author: OREN HARRIS, Senior District Judge.

text:
    Aaron L. WATSON and Rubena Watson d/b/a Watson’s Antique Shop, Plaintiffs, v. H.A. MIEARS, Defendant.
    No. HS 83-6076.
    United States District Court, W.D. Arkansas, Hot Springs Division.
    Sept. 5, 1984.
    Sam L. Anderson, Anderson & Anderson, Richard S. Muse, Lane, Muse, Arman & Pullen, Hot Springs, Ark., for plaintiffs.
    Donald R. Roberts, Hot Springs, Ark., for defendant.
   MEMORANDUM OPINION

OREN HARRIS, Senior District Judge.

In this diversity action the plaintiffs, Aaron L. Watson and Rubena Watson, d/b/a WATSON’S ANTIQUE SHOP, allege in their complaint filed August 9,1983, against the defendant, H.A. Miears, a breach of contract entered into in writing on April 13, 1983.

After several days of negotiation, the contract entered into by the parties provides that defendant Miears agrees to the purchase of the entire contents of Watson’s Antique Shop located in Hot Springs, Arkansas, with certain exceptions, for a price of $250,000.00. Further, the contract provides that the plaintiffs agree to sell the contents of Watson’s Antique Shop for the sum of $250,000.00 with a down payment of $85,000.00 paid to the plaintiffs, and the balance of the payment, $165,000.00, to be paid by the defendant within 90 days, or no later than July 1, 1983.

The plaintiffs are citizens of the state of Arkansas and residents of the city of Hot Springs. They were, at the time the contract was entered into by the parties, owners of Watson’s Antique Shop with several thousand items included therein. The defendant is a citizen of the state of Oklahoma and a resident of Oklahoma City, Oklahoma. The sum involved in this litigious action exceeds $10,000.00, exclusive of interest and costs.

Jurisdiction is based on 28 U.S.C. § 1332 in that there is diversity of citizenship between the plaintiffs and the defendant, and the amount in controversy exceeds the sum of $10,000.00, exclusive of interest and costs.

Even prior to the date the payment of $165,000.00 was due and, in fact, within days of the contractual agreement, a serious controversy or conflict over the contents of Watson’s Antique Shop arose. Under rather unusual circumstances, the defendant claimed that numerous items that should have been included with the sale had been removed by the plaintiffs. The conflict between the parties resulted in the failure of the defendant to make payment of the balance due under the contract within the 90 days, or no later than July 12, 1983. Instead thereof the defendant directed a letter to the plaintiffs dated July 11, 1983, accusing the plaintiffs of having removed a large amount of merchandise “after we signed the agreement.” The letter included, inter alia, that the agreement between the parties was considered by the defendant as “rescinded.”

The plaintiffs allege that the defendant defaulted under the agreement and seek to recover the sum of $165,000.00 with interest and additional sums such as telephone, rental, and other costs accrued as a result of the alleged breach of contract.

The defendant has answered the complaint of the plaintiffs denying the contention of breach of contract and filed a counterclaim against the plaintiffs alleging that the defendant relied upon representations of the plaintiffs in regard to the quantity and quality of the antiques contained within Watson’s Antique Shop. In the counterclaim the defendant alleges that subsequent to the signing of the contract the plaintiffs, without the knowledge or consent of the defendant, removed antiques valued in excess of $50,000.00.

Additionally, in the defendant’s counterclaim it is alleged that, at the time the parties entered into the contract, the plaintiffs represented that all merchandise was free and clear of obligations. Defendant contends there were multiple outstanding liens against the property at the time of the agreement. The defendant alleges that as a consequence of the plaintiffs’ action he was damaged in the sum of $250,000.00.

Additionally, the defendant alleges that the plaintiffs’ action was intentional, willful, wanton and by design, which inflicted harm upon the defendant, and he claims punitive damages in the sum of $1,500,-000.00.

In this case, discovery, at the outset and for several months, became most difficult. It was wrought with bitterness, resulting in charges and countercharges. It was necessary for the Court to consider and enter numerous orders affecting both parties and, principally, requiring the defendant to comply with the Rules and Orders of the Court. The case was further complicated by the Court-ordered auction sale of some 1100 items still being held in Watson’s Antique Shop building as late as December, 1983.

The case was regularly scheduled for trial on the merits to commence May 23, 1984. After a three-day trial to the Court, the case was taken as submitted and counsel for the parties given the opportunity to file post-trial briefs.

The Court has received briefs and the case is ready for decision. From the substantial testimony presented to the Court, without the intercession of a jury, numerous exhibits entered, briefs submitted by counsel in the case, and the entire record, the Court proceeds to decision on the issues developed during the course of the trial.

Having the benefit of the trial record of the case, the Court makes the following findings of fact and conclusions of law, pursuant to Rule 52 of the Federal Rules of Civil Procedure.

In order to fully understand the serious dispute and actions of the parties in this case, a substantial statement of the facts, as developed by the record, is necessary.

The plaintiffs in this case have operated a substantial antique business in Hot Springs, Arkansas for approximately 13 years. The defendant, by profession, has been an auctioneer of antiques and has operated an antique business in Oklahoma City, Oklahoma. Although for years he has been engaged primarily as an auctioneer, defendant actively has been in the antique business for approximately 12 years. He operates the Antique Auction Galleries in Oklahoma City. He has also had an interest in such a business in Prague, Oklahoma, which he claimed was his wife’s business.

The defendant would also buy an antique business, which he would purchase outright, and arrange an auction for the sale of the contents at the location and, in some instances, some of the items for such sale would be transported to Oklahoma and either be placed in his own shop or in a shop in which he was interested in the area.

In the early part of March, 1983, Mr. Miears purchased Max Shaw’s Antique Shop in Hot Springs, Arkansas. He arranged for an auction, which was held on April 10 and 11, 1983, in Hot Springs. While making preparations for the auction he met the plaintiff, Aaron Watson. In time, the defendant, with his bookkeeper, Georgette Draybek, visited the plaintiffs’ antique shop for the purpose of observing it and its contents. This visit was on or about March 27, 1983. The plaintiff Aaron Watson was not at his shop at that time. An employee of the plaintiffs offered to serve them, and when advised they were there merely to visit and see the place, she requested their names. Defendant left his name and explained the reason he was in Hot Springs. This visit by the defendant prompted Mr. Watson to return the visit by going to Max Shaw’s place. Subsequently, the defendant again visited Watson’s Shop at which time he observed the contents of the shop and inquired of Watson if his shop was for sale and, if so, what price he would put on it. Watson did not know at the time, but would discuss it with his wife.

On April 2 and 3, 1983, Mr. Watson, with some assistance, made a complete inventory, item by item, of his shop. (PL. EX. 1). In doing so he placed a value on the contents of his shop in the amount of $392,-655.00.

