Court Opinion

ID: 6499804
Source: CourtListenerOpinion
Date Created: 2022-07-13 21:01:36.14542+00
Date Added: 2024-06-11T09:15:30.728245
License: Public Domain

In the United States Court of Federal Claims
                                          No. 20-1784

                                      (Filed: July 13, 2022)

                                              )      Motion for partial summary judgment;
 CHEVRON U.S.A. INC., et al.,                 )      disputes regarding avgas contracts entered
                                              )      during World War II
                       Plaintiffs,            )
                                              )
           v.                                 )
                                              )
 UNITED STATES,                               )
                                              )
                       Defendant.             )
                                              )

        Michael W. Kirk, Cooper & Kirk, PLLC, Washington, D.C. for plaintiffs. With him on
the briefs were Vincent J. Colatriano, J. Joel Alicea, and Tiernan B. Kane, Cooper & Kirk,
PLLC, Washington, D.C., Christopher H. Marraro, Baker & Hostetler LLP, Washington, D.C.,
and Bridget S. McCabe, Baker & Hostetler LLP, Los Angeles, California.

        Matthew P. Roche, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C. for the United States. With him on the briefs
were Brian M. Boynton, Principal Deputy Assistant Attorney General, Civil Division, Patricia
M. McCarthy, Director, and Franklin E. White, Jr., Assistant Director, Commercial Litigation
Branch, Civil Division, United States Department of Justice, Washington, D.C.

                                     OPINION & ORDER

       LETTOW, Senior Judge.

        Pending before the court is plaintiffs’ motion for partial summary judgment as to seven
affirmative defenses raised in defendant’s answer to plaintiffs’ complaint: laches, contributory
negligence, proximate cause, res judicata, offset of damages to account for insurance payments,
prior material breach, and release. See Pls.’ Mot. for Partial Summary J. (“Pls.’ Mot.”), ECF No.
32; Def.’s Answer ¶¶ 1-9, ECF No. 27. 1 Plaintiffs’ partial summary judgment motion has been
fully briefed. See Def.’s Opp’n, ECF No. 42; Pls.’ Reply, ECF No. 45. For the reasons stated,
plaintiffs’ motion is DENIED IN PART and GRANTED IN PART.

       1
      Plaintiffs are Chevron U.S.A. Inc., Texaco Downstream Properties Inc., and Union Oil
Company of California (together, the “oil companies”).
                                         BACKGROUND 2

         This case involves seven contracts entered into by the United States with oil companies to
produce high-octane aviation gasoline (“avgas”) during World War II as part of the war effort.
Compl. ¶ 12, ECF No. 1; see also Compl., Exs. A-G, ECF Nos. 1-1 to 1-7. The contracts
provided small profits for the oil companies, and, in exchange, they obligated the government to
“indemnify the [o]il [c]ompanies for the costs imposed on them resulting from any later-enacted
laws, including the costs of cleaning up wastes associated with the wartime production of avgas.”
Compl. ¶¶ 13-14. Specifically, the contracts stated that, “Buyer shall pay in addition to the
prices as established . . . any new or additional taxes, fees, or charges, other than income, excess
profits, or corporate franchise taxes, which Seller may be required by any municipal, state, or
federal law . . . to collect or pay by reason of the production, manufacture, sale or delivery of
[avgas].” Compl., Ex. A at 17 (representative of other contractual provisions).

        Decades after the conclusion of World War II and the termination of the avgas contracts,
Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”) in 1980 and the Hazardous and Solid Waste Amendments to the Resource
Conservation and Recovery Act (“RCRA”) in 1984. Comp. ¶ 37, see also 42 U.S.C. § 9601 et
seq; 42 U.S.C. § 6901 et seq.. CERCLA imposes liability on facilities where hazardous
substances have been disposed and remedial measures are required, while RCRA mandates
requirements for disposal of hazardous waste and the closing and retrofitting of facilities.
Compl. ¶¶ 38, 41. The oil companies aver that they incurred expenses pursuant to actions under
both CERCLA and RCRA relating to disposal of avgas waste. Compl. ¶¶ 39-42. According to
plaintiffs, the government is responsible for these expenses pursuant to the indemnification
provision in the avgas contracts. Compl. ¶ 42.

