Court Opinion

ID: 9463730
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:14:42.362818+00
Date Added: 2024-06-11T17:38:15.461270
License: Public Domain

CLARK, Circuit Judge,
dissenting:
The decisive question in both this case and United States v. Mississippi Power & Light Co., 553 F.2d 480 (5th Cir. 1977), which we also decide today, is whether the federal government may impose a substantial contract obligation on a public utility simply because that utility supplies energy to federal installations as required by state law and the terms of its state or municipal franchise. The majority answers in the affirmative. I respectfully disagree.
I.
In order to determine whether New Orleans Public Service, Inc. [NOPSI], or Mississippi Power & Light Co. [MP&L] must comply with a comprehensive equal opportunity clause despite their explicit refusals to subject themselves to it, three issues must be resolved. First, was the issuance of the Executive Order which requires the clause be included in every federal contract a valid exercise of Presidential power? Second, what relation must exist between a person and the federal government before that person is subject to the dictates of the equal opportunity clause by operation of the Executive Order? And third, does the requisite relation exist between the federal government and either NOPSI or MP&L? Since the resolution of the second and third issues furnishes a sufficient ground for the decision of this case, I do not reach the constitutional puzzles presented by the first.1
The relation that must exist between a person and the federal government before that person is bound to comply with the equal opportunity clause by operation of the Executive Order is defined by the text of the Order itself. Like its predecessors, Executive Order No. 112462 is not all inclusive. It was promulgated to discourage only certain classes of persons who do business with the federal government from engaging in discriminatory employment practices. The Order directs all federal contracting agencies to include the equal opportunity clause in virtually every “Government contract” consummated after October 24, 1965.3 The first provision of the clause commands the “contractor” to refrain from discrimination, and to take affirmative action to ensure non-discrimination in recruiting, hiring, promoting, and discharging his employees during the performance of his government contract.4 Other provisions require that he perform related tasks, such as filing reports describing his employment practices and including the clause in each of his subcontracts. On its face, then, the Executive Order extends the obligation to comply with the terms of the equal opportunity clause only to those who (1) have been awarded a federal government contract, (2) after the effective date of the Order, and (3) have not yet fully performed their contractual commitments.5
*476Although the Executive Order does not explicitly define the term “government contract,” there is nothing in its language which suggests that anything less than a contractual relation — as those words are commonly understood in the law — between a person and the federal government was intended to suffice for coverage. The word “contract" is an unambiguous legal term of art connoting an enforceable promise or set of promises between mutually consenting parties. Turning to the “executive history” of the Order or to the Secretary’s implementing regulations to vary this unambiguous meaning would be unjustifiable. “[W]here the words are plain there is no room for construction.” Osaka Shoshen Kaisha Line v. United States, 300 U.S. 98, 101, 57 S.Ct. 356, 357, 81 L.Ed. 532 (1937), quoted in, Hodgson v. Mauldin, 344 F.Supp. 302, 307 (N.D.Ala.1972), aff’d, 478 F.2d 702 (5th Cir. 1973); Souder v. Brennan, 367 F.Supp. 808, 812 (D.D.C.1973). Although these cases involved the interpretation of a statute rather than an executive order, there is no reason why the canons of construction should not be the same.
The regulations promulgated by the Secretary pursuant to his authority to issue such rules as he deems necessary to accomplish the purposes of the Executive Order,6 however, might be read as taking a broader view of the meaning of the word “contract” as it is used in the Executive Order. 41 C.F.R. § 60-1.3 (1976), as amended, 42 Fed. Reg. 3454, 3458 (1977), provides:
“Government Contract” means any agreement or modification thereof between any contracting agency and any person for the furnishing of supplies or services or for the use of real or personal property, including lease arrangements. The term “services,” as used in this section includes, but is not limited to the following services:
Utility .
“Modification” means any alteration in the terms and conditions of a contract, including supplemental agreements, amendments, and extensions.
Since regulations issued pursuant to a valid executive order stand on no better footing than regulations issued pursuant to a statute, it follows that the Secretary’s regulations possess the force and effect of law only if they are “(a) within the granted power, (b) issued pursuant to proper procedure, and (c) reasonable.” 1 K. Davis, Administrative Law Treatise § 5.03, p. 299 (1958) & § 29.01-1, p. 654 (Supp.1976). The Executive Order requires the presence of the equal opportunity clause only in contracts. If the term “agreement” used in Section 60-1.3 was intended to be more inclusive it would be void since it would exceed the scope of the Secretary’s rule-making authority. As the Supreme Court recently stated:
The rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather, it is ‘the power to adopt regulations to carry into effect the will of Congress as expressed by the statute.’