Subsequently the defendant Miears visited the plaintiffs’ shop, either alone or with Ms. Draybek or some other person. On one occasion he and Ms. Draybek proposed to take what he referred to as a “bulk inventory.” This was explained to be his method of determining an approximation of the items, which was, in actuality, an estimate of antiques at the plaintiffs shop. On the basis of his estimate of the quantity and kind of antiques in the shop, he offered the plaintiffs $250,000.00 for the contents of the shop. This offer was made on April 6, 1983. Mr. Watson made a counter-offer to sell the contents of his shop for $350,-000.00. The defendant Miears replied he would not pay the price Watson placed on the contents of the shop, his business.

However, defendant Miears continued to be interested, and on or about April 8, 1983, he, together with an acquaintance, Mr. Bill Catón of Pittsburgh, Pennsylvania, went by to inspect the shop and to determine if Mr. Miears’ offer appeared to be an appropriate price to pay for the goods.

During this method of continued negotiations by the numerous visits to the shop by defendant Miears, Watson’s Antique Shop was open for business to the public and continued to do business day by day. Not only were some sales made from Watson’s Shop, but Mr. Watson attended an auction in Mississippi at the end of March or early April where he purchased and transported various items of antiques and placed them in the shop as additional contents for sale. Also, about this time, Mrs. Watson purchased a load of antiques from Malvern, Arkansas, which were added to the contents of the Shop. Mr. Watson also, on either April 10 or 11, 1983, purchased $5,000.00 of antiques from the Max Shaw auction, which he also placed in the Shop as additional contents.

On the morning of April 13, 1983, defendant Miears and Ms. Draybek went to Watson’s Antique Shop and inquired if Watson was ready to take his offer. Mr. Watson advised Miears that, having discussed it further with his wife, they were prepared to accept his offer of $250,000.00. They further agreed that defendant Miears would pay $85,000.00 of the total amount at that time, and the balance of $165,000.00 would be paid within 90 days, or not later than July 12, 1983.

During the negotiations that lasted for these several days, plaintiff Watson went to the Grand National Bank in Hot Springs and advised the President of his negotiations to sell his store to Mr. Miears. The Bank had liens on the property and, should the sale mature, it would be necessary to have the liens released. He obtained assurance from the Bank officers that there would be no trouble and that the release would be worked out so there would be no delay in the transfer of property should such sale occur.

After the parties entered into the agreement on April 13, 1983, they went to the Grand National Bank where the Contract (See Note 1 herein) was prepared. They intended to utilize the services of the attorney at the Bank in the preparation of the contract. He was not available, and they obtained the services of a secretary. She prepared the Contract for them just as they outlined it to her. Each of the parties, i.e., plaintiff Aaron L. Watson and defendant H.A. Miears, signed the Contract in the presence of the secretary, and plaintiff Rubena Watson signed it when they returned to Watson’s Antique Shop later in the day, April 13, 1983.

When plaintiff Aaron Watson and defendant Miears returned to the shop, Ms. Draybek was still at the Shop, where she had remained most of the time since that morning when they arrived at approximately 10:30 a.m. She had ample opportunity to observe the Shop, open for business, until the moment of the arrival of Mr. Watson and Mr. Miears in the early afternoon. Defendant Miears, and those associated with him, having concluded with details following the conclusion of the Max Shaw auction, and having loaded their vehicles ready to depart for Oklahoma, proceeded to take over the contents of Watson’s Shop.

Bert R. “Sonny” Meyers, Jr. was associated with and an employee of defendant Miears in connection with the Max Shaw auction. The auction having been concluded, Mr. Meyers began his return from Hot Springs to Oklahoma on that morning, April 13. It was understood between him and Mr. Miears that Meyers would arrive at Van Burén, Arkansas, on his return to Oklahoma that afternoon. Miears contacted Meyers by telephone after he, Meyers, arrived in Van Burén and advised him that he had purchased Watson’s Antique Shop and for Meyers to return to Hot Springs so he could take charge of the business purchased from Watson. Meyers returned to Hot Springs, arriving late afternoon at approximately 5:30 p.m.

While biding the time of Sonny Meyers return, Mr. Watson and Mr. Miears made final preparations to turn the business over to Mr. Miears, pursuant to the contract. There were. certain items that had been sold by Mr. Watson which were moved into an adjoining room separate from the business. Plywood was placed over the door and nailed from the inside of the business and furniture moved against the plywood, preventing any entrance from the adjoining lay-a-way room. All entrances to the building of the business were closed to prevent any outside entrance except the front door. This having been completed, plaintiff Watson turned over all keys to defendant Miears, which were given to Sonny Meyers to remain and have charge of the business. Defendant Miears and Ms. Draybek then left for Oklahoma City. Sonny Meyers moved his motor home and set up in front of the business just outside of the front door for security of the Shop.

Mr. Meyers entered the Shop the next morning, April 14, 1983, to start making preparation for an auction to be held by Mr. Miears within the next few weeks. He had been in the Shop on Monday of the same week. Without any further, explanation as to his knowledge of what contents were in the Shop, he claimed that as soon as he entered the business on Wednesday morning he noticed there was considerably less stock in the shop than when he had observed it the previous Monday.

According to Sonny Meyers, he called Mr. Miears that evening and reported “that there were quite a number of things that were not there.” Mr. Meyers proceeded to testify in detail about himself, his experience, and his contention as to the status of the business he was left there to look after. His testimony was less than persuasive and presented a serious question as to credibility.

Defendant Miears returned on Saturday, April 16. Ms. Draybek had previously testified that she returned on Friday, April 15. She was positive in her testimony that the boxes of jewelry, watches and numerous other items had been removed from the shop. When Mr. Miears arrived the following day he inquired of Mr. Meyers about the watches. Sonny Meyers testified that Defendant Miears had previously instructed him to be sure and gather the jewelry and watches and put them in boxes. When Mr. Miears asked him about it, Meyers stated: “I rooted them up and found them.” He said there was a box full of them, a shoe box full, and that he knew where they were. They were inside the case behind the glass. It was a jewelry case and he said there were two of them, one full and another he just looked at. He said the watch cases were excellent, “14 and 18 carat gold type.” This testimony is in serious conflict with the testimony of Ms. Draybek.

As a result of the contention that a substantial quantity of items had been removed from the shop, Mr. Miears accused plaintiff Watson of selling or otherwise disposing of in excess of $50,000.00 in value of items that were supposed to be in the store. He sought legal advice from an attorney in Hot Springs, Arkansas, as well as his attorney in Oklahoma. He claimed that he wanted out of the contract, and there was some discussion about how much it would take for plaintiff Watson to relieve him of the contract obligation. The controversy caused substantial feelings between them which became quite serious in their respective contentions. Notwithstanding the contract, defendant Miears advised Watson that he was going to proceed to protect himself and get the $85,000.00 that he had paid to the plaintiff upon entering into the contract between them.

