United States Court of Appeals
for the Federal Circuit
__________________________
SYSTEM FUELS, INC., SYSTEM ENERGY
RESOURCES,
AND SOUTH MISSISSIPPI ELECTRIC POWER
ASSOCIATION,
Plaintiffs-Appellants,
v.
UNITED STATES,
Defendant-Cross Appellant.
__________________________
2010-5116, -5117
__________________________
Appeals from the United States Court of Federal
Claims in Case No. 03-CV-2624, Judge Susan G. Braden.
___________________________
Decided: January 19, 2012
___________________________
ALEX D. TOMASZCZUK, Pillsbury Winthrop Shaw
Pittman, LLP, of McLean, Virginia, argued for plaintiffs-
appellants. With him on the brief were JAY E. SILBERG, of
Washington, DC; and EVAN D. WESSER, of McLean, Vir-
ginia. Of counsel on the brief was L. JAGER SMITH, JR.,
Wise Carter Child & Caraway, P.A., of Jackson, Missis-
sippi.
SYSTEM FUELS v. US 2
ALAN J. LO RE, Assistant Director, Commercial Liti-
gation Branch, Civil Division, United States Department
of Justice, of Washington, DC, argued for defendant-cross
appellant. With him on the brief were TONY WEST, Assis-
tant Attorney General, JEANNE E. DAVIDSON, Director,
HAROLD D. LESTER, JR., Assistant Director, SHARON A.
SNYDER, Trial Attorney, MARIAN E. SULLIVAN and
ANDREW P. AVERBACH, Senior Trial Counsel; and SCOTT R.
DAMELIN, Trial Attorney. Of counsel on the brief was
JANE K. TAYLOR, Attorney, Office of General Counsel,
United States Department of Energy, of Washington, DC.
__________________________
Before RADER, Chief Judge, NEWMAN and DYK, Circuit
Judges.
Opinion for the court filed by Chief Judge RADER. Opin-
ion concurring-in-part, dissenting-in-part filed by Circuit
Judge NEWMAN.
RADER, Chief Judge.
On summary judgment, the United States Court of
Federal Claims determined that the United States
breached its contract with Plaintiffs-Appellants System
Fuels, Inc., System Energy Resources, and South Missis-
sippi Electric Power Association (collectively “Plaintiffs”)
for the removal of spent nuclear fuel. Sys. Fuels, Inc. v.
United States, 66 Fed. Cl. 722, 732-33 (2005) (“SFI I”).
The trial court also granted summary judgment in favor
of the Government regarding the implied covenant of good
faith and fair dealing. Id. at 735. The trial court set
damages for the breach at $10,014,114 as well as the cost
of borrowed funds for financing the construction of the dry
fuel storage project. Sys. Fuels, Inc. v. United States, 78
Fed. Cl. 769, 809 (2007) (“SFI II”). On reconsideration,
the trial court reduced damages to $9,735,634 and denied
3 SYSTEM FUELS v. US
the cost of borrowed funds. Sys. Fuels, Inc. v. United
States, 92 Fed. Cl. 101, 114 (2010) (“SFI III”). This court
affirms the trial court’s denial of borrowing costs and
reverses the denial of overhead costs. On damages, this
court affirms the trial court’s award.
I.
In 1983, Congress enacted the Nuclear Waste Policy
Act of 1982 (“NWPA”), Pub. L. No. 97-425, 96 Stat. 2201
(codified at 42 U.S.C. §§ 10101–10270 (2006)), to provide
for the Government’s collection and disposal of spent
nuclear fuel (“SNF”) and high-level radioactive waste
(“HLW”). The NWPA authorized the Department of
Energy (“DOE”) to contract with the owners of SNF and
HLW for disposal. 42 U.S.C. § 10222(a)(1). In return for
the payment of fees into the Nuclear Waste Fund, the
Standard Contract provided that the DOE would begin to
dispose of the SNF and HLW “not later than January 31,
1998.” 42 U.S.C. § 10222(a)(5)(B); 10 C.F.R. § 961.11
(2011). The Standard Contract provides that “[t]he Pur-
chaser shall arrange for, and provide, all preparation,
packaging, required inspections, and loading activities
necessary for the transportation of SNF and/or HLW to
the DOE facility.” 10 C.F.R. § 961.11 (Article IV.A.2).