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 213, 96 S.Ct. 1375, 1391, 47 L.Ed.2d 668, 688 (1976), quoting Manhattan General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 134, 56 S.Ct. 397, 399, 80 L.Ed. 528, 531 (1936). The same principle is applicable here.
Moreover, even if the Executive Order could be read to cover parties to unenforceable agreements or non-contracts, the federal government’s position would not be measurably advanced. The Executive Order merely requires contracting agencies to include the equal opportunity clause in their bid lettings and contracts. The supplementary regulation, Section 60-1.4(e), provides only that the clause is in the contract whether or not the agency remembered to *477put it there. Therefore, it is necessary that an enforceable contract exist between a person and the government if there is to be a basis for the enforcement of the clause. If the clause were placed in a void agreement, it would fail with the rest.
NOPSI and MP&L are public utility companies. Although their arrangements with their respective regulatory authorities are not identical in form,7 the effect is the same. Because they hold franchises granted by a state or a city, are engaged in an enterprise affected with the public interest, and hold themselves out as being willing to serve all members of the public, both NOP-SI and MP&L have a duty to provide the types of energy they distribute to anyone within their certificated area who requests it and complies with reasonable conditions of service. Morehouse Natural Gas Co. v. Louisiana Public Service Commission, 242 La. 985, 999-1000, 140 So.2d 646, 651 (1962); Capital Electric Power Association v. Mississippi Power & Light Co., 218 So.2d 707, 713 (Miss.1968). In exchange, they receive the right, to some extent exclusively, to supply utility service to customers within their certificated area at a price set by their regulatory authority, and they are guaranteed a reasonable rate of return on their investment.
Since the majority has described the history of NOPSI’s interaction with the federal government, only brief recap is necessary here. NOPSI has furnished federal installations with utility service for more than 50 years. In United States v. New Orleans Public Service, Inc., 8 Fair Empl. Prac.Cas. 1089, 8 Empl. Prac. Dec. 9795 (E.D.La.1974), the court found that NOPSI currently supplied 22 federal facilities with electricity, natural gas, or both. In some instances there is a written agreement between NOPSI and the federal government concerning essential terms, such as the applicable ■ rate and volume of service demanded, while in others the understanding is unwritten. Although most of these arrangements .pre-date the Executive Order, a few were entered into after it became effective. The price term of every agreement was changed as recently as 1973, when the New Orleans City Council revised NOPSI’s rate schedule, and on at least one occasion since the issuance of the Order the government requested and received additional service at one of its locations. Recently, when NASA insisted that its proposed written agreement with NOPSI contain the equal opportunity clause NOPSI refused to capitulate. Instead, NOPSI informed NASA it would continue to supply NASA’s energy requirements at the regulated price as both its franchise and Louisiana law require, but expressly refused to subject itself to the equal opportunity clause.8
Government contracts do differ from contracts between private parties in some respects, see J. Paul, United States Government-Contracts and Subcontracts 69-75 (1964), but no such difference affects the result here. Although contracts of the United States are governed by federal law, United States v. Seckinger, 397 U.S. 203, 210, 90 S.Ct. 880, 884, 25 L.Ed.2d 224, 232 (1970), “[i]t is customary, where Congress has not adopted a different standard, to apply to the construction of government contracts the principles of general contract law.” Priebe & Sons, Inc. v. United States, 332 U.S. 407, 410-412, 68 S.Ct. 123, 125-26, 92 L.Ed. 32, 37-38 (1947), quoted in, Security Life & Accident Insurance Co. v. United States, 357 F.2d 145, 148 (5th Cir. 1966). One of the most fundamental of those principles is that to be enforceable, a contract *478must be supported by valid consideration. Estate of Bogley v. United States, 514 F.2d 1027, 1033, Ct.Cl. (1976); 1 S. Williston, Contracts § 99, p. 367 (3d ed. 1957); 1A A. Corbin, Contracts § 114, p. 498 (1963). There is no reason why this rule should not apply to contracts with the federal government; at least one court has assumed that it does. See United States v. Marchetti, 466 F.2d 1309, 1317 n. 6 (4th Cir.), cert. denied, 409 U.S. 1063, 93 S.Ct. 553, 34 L.Ed.2d 516 (1972).
A promise to perform a service which one is under a pre-existing legal obligation to perform is not valid consideration for a return promise. United States v. Bridge-man, 173 U.S.App.D.C. 150, 523 F.2d 1099, 1110 (1975), cert. denied, 425 U.S. 961, 96 S.Ct. 1744, 48 L.Ed.2d 206 (1976); 1 S. Williston, supra, § 132, p. 557; 1A A. Corbin, supra, § 171, p. 105. Nor is it merely the return promise that is unenforceable. Because the return promise is unenforceable, there is no mutuality of obligation and therefore no contract is ever formed. Of course, in the event that the party subject to the pre-existing obligation does more than his duty requires, he creates consideration sufficient to support the return promise. 1 S. Williston, supra, § 132, pp. 558-59; 1A A. Corbin, supra, § 192, p. 180.
