Research Paper on "Appellate Opinion Breach of Contract"

Research Paper 12 pages (3783 words) Sources: 9

[EXCERPT] . . . .

Appellate Opinion

In the case of Union Pacific Railroad Company v. The United States, the United States Court of Federal Claims ruled in favor of the defendant after determining that the relevant statute of limitations had expired, dismissing the plaintiff's claim that it was owed compensation for the installation of the wrong culverts beneath a train line. The case demonstrates a number of important concepts in regards to contract law and its treatment in the Court of Federal Claims more specifically. By examining the opinion in detail in conjunction with relevant cases and commentary, one is able to see how contract law continues to provides instances of legislative contradiction and struggles to maintain an effective balance between the rights and interests of the various stakeholders. While the decision in Union Pacific Railroad Company v. The United States does not stray from precedent in similar cases, it does demonstrate the difficulty of effectively answering grievances when jurisdictional confusion and the unique legal strategies available to the government conspire to make what would otherwise be a straightforward breach-of-contract claim into a complex, contradictory game.

The contract in Union Pacific Railroad v. The United States was originally between the United States (by way of the United States Army Corps of Engineers) and the Missouri, Kansas & Texas Railway Company (colloquially known as "the Katy"). In 1959 the Corps was trying to develop "a flood control project called the Eufala Dam and Reservoir," and "to accommodate the resulting man-made lake, adjacent properties would have to be altered significantly," including an adjacent property owned by the Katy (Lettow, 2012, p. 2). The Corps and the Katy entered into a contract stipulating that that Katy would grant the Corps titles and easements on the necessary portions of its property, while the Corps would construct "new embankments for railroad tracks and facilities on the Katy's remaining property" (Lettow, 2012, p. 2).

The two elements of the contract relevant to Union Pacific Railroad v. The United States concern the building of these new embankments and the relevancy of the contract's release clause. Because the new embankments would be subject to extra pressures and degradation as a result of their proximity to the man-made lake, the contract stipulated that any culverts running under the new embankments that were "located below the power-pool elevation of 585.0 feet were to be constructed of monolithic, reinforced concrete, whereas culverts above such elevation could instead be made of corrugated metal pipe" (Lettow, 2012, p. 3). The contract was completed without comment, although as Judge Lettow notes in his opinion, because the Katy was succeed in interest by Union Pacific following the latter's purchase of the former, there remains some ambiguity as to whether anyone affiliated with the Katy noted any problems at the time of construction (Lettow, 2012, p. 3).

In May, 2003, a Union Pacific train "derailed while crossing an area of track laid on an embankment constructed by the Corps," and Union Pacific's investigation determined that the cause of the derailment was the installation of metal culverts where there should have been concrete culverts (Lettow, 2012, p. 4). In a clear breach of contract, the Corps engineers installed two corrugated metal culverts spanning "an elevation of 580 to 587 feet, such that five feet of each culvert was below the line at which reinforced concrete should have been used under the terms of the contract" (Lettow, 2012, p. 4). The "as-built" drawings that were later entered into evidence further demonstrated that the Corps was responsible for installing the incorrect culverts, and furthermore, that the Corps had not make the Katy or any of its engineers aware of the change (Lettow, 2012, p. 9).

Though the contract stipulated that the Katy could have an engineer present during all work, and that this engineer would "have the right to refuse acceptance of any such work which is not performed in accordance with approved plans and specifications," it appears as if the Katy did not exercise this right, or at least not during the installation of the culverts in question (Lettow, 2012, p. 8). That the Katy apparently did not opt to have an engineer present might seem to obviate Union Pacific's claim, but in reality the judge did not find the absence of an engineer reason enough to dismiss the claim. However, the question of who knew what when played a crucial role in the ultimate judgment.

The evidence demonstrated that a breach of contract clearly occurred, and neither party disagreed with this fact. Instead, the case rested on jurisdiction and the statue of limitations, due to the fact that the breach occurred sometime during construction (in the 1960s) while it was only fully revealed in 2003 in the aftermath of the train derailment. Initially, Union Pacific "filed suit in the United States District Court for the Eastern District of Oklahoma under the Federal Tort Claims Act […] alleging negligent-breach-of-contract and negligent-inspection-and-maintenance claims" (Lettow, 2012, p. 4). The government argued that the claim was the sole jurisdiction of the Court of Federal Claims, because "the claim sounded in contract, not tort" (Lettow, 2012, p. 4).

The district court agreed with Union Pacific, and awarded it a judgment of $4,456,606.70. Specifically, the court found that the government breached the contract with the installation of the incorrect culverts, that it failed in its duty to inspect and maintain the culverts, and that the contract's release clause, which may have otherwise released the government from any claims, "was void as against Oklahoma public policy" (Lettow, 2012, p. 4). As will be seen, this judgment was ultimately worthless, not because the decision was overturned on appeal per se, but rather because jurisdictional confusion meant that the Oklahoma district court was not even in a place to rule on it.

The intersection of federal and state law has only become more important over the last few decades, as companies (and the federal government) increasingly engage in contracts across state boundaries and through complex partnerships, such that courts are forced to determine whether state or federal law has priority in areas previously uncommented on by the higher courts (Kahan & Rock, 2011, p. 1295). This is even more true when it comes to railroads, because unlike many other large projects, railways by their nature must cross state lines and are governed by a bevy of different laws, regulations, and codes (Sennewald, 1998, p. 1399). In the case of Union Pacific Railroad, the Oklahoma district court had enough confidence in its own jurisdiction and the primacy of Oklahoma law in this case to uphold Union Pacific's claim, and the conflict between state and federal law, particularly when it comes to easements, may have contributed to the court's decision that the claim sounded in tort, rather than contract (Sennewald, 1998, p. 1422).

On appeal, however, the Tenth Circuit reversed the district court's decision, finding that the breach did sound in contract rather than tort, and because the "the amount in controversy exceeded $10,000," authority over the case fell solely to the Court of Federal Claims as stipulated by the Tucker Act (Lettow, 2012, p. 5). After being remanded to the lower court, Union Pacific moved to have the case transferred to the Court of Federal Claims, but the lower court denied this request due to the fact that the six-year statute of limitations for the Court of Federal Claims had already expired, and furthermore, because the Tenth Circuit court ruled that the release clause was effective, such that transferring would merely prolong the arrival of the predetermined outcome. However, Union Pacific decided to press on, and filed in the Court of Federal Claims, with the government moving for dismissal due to a lack of jurisdiction as a result of the expired statute of limitations.

The question before the Court of Federal Claims, then, was when exactly the claim accrued, and Judge Lettow's opinion entertains each potential date before deciding "as a factual matter, the latest possible date of accrual for this cause of action is May 13, 2005, when the Administrative Claim was filed" by Union Pacific with the Corps, and as such the statue of limitations had expired by the time the case reached the Court of Federal Appeals (in February, 2012) (Lettow, 2012, p. 9). There are a number of exceptions and modifications allowed to the six-year statue of limitations, but in his opinion Lettow argues that a majority of them are not applicable. For example, Union Pacific was not eligible for the most common exceptions, such those made "for claims by married women of the claim first accrued during marriage, by person under the age of twenty-one if the claim accrued during minority, by idiots, lunatics, and insane persons, and by persons beyond the seas at the time the claim accrued" (Lettow, 2012, p. 6).

Union Pacific attempted to argue that the government had effectively "waived its right to defend on the basis of statue of limitations" due to certain admissions during the initial lower court phase of… READ MORE

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