24 



Mr. Crapo. I assume, then, you agree that the Winstar precedent 

 would apply to timber sale contracts as well as other types of gov- 

 ernment contracts? 



Mr. HORNGREN. That is correct. 



Mr. Crapo. And does the case distinguish whether the claim of 

 the sovereign act has to be an act by Congress or an act by the Ad- 

 ministration, the Executive Branch or otherwise? 



Mr. HORNGREN. It doesn't matter. As long as it is in the legisla- 

 tion or the regulation, the effect is the same. 



Mr. Crapo. Now C clause provisions are contained in most tim- 

 ber sales contracts, and these are provisions that justify the can- 

 cellation of the contract and certain prescribed damages to the re- 

 placement value of the timber and certain other facts, is that fair? 



Mr. HORNGREN. That is correct. 



Mr. Crapo. And given the Winstar decision, if Congress or the 

 Executive Branch terminates or unilaterally changes the terms of 

 the contract outside the terms of the C clause provisions, do I un- 

 derstand correctly that the government would then, in your opin- 

 ion, be in violation of the contract as held in Winstar? 



Mr. HORNGREN. Well, it would be more than that, because they 

 would be acting outside the contract and some of the timber cases, 

 most notably the Davidson case recently, have held that if the ac- 

 tion occurs outside the contract, then the purchaser wouldn't be 

 just limited to the contract remedies and would be entitled to all 

 common law remedies for breach. 



Mr. Crapo. And again, I realize that you have addressed this, 

 but does Winstar speak to whether the government can breach the 

 contract or whether it would simply pay for breaches in contract? 



Mr. HORNGREN. It does not preclude the government from enact- 

 ing new regulations and enacting laws, but it does require that the 

 government pay for those changes. 



Mr. Crapo. So how would a breach outside the C clause by the 

 government affect the damages that — the assessment of damages 

 that the courts would impose following the Winstar case? 



Mr. HORNGREN. I think it would increase the exposure to the 

 government for damages by millions of dollars. 



Mr. Crapo. And you mentioned the unilateral contract changes 

 made in the TTRA, 1990 TTRA, and you cite the claim of sovereign 

 act authority in the House committee report as a legal rationale of- 

 fered as justification for termination of the contracts based upon a 

 case called the Hedstrom case. What are the differences between 

 Hedstrom, Winstar and TTRA contract payments? 



Mr. HORNGREN. I think the Hedstrom case was the basis for the 

 conclusion in TTRA that they could unilaterally modify or cancel 

 the contracts without any contract liability. And the Supreme 

 Court in the Winstar case doesn't discuss the Hedstrom case, but 

 it is unlikely that Hedstrom is still good law following the Winstar 

 decision. 



Mr. Crapo. Hedstrom was preceding Winstar? 



Mr. HORNGREN. Yes, it was a 1984 case, significantly a District 

 Court case not a Federal Circuit case, and certainly not a Supreme 

 Court case. Like Winstar, Hedstrom involved numerous contracts 

 and parties and the substantial effect of the boundary waters canoe 

 legislation in that case was to abrogate the contract. So it is very 



