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Madigan v. Hobin Lumber Co.

Decided: February 25, 1993.

EDWARD R. MADIGAN, SECRETARY OF AGRICULTURE, APPELLANT,
v.
HOBIN LUMBER COMPANY, APPELLEE.



Appealed from: Department of Agriculture Board of Contract Appeals

Before Mayer, Michel, and Lourie, Circuit Judges.

Michel

MICHEL, Circuit Judge.

Edward R. Madigan, Secretary of Agriculture (hereinafter "the government"), appeals from a decision of the United States Department of Agriculture, Board of Contract Appeals (Board), which granted summary judgment in favor of Hobin Lumber Company (Hobin) and denied the government's motion for summary judgment. Hobin Lumber Co., AGBCA No. 87-170-1, 91-3 BCA P 24,213 (1991). The Board held that the government was not entitled to recover on the contract because it had not suffered any damage as a result of Hobin's failure to cut the timber as required by the contract. Because the contract specifically provides that the government is entitled to recover in the event that the contractor does not cut the timber and the government does not resell it, and also provides the method by which the amount of recovery is to be determined, we reverse the Board's decision and direct it to grant summary judgment for the government and award damages in the amount $5,170,707.24.

BACKGROUND

On August 19, 1980, the Forest Service and Hobin Lumber Company (Hobin) entered into a contract for the sale of timber on a certain plot of land, Sudan 016. Hobin failed to cut the timber as required by the contract before its expiration.

The government asserted a claim to recover damages because of Hobin's failure to cut the timber. The government based its right on the following provision of the contract:

B9.4 Failure to cut. In event of (a) termination for breach or (b) Purchaser's failure to cut designated timber on portions of Sale Area by Termination date, Forest Service shall appraise remaining Included Timber, unless termination is under B8.22. Such appraisal shall be made with the standard Forest Service method in use at time of termination.

Damages due the United States for Purchaser's failure to cut and remove such timber meeting Utilization Standards shall be the amount by which Current Contract Value plus the cost of resale, less any effective Purchaser Credit remaining at time of termination, exceeds the resale value at new Bid Rates. If there is no resale, damages due shall be determined by subtracting the value established by said appraisal from the difference between Current Contract Value and Effective Purchaser Credit.

(Emphasis added.)

When, after the period of contract performance, the government chose not to resell the timber, but to preserve the trees as habitat for the northern spotted owl, the government based its damage calculation on the "no-resale" clause of section B9.4. Relying on the Forest Service's appraisal of timber at the time the contract expired, the government asserted the amount due it was $5,170,707.24 in damages.*fn1 The contracting officer determined that Hobin was liable for that amount in his final decision.

Hobin appealed that decision to the Board. Before the Board, both the Forest Service and Hobin moved for summary judgment. Hobin did not dispute that it failed to cut the timber as required by the contract or that under section B9.4 the government would be entitled to $5,170,707.24 in damages. Rather, Hobin argued that because the Forest Service chose not to resell the timber, the Forest Service suffered no damages, and thus, as a matter of law, was not entitled to recover under Louisiana-Pacific Corp. v. United States, 227 Ct. Cl. 756 (1981). Hobin additionally argued that: (1) section B9.4 imposes an impermissible penalty and is therefore void as against public policy, (2) the government's failure to mitigate its damages precludes any recovery, and (3) Hobin's nonperformance was excused by the doctrine of impossibility of performance.

Believing itself bound by Louisiana-Pacific, the Board granted Hobin's motion for summary judgment and denied the Forest Service's motion. The Board concluded that "the Government cannot recover monetary damages for the uncut timber," 91-3 BCA at 121,117, because:

In those circumstances where the Government has determined that the sale area is, for environmental reasons or pursuant to some congressional enactment, more valuable for other purposes than for timber sales, under the Louisiana-Pacific decision, there appears to be no damage for which monetary compensation would be available for the volume of uncut ...


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