Court Opinion

ID: 3191147
Source: CourtListenerOpinion
Date Created: 2016-04-04 16:01:03.525155+00
Date Added: 2024-06-11T14:36:03.570328
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                     ______________________

     SYSTEM FUELS, INC., SYSTEM ENERGY
     RESOURCES, INC., SOUTH MISSISSIPPI
       ELECTRIC POWER ASSOCIATION,
              Plaintiffs-Appellants

                                    v.

                       UNITED STATES,
                       Defendant-Appellee
                     ______________________

                           2015-5094
                     ______________________

    Appeal from the United States Court of Federal
Claims in No. 1:11-cv-00511-SGB, Judge Susan G.
Braden.

   ---------------------------------------------------------------------

SYSTEM FUELS, INC., ENTERGY ARKANSAS, INC.,
             Plaintiffs-Appellants

                                    v.

                        UNITED STATES,
                        Defendant-Appellee

                     ______________________

                              2015-5095
2                                 SYSTEM FUELS, INC.   v. US

                 ______________________

    Appeal from the United States Court of Federal
Claims in No. 1:12-cv-00389-CFL, Judge Charles F.
Lettow.
               ______________________

                 Decided: April 4, 2016
                 ______________________

    ALEXANDER D. TOMASZCZUK, Pillsbury Winthrop Shaw
Pittman LLP, McLean, VA, argued for plaintiffs-
appellants. Also represented by CLARE M. CAVALIERO, JAY
E. SILBERG, Washington, DC; LAYTON JAGER SMITH, JR.,
Jager Smith LLC, Jackson, MS.

    ERIC PETER BRUSKIN, Commercial Litigation Branch,
Civil Division, United States Department of Justice,
Washington, DC, argued for defendant-appellee. Also
represented by CHRISTOPHER JAMES CARNEY, JAMES
PATRICK CONNOR, BRYANT G. SNEE, ROBERT E.
KIRSCHMAN, JR., BENJAMIN C. MIZER.
                ______________________

    Before MOORE, MAYER, and WALLACH, Circuit Judges.
MOORE, Circuit Judge.
    In these related appeals, System Fuels, Inc., System
Energy Resources, Inc., South Mississippi Electric Power
Association, and Entergy Arkansas, Inc. (collectively,
“System Fuels”) appeal two judgments of the Court of
Federal Claims denying one category of damages arising
SYSTEM FUELS, INC.   v. US                               3

from the government’s partial breach of contract.      We
reverse and remand both cases. 1
                         BACKGROUND
    These cases are another round of litigation following
the government’s failure to accept and dispose of spent
nuclear fuel (or “SNF”). The general facts and circum-
stances regarding spent nuclear fuel cases have been
explained in both Court of Federal Claims opinions below
and in opinions from this and other courts. See, e.g.,
Energy Nw. v. United States, 641 F.3d 1300, 1302–03
(Fed. Cir. 2011); Ind. Mich. Power Co. v. United States,
422 F.3d 1369, 1371–72 (Fed. Cir. 2005); Me. Yankee
Atomic Power Co. v. United States, 225 F.3d 1336, 1337–
40 (Fed. Cir. 2000); Ind. Mich. Power Co. v. Dep’t of Ener-
gy, 88 F.3d 1272, 1273–74 (D.C. Cir. 1996). Thus, we
limit our discussion to only those facts necessary to un-
derstand the issues giving rise to these appeals.
    In the Nuclear Waste Policy Act of 1982, Congress au-
thorized the Department of Energy (“DOE”) to contract
with nuclear power utilities as part of its plan for a na-
tional nuclear waste disposal system. See 42 U.S.C.
§§ 10131, 10222; see generally Energy Nw., 641 F.3d at

   1    We note that the two cases on appeal decide the
damages issue regarding entitlement to loading storage
casks differently. And the parties have brought to the
court’s attention at least two other recent decisions also
from the Court of Federal Claims on the same issue.
Entergy Nuclear Fitzpatrick, LLC v. United States,
No. 03-2627C, 2015 WL 9025699 (Fed. Cl. Dec. 15, 2015)
(unpublished); System Fuels, Inc. v. United States, No. 03-
2621C, 2016 WL 537617 (Fed. Cl. Feb. 10, 2016). It can
be fairly stated that the four decisions each reach differ-
ent results on the same issue, entitlement to damages for
storage cask loading fees.
4                                    SYSTEM FUELS, INC.   v. US

