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COMPUDYNE CORP. v. MAXON CONSTR. CO.

November 30, 1965

COMPUDYNE CORPORATION
v.
MAXON CONSTRUCTION COMPANY, Inc.



The opinion of the court was delivered by: DAVIS

 This is an action for breach of contract, but it is now before the court on the defendant's motion for summary judgment or for dismissal.

 In April 1960, the United States through the Atomic Energy Commission entered into a contract with the defendant Maxon Construction Company for the construction of a nuclear power plant in Puerto Rico. In September 1961, Maxon entered into a contract with the plaintiff, Compudyne Corporation, whereby the latter agreed to furnish certain supplies in furtherance of the defendant's contract with the Atomic Energy Commission. This contract is identified as Purchase Order No. C-99-330.

 In two letters to the plaintiff dated July 1, 1963, the defendant set forth with specificity the nature of the plaintiff's noncompliance with Purchase Order and requested that the plaintiff submit a proposed plan of compliance by July 8, 1963.

 On July 18, 1963, in another letter to the plaintiff, the defendant stated that since the plaintiff had failed to submit a plan for compliance as requested in the letters of July 1 and had remained in default, it was terminating the contract by invoking Section 13 of Article II of Purchase Order No. C-99-330, entitled "Default". A telegram from the defendant to the plaintiff on July 29, 1963 confirmed this decision to abrogate the Purchase Order.

 On August 13, 1963, the plaintiff, which was then engaged in proceedings for an arrangement under Chapter XI of the Bankruptcy Act, wrote to the defendant and re-affirmed its contention, as it had previously, that no default existed. It then asserted that this letter constituted the invocation of procedures under the disputes clause of the Purchase Order between the plaintiff and the defendant. That clause provided for arbitration of factual disputes under the contract.

 As a result, on September 4, 1963, the Contracting Officer under the Purchase Order requested that the plaintiff submit within 30 days a statement of its position regarding the defendant's termination of the contract for default, together with any relevant documents and other data.

 Almost a month later, however, in a letter dated October 2, 1963, counsel for the receivers of the debtor plaintiff's estate advised the Contracting Officer under the Purchase Order that an action for breach of contract had been instituted against the defendant in the United States District Court for the Eastern District of Pennsylvania and asked that the contracting officer's request for information be held in abeyance.

 I

 The defendant has first of all contended that under the facts of this case the plaintiff has no standing to bring this action for breach of contract in any court before exhausting his administrative remedies pursuant to the "Disputes Section" of Purchase Order No. C-99-330.

 The "Disputes Section" of the contract provides:

 
"(a). Except as otherwise provided in this Order, any dispute concerning a question of fact arising under this Order, which is not disposed of by agreement, shall be decided by the Contracting Officer of the Company's Contract No. AT-(40-1)-2696 with the Government, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof, together with specific findings of fact and a copy of the Commission's "Rules of Procedure in Contract Appeals" to the Company and the Seller. The decision of the Contracting Officer shall be final and conclusive unless within thirty days from the date of receipt of such copy, the Seller mails or otherwise furnishes to the Contracting Officer a written appeal addressed to the Commission. The decision of the Commission shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not, supported by substantial evidence. In connection with any appeal proceeding under this paragraph, the Seller shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder and if performance has not been completed, the Seller shall proceed diligently with the performance of the Order and in accordance with the Company's instructions."

 The plaintiff does not deny its failure to abide by the disputes section in the contract and admits that there is conflicting authority as to whether the disputes clause applies to any question of fact that arises after completion or termination of the contract. In support of its position that the disputes clause does not apply in this situation, the plaintiff relies on E. I. Du Pont De Nemours & Co. v. Lyles & Lang Construction Co., 219 F.2d 328, 333 (4th Cir. 1955); United States v. Duggan, 210 F.2d 926 (8th Cir. 1954); United States v. Heaton, 195 F. Supp. 742, 745 (D.Neb.1961). All three cases involved contract disputes clauses similar to that involved in the present action and in each the defendant raised, as an issue, the failure of the plaintiffs to submit their dispute to the Contracting Officer pursuant to the contract. All three held that this language applied only to questions of fact that arose during performance and prior to termination, and that since the contract in those cases had been terminated, the clause was not applicable. The rationale of the Duggan case cited by the other two was founded on the final sentence of the disputes clause which stated, "In the meantime the Contractor shall diligently proceed with performance." This language was interpreted to mean that the entire clause referred to the period of performance alone.

 At least one case has held to the contrary on this question whether a standard disputes clause applied to factual issues involved after the completion or termination of the contract. In Silverman Brothers, Inc. v. United States, 324 F.2d 287 (1st Cir. 1963), the court was faced with the issue as to whether the government's justification in terminating the contract was outside the scope of the disputes clause since it arose "out of and after the termination of the ...


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