fox, Deputy General Counsel, TENNESSEE VALLEY AUTHORITY, Knoxville, Tennessee, for Appellee.
CLAY, J., delivered the opinion of the court, in which KEITH, J., joined. BOGGS, J. (pp. 340-43), delivered a separate dissenting opinion.
Plaintiff, Diversified Energy, Inc. ("Diversified"), filed this breach of contract action against Defendant, Tennessee Valley Authority ("TVA"), pursuant to the Contract Disputes Act of 1978 ("CDA"), 41 U.S.C. §§ 601-13, alleging that TVA had improperly refused to accept deliveries and make payments under a long-term coal supply contract between the parties. The district court granted summary judgment in part to Diversified, but refused to award damages on grounds that Diversified's own material breaches precluded any monetary recovery. Diversified has appealed from the court's refusal to issue a damage award. TVA, in turn, has filed a cross-appeal objecting to the district court's initial partial grant of summary judgment to Diversified. For the reasons set forth below, the district court's order is AFFIRMED in part, REVERSED in part, and the case REMANDED to the district court with instructions to make a damages determination in accordance with standard contract law principles.
Diversified is a Tennessee corporation that produces and sells coal. On August 18, 1990, Diversified and TVA entered intoa long-term coal supply contract (the "Contract"), providing that Diversified was to supply TVA with 10,000 tons of coal per week through March 27, 1996 (except that the first fourteen weeks would be at a rate of 6,000 tons). The Contract was signed by James Hardy, Purchasing Agent for TVA, and by Randy Edgemon, Diversified's President. The following five provisions are of particular significance on appeal:
"Reopener" provision
The Term section of the Contract contained a "reopener" provision that provided the parties an option to reopen the Contract at its mid-way point "for the purpose of negotiating price and other terms and conditions of the remaining portion of the maximum commitment." (J.A. at 18.) The section read in relevant part:
Term. [T]his contract shall continue through March 27, 1996, unless terminated by agreement or as otherwise negotiated herein. Provided, however, this contract may be reopened by either party three (3) months prior to March 19, 1993 . . . for the purpose of negotiating price and other terms and conditions of the remaining portion of the maximum commitment. . . . If either party exercises this reopener it shall give the other party written notice by December 19, 1992. If the reopener provision has been exercised, this contract will terminate on March 19, 1993, unless TVA and the Contractor have mutually agreed in writing by March 19, 1993, to continue this contract. Neither party shall be under any obligation or liability to extend this contract if either party desires to terminate deliveries.
"Contracting Officer" Provision
The Contract was made pursuant to the CDA, which statutorily provides express dispute resolution procedures for all claims "relating to" certain types of contracts entered into by an executive agency such as TVA. Under the CDA, only the individual identified as the official "Contracting Officer" is authorized to act on behalf of the government. The statute reads:
[T]he term "contracting officer" means any person who, by appointment in accordance with applicable regulations, has the authority to enter into and administer contracts and make determinations and findings with respect thereto. The term also includes the authorized representative of the contracting officer, acting within the limits of his authority.
41 U.S.C. § 601(3) (emphasis supplied). TVA's published regulations implementing the CDA further identify the Contracting Officer as the TVA's duly authorized representative under the agreement. The applicable regulation also provides that a designation of "Contracting Officer" may only be changed by written notice:
The term "Contracting Officer" means TVA's Director of Purchasing, or duly authorized representative acting within the limits of the representative's authority. The TVA Purchasing Agent who administers a contract for TVA is designated as the duly authorized representative of the Director of Purchasing to act as Contracting Officer for all purposes in the administration of the contract (including, without limitation, decision of claims under the disputes clause). Such a designation continues until it is revoked or modified by written notice to the Contractor and the Purchasing Agent from TVA's Director of Purchasing.
18 C.F.R. § 1308.2(e)
In light of these statutory and regulatory provisions, the Contract set forth a requirement, applicable to both Diversified and TVA alike, as to the person authorized to administer the Contract. TVA's Purchasing Agent was designated as the agency's Contracting Officer:
Contracting Officer. The Contracting Officer shall be the Manager of Purchasing, TVA, or his/her duly authorized representative. The Manager of Purchasinghas designated the Purchasing Agent who administers this contract for TVA as his/her duly authorized representative to act as the Contracting Officer for all purposes in the administration of the contract except for the purpose of deciding a dispute, such designation to continue until revoked or modified by the Manager of Purchasing. Should the need arise, the Manager of Purchasing shall designate a Disputes Contracting Officer for the purpose of deciding any dispute as provided in Section 26, Disputes.
