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REGIONAL TRANSP. AUTHORITY v. GRUMMAN FLXIBLE CORP.

February 9, 1982

REGIONAL TRANSPORTATION AUTHORITY, PLAINTIFF,
v.
GRUMMAN FLXIBLE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Regional Transportation Authority ("RTA") sues Grumman Flxible Corporation ("Flxible") for the sale of 205 allegedly defective buses. RTA charges the buses had to be removed from service, causing RTA to incur otherwise unnecessary costs of (1) storage, (2) security services and (3) leasing replacement buses to provide public transportation during the repair period. Flxible has moved to dismiss. For the reasons stated in this memorandum opinion and order Flxible's motion is granted.*fn1

Exhaustion of Administrative Remedy

Section 2.17 of the Flxible-RTA sales contract (the "Agreement") provides:

  Except as otherwise provided in this contract, any
  dispute concerning a question of fact arising
  under this contract which is not disposed of by
  agreement shall be decided by the Contracting
  Officer, who shall reduce his decision to writing
  and mail or otherwise furnish a copy thereof to
  the contractor.

Flxible argues RTA's complaint involves an "issue of fact arising under the contract" so that RTA must first exhaust the Agreement's administrative remedy before it can file a court action.

This case differs from the normal contract interpretation problem of construing unique language chosen by the parties. Here Section 2.17 (the "disputes clause") is a standard provision employed in government contracts for at least 30 years. Many courts including the Supreme Court have examined the scope of the disputes clause, providing this Court with clear guidance to its proper application.

In its definitive reading of the disputes clause, United States v. Utah Construction Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642, (1966), the Supreme Court distinguished two types of contract-related disputes. One kind is specifically anticipated and provided for in a contract. For example "when the contract makes provision for equitable adjustment of particular claims, such claims may be regarded as converted from breach of contract claims to claims for relief under the contract." Id. at 404 n. 6, 86 S.Ct. at 1551 n. 6. But any claim "not redressable under specific contract adjustment provisions" is termed a "breach of contract claim" and not subject to the disputes clause. Id. at 404-05 n. 6, 86 S.Ct. at 1551-52 n. 6. Another court, Bethlehem Steel Corp. v. Grace Line, Inc., 416 F.2d 1096, 1101 (D.C. Cir. 1969), has summed up the distinction as follows:

  A fact dispute is one "arising under this
  contract" only when the disputed fact is capable
  of complete resolution by a procedure specified in
  the contract. In consequence, claims which are
  adjustable under contractual provisions must be
  submitted for the administrative determinations
  prescribed by the contract, while claims for
  breach of contract — those not adjustable in that
  fashion — may be litigated in a court of competent
  jurisdiction without previous resort to that
  procedure.

Application of that dichotomy here leads to the conclusion that RTA's claim is within the disputes clause. Agreement Part IV ("Warranty Provisions") affords an extensive warranty for the complete coach (¶ 1.1.1) as well as many subsystems and components (¶ 1.1.2). It goes on to deal at length with Flxible's duty to repair any warranty-covered defects. For example:

    (1) Repairs must begin within 10 working days
  after Flxible receives notice of a defect (¶ 2.2).
    (2) Flxible must provide spare parts and tools
  at its own cost (¶ 2.2).
    (3) RTA can require Flxible to remove the buses
  from RTA property during the repairs (¶ 2.2).
    (4) If a widespread defect ("fleet defect")
  occurs Flxible must undertake a program reasonably
  designed to prevent the recurrence ...

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