Court Opinion

ID: 8595368
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:02:30.178408+00
Date Added: 2024-06-11T16:54:53.230855
License: Public Domain

Cowen, Ohief Judge,
concurring:
The proceedings in this big and difficult case have reached the stage where the principal issue to be decided is the measure of damages that should be used to compensate plaintiff for the defendant’s breach of contract.
The Uniform Commercial Code does not apply to this case; both parties agree that plaintiff’s damages should be computed in accordance with common law principles, and the court has followed that course. Even if we were to look to the Code as a general guideline, we would be faced with a sharp dispute between the parties as to which of its sections relate to this case. Since the Code does not apply, we need not resolve this dispute.
Whether plaintiff is entitled, as it asserts, to recover the full contract price, or whether it should be compensated in accordance with the court’s formula, is a mixed question of law and fact. The answer is necessarily a conclusion to be derived in substantial part from pertinent evidence and an interpretation of certain provisions of the contract.
The principal negotiators for the contract, which was executed on August 15, 1961, were Henry P. Wheeler, Jr., Assistant Director of the Bureau of Mines, who represented the Government, and F. C. Nicholson, who began his employment with Northern Natural Gas Company in 1958, and was a vice president of Northern during the negotiations. The testimony of these men and the reports and memoranda which they wrote shed much of the light provided by the record on the issue of whether, during the negotiations, defendant contemplated that, if it breached the contract, it would be responsible for the cost of continuing the operation of the helium plant.
*892Taken as a whole, the testimony of Mr. Nicholson1 shows that the Government was not interested in nor did it inquire about plaintiff’s cost of constructing the helium plant, the process to be used in extracting the helium, or the physical connection or relation between the helium plant and other units to be operated by Northern and its subsidiaries. The representatives of the Government assumed that the helium plant would be integrated with other facilities at Bushton, but the probability of such integration was not mentioned by the negotiators as a part of the consideration for the contract price. The Government’s main concern was to acquire helium from plaintiff at less than the cost of recovering it in a plant constructed and operated by the Government. Thus, the contract price was developed on the basis of what it would cost the Government to produce helium in its own grass-roots plant — a plant independent of all other operations (Nicholson Tr. 503).
The testimony of Mr. Wheeler accords in all material respects iwith that of Mr. Nicholson. Mr. Wheeler stated that the contract price was negotiated, not on the basis of the cost of plaintiff’s plant, but on what the cost would be if the Government constructed its own plant and removed the helium from the gas. He also testified that any references made by the representatives of Northern Helex to an integrated plant had no effect on the discussions relating to the contract price.2
In the operation of the helium plant, a nitrogen methane gas mixture is necessarily extracted in the process of recovering helium. In the early part of 1970, following changes in the contract between Northern and Gas Products, Northern began piping the nitrogen-methane mixture (referred to as a “high-nitrogen, low-B.t.u. stream”) from the helium plant to the ethane plant. The purpose of this operation was to use the small amount of methane in the mixture as fuel and to reject or remove the nitrogen. The rejection of the nitrogen was not necessary to the physical operation of the ethane plant which could and did produce ethane without the removal of nitrogen. However, the nitrogen was removed so *893that the net B.t.u. value of the gas stream piped from the helium plant would not be reduced by the removal of the ethane. The gas residue was then piped into Northern’s transmission lines for sale to its customers. Plaintiff’s claim of entitlement to the full contract price is largely grounded on its contention that the continued extraction of nitrogen in plaintiff’s helium plant is essential to the process by which the nitrogen is rejected in the ethane plant; that this was contemplated when the contract was executed, and that defendant then understood, or should have understood, that a breach of the contract would make it liable for the costs required to continue the operation of the helium plant. This contention is contrary to the following testimony given by Mr. Nicholson:
“Q * * * The helium company was not at all concerned under its contract with the Government with the production of nitrogen, was it ?