        Under the Contract Settlement Act, the oil companies may bring claims pursuant to
wartime contracts before the General Services Administration (“GSA”), which plaintiffs did on
June 9, 2020. Compl. ¶ 51. 3 GSA denied the oil companies’ claims on September 8, 2020, after
which plaintiffs filed their pending claims in this court on December 7, 2020. Compl. ¶ 51. The
government moved to dismiss in part the oil companies’ claims for lack of subject-matter
jurisdiction and failure to state a claim upon which relief can be granted. Def.’s Mot. to Dismiss,
ECF No. 7. The court denied defendant’s motion. See Chevron U.S.A. v. United States, 155
Fed. Cl. 344, 348 (2021). Defendant thereafter filed its answer to plaintiffs’ complaint and
raised affirmative defenses, seven of which are the subject of plaintiffs’ present summary
judgment motion: laches, contributory negligence, proximate cause, res judicata, offset of
damages to account for insurance payments, prior material breach, and release.

       2
          The recitations that follow do not constitute findings of fact, but rather are recitals
attendant to the pending motions and reflect matters drawn from the complaint, the parties’
briefs, and records and documents appended to the complaint and briefs.
       3
          “Congress repealed the [Contract Settlement Act] in 2011.” Chevron, 155 Fed. Cl. at
350. The repealing statute, however, “contained a savings clause” that preserves the court’s
jurisdiction over this case and others like it. Id.
                                                   2
                                 STANDARDS FOR DECISION

        Summary judgment shall be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Rule 56(a) of
the Rules of the Court of Federal Claims (“RCFC”). A material fact is one that “might affect the
outcome of the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (interpreting
Fed. R. Civ. P. 56). 4 A genuine dispute exists when the finder of fact may reasonably resolve the
dispute in favor of either party. Id. at 250.

         The movant bears the burden of demonstrating the absence of any genuine disputes of
material fact, see Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), and must “cit[e] to
particular parts of materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations[,] . . . admissions, interrogatory answers, or
other materials,” RCFC 56(c)(1)(A). The court may consider other materials in the record even
if not cited by the parties. See RCFC 56(c)(3). “[T]he inferences to be drawn . . . must be
viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369
U.S. 654, 655 (1962)). If the record taken as a whole “could not lead a rational trier of fact to
find for the non-moving party, there is no ‘genuine issue for trial’” and summary judgment is
appropriate. Id. (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).

                                            ANALYSIS

       The oil companies move for partial summary judgment on seven of the affirmative
defenses that the government raised in its answer to plaintiffs’ complaint. Defendant voluntarily
withdrew the affirmative defense of res judicata in its opposition brief. See Def.’s Opp’n at 13.
Furthermore, it avers that it raised the affirmative defense of release only to preserve the issue
for appeal and that it will not brief or argue the point in response to plaintiffs’ partial summary
judgment motion. See id. at 24-25. Therefore, plaintiffs’ motion is GRANTED as to
defendant’s affirmative defenses of res judicata and release. The remaining questions are
whether, as a matter of law, the oil companies are entitled to summary judgment on the
government’s affirmative defenses of laches, contributory negligence, proximate cause,
insurance offsets, and prior material breach.

                                             A. Laches

       Plaintiffs and the government dispute whether the Contract Settlement Act contained an
express limitations period for bringing a war contractor claim, the answer to which determines
whether the government may invoke the equitable defense of laches to bar plaintiffs’ present
claims. “Laches is ‘a defense developed by courts of equity’ to protect defendants against
‘unreasonable, prejudicial delay in commencing suit.’” SCA Hygiene Prods. Aktiebolag v. First
Quality Baby Prods., LLC, ___ U.S. ___, 137 S.Ct. 954, 960 (2017) (quoting Petrella v. Metro-

       4
           Because RCFC 56 mirrors Fed. R. Civ. P. 56, the rules should be interpreted in pari
materia.

                                                 3
Goldwyn-Mayer, Inc., 572 U.S. 663, 678 (2014)). “[T]he ‘principal application’ of laches ‘was,
and remains, to claims of an equitable cast for which the [l]egislature has provided no fixed time
limitation.’” Id. at 961 (quoting Petrella, 572 U.S. at 678). “[T]he well-established general rule,
often repeated by [the Supreme] Court, [is] that laches cannot be invoked to bar a claim for
damages incurred within a limitations period specified by Congress.” Id. at 963 (citing cases).

