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COMMONWEALTH EDISON CO. v. ALLIED-GENERAL NUCLEAR

February 14, 1990

COMMONWEALTH EDISON COMPANY, Plaintiff,
v.
ALLIED-GENERAL NUCLEAR SERVICES, et al., Defendants


Richard A. Posner, United States Circuit Judge, sitting by designation.


The opinion of the court was delivered by: POSNER

RICHARD A. POSNER, CIRCUIT JUDGE, SITTING BY DESIGNATION

 Ten years ago, Commonwealth Edison filed this suit for breach of contract against Allied-General Nuclear Services (AGNS), a partnership of companies, and against the partners themselves. A diversity suit governed (pursuant to the choice of law provision in the contract) by New York law, it had bounced from judge to judge over the years until it fell into my lap when I volunteered to assist the Northern District of Illinois in clearing its growing backlog of civil jury cases. On October 19, 1989, I issued an order resolving a number of open questions. Before me now are a number of other motions, three of which -- motions for partial summary judgment -- are both fundamental in defining the scope of the trial (which will begin on March 19, 1990) and of sufficient general interest to warrant a published opinion.

 The complexity of the issues and the importance of this decision to the scope of the lawsuit persuaded me that it would be prudent to solicit the parties' views before making the decision final, so on January 30 I issued a proposed opinion and directed the parties to submit by February 9 briefs setting forth any disagreements they might have with the findings and conclusions in it. I stated that any objection not made in the briefs would be deemed waived. The briefs have been submitted and the matter is now ripe for decision. It should go without saying that this opinion supersedes the proposed one, from which it differs, indeed, in important respects.

 A complex, high-stakes case between two large law firms often develops a life of its own. That has happened here. In their relentless pursuit of the "facts," the parties have lost sight of the central legal issues. I am convinced that there is only one, minor, triable issue of liability; the trial will be confined for the most part to limited issues of damages.

 Some background will be necessary to make these conclusions understandable. Commonwealth Edison owns and operates nuclear power plants. In these plants, fuel manufactured from uranium undergoes fission, producing heat that makes steam to drive turbines that generate electricity. Eventually the fuel becomes depleted of fissionable material and must be discharged from the reactor and replaced by new fuel. The spent fuel contains, however, some uranium, which can be extracted and used to manufacture new fuel. The beauty of reprocessing spent nuclear fuel is that it not only reclaims what would otherwise be a waste product but also helps solve the vexing problem of how to dispose of spent nuclear fuel safely. The spent fuel is highly radioactive and no one has come up with a method for permanently storing it that is proof against contamination of the soil or water in which it is stored. As a result, most such fuel remains on site at the nuclear power plant, stored in pools of water to await the ever-receding day when a permanent home for it will be found, and taking up more and more room as the operation of the plant throws off a growing accumulation of spent fuel.

 All is not rosy, however, with the idea of reprocessing nuclear fuel. Reprocessing produces plutonium as a byproduct, and plutonium is the key component of nuclear weapons. Some people fear that widespread commercial reprocessing would promote nuclear proliferation and in particular make it easier for terrorists to obtain the components for assembling nuclear weapons. Westinghouse Electric Corp. v. United States, 598 F.2d 759, 762 n. 4 (3d Cir. 1979).

 A potential hitch evident to the parties at the time of the negotiations was that although the Nuclear Regulatory Commission had issued a construction permit for the Barnwell plant, and the plant was fairly close to completion, the Commission had not yet issued an operating license and until AGNS had that it could not lawfully reprocess nuclear fuel. Edison was concerned that AGNS might drag its feet in obtaining a license until it had signed up enough other electrical utilities to be able to operate Barnwell at full capacity. Section 16 of the contract, the Facility Contingency Plan, was intended to respond to this concern. Section 16.1(a) provides that "subject to paragraph (b) below, this Agreement shall be construed as [AGNS's] unequivocal commitment to (1) be ready to process fuel or (2) to have such fuel processed by others by not earlier than one hundred twenty (120) days after any discharge [i.e., removal of spent fuel from the reactor core] and by not later than (i) twelve (12) months after the discharge hereunder or (ii) December, 1975, whichever is later." Paragraph (b) provides, so far as relevant here, that if Edison makes its demand under (a) "on or before a date which, except for reasons of force majeure (provided, however, with regard to commencement of commercial operation, failure to obtain an operating license shall not be deemed a force majeure reason), is prior to the commencement of commercial operation of [the Barnwell] Plant," then AGNS shall be required to deliver "fissile material equivalent to that which would have been recovered from the fuel" discharged by Edison if Barnwell had reprocessed it. In other words, if the plant was not in operation when AGNS was required by paragraph (a) to accept Edison's spent fuel for reprocessing, AGNS would have to provide equivalent fuel unless the plant was not in operation for force majeure reasons other than AGNS's "failure to obtain an operating license" for the Barnwell plant. A mere failure to obtain an operating license would not excuse AGNS's failure to perform even if AGNS had sought a license diligently. But it is equally important to note, in view of Edison's reiterated observation that nothing ever occurred to make the supplying of equivalent fissile material impossible, that when and if AGNS was prevented by causes that do count as force majeure from placing Barnwell into commercial operation, it was excused from supplying equivalent fissile material whether or not it would have been possible or practicable to supply it.