“A The helium company was not at all concerned with the production of nitrogen in the negotiations with the Government for helium.” (Tr. 535)
The same conclusion is reached when one considers the facts regarding the construction and operation of the several facilities of Northern and its subsidiaries at the Bushton complex. Gas Products LPG plant is a self-supporting grass-roots plant which was built in 1961 to remove propane, butane, isobutane, and natural gasoline from the gas stream fed into it by Northern. The LPG plant can operate wholly independently of the helium plant. The helium plant made its first delivery to the Government on December 7, 1962. The original plans for the design and construction of the helium plant included special boilers which would burn the low B.t.u. fuel left after the removal of helium. However, the Federal Power Commission ruled that the nitrogen used in this manner would have to be valued as a fuel and costed on a volume basis. "When this was found to be economically disadvantageous, plaintiff reinjected the low B.t.u. stream into the pipeline downstream from the helium facility.3 This procedure continued until 1970, when the ethane plant began operations.
*894Near the end of 1966, Northern decided to begin the extraction of ethane and on July 8, 1967, filed an application with the Federal Power Commission requesting authorization for Northern to deliver additional volumes of gas to Gas Products for use in such extraction. Northern realized that the extraction of ethane would reduce the B.t.u. content of the gas stream sold to its utility customers, and in order to avoid a lengthy and complex hearing, Northern stated that nitrogen would be extracted from the additional volume of gas delivered to Gas Products to offset the B.t.u. loss. Northern also assured its utility customers and the Commission that the B.t.u. content of the gas stream which Northern had been delivering to its utility customers would not change by reason of the extraction of ethane.4
On June 26, 1967, about the same time the application to the Federal Power Commission was filed, the 1960 contract between Northern and Gas Products was amended to provide for the delivery by Northern of additional quantities of natural gas so that Gas Products could commence the extraction of ethane. The contract provided that in its ethane extraction process, Gas Products would not lower the B.t.u. value of the residual gas to be returned to Northern for sale to its customers.5
Construction of the ethane facility was begun in 1969, and the plant began operation early in 1970. Thereafter, gas leaving the LPG plant, which formerly had been piped directly to the helium plant, was piped into the ethane facility for processing prior to transmittal to the helium plant. The high-nitrogen, low B.t.u. stream remaining in plaintiff’s plant after removal of the helium was then diverted to the ethane facility and used to fuel that plant’s special boilers.6 This diversion was made so that nitrogen could be removed at the ethane plant in compliance with the FPC order and Northern’s assurances to the FPC and its customers that the B.t.u. content of its gas stream would not be lowered by the ethane extraction.7 As previously noted, it is not physically necessary *895to remove nitrogen in order to extract ethane from natural gas-
There is no provision in the contract between plaintiff and Northern, and there is no contract between plaintiff and Gas Products which states that plaintiff is obligated to remove nitrogen from natural gas.8 Plaintiff receives no payment for that operation. The application, which Northern filed with the Federal Power Commission regarding the proposal for the extraction of ethane, made no reference to the extraction of nitrogen by the plaintiff nor was there any statement that plaintiff was so obligated in order to enable Gas Products to reject the nitrogen.
Several provisions of the contract further support the conclusion that the Government did not contemplate that, in the event it breached the contract, it would assume the obligation of continuing the extraction of nitrogen in the helium plant so that Gas Products could comply with its 1967 contract with Northern. Paragraph 1.1 of the contract provides that the term “plant” means the helium extraction plant to be constructed and owned by seller “whether completed or under construction and whether separate from or integrated with other facilities owned by Seller. * * *” This provision is another indication that the integration of plaintiff’s plant with other facilities in the Northern complex was not a factor contemplated as a basis for future liability by the Government. It is an expression by the Government of a lack of concern as to whether the helium plant would be a purely independent plant or whether it would be integrated with other facilities.
