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CONSUMERS POWER CO. v. NUCLEAR FUEL SERVS.

March 4, 1981

CONSUMERS POWER COMPANY, Plaintiff,
v.
NUCLEAR FUEL SERVICES, INC., Defendant



The opinion of the court was delivered by: CURTIN

Nuclear energy is currently a hot topic of debate in the body politic. It has been variously described as the answer to our domestic energy needs and as a potential poison threatening the very existence of society. One of the more controversial areas of disagreement concerns the storage and recycling of spent nuclear fuel. Questions have been raised as to the safety of nuclear reprocessing installations, as a result of dangers presented by both man-made and natural phenomena. See generally, Comptroller General, Efforts to Clean Up the Shut-Down Western New York Nuclear Service Center (June 6, 1980). As federal and state governments struggle with assessing the danger of nuclear energy as compared with its potential benefit, the industry has continued to negotiate contracts for the disposal of spent nuclear fuels. On occasion, government safety regulations impose limitations on existing contracts, rather than have effect only prospectively on new contracts. When regulatory restrictions and contract rights conflict, the courts are called upon to decide which con tract rights survive. Such is the present controversy.

FACTS

In 1970, Consumers Power Company, an electric utility located in Jackson, Michigan, entered into a contract with Nuclear Fuel Services, Inc., of Rockville, Maryland, for the chemical reprocessing and supply of Consumers Power's nuclear fuels. The reprocessing was to be performed at the Nuclear Fuel Services plant in West Valley, New York. The contract was let pursuant to bid specifications issued by Consumers Power. By the terms of the contract, which was dated October 14, 1970, the parties anticipated that Nuclear Fuel Services would reprocess Consumers Power's spent nuclear fuel, making it reusable or, in the alternative after January 1, 1975, supply Consumers Power with equivalent material.

 At the time that the contract was entered into, both parties were aware that Nuclear Fuel Services contemplated undergoing a substantial revamping and expansion of its West Valley reprocessing facility. They apparently expected the construction to be completed early in the decade. They made provision for an equitable adjustment due to changes in costs which had taken place during the construction period, but such adjustment was not to take into account costs attributable to the then contemplated revamp and expansion program itself. Although in 1972 Nuclear Fuel Services did cease reprocessing in order to undertake these changes in its West Valley plant, the contemplated plant improvements were never executed, and the plant never reopened. *fn1" In fact, except for approximately six tons processed prior to the shut-down early in 1972, the contract has not been performed.

 The facts which led up to this situation are somewhat confusing, but I have tried to set them out as clearly as I can. In 1972, at about the same time that the plant was closed to permit the expansion work, the Atomic Energy Commission notified Nuclear Fuel Services that a construction permit would be required for Nuclear Fuel Services to continue the revamp and expansion program. Nuclear Fuel Services, in response, filed an application for such license which would have enabled it to construct and operate the modified plant. Although considerable engineering work had already been completed and some manufactured components delivered, the actual construction work could not begin without the permit. Consequently, the scheduled dates for completion of the project and resumption of reprocessing was pushed back several years to 1975 or 1976.

 The next event took place on February 7, 1975, when Consumers Power notified Nuclear Fuel Services that it was exercising its option under the contract for equivalent material. Subsequently, in May 1975, the Nuclear Regulatory Commission, which had by that time replaced the Atomic Energy Commission, announced that it would decide whether to permit the recycling of plutonium in 1978. This pushed the date for reopening the plant back even further.

 At about that time, Nuclear Fuel Services also undertook an evaluation of the financial impact of changes in regulatory requirements related to the licensing process. This evaluation led Nuclear Fuel Services to the conclusion that resumption of operations at West Valley could not take place at least until 1983, well after the time when Nuclear Fuel Services claims to have expected performance under the contract to have been completed. As a result, on July 11, 1975, Nuclear Fuel Services notified Consumers Power that the contract was at an end "as a result of the regulatory situation."

 On February 23, 1976, Consumers Power formally rejected Nuclear Fuel Services' position and requested delivery of the equivalent material by December 31, 1976. In addition, on February 24, 1976, Consumers Power filed the instant lawsuit. Nuclear Fuel Services contends the option for equivalent material was not validly exercised and that in no event would delivery have been required under the contract until "well into 1977."

 In April 1976, the Nuclear Regulatory Commission increased the seismic requirements for the Nuclear Fuel Services plant. Nuclear Fuel Services evaluated the construction which would have been required to comply with the new seismic requirements and in June 1976, concluded that the changes in the regulatory requirements had made the entire West Valley project commercially impracticable. The Nuclear Fuel Services Board voted to withdraw from the business of reprocessing entirely on September 17, 1976.