 The operating license has never been issued. In 1975 the Nuclear Regulatory Commission delayed the issuance of any operating licenses for nuclear fuel reprocessing plants pending hearings to determine the environmental impact of such reprocessing. Mixed Oxide Fuel, 40 Fed.Reg. 53056, corrected, 40 Fed.Reg. 59497 (1975). The Commission decided in the same order to grant interim operating licenses, 40 Fed.Reg. at 53061, but this decision was reversed in National Resources Defense Council, Inc. v. NRC, 539 F.2d 824 (2d Cir. 1976). The Second Circuit's decision was itself vacated and remanded to determine mootness, Allied-General Nuclear Services v. National Resources Defense Council, Inc., 434 U.S. 1030, 54 L. Ed. 2d 777, 98 S. Ct. 759, 98 S. Ct. 760 (1978) (per curiam), but by then it was too late for interim licensing. For in April 1977, with interim licensing suspended by virtue of the Second Circuit's as yet unvacated decision and the environmental-impact proceeding not yet complete, President Carter had declared an indefinite moratorium on commercial reprocessing, 13 Weekly Comp.Pres.Doc. 502, 503 (1977); and although this declaration had no legal force, the Nuclear Regulatory Commission was impressed and the next week adjourned the environmental hearings until further notice. Mixed Oxide Fuel, 42 Fed.Reg. 22964 (1977). On December 23, 1977, the Commission followed up with an order terminating the environmental proceeding and all pending licensing proceedings (expressly including AGNS's application for an operating license for Barnwell), but stating that it would reexamine these matters after completion of two pending studies of the safety of nuclear reprocessing; completion was thought to be two years away. Mixed Oxide Fuel, 42 Fed.Reg. 65334 (1977). It was this order that caused the Supreme Court to remand the National Resources Defense Council case for a determination of whether the case had become moot.

 On October 8, 1981 President Reagan announced that he was "lifting the indefinite ban which previous administrations placed on commercial reprocessing activities in the United States." Statement Announcing a Series of Policy Initiatives on Nuclear Energy, 1981 Public Papers of the President 903, 904, quoted in Allied-General Nuclear Services v. United States, 839 F.2d 1572, 1574 (Fed.Cir. 1988). Presumably he was referring to the policies of the Carter Administration, for insofar as the "ban" was due to orders by the Nuclear Regulatory Commission and the courts the President could not lift it by a proclamation. By this time the studies had been completed (1980), and the Commission, notwithstanding the Carter Administration's continued support for the moratorium on commercial reprocessing, had on August 13, 1980, issued an order soliciting comments on whether to reopen the environmental proceeding. 45 Fed.Reg. 53933. But the Commission had not yet either reopened it or any of the licensing proceedings; indeed, two days later the Department of Energy noted that "reprocessing has been indefinitely deferred." Compliance With the National Environmental Policy Act, 45 Fed.Reg. 54399, 54399-01. Nor did President Reagan's statement result in the reopening of either type of proceeding. The fall in oil prices that began in 1981, and growing hopes (later dashed) that a solution to the problem of long-term storage of nuclear wastes was imminent, had removed any sense of urgency about commercial reprocessing either as an additional source of energy or as a solution to the storage problem. In addition, and perhaps critically, AGNS itself had lost interest in commercial reprocessing and was trying to sell Barnwell to the Department of Energy, possibly for storage of nuclear fuel. See id. There is evidence that AGNS's loss of interest in commercial reprocessing was the reason that the hearings were not reopened in the wake of President Reagan's statement, though this is not important. As late as 1985, the Commission reaffirmed its 1977 order suspending the environmental proceeding. Revocation of Policy Statements, 50 Fed.Reg. 45597, 45597-03 (1985). No facility for the commercial reprocessing of spent nuclear fuel has been licensed since the initial moratorium went into effect back in 1975, and there are no prospects for such licensing, because no one is interested in the reprocessing business any more.

 Edison made repeated demands of AGNS to accept spent fuel and to provide reprocessed or equivalent fissile material. AGNS refused, precipitating this suit, which after being carved down by my previous orders seeks damages for the net value of the performance of the contract: essentially, for the costs that Edison incurred in storing spent fuel that (it contends) AGNS was required to take under the contract, and for the difference between the contract price of equivalent fissile material and the price Edison had to pay to buy the same amount of nuclear fuel on the open market.

 With this as undisputed (or indisputable) background, I turn to the three motions for partial summary judgment.

 The interpretation of contractual language is a task for judge, not jury, and therefore meet for summary judgment, provided that the language is sufficiently clear to allow confident interpretation without recourse to "extrinsic" evidence, for example, testimony by the persons who negotiated the contract. This is the "four corners" rule, a rule of substantive law for purposes of determining whether in a diversity case state or federal law supplies the rule of decision. There is a trend away from the four corners rule toward an approach in which extrinsic evidence may be used not only to disambiguate a contract that appears ambiguous but also to show that apparently unambiguous language is ambiguous when the context in which the contract was negotiated is understood. Agfa-Gevaert, A.G. v. A.B. Dick Co., 879 F.2d 1518, 1521-22 (7th Cir. 1989). New York has, as noted in Agfa-Gevaert, resisted the trend. Id. at 1522; West, Weir & Bartel, Inc. v. Mary Carter Paint Co., 25 N.Y.2d 535, 540, 255 N.E.2d 709, 711-12, 307 N.Y.S.2d 449 (1969); Wells v. Shearson Lehman/American Express, Inc., 72 N.Y.2d 11, 19, 526 N.E.2d 8, 12, 530 ...


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