I agree with Judge Skelton that the following articles absolve the Government from any liability for the cost of any operations or processes by Northern or Gas Products that may have been integrated with the helium plant: Paragraphs 31.2 and 31.3 of Article XXXI, which are quoted in the court’s opinion, and Article XV, which provides that “each party will be responsible for its own acts and the results thereof.”
While paragraph 31.3 of Article XXXI relates to the assumption by plaintiff of risks attributable to any addi*896tional facilities which, it might construct during the term of the contract, I agree with the defendant’s observation that it necessarily follows that if the Government was relieved of liability for any such facilities built by plaintiff, it was all the more freed of any liability on account of any other facilities built by Northern or others of its wholly owned subsidiaries after the contract was executed. This would include the facilities put in operation in 1970 by Gas Products to reject the nitrogen in the stream which, contrary to the procedure previously followed, is now diverted from the helium plant to Gas Products.
If, as plaintiff contends, the Government foresaw the necessity for plaintiff to continue the operation of the helium plant in order to permit the rejection of nitrogen in the ethane plant, one wonders why, during the negotiations, the Government made no inquiry about and was 'given no detailed information, such as a blueprint or diagram of the existing and planned facilities, or a description of the physical connections among the various plants operated or proposed to be operated by Northern and its subsidiaries at the Bushton complex. One also wonders why the Government, if it was to be bound by the contractual obligations entered into between Northern and the plaintiff and between Northern and Gas Products, did not insist that it be given copies of such contracts or proposed contracts at the time the negotiations were conducted. Northern, as sole owner of the subsidiaries, could amend its contracts with them at any time. Realizing this, the Government did not concern itself with these intercorporate contractual arrangements, because it did not contemplate that, in any event, it would be bound by them.
In my view, the facts which have been reviewed above clearly demonstrate that the Government did not foresee the liability which plaintiff would now impose upon it. Furthermore, it would be beyond the pale of reason to find that the Government should have foreseen risks resulting from the changing pattern of processes and operations of Northern and its subsidiaries after the contract was executed. The plaintiff itself did not decide to change the design of its *897helium plant until a ruling of the Federal Power Commission caused it to do so and to reinject the low B.t.u. stream into the downstream pipeline.
Until December 11, 1967, when the Federal Power Commission approved Northern’s application of July 3, 1967, neither plaintiff, Northern, nor Gas Products knew that Gas Products would be required to reject nitrogen in the stream received from the helium plant in order to permit Gas Products to produce ethane from the additional gas to be delivered by Northern. Since these events occurred 6 years after the contract with the Government was entered into, how could the Government possibly have foreseen an obligation to keep the helium plant in operation in order to permit the rejection of the nitrogen ?
The fallacy of plaintiff’s position, may be illustrated by the following: Let us assume that the contract was in full force and effect for a period of 12 years or until August 15,1978, when it was breached by the Government. Let us also assume that near the end of 1971, Northern discovers a feasible process for recovering the nitrogen extracted by plaintiff in the production of helium and utilizing the recovered nitrogen as a feed stock for the production of ammonia. Northern thereupon creates a new wholly owned subsidiary corporation, builds a plant for recovery of nitrogen, and enters into a contract with the new subsidiary for that purpose. Then, for the second time after the contract with the Government was executed, a change is made in the diversion of the high-nitrogen, low B.t.u. stream from the helium plant, and the stream is now piped to the new nitrogen plant. After the contract is breached by the Government, plaintiff takes the position that the helium plant is now fully integrated with the new plant for the production of nitrogen; that the Government should have predicted and therefore should have foreseen these developments, and that it is now obligated to pay the full contract price , in order that the helium plant may enable the nitrogen plant to carry out this newly, integrated operation. Obviously, such a claim would be devoid of merit. In my opinion, plaintiff’s claim for the full contract price is also without merit.

 Nicholson Cross Examination Tr. 477-581.

 Wheeler Tr. 675-677.

 Trial judge’s finding 111.

 Trial judge’s finding 116.

 Trial judge’s finding 127.

 Trial judge’s finding 111.

 Trial judge’s finding 116.

 Trial judge’s finding 125.