(J.A. at 43.)
Disputes Provision
The Contract contained a Disputes clause expressly subjecting the Contract to the CDA and to TVA's implementing regulations. By statute, the Contracting Officer plays a pivotal role if any dispute arises between the government and the contractor: "All claims by the government against a contractor relating to a contract shall be the subject of a decision by the contracting officer." 41 U.S.C. § 605(a). Towards this end, the applicable TVA regulation promulgated under the CDA provides: "When TVA believes it is due relief under a contract, the Contracting Officer shall make a request for relief against the Contractor, and shall attempt to resolve the request by agreement." 18 C.F.R. § 1308.14.
Similarly, the contractor must submit its claim against the government to the Contracting Officer. 41 U.S.C. § 605(a); 18 C.F.R. § 1308.11. If the parties are unable to mutually resolve their differences, then the Contracting Officer is statutorily empowered to unilaterally issue a decision on the disputed matter. 41 U.S.C. § 605(a). The contractor may then appeal to an agency board of appeals or to federal court. 41 U.S.C. § 609(a).
Pursuant to these statutory and regulatory provisions, the Disputes section provided that any dispute that the parties cannot settle themselves "shall be decided by the Disputes Contracting Officer (who may be the purchasing agent administering this contract)." (J.A. at 50.) The Contract directed that "[a]ny claim by the Contractor shall be submitted in accordance with the [CDA] and TVA's implementing regulations." (J.A. at 50.) Finally, the Contract provided that in lieu of an appeal to the TVA Board of appeals from the decision of the Disputes Contracting Officer, the contractor may bring an action against TVA directly in federal district court.
"Officials not to Benefit" Provision
The Contract also contained an Officials not to Benefit provision that, among other things, prohibited Diversified from giving anything of monetary value to a TVA agent or employee, except as permitted by federal regulations.1 This provision read in relevant part:
[N]or shall the Contractor offer or give, directly or indirectly, to any officer, employee, special Government employee, or agent of TVA any gift, gratuity, favor, entertainment, loan, or any other thing of monetary value, except as provided in 18 C.F.R. § 1300.735-12 or -34. Breach of this provision shall constitute a material breach of this contract and TVA shall have the right to exercise all remedies provided in this contract or at law.
"Unilateral Termination Right" provision
In the Unilateral Termination Right provision, TVA expressly reserved the right, upon sixty days' notice to Diversified, to unilaterally terminate the Contract. As a penalty for invoking this clause, TVA promised to pay Diversified "an amount equal to $14.00 per ton, multiplied by the remaining number of tons scheduled for delivery from the effective terminationdate herein through the earliest applicable date for termination, pursuant to the reopening provisions under Section 2, Term." (J.A. at 51-52.)
At the commencement of the Contract in 1990, the Contracting Officer for all purposes in the administration of the Contract (expect for the purpose of deciding a dispute) was TVA's purchasing agent, James Hardy. On June 16, 1992, Hardy wrote to Edgemon advising him that he was changing jobs and that the new administrator of the Contract would be announced shortly. However, the record reflects that TVA at no time informed Diversified -- in writing or otherwise -- precisely who had been designated to replace Hardy as the Contracting Officer, despite TVA's statutory and contractual obligations to do so. Nonetheless, Diversified subsequently received a coal quality adjustment report, signed by Ronald L. Martin, Purchasing Agent. According to the affidavit of Richard Rea, Manager of the Fuel Acquisition and Supply organization in TVA's Fossil and Hydro Power Group, Martin was the new Contracting Officer authorized to act on behalf of TVA until a reorganization of duties removed him from that position sometime in November of 1992.
Rea attests that Marion Duncan was assigned to replace Martin in November of 1992. However, the record does not indicate that this was announced to Diversified or that Duncan was ever the "Purchasing Agent" within the meaning of the Contract. In any event, on December 14, 1992, Duncan, signing his letter as "Manager, Fuel Acquisition -- Illinois Basin," exercised the Contract's "reopener" provision. Edgemon responded to Duncan's letter with several letters and phone calls attempting to open negotiations before the March 19, 1993, expiration date. However, TVA did not respond to any of Edgemon's attempts to negotiate price or terms and conditions under the reopener position.
During this same period, TVA was investigating the circumstances surrounding some loans Edgemon had made to a TVA employee, Daniel Bradshaw, in apparent violation of the Officials not to Benefit clause. Bradshaw was a transportation specialist in TVA's Fuel Supply organization and had access to confidential and commercially valuable information on coal contracts. TVA suspected that Edgemon gave money and college football tickets to Bradshaw in exchange for confidential information.2