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Crown Coat Front Co. v. United States

decided: May 14, 1968.


Waterman and Feinberg, Circuit Judges, and Bartels, District Judge.*fn*

Author: Feinberg

FEINBERG, Circuit Judge:

In 1956, the amount due plaintiff Crown Coat Front Co., Inc. on a contract with defendant United States was reduced by the sum of $270.01 out of a total contract price exceeding $60,000. This minor price adjustment, incredibly, has led to years of still unfinished litigation before the Armed Services Board of Contract Appeals, the United States District Court for the Southern District of New York, this court in banc, and the United States Supreme Court.*fn1 And now, in the latest phase of its dogged pursuit of its remedies, Crown Coat again appeals from a judgment of the United States District Court for the Southern District of New York, Walter R. Mansfield, J., dismissing as time-barred its complaint for damages against defendant United States. For reasons set forth below, we affirm.

As a prelude to further discussion of this appeal, three factors must be stressed. First, a contractor suing the Government must ordinarily do so within six years from the date his right of action accrues. Second, there is a conceptual difference between so-called "disputes clause" claims and "breach" claims growing out of a contract with the Government. Although it is frequently difficult to tell into which category a specific claim falls,*fn2 at least this much can be said: "Disputes clause" claims are "redressable under specific contract adjustment provisions" and therefore subject to the disputes procedure set forth in the contract; "breach" claims are not. United States v. Utah Constr. & Mining Co., 384 U.S. 394, 404 n. 6, 86 S. Ct. 1545, 16 L. Ed. 2d 642 (1966). Third, the prior opinion of this court sitting in banc, Crown Coat Front Co. v. United States, 363 F.2d 407 (1966), still retains significance on certain issues decided therein even though it was reversed on other grounds.

With these points in mind, we turn to the facts of this controversy, which can be related substantially as they appear in the opinion of the Supreme Court, 386 U.S. 503, 507-508, 87 S. Ct. 1177, 18 L. Ed. 2d 256 (1967), but with important additions for matters the parties did not stress there. On May 14, 1956, Crown Coat contracted with the United States to supply a specified number of canteen covers which were to be lined with mildew-resistant felt of certain specifications. The Government, which was authorized to inspect materials to be used under the contract, tested and rejected certain samples of felt furnished by Crown Coat because they allegedly did not contain the contract quantities of mildew inhibitors. Crown Coat agreed to a price reduction of one-half cent per canteen cover, a total of $270.01, and was permitted to complete the contract with the rejected felt. Final delivery, originally scheduled for October 11, 1956, was made on December 14, 1956.

In March 1959, Crown Coat allegedly first discovered the nature of the tests which the United States had performed on the felt. Objecting to the use of such tests, Crown Coat filed a claim with the government contracting officer in October 1961. Crown Coat contended that use of an improper test was a "change in contract specifications" under the "changes" clause of the contract,*fn3 entitling it to an equitable adjustment in the form of a refund of the price reduction and compensation for increased costs occasioned by substantial delay resulting from the Government's rejection of the felt samples. The claim was brought before the contracting officer as a disagreement on a question of fact within the meaning of the "disputes" clause of the contract,*fn4 which requires that administrative relief be exhausted. On February 21, 1962, the contracting officer denied the claim which had been submitted to him; within a week, Crown Coat appealed to the Armed Services Board of Contract Appeals, a further administrative step required for assertion of a disputes clause claim. As the expiration of six years from the 1956 final delivery date approached, the Board had not yet ruled. On December 12, 1962, just two days before the end of the six year period, Crown Coat filed a complaint in the Court of Claims under 28 U.S.C. § 1491, seeking $25,270.01 damages for breach of the contract by use of improper tests. Two months later, on February 28, 1963, the Board of Contract Appeals affirmed the contracting officer's decision.