At this stage the defendant also raised the question that Watson had sold him the stock in the Antique Shop which was under mortgage to the Grand National Bank of Hot Springs, Arkansas. He used this as an additional contention that he had the right to be relieved of his contract obligation. Without elaboration on the issue, it is sufficient that the Honorable John Parkerson, representing defendant Miears, obtained satisfaction of the liens and clearance on the property. Mr. Miears was so notified by Mr. Parkerson. At their last meeting Mr. Miears stated to Mr. Parkerson, “I was going to honor the contract,” and Mr. Parkerson’s task was to insure that the liens would be released.

Among the confusion and controversy over the contentions between the parties, defendant Miears admitted that when he left to go back to Oklahoma he “loaded up merchandise and sent it to Oklahoma City to his Antique Auction Galleries.” He did not explain the items or the quantity which was transported to Oklahoma.

Following this action, defendant Miears arranged for and had a three-day auction at Hot Springs, May 13, 14 and 15, 1983. After the auction, Mr. Miears admitted that he transported merchandise from Watson’s Shop to his Antique Auction Galleries in Oklahoma City. Although he indicated to Mr. Watson that he would not honor the contract further, he advised that he was going to take merchandise from the store to his place in Oklahoma without indicating the quantity and contents.

It later developed that defendant Miears mingled merchandise from Watson’s Shop with his own merchandise from the shop in Oklahoma in a two-day auction. Some of the merchandise defendant claimed was missing from Watson’s Shop was identified in the advertising of the auction of merchandise in Oklahoma. Further, there was testimony that Mr. Watson, with a certain photographer, took pictures from Mr. Miears’ business, and other such antique shops in Oklahoma, as having come from Watson’s Shop in Hot Springs, Arkansas.

On July 11, 1983, the day before the additional payment of $165,000.00 was due to be paid by defendant Miears to plaintiff Watson, Mr. Miears directed a letter to the Watsons referring to the contract and his construction of certain provisions, and accusing Watson of taking substantial goods from the store and stating that he did not “intend to go any further with this deal.” He concluded his letter to the Watsons by stating “I consider the agreement rescinded as both parties are compensated and back in the position they were before.” (PL EX 12).

The above letter in which defendant Miears proposed to rescind the agreement should be noted as written three months after the defendant had removed an unknown quantity of unidentified contents from Watson’s Shop to Oklahoma and after a three-day auction by defendant Miears without any accounting as to the results. The letter was received by Mr. Watson on July 14,1983. It was also an official notice that he, defendant Miears, would not make payment of the $165,000.00 as due on July 12, 1983.

On the question of the defendant’s contention that the plaintiffs had removed substantial merchandise from the store, and the alleged misrepresentation, the facts are crystal clear that such allegations are without merit.

From the first day defendant Miears visited Watson’s Antique Shop, March 27, 1983, until and including April 12, 1983, the plaintiffs sold out of their store, as the store was open for business during all of this time, merchandise and items of the value of $31,155.00. (D Ex 10).

During the same period of time the plaintiff purchased, from various sources, merchandise exceeding the value of $27,468.00 which was added to the inventory of the plaintiffs’ Antique Shop. A substantial part was purchased at an auction in Mississippi and became a part of the plaintiffs’ total stock the early part of April, 1983. There was an additional “lot” of furniture purchased at Malvern, Arkansas and placed in the plaintiffs’ merchandise stock. Plaintiffs also purchased antique items of the value of $5,000.00 from the Max Shaw Auction in Hot Springs which was also added to the plaintiffs’ merchandise stock in the store. (D EX 9).

Defendant alleges that the plaintiffs removed certain jewelry, cut glass, diamond rings, etc., from the store. At the auction in Mississippi the latter part of March, Mr. Watson purchased these items for Mrs. Watson personally. They were not placed in nor did they become any part of the merchandise of Watson’s Antique Shop. Most of this was for Mrs. Watson personally and all of it was put in their home as their personal items of merchandise. (D EX 8).

Near the close of the hearing Mrs. Watson testified that after the contract had been entered into by the parties and the keys of the shop turned over to defendant Miears, which were accepted and the transfer completed, the items in that shop were as had been reported to them. Mrs. Watson testified that the jewelry, watches and such items were in place. The cut glass items, in such numbers as explained, were placed in accordance with their custom in placing such items at various locations in the main building. So it was with the Roseville pottery, RS Prussia porcelain, dolls, etc. She explained the jewelry and watches were in two small display trays and including rings and watches in individual boxes, just as testified to by Mr. Meyers. Her explanation was precise in identity and location of these various items and that they were there and in place when the Shop was turned over to the defendant, in accordance with the contract entered into by the parties. Mr. Miears left everything in the custody of Mr. Meyers, who had sole possession with no one else entering the Shop but him for the next two days.

The defendant Miears claims that he has provided a complete accounting of the funds realized from the merchandise sold at the three-day auction in Hot Springs, the auction from his own business in Oklahoma, and such other merchandise that he transported from Watson’s Shop in Hot Springs to Oklahoma. The record discloses that Mr. Miears has entered as exhibits proposed accountings of his handling and sale of the property from Watson’s Shop. However, notwithstanding the efforts made on behalf of the plaintiff and as directed by the Court on various motions, the information included in defendant’s exhibits entered in the case were not made available nor was there any accounting made prior to the trial of the case, May, 1984. Under the circumstances, the Court has a serious question as to the accuracy of a complete accounting of the merchandise from Watson’s Shop.

The primary question, as between the parties, can only be determined by passing judgment on the credibility of the witnesses. The Court concludes, after carefully listening to the testimony of the witnesses, observing the witnesses on the witness stand, analyzing the exhibits and the entire record, that credibility must be determined in behalf of the plaintiffs’ witnesses in this case. The Court is persuaded that the stock of antique merchandise, as was reported by the plaintiffs and known from observation by the defendant, was in the approximate amount, identity and value as the parties understood and agreed upon in entering into a valid contract.

The Court is of the opinion that substantial testimony has been received to establish by a preponderance of the evidence that defendant Miears failed to comply with the terms of the valid contract entered into by the parties and that after acceptance of the goods, some of which were disposed of during a three-day auction in Arkansas and some after being transported to Oklahoma. Also, when the balance of the payment due on the Contract was not made in accordance with the Contract, the defendant deliberately and intentionally breached the contract, resulting in substantial damages to the plaintiffs.