        The Contract Settlement Act laid out a back-and-forth procedure for contracting agencies
and war contractors to settle outstanding claims. First, “[w]henever the contracting agency
responsible for settling any termination claim has not settled the claim by agreement or has so
settled only a part of the claim, . . . the contracting agency at any time may determine the amount
due on such claim or such unsettled part, and prepare written findings indicating the basis of the
determination, and deliver a copy of such findings to the war contractor.” 41 U.S.C. § 113(a)
(1992) (emphasis added). Second, “[w]henever any war contractor is aggrieved by the findings
of a contracting agency on his claim or part thereof or by its failure to make such findings in
accordance with subsection (a) of this section, he may bring suit against the United States for
such claim or such part thereof, in the United States Court of Federal Claims.” Id. at § 113(b)
(emphasis added). Finally, “[a] war contractor may initiate proceedings in accordance with
subsection (b) of this section” within 90 days of receiving the contracting agency’s decision or
findings per Subsection (a) or within 1 year if the agency fails to “deliver such findings.” Id. at
§ 113(c)(2).

         Plaintiffs contend that Subsection 113(c)’s 90-day provision is the statute of limitations
that triggers the application of the rule against permitting the laches defense when Congress has
specified a limitations period. See Pls.’ Mot. at 4-8. On the other hand, as the government
observes, see Def.’s Opp’n at 4-7, Subsection 113(c) does not specify a limitations period in
which a war contractor must bring a claim to a contracting agency. Rather, it specifies when the
contractor must bring a claim to this court after raising it to the contracting agency. In these
circumstances, 41 U.S.C. § 113 (1992) must be read in context to give meaning to the statute as a
whole. See Massachusetts v. Morash, 490 U.S. 107, 115 (1989) (“[I]n expounding a statute, we
are not guided by a single sentence or member of a sentence, but look to the provisions of the
whole law.” (internal alterations omitted) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,
51 (1987))). Subsection 113(c)(2) operates in conjunction with Subsections 113(a) and (b),
which use the terms “[w]henever” and “at any time” when referring to the bringing and resolving
of a war contractor’s claim. These words indicate Congress’ intent to permit later-arising claims
and to not impose a time limit on contractors. Cf. Ford Motor Co. v. United States, 378 F.3d
1314, 1319 (Fed. Cir. 2004) (considering whether the government could be held liable to
appellant for CERCLA damages that accrued post-contract termination and apparently agreeing
with appellant’s argument that “the CSA explicitly contemplated later-arising claims, and set no
period of limitations”). Per SCA Hygiene, the government cannot invoke the equitable defense
of laches because Congress indeed specified the limitations period to apply to claims under the
Act, i.e., “[w]henever” and “at any time.”

      The court therefore GRANTS plaintiffs’ summary judgment motion as to the
government’s affirmative defense of laches.

                                                 4
                                    B. Contributory Negligence

        The oil companies and the government present contrasting interpretations of the avgas
contracts’ “any new or additional . . . charges” clause. Plaintiffs construe the clause to fully
indemnify them even against their own negligence, see Pls.’ Mot. at 8-10, while the government
distinguishes the clause from similar clauses that the Federal Circuit has held were broad enough
to indemnify a contractor’s own negligence, see Def.’s Opp’n at 9-10 (distinguishing Shell Oil
Co. v. United States, 751 F.3d 1282, 1294 (Fed. Cir. 2014) and E.I. Du Pont de Nemours and
Co., Inc. v. United States, 365 F.3d 1367, 1370 (Fed. Cir. 2004)). “[A] contractual provision
should not be construed to permit an indemnitee to recover for his own negligence unless the
court is firmly convinced that such an interpretation reflects the intention of the parties.” United
States v. Seckinger, 397 U.S. 203, 211 (1970). In other words, “the mutual intention of the
parties to this effect should appear with clarity from the face of the contract.” Id. at 212. Yet, “a
clause that is intended to encompass indemnification for the indemnitee’s negligence” need not
necessarily “include an ‘indemnify and hold harmless’ clause or . . . explicitly state that
indemnification extends to injuries occasioned by the indemnitee’s negligence.” Id. at 212 n.17.