Because collection and disposal of SNF and HLW did not
begin on January 31, 1998, this court held in Northern
States Power Co. v. United States, 224 F.3d 1361, 1367
(Fed. Cir. 2000), and Maine Yankee Atomic Power Co. v.
United States, 225 F.3d 1336, 1343 (Fed. Cir. 2000), that
the DOE had breached the Standard Contract with the
nuclear energy industry. This case examines another
chapter in the lengthy search for remedies for breach of
the Standard Contract.
On June 30, 1983, System Fuels, Inc. entered into the
DOE’s Standard Contract on behalf of itself, System
SYSTEM FUELS v. US 4
Energy Resources, and South Mississippi Power Associa-
tion. SFI I, 66 Fed. Cl. at 725. System Energy Resources
and South Mississippi Power Association own Grand Gulf
Nuclear Station (“Grand Gulf”). System Fuels, Inc.
served as the purchaser under the Standard Contract. Id.
The Nuclear Regulatory Commission issued a license to
System Fuels, Inc. and South Mississippi Power Associa-
tion to operate Unit 1 of Grand Gulf, whose SNF is stored
in a “wet pool.” Id. In 2002, Plaintiffs began preparations
to construct an Independent Spent Fuel Storage Installa-
tion (“ISFSI”) capable of holding additional dry storage
containers of SNF until DOE complied with its removal
obligations. Plaintiffs anticipated that the “wet pool”
would reach capacity in 2007. Id.; SFI II, 78 Fed. Cl. at
783. The record shows that System Energy Resources
and South Mississippi Power Association have paid
almost $148 million into the Nuclear Waste Fund in
accordance with the terms of the applicable fee schedule
of the Standard Contract. The Government has not begun
performing its duties and responsibilities under the
Standard Contract. SFI I, 66 Fed. Cl. at 725, 730. As of
March 4, 2005, Plaintiffs alleged that they had spent
approximately $4.75 million to construct the ISFSI. Id. at
732-33. After this court rendered its decision in Indiana
Michigan Power Co. v. United States, 422 F.3d 1369 (Fed.
Cir. 2005), Plaintiffs amended the complaint to allege that
they had incurred $12,178,000 in costs to plan and con-
struct the ISFSI at Grand Gulf to mitigate breach dam-
ages. SFI II, 78 Fed. Cl. at 771.
Every 18 months, the reactor at Grand Gulf shuts
down to facilitate removal of fuel assemblies, which are
then placed in two onsite storage facilities for 20 to 25
days during routine maintenance. Id. at 779. In an effort
to explore their options for dry fuel storage, Plaintiffs
sought guidance from an engineering services firm in the
5 SYSTEM FUELS v. US
commercial nuclear industry. This firm recommended the
“best short-term option for increasing spent fuel storage
capacity at Grand Gulf was to recover cells currently
inaccessible in the existing [onsite storage facilities].” Id.
at 780. Plaintiffs also contracted with a dry cask storage
system company and explored long-term options. Plain-
tiffs undertook construction of dry fuel storage because
the core of the Grand Gulf reactor would reach capacity in
2007, and, by their estimates, the Government would not
remove waste until 2022. Id. at 781. As a business
practice, Plaintiffs maintain a full core reserve—a prac-
tice beyond current federal requirements. Id. at 782.
Plaintiffs determined that they could maintain this busi-
ness practice through 2005 and, with cell recovery efforts,
accommodate the SNF and HLW discharges through
2007. Id. at 782-83.
In constructing the ISFSI, Plaintiffs created six cate-
gories of capital work operations: spent fuel studies,
ISFSI design and construction, cask fabrication facility,
dry fuel equipment storage building, ISFSI electrical and
security systems, and auxiliary building door modifica-
tion. Plaintiffs recorded and tracked costs associated with
the dry fuel storage facility. Id. at 783. Plaintiffs sought
damages for the capital work operations, totaling
$10,591,000, and cost of capital to finance these opera-
tions, totaling $1,587,000. Id. at 783, 785.
The trial court held an eight-day trial on damages.
Id. at 773 n.2. The trial court did not specify an accep-
tance rate of spent fuel but determined that Plaintiffs
should be awarded over $10,014,114 in mitigation dam-
ages for their capital work operations. Id. at 794, 809.