The Court also concludes that the contention of the defendant as to the lien upon the property at the Grand National Bank is without substance or merit and offered no problem in the valid transfer of the property-

Under the creditable testimony in this case, the Court concludes that the plaintiffs are entitled, as a matter of law, to recover from the defendant, H.A. Miears, the unpaid balance of the contract price for Watson’s Antique Shop contents. This conclusion is reached from the unambiguous provisions of the Uniform Commercial Code as adopted in Arkansas, Ark.Stat.Ann. §§ 85-2-101 et seq.

The Uniform Commercial Code subsection 2-709(1) provides in pertinent part:

“When the buyer fails to pay the price as it becomes due the seller may recover ... the price (a) of goods accepted.....” Under subsection 2-606(1), “Acceptance of goods occurs when the buyer ... (b) fails to make an effective rejection (subséction 1 of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them____” Subsection 2-602(1) in turn provides: “Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer reasonably notifies the seller.” 568 F.2d 76.

As applicable to this case, tender occurred and the goods were accepted in accordance with the contract.

It is quite clear that there was an opportunity to inspect the goods and that the goods were accepted under subsection 2-606(l)(b) and that the plaintiffs Watson are, accordingly, entitled to recover the unpaid balance of the contract price under the provisions of subsection 2-709(l)(a). See Kohlenberger, Inc. v. Tyson’s Foods, Inc., 256 Ark. 584, 510 S.W.2d 555, 560-61 (1974).

Therefore, the Court concludes the defendant breached the contract which triggered sellers’ remedies under the Uniform Commercial Code. These remedies generally include the right to “e” recovery damages for non-acceptance, or, in a proper case, the price (§ 85-2-703(e), Ark.Stat. Ann.).

Section 85-2-709, Ark.Stat.Ann., provides:

“Action for the price. (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section the price
“(a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and
“(b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.
“(2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.
“(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610 [§ 85-2-610]), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceeding section.” See: Unlaub Co. Inc. v. Sexton, 427 F.Supp. 1360 (1977), affd. 568 F.2d 72, 76-77 (8th Cir.).

The Court further concludes that because the defendant breached the contract the Commercial Code defenses sought by defendant are not available to defendant and, therefore, the defendant’s counterclaim is unavailable. The defendant, in the opinion of the Court, has failed its burden on the counterclaim. The counterclaim, therefore, will be dismissed.

Based on the findings and conclusions in this opinion, judgment will be entered in behalf of the plaintiffs Watson in the sum of $165,500.00, the amount due and unpaid in accordance with the terms of the contract, together with pre-judgment interest of six percent (6%) thereon from July 12, 1983, to the date of such judgment. Ark. Stat.Ann. 29-124; Wooten v. McClendon, 272 Ark. 61, 612 S.W.2d 105 (1981); Toney v. Haskins, 7 Ark.App. 98, 644 S.W.2d 622, 627 (1983).

As incidental to the damages suffered by plaintiffs, additional judgment will be entered in the sum of $1,200.00 as rental cost on the “Green Building.”

Plaintiffs seek judgment of a reasonable sum for loss of use of the main building. •However, no testimony was presented to establish such damage, if any, was suffered for the loss of use of the main building owned by the plaintiffs.

Furthermore, the Court concludes that a telephone was installed and accepted for the use and benefit of defendant Miears. The plaintiffs, at defendant’s request, had the telephone installed which was installed in the plaintiffs’ name. As a result, the plaintiffs paid a total sum of $720.50, and judgment for such sum will be included in favor of the plaintiffs and against the defendant.

The plaintiffs also request judgment on alleged profit-loss for the years 1982 and 1983. The Court is of the opinion that judgment on such profit-loss, as requested by the plaintiff, would not be justified under the testimony presented on the request.

A separate judgment will be entered on behalf of plaintiffs Watson and against the defendant Miears in the sum of $167,420.00 together with interest of six percent (6%) from date of judgment until satisfied. Prejudgment interest of six percent (6%) will be included only as to the sum of $165,-500.00.

From the Court ordered auction scheduled November 12, 1983 and held December 10, 1983, there is in the registry of the Clerk a total sum of $21,374.67. Of this sum, $1,179.09 is accrued interest. By separate Order, the clerk will be directed to disburse the sum to the plaintiffs, Aaron L. Watson and Rubena Watson, d/b/a Watson’s Antique Shop, which sum is to be deducted from the total judgment awarded to the Watsons against the defendant Miears. Therefore, final judgment will be entered in behalf of plaintiffs Watson and against defendant Miears in the sum of $146,045.33.

A separate judgment will be entered in accordance with this opinion.

      . THE CONTRACT:
      I H.A. Miears have purchased the Entire contents (except contents of lay-a-way room and workshop) of Watson’s Antique Shop located at 962 Airport Road—Hot Springs, Arkansas 71913. The purchase price is $250,000.00. Amount paid this date of April 13, 1983 is $85,-000.00. Balance due $165,000.00 due in 90 days (July 12, 1983). It is also agreed that H.A. Miears has use of the property located at 962 Airport Road, Hot Springs Arkansas 71913 for a period of 90 days ending on July 12, 1983. It is agreed that H.A. Miears can hold an auction on these premises for the purpose of liquidating stock, and may use the house next door to Watson's Antique, 962 Airport Road—Hot Springs, Arkansas 71913 for the period of 90 days ending July 12, 1983.
      Signatures Notarized

      . These parties associated with defendant Miears, Ms. Draybek and Sonny Meyers, owned or had owned their own antique shops in Oklahoma, as did Mrs. Miears, wife of defendant Miears.


source: Caselaw Access Project

author: PECKHAM, Chief Judge.

license: Public Domain

text:
    WASHINGTON MECHANICAL CONTRACTORS, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF the NAVY, Rear Admiral William M. Zobel, its Commander of Naval Facilities Engineering Command, and Arntz Contracting Co., Defendants.
    No. C-84-5671 RFP.
    United States District Court, N.D. California.
    Sept. 21, 1984.

      Henry C. Bunsow, Townsend & Townsend, San Francisco, Cal., Wade R. Dann, William R. Zoberst, Ulin, Dann, Elston & Lambe, Seattle, Wash., for plaintiff.
    Patrick S. Bupara, Sandra L. Willis, San Francisco, Cal., John McCall, John Rosenberg, Riede, Rosenberg, McCall & Cahill, San Rafael, Cal., Douglas P. Hinds, Office of the Gen. Counsel, Dept, of Navy, San Bruno, Cal., for defendants.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

PECKHAM, Chief Judge.