        Here, the relevant avgas contracts do not explicitly indemnify the oil companies against
their own negligence. Nor is it evident that the Federal Circuit held that, as a matter of law, the
“any new or additional . . . charges” provision of the contracts applied to claims arising from
plaintiffs’ own negligence. See Shell Oil, 751 F.3d at 1294 (“The relevant provision in Du[]Pont
made no mention of new or additional charges, yet was nonetheless found to encompass
unforeseeable CERCLA liability. The avgas contracts’ promise to reimburse for ‘new or
additional’ charges must similarly extend to ‘all claims, foreseeable or not.’” (quoting Du Pont,
365 F.3d at 1373)). Nonetheless, the discussion in Shell Oil was focused on whether that
contractual language was broad enough to encompass unforeseeable claims arising from the yet-
to-be-enacted CERCLA. Plaintiffs may therefore only succeed by demonstrating that the “any
new or additional . . . charges” clause gives rise to an inference that the parties intended to
indemnify the oil companies against their own negligence. Drawing all reasonable inferences in
the government’s favor as the party opposing the summary judgment motion, the court concludes
that there exists a genuine dispute as to whether the “any new or additional . . . charges” clause
demonstrates the parties’ mutual intent to indemnify plaintiffs for their own negligence.
Resolution of the dispute would be aided by development of the factual context in which it
arises.

       Plaintiffs’ summary judgment motion therefore is DENIED as to defendant’s affirmative
defense of contributory negligence.

                                        C. Proximate Cause

        The oil companies dispute the government’s affirmative defense that some of plaintiffs’
claimed damages were not proximately caused by reason of the avgas contracts. See Pls.’ Mot.
at 11-12. Plaintiffs reason that because the Federal Circuit has interpreted the “any new or
additional . . . charges” clause to indemnify the oil companies against “all claims, foreseeable or
not,” the government cannot conduct discovery into whether plaintiffs’ claimed damages were
proximately caused by reason of the avgas contracts, i.e., foreseeability of damages. Id.

                                                  5
(emphasis omitted) (quoting Shell Oil, 751 F.3d at 1295). The government responds that the
Federal Circuit’s interpretation of the avgas contracts refers to unforeseeable claims but does not
eliminate plaintiffs’ burden to prove foreseeability when it comes to damages. See Def.’s Opp’n
at 11-13.

        “To recover for breach of contract, a party must allege and establish,” inter alia,
“damages caused by the breach.” San Carlos Irr. and Drainage Dist. v. United States, 877 F.2d
957, 959 (Fed. Cir. 1989). To satisfy this requirement, one must show “(1) the damages were
reasonably foreseeable by the breaching party at the time of contracting; (2) the breach is a
substantial causal factor in the damages; and (3) the damages are shown with reasonable
certainty.” Indiana Michigan Power Co. v. United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005);
see also Shell Oil Co. v. United States, 130 Fed. Cl. 8, 34 (2017), aff’d, 896 F.3d 1299 (Fed. Cir.
2018). The parties’ disagreement boils down to a difference of opinion about whether the
contract’s indemnity clause covered unforeseeable claims and unforeseeable damages. This
disagreement demonstrates the existence of “material factual disputes about the scope of the
contract,” which renders summary judgment on an element of plaintiffs’ burden of proof as to
damages “inappropriate.” New England Specialty Servs., Inc. v. United States, 148 Fed. Cl. 413,
417 (2020). 5

       Plaintiffs’ summary judgment motion therefore is DENIED as to defendant’s affirmative
defense of proximate cause.

                                        D. Insurance Offset

        Plaintiffs argue that the remote transaction and collateral source rules preclude
defendant’s affirmative defense that potential damages should be offset by any insurance
payments that the oil companies received in relation to the avgas cleanup costs underlying the
present dispute. See Pls.’ Mot. at 15-19. Defendant responds that the remote transaction and
collateral source rules do not apply and contends that plaintiffs seek a double recovery by
preventing discovery into insurance payments. See Def.’s Opp’n at 13-22.