The application of these principles to the facts of this case is straightforward. Since both NOPSI and MP&L have a pre-existing legal obligation to supply utility service to the federal installations within their certificated area at the applicable rate irrespective of their agreement to do so, their arrangements with the federal government were instances of performance of their duty to serve customers, not contracts with the federal government. Moreover, an examination of the record reveals that none of the agreements between the utilities and the federal government purported to bind either utility to treat the government any differently from the way state law obliged it to treat other customers of equal size. Therefore, neither utility is a government contractor within the meaning of the Executive Order, and neither has an enforceable obligation to comply with the equal opportunity clause.
The majority takes the position that by accepting their franchises, NOPSI and MP&L assumed an obligation to furnish the federal government with energy on whatever terms it might wish to impose, including a requirement that they comply with the provisions of the equal opportunity clause. But there is nothing in the record which supports the notion that either the utilities or their respective regulatory authorities were aware that NOPSI and MP&L were undertaking such an obligation at the time the franchise agreements were executed. And since the franchises were agreements with a state or city rather than the federal government, no such obligation can be implied as a matter of law under Section 60-1.4(e) of the regulations. In addition, both utilities accepted their franchises long before Executive Order 11246 was issued. To impose the burden of complying with the equal opportunity clause on them because of actions pre-dating the Order would be inconsistent with Sections 202 & 405 which indicate that the order is triggered only by actions taken after October 24, 1965.
The majority also suggests that because NOPSI and MP&L are public utilities it is justifiable to saddle them with the record-keeping, expense, and other burdens that compliance with the equal opportunity clause entails. It contends that to permit them to use their position as the sole sources of energy within their certificated areas to force the federal government to choose between bargaining over the inclusion of the clause and doing without energy, would be inconsistent with the Supremacy Clause.9 The premise of this argument is that the utilities’ economic leverage is the result of state action, because purely private action cannot violate the Supremacy Clause. This premise is not supported by the record.
*479As the Supreme Court recognized in Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351 n. 8, 95 S.Ct. 449, 454, 42 L.Ed.2d 477, 484 (1974), where it held that a public utility’s termination of service to a customer did not constitute state action for Fourteenth Amendment purposes, “public utility companies are natural monopolies created by the economic forces of high threshold capital requirements and virtually unlimited economy of scale.” See 2 A. Kahn, The Economics of Regulation: Principles and Institutions 119-126 (1971). It is therefore unlikely that NOPSI or MP&L faced any greater competition at the time they accepted their franchises than they do today, and there is nothing in the record to show that they did. If they did not, then by granting them franchises their respective regulatory authorities did little more than acknowledge their pre-existing positions as the sole suppliers of energy within their certificated areas. It appears that the laws of economics rather than those of a state made it possible for NOPSI and MP&L to amass the leverage they possess.
The facts of this case present no conflict between the franchises and the Executive Order. The franchises were created to ensure that a dependable supply of energy would be available to inhabitants of New Orleans and Mississippi at a regulated price. Here, the federal government has availed itself of the benefits of this policy by requiring the utilities to supply it with service under and in accordance with the terms of their franchises, just as any other inhabitant might do. The validity of the franchises and the purposes they are intended to serve have not been challenged but rather affirmed. This is not a case in which a regulatory authority or a franchise holder has invoked a franchise to bar the United States from generating its own energy or from contracting with someone other than the franchise holder as a source of supply. Nor has the United States shown that it is impossible for energy to be otherwise obtained. At most the government suggests that the franchise holders operating under the terms of their franchises are the cheapest sources of energy within their certificated areas. Even the government cannot have the best of all worlds: low-priced energy and a contract vehicle for making the equal opportunity clause enforceable.
II.
Had the court adopted the position of this dissent, the effectiveness of the Executive Order as a tool for eliminating discrimination in employment would not have been destroyed. The vast majority of those supplying goods and services to the federal government are not under a pre-existing legal obligation to do so but rather are contractors within the meaning of the Order. Nothing said here would affect the applicability of the provisions of the equal opportunity clause to them. Nor would such a decision leave public utilities at liberty to treat their employees as they pleased. They are subject to a plethora of state and federal measures designed to eliminate discriminatory employment practices.
I do not dissent to defend discriminatory employment practices. But when the government has chosen to attack them through the mechanism of inserting a nondiscrimination clause in its contracts rather than by enacting a statute, there are limits to what it can accomplish. Those limits have been exceeded here. The majority makes a mistake when it allows the government to forge ahead to a desirable end by means that stand the law of contracts on its head.