The award did not include the cost of borrowed funds
because, even though the trial court determined that
Plaintiffs were entitled to recover this amount, it needed
clarification and sought additional expert testimony
SYSTEM FUELS v. US 6
before making a final decision concerning mitigation
damages. Id. at 809-10.
The trial court revisited its causation analysis after
this court rendered the following decisions: Yankee
Atomic Electric Co. v. United States, 536 F.3d 1268 (Fed.
Cir. 2008); Pacific Gas & Electric Co. v. United States, 536
F.3d 1282 (Fed. Cir. 2008); Sacramento Municipal Utility
District v. United States, 293 Fed. Appx. 766 (Fed. Cir.
2008). SFI III, 92 Fed. Cl. at 102. The trial court held
evidentiary hearings concerning causation and addressed
the claim for the costs of borrowed funds. Id. at 103-05.
The trial court reduced the amount of damages previously
awarded to Plaintiffs for their “cell recovery efforts” and
determined that England v. Contel Advanced Systems,
Inc., 384 F.3d 1372, 1379 (Fed. Cir. 2004), barred the
grant of an award for the cost of borrowed funds. 92 Fed.
Cl. at 108, 111-12.
Plaintiffs appeal the trial court’s refusal to award the
cost of borrowed funds and overhead costs as mitigation
damages. The Government appeals on the ground that
the trial court’s causation analysis did not include a
comparison of breach and non-breach worlds under the
Standard Contract. This court has jurisdiction under 28
U.S.C. § 1295(a)(3).
II.
This court reviews the factual findings of the United
States Court of Federal Claims for clear error, Ind. Mich.,
422 F.3d at 1373, including “the general types of damages
awarded . . . , their appropriateness . . . , and rates used to
calculate them . . . ,” Home Sav. of Am. v. United States,
399 F.3d 1341, 1347 (Fed. Cir. 2005). “A finding may be
held clearly erroneous when . . . the appellate court is left
with a definite and firm conviction that a mistake has
been committed.” 422 F.3d at 1373 (quoting In re Mark
7 SYSTEM FUELS v. US
Indus., 751 F.2d 1219, 1222-23 (Fed. Cir. 1984)). This
court reviews the trial court’s legal conclusions without
deference. Yankee Atomic, 536 F.3d at 1272. This court
provides the trial court with wide discretion in determin-
ing an appropriate quantum of damages. Hi-Shear Tech.
Corp. v. United States, 356 F.3d 1372, 1382 (Fed. Cir.
2004).
III.
Plaintiffs sought $1,587,000 as damages for the cost of
borrowed funds to construct their dry fuel storage facility.
SFI II, 78 Fed. Cl. at 785. The trial court stated that its
authority to award interest on a claim of damages is
governed by the Judiciary and Judicial Procedure Rules of
Decision Act, which states that “interest on a claim
against the United States shall be allowed in a judgment
of the United States Court of Federal Claims only under a
contract or Act of Congress expressly providing for pay-
ment thereof.” SFI III, 92 Fed. Cl. at 110 (quoting 28
U.S.C. § 2516(a)) (internal citations omitted).
As this court stated in England, “[t]he no-interest rule
is an aspect of the basic rule of sovereign immunity.” 384
F.3d at 1379 (citing Library of Cong. v. Shaw, 478 U.S.
310, 315 (1986); Smith v. Principi, 281 F.3d 1384 (Fed.
Cir. 2002)). This no-interest rule denies claims for inter-
est and “interest costs incurred on money borrowed as a
result of the government's breach or delay in payment.”
384 F.3d at 1379 (citing J.D. Hedin Constr. Co. v. United
States, 456 F.2d 1315, 1330 (Ct. Cl. 1972); Komatsu Mfg.
Co. v. United States, 131 F. Supp. 949, 950 (Ct. Cl. 1955);
Ramsey v. United States, 101 F. Supp. 353, 356-57 (Ct. Cl.
1951); Myerle v. United States, 33 Ct. Cl. 1, 25 (1897)).
