Court Opinion

ID: 9497412
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:51:08.153867+00
Date Added: 2024-06-11T17:58:11.280012
License: Public Domain

PAULINE NEWMAN, Circuit Judge,
dissenting.
The Navy did not appeal the decision of the Armed Services Board of Contract Appeals that this contract was breached to the extent found by the Board. Nor is it disputed that Contel (CASI) suffered monetary injury by the breach. The panel majority’s holding that damages cannot be assessed because they are measured by the cost of money is contrary to fundamental principles of commercial relationships, and outside the scope of the “no-interest rule.” Thus I must, respectfully, dissent.
In accordance with the contract between the Navy and CASI, CASI provided and installed a telecommunications system, including equipment for which the Navy estimated the maximum quantity at an estimated cost of $36,223,371. This estimate was derived from the line item cost per unit (CLIN B007) times the Navy’s estimate of the maximum number of units; these were the parameters of this indefinite-quantity contract, and the validity of their adoption is not in dispute. The contract provided for payment by the Navy in sixty monthly installments, to commence following acceptance of the completed installation. It was understood, and the con*1382tract provides, that the total cost would be based on the number of units that were actually installed.
Before completion of the installation it was recognized by both the Navy and CASI that the actual cost would be several million dollars below the stated maximum.1 Starting in January 1992 CASI requested a downward adjustment of the contract maximum; the record reports persistent requests by CASI for a cost reconciliation, upon acceptance of the installation on May 11, 1992, and thereafter. All of these requests were in vain, for four and a half years. This delay is significant because the Navy refused to make payments to the lender (as the financing terms required) unless the invoices were based on the original $36,223,371 contract maximum. Thus CASI was obliged to carry several million dollars of excess borrowing for over four years.
In October 1996 the Navy made the appropriate contract modification, reducing the contract cost. The Navy testified before the Board that it knew that less equipment had been installed than was originally projected, at lower total cost. The Board ruled that “the Navy had a duty to reconcile the LTOP [Lease-to-Ownership Plan] price no later than system acceptance and its refusal without a valid excuse to do so was a breach of its duty to cooperate and a breach of the contract.” The Navy does not appeal the finding of breach; the appeal is solely on the question of entitlement to damages.2
The panel majority, reversing the Board, holds that the awarded damages are “interest” and therefore barred by the no-interest rule. That is not a proper application of the rule. These damages are not interest on a claim against the government, whereby interest on a monetary obligation of the government is not available unless authorized by statute or agreed by contract. See Library of Congress v. Shaw, 478 U.S. 310, 317, 106 S.Ct. 2967, 92 L.Ed.2d 250 (1986) (interest does not run on a judgment against the United States, absent consent or authorization); Komatsu Mfg. Co., Ltd. v. United States, 132 Ct.Cl. 314, 131 F.Supp. 949 (1965) (same). The damages here at issue are the direct cost to the contractor of the government’s breach of contract.
The panel majority states that “[t]he no-interest rule is an aspect of the basic rule of sovereign immunity.” Op. at 1379. The basic rule of “sovereign immunity,” that the ruler could not be sued without his consent, was not directed to interest, but to the underlying liability. The ancient bar to recovery of interest when there was a valid underlying obligation reflects the canonical and common law prohibitions of usury, not the divine right of kings. See Shaw, 478 U.S. at 315, 106 S.Ct. 2957 (citing C. McCormick, Law of Damages, Sec. 51, p. 508 (1935) (in early common law, interest was allowed only by agreement of the parties, and was limited in amount)). As discussed in Shaw, 478 U.S. at 315-16, 106 S.Ct. 2957, the government has been permitted to “occupy an apparently favored position” (quoting United States v. Verdier, 164 U.S. 213, 219, 17 S.Ct. 42, 41 L.Ed. 407 (1896)). Enlarging the government’s freedom from liability *1383for breach of its obligations is unwarranted. “Sovereign immunity” is not a tool of unfairness to those who do business with government. It should not be uncritically expanded.
The Board’s decision in favor of CASI was not an award of interest on a claim against the government or a judgment against the government or a debt of the government. The Board recognized that monetary injury resulted from the Navy’s refusal to cooperate in reconciling the contract after completion of installation, for this breach required CASI to maintain higher borrowing than was needed. This is not a situation in which the contractor had to borrow additional sums to perform a contract after it was breached by the government, as in J.D. Hedin Constr. Co. v. United States, 197 Ct.Cl. 782, 456 F.2d 1315, 1330 (1972). The Hedin court held that interest on “bank loans made because of financial stringency resulting from a breach by the Government of a contract between it and the borrower is not recoverable as an item of damage.” And the Navy’s breach herein was not “a breach of contract to pay money which results only in a delay in payment,” as in Ramsey v. United States, 121 Ct.Cl. 426, 101 F.Supp. 353, 356 (1951); there was no issue of delay in payment.
CASI alternatively pointed out that even on the government’s theory that the damages should be treated as retaining their identity as interest on the LTOP borrowing, the Lease-to-Ownership Plan included a factor for interest. The Board found: “The Navy chose the LTOP option based on a present value analysis based on a 10% interest rate.” Thus CASI offered the argument that the contract provides for payment of the obligation that CASI actually incurred, thereby waiving recourse to a no-interest rule. It was undisputed that the contract cost included recovery of the interest incurred in the LTOP option.
When damages flow from breach of an obligation that involves money, the nature of the obligation and its relationship to the economic injury must be considered in determining whether the cost of money is properly included in damages. In this case, the correctness of that measure is not challenged by the panel majority. The liability assessment by the Board of Contract Appeals does not conflict with law, and implements the national policy of fairness to contractors. See Rumsfeld v. Applied Cos., 318 F.3d 1317, 1324 (Fed.Cir.2002) (the non-breaching party is entitled to the damages that would place it in the position it would have occupied absent the breach); Mass. Bay Transp. Auth. v. United States, 129 F.3d 1226, 1232 (Fed.Cir.1997) (same). The Board’s award of damages in the circumstances of this case is not barred by statute or precedent. From the court’s contrary ruling, I respectfully dissent.

. The final audit showed a cost reduction of $6,978,825.08. Some two million dollars of this amount were used by the Navy to purchase other equipment; this aspect is not at issue.

. The amount of damages was not determined; the Board's decision was limited to entitlement.