Billions in Damages on the Line in Federal Circuit's Nuclear Fuel Case
credit: Photodisc Green
An unusual twist in the multibillion-dollar battle between the federal government and utility companies over spent nuclear fuel threatens to send more than 50 breach-of-contract lawsuits back to square one after a decade of litigation.
This week, the full U.S. Court of Appeals for the Federal Circuit will hear arguments on whether the government, for the first time, can argue "unavoidable delay" to excuse its failure to pick up and dispose of the industry's nuclear waste.
The issue in Nebraska Public Power v. U.S. comes before the court nearly 10 years after the Federal Circuit found the government liable for breaching the utility contracts and after more than $1 billion has been awarded in damages and settlements. "We're now very far down the road and this would potentially open up everything," said Jay Silberg, a partner in Pillsbury Winthrop Shaw Pittman's Washington, D.C., office who represents Nebraska Public Power.
And that road has been very long and costly, said Jerry Stouck, a partner in Greenberg Traurig's Washington office who filed the first suit charging the government with failure to begin picking up his clients' spent nuclear fuel by Jan. 31, 1998, as required by contracts entered into in 1983.
Lawyers involved in the litigation were stunned not only when the delay argument came alive in a U.S. Court of Federal Claims case but when, after waiting more than a year for a decision on an appeal to a Federal Circuit panel, the full court intervened to hear the case. "This latest episode is particularly interesting because it's a fascinating insight into the Federal Circuit and these big, high-powered cases, a real example of how challenging it can be to obtain relief from the federal government," said Stouck.
Nine years ago, the Federal Circuit held in Stouck's first case -- Maine Yankee Atomic v. U.S. -- that the government's delay in picking up the fuel constituted a breach of contract. In 2006, Stouck won $143 million in damages for Maine Yankee and two other utility clients -- awards still mired in litigation.
To date, utilities have filed 71 breach-of-contract cases in the Claims Court. With liability established, the utilities and the government have been fighting primarily about damages. The utilities seek damages largely for the costs of storing the fuel, often on site, costs they would not have had if the government had performed in a timely manner.
The Department of Energy's most recent estimate of the government's potential liability is $12.3 billion, based on a pickup date of 2020. But the industry estimates damages claims ultimately will total about $50 billion.
"This involves a lot of money," said James Ramsay, general counsel to the National Association of Regulatory Utility Commissioners. "It's now more than 20 years [since the contracts were signed] and billions spent on Yucca Mountain as a repository, which is not going anywhere. We're not happy to see the issue being raised now in the Federal Circuit."
WASTE AND TIME
The issue that the Federal Circuit will hear on Sept. 18 has its roots in a 1997 decision by the U.S. Court of Appeals for the D.C. Circuit. Soon after the 1983 contracts were signed, it became clear that the Department of Energy would not meet the Jan. 31, 1998, deadline to beginning picking up the waste. There was no operating storage facility, and potential sites, such as Yucca Mountain in Nevada, soon faced political and public opposition.
In 1995, the department issued a "final interpretation" of its obligations under the Nuclear Waste Policy Act and the contracts, saying it had no obligation under either to begin disposal in the absence of a repository or interim storage facility. Several utilities and state commissions petitioned the D.C. Circuit for review of the department's interpretation. The court said the department was wrong -- the government had an obligation under the act reciprocal to the utilities' contract obligation to pay into the Nuclear Waste Fund to cover storage costs.
But on remand, the department again said it could not meet the deadline but its delay was excused by the "unavoidable delay" clause in the contracts.
The utilities returned to the D.C. Circuit seeking an order to compel performance by the department. The court did not issue that broad writ of mandamus but a narrower one in which it specifically precluded the government from using "unavoidable delay" as a defense to breach-of-contract claims. That defense, it said, was inconsistent with the department's obligation under the federal act.