        Foundational principles in contract law entitle the non-breaching party to recover
“damages based on his expectation interest” in the contract “as measured by . . . the loss in the
value to him of the other party’s performance caused by its failure or deficiency.” Restatement
(Second) of Contracts § 347. However, “[n]o matter how reprehensible the breach, damages are
generally limited to those required to compensate the injured party for lost expectation, for it is a
fundamental tenet of the law of contract remedies that an injured party should not be put in a
better position than had the contract been performed.” LaSalle Talman Bank, F.S.B. v. United
States, 317 F.3d 1363, 1371 (Fed. Cir. 2003) (quoting Farnsworth on Contracts 193 (2d ed.
1998)). Similarly, “[t]he principle that a party’s liability is not reduced by payments or other

       5
         This result is not an invitation for the government to relitigate any prior holdings of the
Federal Circuit as to the scope of the avgas contracts’ indemnity provision regarding
foreseeability of CERCLA liability.
                                                  6
benefits received by the injured party from collateral sources is less compelling in the case of a
breach of contract than in the case of a tort.” Restatement (Second) of Contracts § 347, cmt. e.

       Nevertheless, in the context of similar avgas litigation, the court has explained:

       Because of the “the endlessness and futility of the effort to follow every
       transaction to its ultimate result,” the law does not generally “go beyond the first
       step” in calculating damages. Southern Pac. Co. v. Darnell-Taenzer Lumber Co.,
       245 U.S. 531, 533-34, 38 S.Ct. 186, 62 L.Ed. 451 (1918). Paradigmatic of remote
       transactions that do go beyond the first step, and are thus irrelevant for calculating
       damages, are those involving insurance recoveries. See id. at 534, 38 S.Ct. 186
       (noting that the recovery of insurance is not something with which defendants are
       concerned). “An injured party’s recovery from third parties does not decrease the
       amount of the wrongdoer’s liability.” Wisconsin Elec. Power Co. v. United States,
       90 Fed. Cl. 714, 794 (2009).

Shell Oil Co. v. United States, 148 Fed. Cl. 781, 796 (2020), aff’d on other grounds, 7 F.4th 1165
(Fed. Cir. 2021). As a matter of law, the oil companies are entitled to summary judgment on
defendant’s insurance offset defense because such paradigmatic remote transactions are
irrelevant to calculating damages stemming from defendant’s alleged breach of contract.

        The oil companies’ motion is therefore GRANTED as to the government’s insurance
offset affirmative defense.

                                     E. Prior Material Breach

        The oil companies dispute the government’s affirmative defense of prior material breach
based on plaintiffs’ failure to obtain liability insurance that would cover the United States as an
additional insured. See Pls.’ Mot. at 19-21. They contend that the avgas contracts at issue here
did not require the oil companies to obtain liability insurance and, alternatively, that the
government waived its right to claim breach of contract based on failure to obtain liability
insurance even if the contracts did require it. Id. The government concedes that the avgas
contracts do not support the affirmative defense of prior material breach because they did not
obligate the oil companies to obtain liability insurance; however, it contends that discovery may
reveal a post-formation change to the parties’ contractual duties. See Def.’s Opp’n at 22-24. If
not, the government promises to voluntarily withdraw the affirmative defense of prior material
breach. See id. at 24. The parties’ arguments turn on a factual question—whether a post-
formation change of contract occurred—which would be inappropriate to address before
permitting “adequate time for discovery.” Celotex, 477 U.S. at 322.

       The oil companies’ motion is therefore DENIED as to the government’s affirmative
defense of prior material breach.

                                                 7
                                      CONCLUSION

        In summary, the oil companies’ summary judgment motion is GRANTED IN PART and
DENIED IN PART. Plaintiffs’ motion is granted as to the government’s affirmative defenses of
laches, insurance offset, res judicata, and release; however, it is denied as to contributory
negligence, proximate cause, and prior material breach.

       It is so ORDERED.

                                           s/ Charles F. Lettow
                                           Charles F. Lettow
                                           Senior Judge

                                              8