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Projects

April 21, 1998

HARBERT/LUMMUS AGRIFUELS PROJECTS, HARBERT INTERNATIONAL, INC., ABB LUMMUS CREST, INC AND LUMMUS CREST, INC., PLAINTIFFS-CROSS APPELLANTS,
v.
THE UNITED STATES, DEFENDANT-APPELLANT.



Appealed from: United States Court of Federal Claims

Before Schall, Circuit Judge, Friedman, Senior Circuit Judge, and Gajarsa, Circuit Judge.

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

Judge Bruggink

DECISION

The United States seeks review of the decision of the United States Court of Federal Claims in Harbert/Lummus v. United States, 36 Fed. Cl. 494 (1996), holding that the United States entered into an oral, unilateral contract with Harbert/Lummus *fn1 to continue guaranteeing future borrowing requests until completion of a construction project and awarding Harbert/Lummus damages for breach of this contract. Harbert/Lummus cross-appeals, seeking review of the trial court's method of calculating these damages and refusal to recognize the existence of a second contract to accelerate the construction and payment schedule. Because the contracting officer lacked the authority to enter into the oral, unilateral contract and did not ratify the contract, we reverse the decision of the trial court regarding the existence of a binding contract in which the Department of Energy ("DOE") promised not to suspend its guarantee and vacate the trial court's damages award. However, we affirm the trial court's finding that DOE was not contractually bound to an accelerated construction schedule.

BACKGROUND

The facts of this case have been set out in great detail in the trial court's decision and will be referred to in this opinion only to the extent necessary for an understanding of the issues that give rise to this appeal. During the oil crisis in the late 1970's, the federal government investigated alternative sources of energy. Congress passed the Biomass Energy and Alcohol Fuels Act of 1980 (the "Act"), which created the Alcohol Fuels Program (the "Program") to encourage private companies to design and build alternative fuel energy plants. The Act created the Office of Alcohol Fuels (the "Program Office") within DOE to administer the Program. Specifically, the Program Office was vested with the power to issue government loan guarantees for up to 90 percent of the cost of construction of ethanol and other alternative fuel plants. The Program Office had no independent contracting authority.

One of these loan guarantees was issued to Agrifuels Refining Corporation ("Agrifuels"), which in turn contracted with Harbert/Lummus to construct an ethanol plant. The funds that Agrifuels needed to construct the plant were provided by lending banks and guaranteed by DOE through a loan guarantee agreement and a loan servicing agreement. Harbert/Lummus was not a party to these contracts and was in contractual privity only with Agrifuels through the construction contract. This construction contract provided for a bonus for Harbert/Lummus for early completion and a penalty for late completion.

The construction payment schedule, which was attached to both the construction contract and the loan servicing agreement, called for a 21- month work and payment schedule. During the pre-closing negotiations and after construction began, Harbert/Lummus repeatedly requested that all the parties approve an accelerated 18-month work and payment schedule. Several DOE officials within the Program Office approved of the schedule modification, but later this approval, which was only circulated internally in the Program Office, was withdrawn. The trial court found that the DOE's Contracting Officer (the "CO") never expressed to Harbert/Lummus an intent to enter into a contract to modify this written schedule. See Harbert/Lummus v. United States, 36 Fed. Cl. 494, 512-13 (1996). The trial court held that no contract to accelerate the construction schedule was formed between Harbert/Lummus or Agrifuels and the government. Id.

During construction of the plant, Harbert/Lummus stated at a meeting at which all the parties were present that it was not receiving timely payments and that it wanted the accelerated construction schedule to be adopted by the parties. The Deputy Director of the Program Office responded that "DOE was committed to funding the project to completion, and if the contractor completes the project, all the payments would work out in the end." Id. at 506. The Deputy Director did not have authority to bind the government. The trial court found that the CO was present at the same meeting, but did not question the offer and was silent after the offer was made. Id. The trial court found that the CO adopted the Deputy Director's statement by his silence and created a new, binding unilateral offer to Harbert/Lummus that the government would continue its role as guarantor of future borrowing requests by Agrifuels in exchange for Harbert/Lummus' continued work on the project. Id. at 513. When Harbert/Lummus continued work on the project, the trial court held that Harbert/Lummus had accepted DOE's offer, thereby creating a binding contract. Id. at 513-14.

Prior to completion of the plant, the ultimate parent companies of Agrifuels declared bankruptcy, triggering an event of default under the loan agreements between Agrifuels and DOE. DOE eventually decided to stop funding the project and Harbert/Lummus sued for damages for breach of DOE's promise to not withdraw its guarantee until completion of the project. The trial court awarded Harbert/Lummus $2,870,768 in damages for breach of this unilateral contract.

This appeal concerns the alleged formation of two oral contracts. The first contract regards the unilateral offer by the Deputy Director to continue guaranteeing Agrifuels' borrowing requests until completion of the project. The second contract regards the alleged acceptance by DOE of an accelerated construction and payment schedule. With regard to the unilateral contract to continue to guarantee funding, the government argues that the trial court erred in recognizing this contract as binding because (1) the Act and its implementing regulations do not authorize DOE to contract directly with construction contractors, (2) DOE could not enter into this oral contract because of restrictions imposed by statute and regulations, (3) the CO was not delegated the authority to enter into such a contract, and (4) the CO did not ratify the contract. In its cross-appeal, Harbert/Lummus argues that the trial court erred in calculating the damages with respect to DOE's breach of this oral agreement. We need only determine whether the CO had the authority to enter into the oral, unilateral contract and whether he ratified such contract. Harbert/Lummus also argues that the trial court erred in finding that DOE was not bound by a second agreement to accelerate the construction schedule.

Discussion

In reviewing judgments of the Court of Federal Claims, we review conclusions of law de novo and findings of fact for clear error. See City of El Centro v. United States, 922 F.2d 816, 819 (Fed. Cir. 1990). Because neither party challenges the trial court's findings of fact, we review the trial court's decision with regard to contract formation de novo. See Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997) ("In ...


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