On July 31, 1963, Crown Coat commenced the instant action in the United States District Court for the Southern District of New York pursuant to the Tucker Act, 28 U.S.C. § 1346(a) (2). The complaint alleged that the Board of Contract Appeals decision was capricious, arbitrary and not supported by substantial evidence, and asserted that use of improper and inaccurate tests entitled Crown Coat to an equitable adjustment under the contract's changes clause; the amount sought was $9,500.*fn5 At this point, therefore, there were then pending against the Government two actions growing out of the same transaction: one filed in the Court of Claims in December 1962, and the other filed in the district court in July 1963. The parties then returned to the Court of Claims. Because of the pendency of the district court proceedings, see 28 U.S.C. § 1500, Crown Coat moved to "suspend" its action in the Court of Claims, and the Government moved to dismiss. In September 1963, the Court of Claims dismissed the action, without prejudice.*fn6

The district court action was thus left standing alone. In that action, the United States, among other things, asserted that the suit was time-barred under 28 U.S.C. § 2401(a), because it was brought more than six years after it had accured.*fn7 Chief Judge Ryan agreed and dismised the action on that ground.*fn8 This court, sitting in banc, affirmed that dismissal in a five-to-four decision, 363 F.2d 407 (1966). All nine judges agreed that Crown Coat's action accrued on December 14, 1956, the date of the final delivery of the canteen covers by Crown Coat. The issue that divided this court was whether the administrative proceeding before the contracting officer and the Board of Contract Appeals tolled the applicable six-year statute of limitations; if it did not, the district court suit in July 1963 was not timely. The majority held that the statute was not tolled; the minority thought that it was. Thereafter, the Supreme Court reversed, 386 U.S. 503, 87 S. Ct. 1177, 18 L. Ed. 2d 256 (1967), but on an entirely different theory, and did not discuss the tolling question that had divided this court. The Court held that a disputes clause action does not even accrue until the end of the required administrative proceedings. Therefore, if Crown Coat's claim in the district court action was of that type, it was not barred by the statute of limitations. However, the Court added the following significant statement (id. at 522, 87 S. Ct. at 1187):

The Government in its answer to the complaint, however, denied that the claim arose under the contract, characterized it instead as a pure breach of contract claim which accrued no later than the date of the completion of the contract. The District Court did not decide this issue; nor do we. This matter will be open on remand to the District Court. If the claim is not within the disputes clause, the court may then determine whether it is time-barred.

Thus, Crown Coat found itself back in the district court with an indication from the Supreme Court that if its basic claim was after all of the breach rather than the disputes clause variety, it might be untimely. Thereupon, for reasons best known only to it, Crown Coat moved to amend its complaint in the district court to assert a breach of contract claim for $19,556.03. The Government consented to the change in the theory of the complaint. However, it contended that the statute of limitations clearly barred the breach action, since all nine judges of this court had ruled that the claim accrued in December 1956, more than six years before the action was filed in July 1963. Crown Coat replied, inter alia, that the action it had brought in the Court of Claims in December 1962, which was timely when filed,*fn9 tolled the statute of limitations. In any event, it urged the district court not to pass upon the statute of limitations question but to exercise its power to transfer the district court action to the Court of Claims under 28 U.S.C. § 1406(c). That section provides:

If a case within the exclusive jurisdiction of the Court of Claims is filed in a district court, the district court shall, if it be in the interest of justice, transfer such case to the Court of Claims, where the case shall proceed as if it had been filed in the Court of Claims on the date it was filed in the district court.

Crown Coat pointed out that if its amendment to increase the damages claimed was allowed, the district court would no longer have jurisdiction*fn10 and the case would be within the exclusive jurisdiction of the Court of Claims and, therefore, subject to transfer.

Judge Mansfield denied the damage amount amendment as not in the interest of justice. On the tolling issue, the judge reasoned that congressional consent to suit should be strictly construed as a waiver of sovereign immunity; he held that "Commencement of an action against the Government that is later dismissed without prejudice as improperly brought does not * * * toll the statute of limitations." Accordingly, he refused to transfer the district court action to the Court of Claims and dismissed the complaint. 275 F. Supp. 10 (S.D.N.Y.1967). It is from this decision that Crown Coat appeals.

Thus, we have the following chain of events: Crown Coat, having established at great effort that a disputes clause claim was timely, returned to the district court and voluntarily relinquished all that it had won. It agreed that its claim was a breach claim even though all nine active judges of this court had apparently ruled in banc that any claim for breach of contract accrued no later than December 14, 1956, more than six years before the action in the district court was commenced. Nevertheless, its motion in the district court for an amendment of theory and increase of damages and transfer to the Court of Claims made no mention of the statute of limitations problem. Then, when the Government raised the point, Crown Coat first took the position that the district court should transfer the action to the Court of Claims without deciding the question. Finally, it met the issue head-on with two arguments not made before: (1) The filing of its 1962 action in the Court of Claims tolled ...

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