Fast forward to 2006 and the Nebraska Public Power case. Claims Court Judge Francis Allegra becomes the first and only judge in the spent nuclear fuel litigation to hold that the D.C. Circuit's 1997 order is void because it exceeds the D.C. Circuit's jurisdiction and infringes the Federal Circuit's jurisdiction. Unavoidable delay as a defense is back on the table. "We're revisiting this history at a time when the government said nothing about this from 1998 to 2005, and all these cases are proceeding forward and all the judges are operating under the assumption this is a valid decision by the D.C. Circuit," said Silberg.
The Pillsbury lawyers argued an appeal to a three-judge panel of the Federal Circuit in December 2007, and then "we tried to read the tea leaves" as to why a decision was so slow in coming. In June of this year, the Federal Circuit issued its en banc hearing order.
The National Association of Regulatory Utility Commissioners and a number of utilities with spent nuclear fuel cases have filed amicus briefs supporting Nebraska Public Power. They and Nebraska Public Power argue that the D.C. Circuit properly exercised its jurisdiction to interpret the statutory provisions of the Nuclear Waste Policy Act under that act's judicial review section and properly directed the parties to seek remedies in the Federal Circuit under the contract if and when the breach occurred.
But Assistant Attorney General Tony West counters that, absent action by Congress granting another court jurisdiction to hear contract claims, the Court of Federal Claims has exclusive jurisdiction. The Nuclear Waste Policy Act's judicial review provision, he said, did not give the D.C. Circuit jurisdiction to issue an order concerning contract remedies.
DEFINING DELAY
The delays clause in the utilities' contracts has two subcategories, according to Greenberg's Stouck: avoidable and unavoidable delays. The Federal Circuit, in one of Stouck's cases, interpreted avoidable delays as applying to delays during the performance of the contract, he added. "When the government fundamentally fails to perform its most basic obligation, that's not a delay," said Stouck.
The unavoidable-delays category has not been interpreted by the Federal Circuit, but the utilities urge the court in their briefs to settle the issue of what it means if they lose the jurisdiction issue. "The rationale is the same," said Ramsay of the National Association of Regulatory Utility Commissioners. "Those clauses were not meant to apply to a systemic failure of a government program. They were meant to apply in situations like hurricanes, acts of God and war."
If the government wins in the Federal Circuit and that court does not interpret "unavoidable" delays, Stouck predicted the utilities will endure another five years of litigation in the Claims Court and Federal Circuit only to find that the government's failure to perform is not an unavoidable delay. "The government, like any contracting party, is not excused by events it is in control of," he said. "It's possible to construct and operate a storage facility for spent nuclear fuel. The contract doesn't require Yucca Mountain to be built."
Both sides are concerned about the time and cost of the litigation.
Deputy Assistant Attorney General Michael Hertz, in July testimony before the House Budget Committee, told the lawmakers, "A legislative solution would be preferable to the current drain on the resources of the courts and the Department of Justice caused by the seemingly endless litigation."
He reported that, of the 71 lawsuits filed, 51 cases remain pending either in the Claims Court or the Federal Circuit, 10 have been settled, six were voluntarily withdrawn and four have been litigated through final nonappealable judgment.
Of the 51 pending cases, the trial court has entered judgments in 13 cases, most of which are not final because of appeals and remands.
Counting judgments and settlements, Hertz said, the government's liability to date stands at $1.3 billion. The government, he said, has paid $565 million in settlements and one judgment that was not appealed.
The department, he said, has spent approximately $24 million in attorney costs, $91 million in expert funds and $39 million in litigation support costs in defense of these suits.
"There is every reason to believe that these cases will continue to be filed and litigated into the foreseeable future, and these costs will continue to be incurred," Hertz said.
The costs to the utilities are staggering too, said a number of their lawyers. Taking a case just from complaint through trial averages $5 million to $7 million, not including expert witness fees, a document-maintenance fee and other costs, they said. And, utilities are still paying fees into the Nuclear Waste Fund -- their side of the contract.
"It's a lot of money, and even if we get a judgment, we haven't been able to collect it, and its value diminishes with time," said Silberg.
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