Introduction

This case involves a dispute over the award of a contract for a variety of repair work on the “Star Barracks” at the Treasure Island naval base. On July 26, 1984, the Navy awarded the contract to defendant Arntz Contracting Co. (hereinafter referred to as “Arntz”), after Arntz prevailed in a bid protest filed on June 19, 1984 with the Navy. On August 13, 1984, the plaintiff, Washington Mechanical Contractors, Inc., (hereinafter referred to as “WMC”), filed this suit requesting that the court permanently enjoin the Navy from continuing its contractual relationship with Arntz, and that the court order the Navy to award the contract to WMC.

WMC makes two basic arguments. First, WMC argues that the Arntz protest was incorrectly decided and that the Navy should not have considered the Arntz bid in awarding the contract. Second, WMC alleges that the Navy violated a number of relevant regulations, and that as a result of these violations, the Arntz contract should be set aside. If the court sets aside the Arntz contract, then WMC becomes the low bidder on the Star Barracks project.

WMC obtained a temporary restraining order on August 14, 1984 from Judge Robert H. Schnacke. The hearing on a preliminary injunction and the trial on the merits was consolidated and began on August 28, 1984. On August 29, 1984, the court ordered that the defendant Arntz Contracting Co. be joined as a defendant, and that the trial be continued to September 14, 1984.

The court, having heard and considered the evidence, makes the following findings of fact and conclusions of law.

Findings of Fact:

The Navy solicited bids for miscellaneous repair work on the Star Barracks (so named for their configuration) at the naval base on Treasure Island. The Navy set the bid opening for June 18, 1984 at 2:30 p.m.

It is undisputed that WMC’s bid was received on time. At some time before 2:30 p.m., the officer in charge of the bid opening, Roger Helbig, walked from the bid room into the anteroom that contained the bid stamp clock, saw that the clock face read “2:30”, returned to the bid room, and announced that the time for bid opening had arrived.

Then, Mr. Helbig walked back out into the anteroom to collect the bids which had arrived prior to his declaration. As he was walking out of the bid room, Mr. James Vick, the bonding agent for Arntz was walking into the anteroom. Mr. Vick had been standing at a wall phone until 2:29 waiting for Arntz’s final bid figure from Mr. Kenneth Arntz. Mr. Vick had-previously synchronized his watch with the Pacific Bell phone company’s time service. When Mr. Vick received the final figure, he inserted the figure into the bid forms, sealed the bid envelope, and walked rapidly to the bid room. It took Mr. Vick less than thirty seconds to reach the bid anteroom.

Upon Mr. Vick’s arrival into the anteroom, he said something to the effect that, “I have a bid and want to submit it.” Mr. Helbig met Mr. Vick, and told him that he was too late, and that Mr. Helbig was not going to stamp in the Arntz bid. Mr. Vick tried to stamp the envelope in himself, but he just made a smear on the envelope.

At that time, an assistant who was present in the anteroom said that Mr. Vick could at least stamp his envelope in, and someone stamped the bid in. By this time 30 seconds to a minute had elapsed, and the stamp read “2:31”. Mr. Helbig then took possession of the Arntz bid.

After the Arntz bid was stamped, Mr. Helbig and Mr. Vick entered the bid opening room and Mr. Helbig opened and read all the bids that had arrived prior to Mr. Helbig’s bid declaration. Mr. Vick was present during this time. After the reading it was clear that, but for an apparently irregular bid of $700,000, WMC’s bid of $1,347,400 was the low bid.

At the close of the bid opening, Mr. Helbig gave the Arntz bid back to Mr. Vick. At some time after the bids were read, Mr. Helbig overheard Mr. Vick exclaim that Arntz would have been the low bidder. Mr. Vick left the bid opening room with the Arntz bid and phoned Mr. Arntz to tell him what had happened. Mr. Arntz then told Mr. Vick to come to his office, and Mr. Vick did. Mr. Vick gave Mr. Arntz the bid envelope, and Mr. Arntz put the envelope in the file on this project, where it remained, unopened, until Arntz resubmitted the bid about a month later at the request of the Navy.

On June 18, 1984, the day of the bid opening, the bid clock was tested and was determined to be a minute and a half fast, and reset. The clock has no second hand, and only stamps the time to the last full minute. Thus, a stamp of “2:30” could be either 2:30:01 or 2:30:59. When the clock moves to the next whole minute, it emits a “click” sound. Ms. Nancy Dominguez, a management assistant, who was present when Mr. Vick came into the anteroom, testified that she tested the bid clock three times on June 18, 1984.

First, during the bid opening, Ms. Dominguez and an unidentified assistant tested the clock. The assistant called the phone company’s time service, and repeated what she heard the recorded voice saying (“at the time of the tone it will be 3:01:10,” etc.). Meanwhile, about ten feet away, Ms. Dominguez listened for the “click” of the clock that would indicate that the clock had just turned to the next whole minute (“3:02:00” at the “click”). In this manner, they determined that the clock was a minute and a half fast, but did not reset the clock at this time.

Later that afternoon, two officers from the Navy came to the bid office and in response to their request, Ms. Dominguez stamped a piece of paper. One of those officers was Ensign Cynthia Lassnoff, and she testified that she thought the clock was three minutes fast.

Finally, sometime later that same afternoon, Ms. Dominguez and an assistant again tested the clock using the phone company’s time service; at this time Ms. Dominguez reset the clock. Then, they continued to listen to the phone company and the clock to set the clock to within five seconds of the phone company’s -time.

On June 19, 1984, Arntz filed a bid protest with the Navy. On about July 15, 1984, the Navy decided that the bid protest was valid, and asked Arntz to resubmit the bid, which it did a few days later. The bid envelope was submitted to the Bureau of Alcohol, Tobacco, and Firearms for a test to determine if someone had opened and resealed the bid envelope. The test was apparently done by the post office on July 19,1984. The test results show, along with the testimony of Mr. Arntz and Mr. Vick, that the bid envelope had not been opened and resealed after Mr. Vick sealed it on June 18, 1984.

From June 18, 1984 until July 18, 1984, WMC had no knowledge that Arntz had protested, or that the Navy had decided to allow Arntz to submit its bid. During this time, in conversations between WMC and the Navy, the Navy discussed the Star Barracks project as if WMC would get the award. It was not until July 19, 1984, when Mr. Patrick Marker of WMC phoned the Navy to inquire about the progress of the contract award, that WMC found out about the Arntz protest. Mr. Marker spoke with Ms. Barbara Accomazzo at the Navy who told him of the Arntz protest, but said that it would not be successful. Mr. Harrell Britton, an officer and employee of WMC, then called the Navy on July 25, 1984, to inquire about the Arntz protest, and he spoke with Mr. Peter L’Angelle. Mr. L’Angelle informed Mr. Britton that the Navy had ruled favorably on Arntz’s protest and was going to award the contract to Arntz. Mr. Britton said he thought that WMC might protest this, but that he would talk to his lawyer. Mr. L’Angelle said that protesting was WMC’s “perogative,” but that it should be in writing. Mr. L’Angelle also told Mr. Britton that the Arntz award would not be made for about a week.