1302–03; Ind. Mich. Power, 422 F.3d at 1371–72. Con-
gress set forth the contracts’ basic terms, requiring the
utilities to pay fees into a Nuclear Waste Fund in return
for the government taking title to and disposing of the
utilities’ spent nuclear fuel beginning no later than Janu-
ary 31, 1998. 42 U.S.C. § 10222; Energy Nw., 641 F.3d at
1302. Pursuant to Congress’ instruction, the DOE prom-
ulgated regulations defining the text of the standard
contract for use with the utilities. Energy Nw., 641 F.3d
at 1302; Contract for Disposal of Spent Nuclear Fuel
and/or High-Level Radioactive Waste, 10 C.F.R. § 961.11
(“Standard Contract”).
     Under the Standard Contract the utilities are respon-
sible for providing “all preparation, packaging, required
inspections, and loading activities necessary for the
transportation of [spent nuclear fuel] and/or [high-level
radioactive waste] to the DOE facility.” 10 C.F.R.
§ 961.11. The government is responsible for “arrang[ing]
for, and provid[ing], a cask(s) and all necessary transpor-
tation of the [spent nuclear fuel] and/or [high-level radio-
active waste] from the [utility’s] site to the DOE facility.”
Id. The Standard Contract also requires that the casks
supplied by the DOE “shall be suitable for use at the
[utility’s] site, meet applicable regulatory requirements,
and be accompanied by pertinent information.” Id.
    In 1983, System Fuels and the government executed
the Standard Contracts at issue in these appeals, which
relate to spent nuclear fuel generated at the Grand Gulf
(appeal No. 2015-5094) and the Arkansas Nuclear One
(appeal No. 2015-5095) power stations. In 1994, the
government announced that it would not be able to accept
spent nuclear fuel from any utility by the statutory and
contractual deadline of January 31, 1998. Waste Ac-
ceptance Issues, 59 Fed. Reg. 27,007 (Dep’t of Energy May
25, 1994). The government explained that the then-
current projection for the earliest possible date it could
begin accepting spent nuclear fuel was 2010. Id. at
SYSTEM FUELS, INC.   v. US                                5

27,008. The government did not meet its 2010 projection
and, in fact, has yet to begin accepting any spent nuclear
fuel. 2 It is undisputed that the government’s failure to
accept spent nuclear fuel at this point in time is a partial
breach of the Standard Contract.
    System Fuels filed their first complaints seeking
damages for the government’s partial breach in 2003
(Arkansas Nuclear One) and 2005 (Grand Gulf). The
Court of Federal Claims ultimately awarded System
Fuels damages for costs incurred through August 31, 2005
(Grand Gulf) and June 30, 2006 (Arkansas Nuclear One).
These awards included, inter alia, the costs System Fuels
incurred to construct Independent Spent Fuel Storage
Installations (“ISFSIs”) at Grand Gulf and Arkansas
Nuclear One to store spent nuclear fuel in dry storage
casks that it would not have had to store had the govern-
ment begun performing on time.
    The decisions currently appealed arise from new com-
plaints System Fuels filed seeking damages for costs
incurred due to the government’s continued partial breach
covering the periods of September 1, 2005 to July 31, 2011
(Grand Gulf) and July 1, 2006 to June 30, 2012 (Arkansas
Nuclear One) (collectively, “new damages periods”).
Before the Court of Federal Claims, the government did
not dispute that System Fuels was entitled to most of the
damages it claimed for the new damages periods. 3 And

   2   At oral argument, System Fuels’ counsel stated
that the current, speculative projection is that the gov-
ernment will begin performance in 2048, although the
government believes that other projections may have
performance beginning sooner. Oral Argument at 3:30–
40, 29:15–24, available at http://oralarguments.cafc.
uscourts.gov/default.aspx?fl=2015-5094.mp3.
    3  These undisputed amounts are $44,414,139
(Grand Gulf) and $29,370,717 (Arkansas Nuclear One).
6                                   SYSTEM FUELS, INC.   v. US

the government does not appeal any of the Court of Fed-
eral Claims’ damages awards that are adverse to it.
Rather, System Fuels appeals the Court of Federal
Claims’ denial of damages for one category of costs: the
costs incurred to load spent nuclear fuel into storage
casks stored at the Grand Gulf and Arkansas Nuclear
One ISFSIs. At both sites, System Fuels incurred costs
when it loaded spent nuclear fuel into Holtec (Grand Gulf)
or Holtec and VSC–24 (Arkansas Nuclear One) storage
systems. This process involved first loading the spent
nuclear fuel into canisters, then loading those canisters
into the dry fuel storage casks and welding the casks
closed. System Fuels argues that these costs, the costs of
loading storage casks, are storage costs that it would not
have incurred if the government had performed. We have
jurisdiction over these appeals under 28 U.S.C.
§ 1295(a)(3).
                       DISCUSSION
    We review the Court of Federal Claims decisions de
novo for errors of law and for clear error on findings of
fact. Ind. Mich. Power, 422 F.3d at 1373. “A finding may
be held clearly erroneous when the appellate court is left
with a definite and firm conviction that a mistake has
been made.”       Id. (alterations and citation omitted).
Whether a breach of contract caused certain damages is a
fact question reviewed for clear error. See Bluebonnet
Sav. Bank, F.S.B. v. United States, 266 F.3d 1348, 1356
(Fed. Cir. 2001).