Although expressing concerns about the policy and
uniform application of England, the trial court ultimately
applied the rule of that case and denied interest. In
SYSTEM FUELS v. US 8
Energy Northwest v. United States, issued after the trial
court’s judgment in the present case, this court addressed
those concerns and reaffirmed England, distinguishing it
from cases where the Government has been held liable for
interest. 641 F.3d 1300, 1310-12 (Fed. Cir. 2011). Eng-
land therefore controls this case. Because the trial court
properly applied England, this court affirms the trial
court’s denial of the cost of borrowed funds.
IV.
Plaintiffs incurred additional overhead costs when
managing the six capital work operations. Plaintiffs
maintained a separate accounting for overhead costs,
consistent with the Generally Accepted Accounting Prin-
ciples and Federal Energy Regulatory Commission
(“FERC”) regulations. The separate accounting, referred
to as the “capital suspense loader,” includes the cost of
administrative and engineering personnel supporting
capital construction projects. J.A. 348-49, 351. These
overhead costs consist of two pools: (1) administrative
and general costs for personnel at corporate headquarters
and (2) nuclear-specific costs for personnel at the Nuclear
South headquarters and Grand Gulf site. J.A. 349. The
trial court acknowledged that “DOE was aware that
Plaintiffs were required to account to FERC for all costs
incurred.” SFI II, 78 Fed. Cl. at 791. Originally, the trial
court withheld these costs for lack of proof with “reason-
able certainty.” Id. at 800. Plaintiffs then provided
additional analysis showing that costs associated with the
“capital suspense loader” were $497,619. The trial court
then offset the overall damages awarded to Plaintiffs by
this amount. SFI III, 92 Fed. Cl. at 104-05, 108.
As explained in Indiana Michigan, “[d]amages for a
breach of contract are recoverable where: (1) the damages
were reasonably foreseeable by the breaching party at the
9 SYSTEM FUELS v. US
time of contracting; (2) the breach is a substantial causal
factor in the damages; and (3) the damages are shown
with reasonable certainty.” 422 F.3d at 1373 (citing
Energy Capital Corp. v. United States, 302 F.3d 1314,
1320 (Fed. Cir. 2002)). In Carolina Power & Light Co. v.
United States, this court affirmed the trial court’s award-
ing of overhead costs to a utility whose “internal account-
ing system uses specific codes to allocate a portion of [the
overhead expenses] to particular projects . . . .” 573 F.3d
1271, 1276-77 (Fed. Cir. 2009). This court has previously
determined that “the amount of damages need not be
‘ascertainable with absolute exactness or mathematical
precision,’ [but that] recovery for speculative damages is
precluded.” Ind. Mich., 422 F.3d at 1373 (quoting San
Carlos Irrigation & Drainage Dist. v. United States, 111
F.3d 1557, 1563 (Fed. Cir. 1997)). In Energy Northwest,
this court found that “mitigation activities generally were
supported by certain overhead services that Energy
Northwest provided for the benefit of all its operations
(not only its mitigation activities).” 641 F.3d at 1309.
This court made such a determination based on testimony
“estimating the portion of . . . overhead costs fairly allo-
cated to support . . . the mitigation via generally accepted
accounting practices . . .” Id.
Thus, Plaintiffs may recover overhead costs incurred
for mitigation-related work. The record shows that Plain-
tiffs used an internal accounting system with particular
codes for the “capital suspense loader.” Further, the
record shows that the internal accounting system allo-
cates on a monthly basis the overhead associated with the
pool and charges accounts for the appropriate project.
J.A. 348-50. Thus, Plaintiffs used accounting procedures
“as mandated by FERC,” J.A. 349, and “consistent with
Generally Accepted Accounting Principles,” J.A. 351. The
trial court clearly erred in finding that these accounting
SYSTEM FUELS v. US 10
records did not “demonstrate the effect of the mitigation
project on the capital pools entitlement with ‘reasonable
particularity.’”
Therefore, because the record fully supports Plaintiffs’
proof of overhead costs, this court reverses the trial
court’s grant of offset of damages for the “capital suspense
loader” overhead costs.
V.