That same afternoon, Mr. Helbig, having overheard Mr. L’Angelle’s portion of the conversation, and fearful of a WMC protest, called Mr. Britton to dissuade him from protesting. Mr. Britton said he would talk to his attorney and call Mr. Helbig the next day. After conversations with Mr. Britton, Mr. William Zoberst, counsel for WMC, sent a written protest to the GAO that evening. Mr. Zoberst also sent a copy of the protest to the Navy four minutes later. The GAO received the WMC protest the next morning, July 26, 1984. The Navy did not receive its copy until July 27, 1984.

The morning of July 26, 1984, around 10:25 a.m., Mr. Britton and Mr. Zoberst phoned Mr. Helbig and informed Mr. Helbig that WMC had filed a GAO protest. The court does not find that WMC also made it clear to Mr. Helbig that WMC was protesting directly to the Navy.

Mr. Helbig then referred them to Mr. Alexander Barna, an assistant counsel for the Western Division, Office of General Counsel. Mr. Zoberst called Mr. Barna around 3:00 p.m. on July 26, 1984 and told Mr. Barna about the GAO protest. Mr. Barna testified that he knew WMC was protesting, and he did not ask for further written confirmation because he knew something written was coming from WMC. The court takes this to mean that the Navy knew the GAO protest was filed, that that they were anticipating the arrival of their copy.

That afternoon at approximately 5:15-p.m., however, the Navy awarded the contract to Arntz. The Navy did not contact the GAO concerning the Arntz award. WMC did not find out that the Navy had made the award until August 3, 1984, when Mr. Britton contacted the Navy.

Conclusions of Law

WMC challenges the Navy’s failure to comply with a number of federal administrative regulations relating to procurement and bid protests. Thus, jurisdiction is proper in accordance with 28 U.S.C. section 1331.

Venue in the United States District Court for the Northern District of California is proper because this action is brought in the district where the claim arose, in accordance with 28 U.S.C. section 1391(a).

A. The timeliness of Arntz’s bid.

The Comptroller General opinions consistently reflect the presumption that the bid officer’s declaration of bid opening time is correct. Carlson & Associates, B-211918, November 21, 1983, 83-2 CPD 599; Hatch Construction & Paving, B-204810, November 4, 1984, 81-2 CPD 387. Unless the protestor shows “clearly” that the time of the bid declaration was inaccurate, the bid declaration stands. The burden of proof is on the protestor to prove his case.

In those cases in which the Comptroller General finds that the protestor did not establish a clear record, the protestor had nothing more than the assertion that his wristwatch was more accurate than the bid officer’s wristwatch (or bid clock). See, e.g., Hatch Construction & Paving, supra. When the evidence is that the protestor and the bid officer just disagree about the time, the presumption of a correct declaration prevails.

In Arntz’s ease, the Navy determined that Arntz had met its burden of proof that the clock was fast. Using the statements by its own personnel that the bid clock was at least a minute and a half fast on June 18, 1984, the Navy asks, what clearer record could there be?

To upset the Navy’s decision, WMC must show that the decision of the Navy was arbitrary and capricious. 5 U.S.C. 706(2)(A). The Navy argues that in order to do this, WMC, the protestor in this case, must meet at least a minimal burden of showing affirmatively that the clock was accurate. The problem is that it is impossible for any bidder in WMC’s position to prove that the clock, which is in the control of the Navy, was accurate. And, WMC did not present any evidence to show that the clock was accurate; rather WMC relies on the presumption that the bid declaration is accurate.

Instead, WMC attempted to discount the validity of the Navy’s tests on the bid clock, to show that the Navy’s decision was arbitrary because there was no clear record of the of the bid block. WMC has, however, also failed to convince the court that the Navy acted arbitrarily in relying on Ms. Dominguez’s tests on the clock.

While the technique by which Ms. Dominguez tested the clock certainly does not seem like a very professional procedure, this does not mean that the Navy acted arbitrarily in considering the tests as evidence that the clock was fast. The Navy, then, had more than Mr. Vick’s allegations that his watch was more accurate than the bid clock, on which to base its determination that Arntz’s bid was timely.

Furthermore, the presumption that a bid declaration is accurate seems primarily to be a presumption to protect the government agency from every disappointed late bidder who might claim that his watch is better than the bid clock. When the Navy agrees that its own equipment was faulty, the presumption that the bid declaration is accurate no longer need apply. '

Thus, the court finds that the Navy’s decision resolving the Arntz protest in Arntz’s favor was not arbitrary and capricious.

WMC also presents four alleged violations of relevant administrative regulations for the court’s consideration. Each of these violations, WMC argues, are grounds for invalidating the award to Arntz and for ordering the Navy to award the contract to WMC. The court now turns to these arguments.

B. The procedural arguments.

Bid protests can be made either to the Navy or to the GAO. The Federal Acquisition Regulations, contain the Navy’s bid protest procedure. The bidder may protest directly to the Navy in two ways: 1) orally, and 2) in writing, if the agency requests a writing.

The General Accounting Office’s role in bid protest proceedings is defined by regulations contained at 4 C.F.R., Subpart 21 (1984). These regulations provide a contract bidder with another way to protest an agency’s procurement decision—directly to the GAO.

The analysis the court used in disposing of WMC’s four procedural claims is: 1) what regulations apply and how should they be interpreted? 2) did the Navy violate these regulations?, and 3) if the Navy violated these regulations, should the court invalidate the Arntz contract and require the Navy to contract with WMC?

The last question is the most difficult, because it involves a balancing of two important policy considerations. Counsel for WMC advances case law support for the proposition that “agency action which violates a published regulation is ‘not in accordance with law’ within the meaning of 5 U.S.C.A. section 706(2)(A) [of the Administrative Procedure Act].” Ainslie Corp. v. Middendorf, 381 F.Supp. 305, 308 (D.Mass.1974). The argument is that if the agency does not follow one of its own published regulations, the court may properly find that the agency’s action is arbitrary and not in accordance with the law, and therefore may overturn the agency action. The policy interest which this argument represents is the interest in requiring agencies to “stick to their regulations.” Georgia Gazette Publ. Co. v. United States Depart. of Defense, 562 F.Supp. 1004, 1011 (S.D.Ga. 1983).

