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Dixson v. United States

April 15, 1998

TOM E. DIXSON AND DIEGO ENTERPRISES, INC., PLAINTIFFS-APPELLANTS,
v.
THE UNITED STATES, DEFENDANT-APPELLEE.



Appealed from: United States Court of Federal Claims judge Weinstein

Before Rich, Newman, Circuit Judges, and Archer, Senior Circuit Judge.

The opinion of the court was delivered by: Newman, Circuit Judge.

Tom E. Dixson and Diego Enterprises (together "Dixson") appeal the decision of the United States Court of Federal Claims, *fn1 holding that Dixson did not perfect its withdrawal of its bid and thus forfeited its earnest money and other sums. We reverse the judgment, and remand for repayment of the forfeited sums.

BACKGROUND

The facts are not in dispute. The matter was decided on cross-motions for summary judgment.

By contract between Dixson and the Department of Housing and Urban Development (HUD), Dixson agreed to purchase the Escondido Retirement Service Center in Escondido, California, for $3,700,000 at a foreclosure sale. Dixson paid HUD $75,000 as an earnest money deposit and $357,050 in fees for several extensions of the closing date. The contract contained provisions for liquidated damages and risk of loss, as follows:

7. Liquidated Damages. Should Bidder fail or refuse to perform its obligations under this Acknowledgment for any reason . . . the earnest money deposit and any extension fees, paid under section 8, shall be retained by . . . HUD as liquidated damages.

9. Risk of Loss and Rights of Rescission. In the event of any substantial damage to the Project prior to closing by any cause (including, but not limited to fire, flood, earthquake, tornado and significant vandalism) other than willful acts or neglect of Bidder, HUD, in its sole discretion, may negotiate with the Bidder for a reduction in the sales price corresponding to the estimated amount of damages . . . . If HUD and the Bidder are unable to agree on the amount by which the purchase price should be reduced . . . Bidder may withdraw its bid, in which case HUD will . . . return the earnest money deposit and any extension fee(s).

(Emphases added.)

Before the closing, the property suffered severe rainwater and related damage. At the time there was disagreement as to the extent of the damage, as well as to the cost of repair. The parties attempted to negotiate a reduction in price, but were unsuccessful. Seven days before the scheduled closing, with no further extension available, Dixson wrote to HUD withdrawing the bid unless any of several proposed price reductions was accepted by HUD. The government refused to accept the withdrawal, stating that the damage was not "substantial" and thus that the withdrawal terms of Section 9 did not apply.

The Court of Federal Claims held that although the government now conceded that the damage was substantial, Dixson had not properly withdrawn its bid in the letter that it sent to HUD, and thus forfeited the deposit and fees. This appeal followed.

DISCUSSION

The issue is the legal effect of the letter Dixson sent to HUD on March 24, 1993. The letter stated:

We have met again with our contractor, John Porter, to assess the damage and necessary repairs to the project. Although we feel less concerned about water infiltrating the electrical systems, the more we examine the facility, the more concerned we are about damage that can't be seen and probable long term problems if extensive action is not taken now. ...


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