 PROCEDURAL HISTORY

 Plaintiff moved for partial summary judgment on June 2, 1976, and defendant cross-moved for summary judgment on September 13, 1976. *fn2" Because the parties continued to submit affidavits, oral argument was adjourned by consent until November 3, 1976. On January 13, 1977, I denied the motion for summary judgment from the bench.

 While I was preparing a written order explaining my decision, President Carter issued a statement on April 7, 1977, regarding national nuclear fuel policy. After reviewing this statement, I directed the parties to submit a memorandum explaining the new government policy and its effect on the lawsuit. Order of April 21, 1977. Subsequently, the Nuclear Regulatory Commission issued an order with respect to the same matter, and I directed the parties to file supplemental memoranda regarding the Commission's order as well. Order of January 18, 1978. All memoranda were received on February 12, 1979.

 Since at that point the case had seemingly become one primarily concerned with damages rather than specific performance, I did not assign it a priority for decision. In addition, I wanted time to consider the complex factual issues as well as the numerous novel questions of law which the case poses. There was also some indication that the parties were still reviewing their positions. I kept the case under court review until January 17, 1980, when oral argument was scheduled on the effect of President Carter's and the Nuclear Regulatory Commission's statements on the lawsuit, and on the summary judgment motion. After several adjournments due to calendar congestion, oral argument finally took place on February 15, 1980, at which time the case was marked submitted.

 ARGUMENTS

 Defendant makes several arguments as to why plaintiff is not entitled to recovery. First, it asserts that the government voided defendant's license to perform the reprocessing of nuclear fuels in April 1977, when President Carter issued his statement. Since the continuation of the license in force was a condition of the contract, defendant argues that even if it did breach, its duty to perform was discharged by a condition subsequent. Defendant argues, in effect, that had the contract continued, the promisee, Consumers Power, would not have been entitled to the performance, though apparently so entitled when the promisor, Nuclear Fuel Services, became unable to perform in 1977. Restatement of Contracts ยง 396 (1932 ed.); New York Trust Co. v. Island Oil & Transport Corp., 34 F.2d 653, 654 (2d Cir. 1929).

 In addition, defendant claims that the contract was terminated by operation of Article 19.2, which provides in part that the contract shall terminate upon "revocation of the license granted to NFS by the AEC authorizing NFS to engage in the processing business contemplated by this Contract." Defendant points to the government's decision to bar commercial reprocessing of spent nuclear fuel in the entire country as well as to the Nuclear Regulatory Commission denial of Nuclear Fuel Services' license application to operate a revamped and expanded plant at West Valley. Defendant argues that these government actions had the effect of terminating the contract effective April 1977, in any event.

 Defendant has a third argument. It claims that the 1977 actions make it legally impossible to perform essential terms of the contract, specifically those having to do with reprocessing. Moreover, terms such as "equivalent material" cannot be established with precision in the absence of actual reprocessing. In any event, Nuclear Fuel Services asserts the contract was terminated under Article 20 when, in July 1976, the parties failed to arrive at an "equitable adjustment" in the charges which Consumers Power would have to pay for Nuclear Fuel Services' performance. Nuclear Fuel Services takes the position that Article 20 is a "walk away" provision and requires no negotiation before it can be invoked to terminate the contract. *fn3"

 Plaintiff, for its part, evidently claims the contract is still in effect. Plaintiff's position is essentially as follows: Nuclear Fuel Services repudiated the contract in 1975, well before the 1977 actions by the government. At that time, it was not reprocessing but did enter into storage contracts with other customers. The rights of the parties were fixed as of 1975 by Nuclear Fuel Services' anticipatory repudiation. Consumers Power properly brought an action for breach as of that date. UCC 2-713. Subsequent termination, possibly under Article 20 or as a result of other unforseeable events, such as President Carter's decision to bar reprocessing, did not impair the right to damages which became fixed on the date of the initial repudiation.

 Second, even if subsequent events are considered, the Contract has not been terminated under Article 19.2, which states that in the event of a license modification, "this Contract shall be modified only to the extent necessary to exclude the performance of such obligations, but shall otherwise remain in full force and effect ...." *fn4" The Nuclear Regulatory Commission decision bars delivery of plutonium, while it permits Nuclear Fuel Services to continue to possess spent fuel. Plaintiff argues that the inability of Nuclear Fuel Services to reprocess does not relieve it of the obligation to receive and store Consumers Power's spent fuel or to deliver equivalent material. Nuclear Fuel Services had exercised its option for equivalent material long before the Nuclear Regulatory Commission action. Consequently, Consumers Power asserts it is entitled to insist that Nuclear Fuel Services take delivery of Consumers Power's spent fuel, even in the face of Article 19.2. Any other construction of the contract would impermissibly read Article 22, the equivalent material section, out of the contract. In short, Consumers Power claims that Nuclear Fuel Services, in effect, assumed ...


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