For reference, the Court of Federal Claims found in the
Arkansas Nuclear One case that System Fuels “has fully
performed its obligations under the Standard Contract”
and, as of the end of the new damages period, has paid
$344 million into the Nuclear Waste Fund. System Fuels,
Inc. v. United States, 120 Fed. Cl. 737, 741 (2015) (“Ar-
kansas Nuclear One”).
SYSTEM FUELS, INC.   v. US                               7

    In the cases currently appealed, the Court of Federal
Claims took two different approaches in denying damages
for the costs incurred by System Fuels in loading spent
nuclear fuel into storage casks. In the Grand Gulf case,
the Court of Federal Claims denied System Fuels the
entire claimed amount of $4,706,387 because it deter-
mined that System Fuels “failed to establish the projected
costs of preparing and packaging [spent nuclear fuel] for
dry storage in DOE casks.” System Fuels, Inc. v. United
States, 120 Fed. Cl. 635, 661 (2015) (“Grand Gulf”). The
court noted that System Fuels acknowledged that it
would have incurred costs, although at a lesser expense,
to load the DOE casks had the DOE performed. It also
stated that it “may not consider the possible future costs
[System Fuels] may incur to repackage the [spent nuclear
fuel] in DOE casks, if and when DOE performs.” Id. The
court made these findings despite noting System Fuels’
argument that, under the current regulations regarding
transport of radioactive material and the terms of the
Standard Contract, the DOE will not accept canistered
fuel as stored by System Fuels at Grand Gulf. Id. at 660–
61. Thus, under the current regulations and contract,
System Fuels will have to unload the spent nuclear fuel
from the storage casks and canisters and reload it into the
DOE-supplied transportation casks if and when the DOE
performs.
    In the Arkansas Nuclear One case, the Court of Fed-
eral Claims found that the government will not accept
canistered spent nuclear fuel as stored by System Fuels at
Arkansas Nuclear One under the current terms of the
Standard Contract. Arkansas Nuclear One, 120 Fed. Cl.
at 749. Quoting the testimony from Mr. Zabransky, the
Director of the Office of Standard Contract Management
at the DOE, the court found that “[a]bsent an amendment
to the Standard Contract, ‘canistered fuel would need to
be unloaded from the canister and repackaged in a trans-
portation cask for acceptance.’” Id. (alterations omitted).
8                                    SYSTEM FUELS, INC.   v. US

Finding that the Standard Contract had not been amend-
ed and it was unknown what amendments would be
necessary in order for the DOE to accept canistered fuel,
the court concluded that “[a]s matters now stand, all of
the [spent nuclear fuel] at [Arkansas Nuclear One’s
ISFSI] will have to be extracted and then reloaded for
transport by DOE.” Id. The court also found that about
one third of the storage casks contained a particular type
of fuel (i.e., “high burn-up fuel”), which cannot be trans-
ported in the Holtec casks under the current regulations
regarding transport of radioactive material. Id. (citing 10
C.F.R. pt. 71). Nevertheless, the court did not award
System Fuels all of its claimed $6,475,497 in damages.
Rather, in order to determine the amount of disallowed
costs, the court subtracted from the claimed total the
costs to which System Fuels was allowed: 1) all the costs
to load the high burn-up fuel; 2) the costs to load the
canisters containing non-high burn-up fuel into the stor-
age casks (but not the costs to load this fuel into the
canisters); and 3) an amount accounting for the higher
cost to close welded, as opposed to bolted, casks. It thus
granted System Fuels $4,532,848 in damages and denied
the remainder ($1,942,649).
     Before the Court of Federal Claims and on appeal,
System Fuels argues that the government’s breach caused
it to incur costs to load spent nuclear fuel into dry storage
casks that it then stored at its ISFSIs. It argues that, but
for the government’s partial breach, it would not have had
to load storage casks at all, such that its costs to load
storage casks in the non-breach world would have been
zero. Rather, it states that under the Standard Contracts
it is responsible for costs incurred for loading the DOE-
supplied transportation casks and argues that it will incur
costs to load transportation casks when the government
ultimately performs. As explained above, loading the
storage casks used by System Fuels involves first loading
the spent nuclear fuel into canisters and then loading
SYSTEM FUELS, INC.   v. US                                9