Balanced against this is the policy interest in avoiding disruption in procurement decisions. M. Steinthal & Co. v. Seamans, 455 F.2d 1289, 1300 (D.C.Cir.1971) (recognizing the interest in “taking account of this strong public interest in avoiding disruptions in procurement, and [in] withholding judicial interjection unless it clearly appears that the case calls for an assertion of an overriding public interest ‘in having agencies follow the regulations which control government contracting.’ ”). Accord, James Luterbach Const. Co., Inc. v. Adamkus, 511 F.Supp. 869, 871 (E.D.Wisc.1984) (citing Steinthal and noting, “[t]his principle places the burden of proof on a bidder challenging a federal procurement award”).

Not surprisingly, the Comptroller General opinions, discussed below, favor this policy interest, holding that if an agency violates a procedural regulation, this alone should not invalidate an otherwise valid contract.

Some courts, however, have resolved the balance in favor of voiding a contract which an agency enters into after violating a particular procurement regulation. As a district court in Georgia said:

It is settled law that where an administrative agency has exceeded it authority, or failed to follow the applicable requirements of agency regulations, and has failed to act in the public interest, court intervention is appropriate____[citations omitted] Furthermore, even the strong public interest in avoiding disruption of the procurement process must give way to the public interest in requiring agencies to stick to their regulations.

Georgia Gazette Pub., 562 F.Supp. at 1011.

Before striking the balance in favor of voiding a contract, however, the court must be satisfied that the facts meet the standard used in the Third Circuit: “clear illegality.” Sea-Land Service, Inc. v. Brown, 600 F.2d 429 (3d Cir.1979) (“A showing of clear illegality is an appropriate standard to impose on an aggrieved bidder who seeks judicial relief,” id. at 434). In a close case, then, the court will resolve doubt in favor of the Navy.

1. The return of the Arntz bid.

Mr. Helbig gave the Arntz bid back to Mr. Vick in clear violation of the applicable FAR which provides: “Late bids, modification of bids, or withdrawal of bids that are not considered for award shall be held unopened, unless opened for identification, until after award and then returned with other unsuccessful bids.” FAR 14.304-3. Mr. Helbig testified that he thought there was ambiguity in the relevant FARs on whether Arntz should have gotten its bid back. The court rejects the contention that the regulations are ambiguous. Moreover, the Navy did not really contest the impropriety of giving the Arntz bid back to Mr. Vick.

The Navy’s argument is that the regulation, which is at least partly based on a concern for the integrity of the competitive bidding system, only requires it to be vigilant and to guard against the possibility of fraud. The Comptroller General opinions have said that, if the agency is satisfied that there has been no impropriety, the agency may accept returned bids. See, e.g., Delbert Bullock, B-208496, September 7, 1982, 82-2 CPD 201. The test by the Bureau of Alcohol, Tobacco and Firearms satisfied the Navy that no fraud had occurred.

WMC denies that the precautions the Navy took were sufficient to guard against fraud, though it denies that it is accusing the Navy or Arntz of fraud. WMC argues that the regulations requiring bidding officers to retain unopened bids protect the integrity of the bidding procedure, and any deviation from this regulation seriously undercuts this integrity. The court agrees with WMC that the Navy should have adhered to this regulation because then no difficult issues of fraud and returned envelopes would arise. But, if a mistake is made, the court also finds that it is possible for the Navy to cure this mistake by tests such as the one performed on the envelope in this case.

WMC also argues that allowing Arntz to resubmit the bid gave Arntz an impermissible option to return the bid only if it wanted to remain in the bidding. Arntz seemingly had a choice the other bidders did not have; after hearing the bids, Arntz could decide if it still wanted to be considered for the job. The Navy admitted that it could not have forced Arntz to return the bid. This option argument, however, is unpersuasive. An “option” is present any time a disappointed bidder contemplates whether he will protest any action by the agency that results in his bid not being accepted. The disappointed bidder has the choice of pursuing a protest, and perhaps winning the award, or deciding, after the bids are opened, not to pursue the contract. If the government is going to allow bidders to protest, the potential for an “option” will always exist.

Thus, the court finds that the Navy cured the violation of the FAR on the return of late bids, by vitiating the possibility that the someone had fraudulently tampered with the envelope. Therefore there is no showing of “clear illegality” here, and the court does not feel compelled to find that the interest in requiring literal adherence to the regulation is strong enough to invalidate the Arntz award.

2. Failure of the Navy to notify WMC of Arntz’s bid protest.

The FARs provide that when a contracting officer receives a protest, the officer should notify other bidders who are “affected” by the protest, “in appropriate cases.” FAR 14.407-8(3). WMC clearly was a party “affected” by the Arntz protest—if Arntz was successful, then, as lowest bidder, it would receive the contract. But at the bid opening, on June 18, 1984, the apparent low bidder was WMC, and at least up until July 19, 1984, WMC believed that it was going, to get the award.

The issue is what the “in appropriate cases” language of the regulation means. Mr. Helbig testified that one of the reasons why he did not inform WMC of the Arntz protest was because WMC could not have supplied the Navy with any information regarding the accuracy of the bid clock. Certainly any time a party has pertinent information on the subject matter of the protest, the case would be “appropriate” for notice. The question is whether anytime a bidder is “affected,” the case is appropriate for notice.

The old procurement regulations did not contain this “in appropriate” language, requiring the agency to give notice to any affected party when a protest was filed. 32 C.F.R. 2.407-8 (1973). WMC cites a case that discusses these old procurement regulations, Ainslie Corp. v. Middendorf 381 F.Supp. 305 (D.Mass.1974). There, a disappointed bidder, Ainslie, sought a preliminary injunction against the award of a contract to a company that had filed a protest and prevailed. The Navy did not give notice to Ainslie of the protest, despite the fact that Ainslie was the lowest bidder. The court said that the language in the regulations was mandatory and that the Navy had to give notice to Ainslie who was obviously involved in and affected by the protest.

Even setting aside the difference in the regulations, Ainslie is distinguishable from the present case. In Ainslie the protester was making a complaint about the sufficiency of the Ainslie bid—and the Navy still did not inform Ainslie. Rather, the Navy just disqualified the Ainslie bid as unresponsive and made the award to another company. Obviously, if the Navy had notified Ainslie of the protest, the corporation could have given the Navy relevant information about its own bid, the very subject of the protest. Here, WMC had no information on the bid clock.

Moreover, in considering the difference in the language of the regulations in 1973 and in 1984, the inclusion of the “in appropriate cases” language only works to limit the scope of the Ainslie decision. The notice provision is no longer unqualified and mandatory; not all affected bidders need be notified of pending protests.

Common sense dictates that the Navy personnel in this case should have informed WMC of the Arntz protest soon after it was lodged; WMC should not have had to call the Navy to find out about the protest. Moreover, WMC received inaccurate information about the status of the protest—on the 19th of July, the Navy had already decided to allow Arntz to submit its bid. This is no way to head off ill-feelings and potential protests.