. For the purposes of this dissent, I make two assumptions. The first is that the Executive Order is valid and possesses the force and effect of law. The second is that the Secretary of Labor did not exceed the rulemaking authority granted him by the Executive Order when he issued 41 C.F.R. § 60-1.4(e) (1976), as amended, 42 Fed.Reg. 3454, 3459 (1977), which incorporates the equal opportunity clause into all non-exempt government contracts by operation of the Executive Order.

. 3 C.F.R. 169 (1974).

. Id. §§ 202 & 405.

. Id. § 202.

. While the Executive Order also imposes obligations on other classes of individuals, such as *476persons bidding for a government contract, the scope of those obligations is determined by subsequent sections of the Order itself rather than by the equal opportunity clause.

. 3 C.F.R. 169, § 201 (1974).

. NOPSI supplies electricity and natural gas to residents of New Orleans pursuant to an indeterminate permit issued by the New Orleans City Council in 1922. MP&L operates under a franchise granted to it by the Mississippi Public Service Commission in 1956.

. Since MP&L’s interaction with the federal government contains the same essential elements — written and unwritten arrangements for service consummated before and after the issuance of the Order, changes in the rate applicable to the government since 1965, and an express refusal to be bound by the equal opportunity clause — MP&L stands in the same posture as NOPSI, and I shall not needlessly prolong this dissent by recounting its course of dealing in detail.

. U.S.Const., Art. VI, cl. 2.