those canisters into the storage casks. System Fuels
argues that, given the DOE’s unequivocal statement that
it will not accept the currently loaded canisters (that are
within the storage casks) or the storage casks themselves
under the existing Standard Contracts, it will undisputed-
ly incur costs to unload the spent nuclear fuel from the
storage casks and canisters and to reload that fuel into
the DOE-supplied transportation casks in the future
when the DOE performs. Thus, System Fuels argues that
it is entitled to all of the costs of loading these storage
casks.
    We agree with System Fuels that the Court of Federal
Claims clearly erred in both decisions when it denied
damages for costs incurred to load the storage casks
and/or canisters, regardless of the type of fuel loaded. The
record in both cases indicates that under the existing
Standard Contracts, the DOE cannot accept for transport
any of the canistered fuel as is, such that System Fuels
will incur costs to unload this fuel from the storage casks
and canisters and to reload it into transportation casks if
and when the DOE performs. Indeed, the Court of Feder-
al Claims in the Arkansas Nuclear One case found this
very fact. Arkansas Nuclear One, 120 Fed. Cl. at 749.
And in Grand Gulf as well the court quoted the govern-
ment’s position: “DOE’s position is that it will not accept
canistered SNF, such as the SNF that is in dry storage at
Grand Gulf, under the Standard Contract unless there is
an amendment to the Standard Contract, the terms of
which DOE has not defined.” Grand Gulf, 120 Fed. Cl. at
660. In Grand Gulf, the Court of Federal Claims also
acknowledged that under the current regulations, the
storage casks in which the high burn-up fuel is stored
cannot be used for transportation of that fuel. Id. The
court went on to find: “That will require Plaintiffs to
prepare and package SNF, if and when DOE performs,
unless [the relevant] . . . regulations are changed.” Id. In
light of these fact findings made in both Court of Federal
10                                  SYSTEM FUELS, INC.   v. US

Claims decisions, namely that the storage casks used by
System Fuels may not be used for transportation, System
Fuels was entitled under the law to all of the costs of
loading these storage casks. The Court of Federal Claims
thus erred in both cases by denying System Fuels damag-
es based on alleged failures to prove how the costs to load
the storage casks and canisters differ from the costs it
would have incurred in loading the DOE-supplied trans-
portation casks. Such an analysis assumes that the
government will accept the canistered fuel as is when the
government performs in the future—an assumption that
is wholly unsupported by the present record. System
Fuels is obligated under the Standard Contracts to load
the government-provided transportation casks.          It is
undisputed that under the Standard Contracts, the gov-
ernment will not allow the storage casks used by System
Fuels to be used as transportation casks. Thus, the costs
of loading future transportation casks, or the difference
between the costs of loading these storage casks and
loading transportation casks, are irrelevant to System
Fuels’ entitlement to the expenses it incurred for loading
these storage casks. These are expenses incurred entirely
for storage due to the government’s breach. And because,
as admitted by the government, these storage casks
cannot be used for transportation under the Standard
Contracts, System Fuels will be required, if and when the
government begins to comply, as both Court of Federal
Claims decisions acknowledge, to unload the spent nucle-
ar fuel from these storage casks and reload it into suitable
transportation casks provided by the government. As we
have explained, “the government cannot prematurely
claim a payment that has not become due.” Carolina
Power & Light Co. v. United States, 573 F.3d 1271, 1277
(Fed. Cir. 2009) (quoting Yankee Atomic Elec. Co. v.
United States, 536 F.3d 1268, 1281 (Fed. Cir. 2008)).
SYSTEM FUELS, INC.   v. US                               11

Loading into transportation casks, the parties agree, is an
expense that must be incurred by System Fuels. That is
not the expense for which they seek damages today. 4 The
government argues that, while it is true that the storage
casks loaded by System Fuels may not under the current
Standard Contracts be used for transportation, it is
possible that the Standard Contracts could be modified in
the future such that these storage casks may be deemed
suitable for transportation. Such speculation about what
might happen is not sufficient to preclude the damages for
which System Fuels has proven entitlement. Cases are
decided on the facts of record, not a set of facts that may
come into being in the future.
                             CONCLUSION
    For the foregoing reasons, we reverse the Court of
Federal Claims’ denial of damages for the costs incurred
by System Fuels in loading spent nuclear fuel into storage
casks in both the Grand Gulf and Arkansas Nuclear One
cases. We remand for further proceedings consistent with
this opinion.
            REVERSED AND REMANDED
                               COSTS
   Costs to System Fuels.

   4    System Fuels also argues that regulations pre-
vented transportation of certain types of fuel which it is
storing (high burn-up fuel). Because it prevails in light of
the state of the record which precludes transportation in
the storage casks under the Standard Contracts, we need
not address its additional argument related to regulatory
prohibitions on transporting some of the fuel at issue in
the casks at issue.