Rockies Express Pipeline LLC v. Interior
730 F.3d 1330
Fed. Cir.2013Background
- Rockies Express (pipeline developer) and Interior (MMS/DOI) executed a Precedent Agreement requiring Interior to reserve 2.5% of pipeline capacity and to execute firm transportation service agreements (FTSAs), with ten-year reservation payments, as part of a RIK (royalty-in-kind) program.
- The Precedent Agreement included an Appendix B FTSA form and limited Interior’s right to terminate except if directed by legislative action or a change in federal policy; Rockies Express refused a termination-for-convenience clause during negotiation.
- Interior executed the West FTSA and shipped gas, but refused to execute the East FTSA in 2008 citing an Office of Solicitor memo and demanding FAR provisions; negotiations failed and Interior stopped shipping and refused to sign the East FTSA.
- Rockies Express terminated the Precedent Agreement (claiming material breach) and submitted claims; DOI later announced a phase-out of the RIK program (December 2009 memorandum) but said existing RIK contracts would be honored.
- The CBCA found Interior breached and awarded reservation charges through October 31, 2009, reasoning the Secretary’s policy decision would have led Interior to terminate FTSAs; Rockies Express appealed that limitation on damages, and Interior cross-appealed jurisdiction and liability.
Issues
| Issue | Rockies Express’ Argument | Interior’s Argument | Held |
|---|---|---|---|
| Whether the Precedent Agreement is a procurement contract under the Contract Disputes Act | It is a binding procurement contract obligating Interior to execute FTSAs and pay reservation charges | It is an agreement to agree, not a procurement contract (no services acquired, no expenditure yet) | Precedent Agreement is a procurement contract under the CDA; CBCA had jurisdiction (affirmed) |
| Whether Interior materially breached by refusing to execute the Rockies Express East FTSA | Refusal to sign East FTSA and failure to pay post-April 1, 2009 reservation charges breached the agreement | FTSA would have been illegal or required FAR/termination-for-convenience clause; contracting officer lacked authority | Interior materially breached; defenses (illegality, Christian clause, lack of authority) rejected (affirmed breach) |
| Whether Interior’s later policy announcement limited Rockies Express’s damages | Post-breach policy change would not excuse liability; Rockies Express is entitled to damages through contract term | Secretary’s phase-out constituted a change in federal policy that would have allowed termination under Provision 3(b), limiting damages to Oct 31, 2009 | Secretary’s announcement did not effect a policy change that vitiated the FTSA (existing contracts to be honored); Board erred to limit damages (reversed) |
| Proper measure and timing of damages after material breach | Rockies Express seeks full contract balance (profit and costs) through term; termination upon breach entitles it to damages to end of term | Damages limited by post-breach policy action and mitigation/offsets | Rockies Express entitled to pecuniary loss of anticipated and unearned profits through contract term; Board must calculate damages on remand (affirm liability, reverse damage limitation) |
Key Cases Cited
- G.L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963) (court may read required contract clauses into government contracts)
- Cities Service Helex, Inc. v. United States, 543 F.2d 1306 (Ct. Cl. 1976) (material breach permits injured party to terminate and recover damages to end of contract)
- Northern Helex Co. v. United States, 524 F.2d 707 (Ct. Cl. 1975) (post-breach termination by government ineffective to limit damages)
- John Reiner & Co. v. United States, 325 F.2d 438 (Ct. Cl. 1963) (when illegality is not obvious, contractor receives benefit of reasonable doubts)
- Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir. 1988) (contractor entitled to remedy when government cannot claim illegality to escape liability)