In Yankee Atomic, this court determined that a SNF
utility company “had the burden to provide the contrac-
tual acceptance rate and apply that rate before suggesting
that the Government’s breach was a substantial factor in
causing the [Plaintiffs’] claimed expenses.” 536 F.3d at
1273. This court went further to state that “[w]ithout
record evidence about the [utility’s] condition with full
Government performance, the Court of Federal Claims
could not perform the necessary comparison between the
breach and non-breach worlds and thus could not accu-
rately assess the [Plaintiffs’] damages.” Id. Plaintiffs
bear the burden to establish the alleged mitigation costs
were caused by the breach. Energy Nw. v. United States,
641 F.3d 1300, 1307 (Fed. Cir. 2011). “[A] defendant must
move forward by pointing out the costs it believes the
plaintiff avoided because of its breach,” but “with respect
to both claimed costs and avoided costs, plaintiffs bear the
burden of persuasion.” S. Nuclear Operating Co. v.
United States, 637 F.3d 1297, 1304 (Fed. Cir. 2011); see
also Boston Edison Co. v. United States, 658 F.3d 1361,
1369 (Fed. Cir. 2011) (the Government “may be responsi-
ble for affirmatively pointing out costs that were avoided”
due to the breach, but once the Government has identified
the plaintiff’s avoided costs, “the plaintiff must incorpo-
rate them into a plausible model of the damages”); Energy
Nw., 641 F.3d at 1308 n.5 (“Once the defendant has
11 SYSTEM FUELS v. US
properly articulated an offset, the burden shifts to the
plaintiff to incorporate those saved costs into its formula-
tion of a plausible but-for world.” (internal quotation
marks omitted)). While in some places the trial court,
without the benefit of our most recent cases, inaccurately
placed the burden of proof on the Government, we do not
think that this error affected the result.
In SFI II, the trial court determined that Plaintiffs’
mitigation was foreseeable:
[T]he record contains clear and convincing evi-
dence that on June 30, 1983, it was “foreseeable”
to DOE that, if performance could not be com-
menced by January 31, 1998, Plaintiffs would
have to make interim arrangements to store SNF
and HLW and DOE could have foreseen that such
interim arrangements could entail the need to
plan, design, and construct dry fuel storage and
the [sic] incur costs to borrow funds to finance
those mitigation efforts.
78 Fed. Cl. at 791. Additionally, the trial court deter-
mined that the costs of modification of the auxiliary
building were “incurred to mitigate the Government's
partial breach.” Id. at 801. The trial court analyzed the
costs associated with the auxiliary building modifications,
procedures and programs to use the casks and dose as-
sessment, implementation of the transfer and haul paths
for the casks, and scaffolding. Id. at 800-06. The trial
court’s analysis was based on the costs included in Plain-
tiffs’ claims for damages, offsets asserted by the Govern-
ment, and comparison of “the real world versus the costs
of the modifications in the non-breach world.” Id. at 800.
The trial court determined that Plaintiffs’ costs were
reasonable for several of the auxiliary building modifica-
tions and implementation of the transfer and haul paths
SYSTEM FUELS v. US 12
for the casks. Id. at 801-04, 805. In contrast, the trial
court awarded offsets for (i) the procedures and programs
to use the casks and dose assessment and (ii) a portion of
the scaffolding costs. Id. at 804, 805-06.
In SFI III, the trial court weighed evidence concern-
ing causation of the contested damages and application of
the 1987 Annual Capacity Report Rate. 92 Fed. Cl. at
103-04. The trial court heard testimony concerning
Grand Gulf in breach and non-breach worlds and “deter-
mine[d] that [Plaintiffs] would have performed the cell
recovery project even if DOE accepted SNF at Grand Gulf
in 2006” and offset Plaintiffs’ award for damages based on
the “appropriate ‘related’ costs.” Id. at 104. The trial
court stated that Plaintiffs “advised the court that three
adjustments should be made to the prior costs claimed,”
which related to offsetting costs associated with Plaintiffs’
claims for “payroll loader,” “capital suspense loader,” and
“equipment purchased, sequence design, and dose as-
sessment.” Id. at 104-05.