But, the Navy’s lapse in common sense does not necessarily demonstrate a clear violation of the applicable regulation. Arguably, the main policy the regulation embodies is the policy of insuring that affected bidders who have relevant information on a bid dispute are able to tender that information to the agency before the agency makes a decision. This policy was not violated here. Again, the court will not override the interest in noninterference with the procurement process simply because the Navy personnel failed to take action that could have easily prevented this lawsuit.

3. WMC’s oral protest to the Navy.

WMC alleges that on July 26, 1984, in the 10:25 a.m. conversation between Messrs. Zoberst and Britton and Mr. Helbig, Mr. Zoberst told Mr. Helbig that WMC was protesting the award directly to the Navy. All the Navy witnesses deny that WMC ever directed a protest to the Navy about the Arntz contract. As stated in the Findings of Fact above, WMC has just not demonstrated to the court that WMC clearly directed an oral protest to the Navy on July 26, 1984. The evidence is clear that the Navy knew WMC was protesting to the GAO, but this is not the same as the Navy having knowledge that WMC was making a protest to the agency. Therefore, the court does not consider WMC’s allegations that the Navy failed to follow the applicable procedures regarding bid protests directly to the agency.

4- WMC’s protest to the GAO.

WMC filed a protest with the GAO on the morning of July 26, 1984. The dispute is over the Navy’s obligation, if any, resulting from this filing. The court found above that, by the phone call on the morning of July 26, 1984, the Navy knew that WMC had filed the GAO protest. Mr. Helbig testified that WMC only said they “sent” the protest; the point is that the Navy knew that WMC was serious about the GAO protest and knew that it was highly likely that the protest had reached the GAO office. If there was any doubt, at 3:00 p.m., Mr. Barna was informed that WMC had filed its protest, and he testified that he knew WMC was “protesting” and that he did not ask for a “further” confirmation because he knew something was coming in the mail.

Thus, according to WMC, the Navy officials came under a duty to notify the GAO before making the award to Arntz. The FARs defined the agency’s role when a bidder protests to the GAO:

(b) Protests before award.
(3) ... When it is known that a protest has been lodged directly with the GAO, a determination to make award under sub-paragraph (4) below must be approved at a level above the contracting officer in accordance with agency procedures. While award need not be withheld pending final disposition by the GAO of a protest, a notice of intent to make award in such circumstances shall be furnished the GAO.

FAR 14.407-8(b)(3).

WMC’s argument is that “known” includes actual knowledge of the kind the Navy had here. The Navy admits that it did not follow the procedures set out in FAR 14.407-8(b)(3). The Navy’s position is that oral notice from the protester that a GAO protest has been filed, does not trigger the Navy’s responsibilities under the regulation.

The Navy points to the GAO regulations requiring the GAO to notify the agency of any protest within one day. 4 C.F.R. section 21.3 (1984). The Navy also points to C.F.R. regulations which require the protestor to file a copy of the GAO protest concurrently with the agency. 4 C.F.R. section 21.1(c) (1984). These regulations, the Navy argues, prove that WMC should have made sure the Navy had a copy of the GAO protest on July 26, 1984, and that until the Navy got a written copy of the protest or until GAO informed the Navy orally or in writing of the GAO protest, the Navy had no duties under FAR 14.406-8(b)(3). The GAO notice did not come until July 27, 1984, and the copy of WMC’s protest was not “filed” in the Navy office until July 27, 1984.

One Comptroller General opinion considered a case similar to this one. In the Matter of Data Test Corporation, B-181199, December 20, 1974, 54 Comp.Gen. 499. In this case, the protestor sent a written notice of protest to the GAO which was filed at 9:33 a.m. on a Friday. Early that afternoon the agency made the award to another company. That afternoon, after the contract was awarded the protestor called the agency and informed the agency of the GAO protest. Soon after the phone call, the copy of the GAO protest arrived in the agency’s office. The GAO notified the agency of the protest by the next working day, Monday.

The Comptroller General noted that while the GAO protest was technically filed before the award, the agency could not be faulted because there was no evidence that the agency was “on notice” of the protest at the time of the award. It is not clear if the Comptroller General would have “faulted” the agency if the protestor had called the agency just a few hours earlier, before the contract was actually awarded, which is what happened in this case. Arguably, the point of the regulations regarding concurrent filing and GAO’s responsibility to notify the agency, is to insure that the agency acquires actual knowledge.

The policy behind FAR 14.407-8(b)(3) is to provide the GAO with a chance to offer some comment to the agency on the contract dispute, and it was not well-served by the Navy’s reading of the regulations. Therefore, the court rejects the Navy’s argument and finds that actual knowledge did trigger the Navy’s duty to follow FAR 14.4-7-8(b)(3) in this case. The question is now whether the failure of the Navy should be grounds for invalidating the contract.

WMC cites a Rhode Island district court decision in which apparently the protestor had properly filed all notices concerning his GAO protest. Derecktor v. Goldschmidt, 506 F.Supp. 1059 (D.R.I.1980). The Coast Guard officials had clearly failed to notify the GAO before they awarded the contract to another party. The court in Derecktor said:

... the failure to comply with the regulations cannot be considered to be in accord with law or in observance of procedure required by law, and, is therefore a violation of 5 U.S.C. [section] 706(2)(A) and (D). Agency regulations have the force and effect of law. [citations omitted]____ Agency action not in accord with regulations is not in accord with law. [citation omitted].... The Coast Guard’s action in awarding the contract to Tacoma must be held to be unlawful and must be set aside.

Id. at 1063. The Navy, on the other hand, cites a number of Comptroller General opinions for the proposition that agency failure to follow procedural regulations will not invalidate an otherwise valid contract. RCA Service Co., B-208871, August 22, 1983, 83-CPD 221; Martin Tool and Die, Inc., B-208796, January 19, 1983, 83-1 CPD 70.

In balancing the policy interests, the court declines to follow the Derecktor case to the extent that it says any failure to comply with a regulation warrants setting aside an agency contract. The policy interest in getting GAO comment here is important, but the GAO cannot stop the award. In this case, the court has already found that the Navy’s resolution of the Arntz protest was proper. The court finds that the interest in not interrupting this particular procurement project any more than necessary is the weightier interest here.

Conclusion.

For the foregoing reasons, the court finds against the plaintiff. This result does not indicate that the court is pleased with the fact that bids for billions of dollars in procurement contracts are not clocked in and monitored with more care than the Navy took in this case, or with the Navy’s handling of the WMC and Arntz disputes. Simple actions could have prevented this costly litigation.

There is a point at which a court might say that the interest in requiring the agency to “stick to its regulations” does out-weight the public interest in having government procurements go forward with as much dispatch as possible. It is just that this point was not reached in the instant case.