The trial court also weighed evidence regarding the
“cell recovery effort.” After comparing the breach and
non-breach worlds, the trial court determined that Plain-
tiffs were “not entitled to include[ ] $184,208 for the cell
recovery effort as damages.” Id. at 105-06. The trial
court then applied this court’s holding in Yankee Atomic,
536 F.3d at 1268, and determined that the “reasonable
foreseeability element was satisfied” and “the necessity to
proceed with dry fuel storage at Grand Gulf . . . was
caused by both the partial breach and DOE's inability to
guarantee the commencement of performance by 2005,
when the spent fuel pool would reach capacity.” SFI III,
92 Fed. Cl. at 107. The trial court discredited Plaintiffs’
expert testimony regarding performance in a non-breach
world because the expert was “not qualified to testify
about nuclear power plant operations.” Id. at 108. The
13 SYSTEM FUELS v. US
trial court offset Plaintiffs’ damages by $184,208 and
awarded Plaintiffs $9,735,634 in nominal damages be-
cause the trial court determined that Plaintiffs did not
meet their burden to prove that Plaintiffs would not have
engaged in “cell recovery efforts” but for the Government’s
breach. Id. at 108.
Review of the record shows that the trial court’s dam-
ages analysis in SFI II included comparison between
breach and non-breach worlds, and offsets were awarded
where appropriate. In SFI III, the record confirms the
trial court’s application of the 1987 Annual Capacity
Report Rate and also applicable additional adjustments.
The record evidence further supports the trial court’s
comparison between the breach and non-breach worlds for
the assessment of damages. This court discerns no error
in these determinations. Thus, the trial court accurately
addressed causation as set forth by Yankee Atomic and
applied offsets as necessary. This court affirms the trial
court’s causation analysis and its revised nominal dam-
ages award.
VI.
Because the trial court properly adhered to the deci-
sion of England, this court affirms the denial of Plaintiffs’
claim for the cost of borrowed funds. This court reverses
the trial court’s denial of overhead costs. This court
affirms the trial court’s causation analysis and revised
award of nominal damages.
AFFIRMED-IN-PART AND REVERSED-IN-PART.
COSTS
Each party shall bear its own costs.
United States Court of Appeals
for the Federal Circuit
__________________________
SYSTEM FUELS, INC., SYSTEM ENERGY
RESOURCES, AND SOUTH MISSISSIPPI ELECTRIC
POWER ASSOCIATION,
Plaintiffs-Appellants,
v.
UNITED STATES,
Defendant-Cross Appellant.
__________________________
2010-5116, -5117
__________________________
Appeal from the United States Court of Federal Claims
in Case No. 03-CV-2624, Judge Susan G. Braden.
__________________________
NEWMAN, Circuit Judge, concurring in part, dissenting in
part.
In this arena of varied Federal Circuit pronouncements
on diverse facts, the court now carves an exception into the
rule that damages due to breach of contract shall render the
injured party monetarily whole. The rule, applicable to the
government as to all contracting entities, is that when the
non-breaching party is required to incur expenditures in
order to mitigate the consequences of breach, the cost of
those expenditures is compensable as damages. That cost of
mitigation is not “interest on a claim,” but a component of
damages. Thus the “no-interest rule” is inapplicable. I
SYSTEM FUELS v. US 2
respectfully dissent from the portion of the court’s decision
that denies recovery of such damages.
DISCUSSION
Analytical care is required to avoid blurring the distinc-
tion between the cost of money expended to mitigate a
breach and interest awarded on a judgment for damages.
The “non-interest” statute is directed to interest on an
adjudicated claim:
28 U.S.C. §2516. Interest on claims and judgments
(a) Interest on a claim against the United States
shall be allowed in a judgment of the United States
Court of Federal Claims only under a contract or
Act of Congress expressly providing for payment
thereof.
This statute does not apply to the System Fuels situation.
System Fuels incurred capital costs to construct an Inde-
pendent Spent Fuel Storage Installation, a facility that was
required to be constructed in view of the government’s
partial breach of the Standard Contract for Disposal of
Spent Nuclear Fuel and/or High-Level Radioactive Waste.
“All capital raised by a corporation has a cost . . . .” LaSalle
Talman Bank, F.S.B. v. United States, 317 F.3d 1363, 1375
(Fed. Cir. 2003). The Court of Federal Claims stated that
the record establishes that System Fuels incurred
$1,587,000 as cost of the capital expended to mitigate this
breach. 1 This cost is not “[i]nterest on a claim . . . in a
judgment,” and denial of recovery of this cost contravenes
the principle that “[t]he remedy for breach of contract is
damages sufficient to place the injured party in as good a
1 System Fuels, Inc. v. United States, 92 Fed. Cl. 101,
111 n.6 (2010).
3 SYSTEM FUELS v. US
position as it would have been had the breaching party fully
performed.” Indiana Michigan Power Co. v. United States,
422 F.3d 1369, 1373 (Fed. Cir. 2005). System Fuels’ cost of
the capital required to mitigate the government’s breach is
substantive damages, not interest on a claim.
This distinction has long been recognized. In Library of
Congress v. Shaw, 478 U.S. 310, 314 (1986), the Court
explained that “interest is an element of damages separate
from damages on the substantive claim.” In Shaw the Court
denied the enlargement in Title VII attorney fees due to
delay in payment of the fees; the Court did not state a rule
about costs of capital. Precedent well illustrates that the
“no-interest rule” is not a bar to substantive damages. E.g.,
Peoria Tribe of Indians of Okl. v. United States, 390 U.S.
468, 471, 473 (1968) (rejecting the government’s invocation
of the no-interest rule, and holding the government liable
“for its failure to invest the proceeds that would have been
received had the United States not violated the treaty”);
Larson v. United States, 274 F.3d 643, 646 (1st Cir. 2001)
(explaining that the award by the United States of invest-
ment proceeds on seized funds in United States v. Kingsley,
851 F.2d 16 (1st Cir. 1988) was not an award of prejudg-
ment interest because “the award was in the form of dam-
ages directly caused by” the government’s breach of a plea
agreement).
Recognition that damages include the cost of the money
expended in mitigation is exemplified in the FIRREA cases,
e.g., Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d
1348, 1357 (Fed. Cir. 2001) (“the increased financing costs”
represented in the Economic Benefits Agreement are recov-
erable as damages); LaSalle Talman, 317 F.3d at 1374-75
(damages can include “the cost of capital”); Citizen Fed.
Bank v. United States, 474 F.3d 1314, 1320 (Fed. Cir. 2007)
(damages include the “expenses it incurred in replacing its
SYSTEM FUELS v. US 4
regulatory capital after FIRREA had precluded thrifts from
using regulatory goodwill or subordinated debt as regula-
tory capital”). The analogy is apt, for here System Fuels
expended capital to provide storage facilities after the
government breached its contract to store the spent fuel.
“Government liability in contract is viewed as perhaps
‘the widest and most unequivocal waiver of federal immu-
nity from suit.’” United States v. Mitchell, 463 U.S. 206, 215
(1983) (quoting Developments in the Law – Remedies
Against the United States and Its Officials, 70 Harv. L. Rev.
827, 876 (1957)); see United States v. Emery, Bird, Thayer
Realty Co., 237 U.S. 28, 32 (1915) (the Tucker Act is a “great
act of justice”).
Law and precedent establish government liability for
the cost of mitigation, where government breach requires
expenditures in mitigation. In Mobil Oil Exploration &
Producing Se., Inc. v. United States, 530 U.S. 604, 607-08
(2000) the Court reinforced that “[w]hen the United States
enters into contract relations, its rights and duties therein
are governed generally by the law applicable to contracts
between private individuals,” quoting United States v.
Winstar Corp., 518 U.S. 839, 895 (1996) (plurality opinion).
This court in Indiana Michigan applied “the general princi-
ple is that all losses, however described, are recoverable.”
422 F.3d at 1373 (quoting Restatement (Second) of Contracts
§347 cmt. c (1981)). The Restatement explains that “the
injured party is entitled to recover for all loss actually
suffered. . . . includ[ing] costs incurred in a reasonable
effort, whether successful or not, to avoid loss.” §347 cmt. c.
The government’s argument that recovery of mitigation
costs is precluded by its reinterpreted “no-interest rule” is
as inappropriate as it is incorrect, and should be rejected by
the court, not adopted and enlarged. As stated in Indian
5 SYSTEM FUELS v. US
Towing Co. v. United States, 350 U.S. 61, 69 (1955), the
court is not a “self-constituted guardian of the Treasury.”
My colleagues err in holding that the cost of mitigation of
governmental breach of contract cannot include the cost of
the money expended in mitigation. I respectfully dissent.