Understanding Transpace Carriers Inc. v. United States (1990)

Transpace Carriers, Inc. v. United States of 1990 is one of the most important space law cases regarding pre-contractual breach in contract law.

The Facts

In this case the defendant was NASA, which among various space programs, operated the launch of Expendable Launch Vehicles (ELVs). In 1982, U.S. President Ronald Reagan introduced a new policy explaining that the use of shuttles should be prioritized over ELVs for launches. It was also announced that the space activities sector was opened to private actors.

The plaintiff was Transpace Carriers Inc. (later referred as “Transpace” or “TCO“), a company that contacted NASA and proposed to acquire and commercially operate an ELV program, better known as the Delta program.

Therefore, NASA and Transpace entered into a Preliminary Agreement which set various terms. Among those were conditions that Transpace would have to meet in order to qualify to operate the Delta program. Thus, under the agreement, Transpace had to demonstrate that it had acquired the “technical, financial and contractual capability to conduct a viable commercial Delta ELV program“.

If Transpace met the requirements determined in the Preliminary Agreement on the date specified in it, NASA would then have to agree to negotiate a Definitive Commercialization Agreement to hand the program over to Transpace Carriers.

Both parties agreed that Transpace would have the exclusive right to market commercial Delta Launch services for the duration of the Preliminary Agreement.

Several extensions of the deadline have been granted for Transpace to meet the criteria set in the Preliminary Agreement, but the company kept failing to do so. The last amendment issued even altered a criteria which Transpace was to meet to ensure that the company succeeded in meeting the deadline. The last deadline was set on May 31, 1986 and no Definitive Commercialization Agreement was executed prior to this date.

In the end, as Transpace did not meet the requirements to operate the Delta program, NASA notified the company on October 10, 1986 that the program was transferred to another company. TCI claimed that negotiations continued after the deadline of May 31, 1986.

Three years later, on July 6, 1989, Transpace sued NASA and filed a complaint for breach of contract on several grounds.

First of all, Transpace argued that the Preliminary Agreement was still in effect, with regard to the conduct of the parties, when NASA transferred the program. Then TCI went on to explain that it was fully qualified to operate the Delta program, with the exception of the execution of the Definitive Commercialization Agreement, which was justified by saying that NASA unreasonably withheld it. Consequently Transpace demanded damages in the form of direct damages and lost profits.

As a result, NASA filed a motion on the basis of several arguments. NASA started by arguing that Transpace had fail to exhaust the administrative remedies required by the Preliminary Agreement. Then the U.S. space agency explained that the complaint filed by TCI failed to state a claim upon which relief can be granted for several reasons. First the Preliminary Agreement had expired, therefore NASA could not have breached it. Then Transpace assumed all risks relating to any failure of the parties to enter into a definitive agreement. And finally Transpace’s demand for lost profits was precluded by the Preliminary Agreement.

Due to the defendant’s submission of materials outside of the pleading in support of its motion, a summary judgement was entered. A summary judgement is a legal process in which a court makes a decision based on the facts that have been provided, without ordering a trial.

The issue was to determined whether the disputes clause in the Preliminary Agreement mandated Transpace Carriers Inc. to exhaust certain administrative remedies prior to filing suit.

United States Claims Court Discussion

The debates mainly revolved around the article 9 of the Preliminary Agreement which provided that: “Any dispute, whether or not involving an alleged breach of this Agreement, concerning a question of fact or of law arising under this Agreement which is not disposed of by agreement, shall be reviewed by the NASA Associate Administrator for Space Flight, who shall attempt to resolve the dispute“.

It was required for Transpace to attempt to resolve this dispute first with NASA rather than directly file a complaint. In response Transpace did not deny the clause and its content but argued that it did not apply in this case. The company invoked the fact that the language contract is susceptible of determination by summary judgment in accordance with the Government Systems Advisors Inc. v. United States of 1988.

Concerning NASA, it was clear that the clause was intended to apply to any dispute as it was explicitly written “whether or not involving an alleged breach of this Agreement” which therefore would cover all disputes likely to arise.

However for Transpace, the terms “arising under the Agreement” restricted the scope of the dispute clause. It was claimed that the dispute clause covered only those disputes for which a remedy procedure is provided in the Agreement, meaning that it only covered non-breach dispute.

The case of Arizona v. United States of 1978 explained that a contract must be considered as a whole and interpreted so as to harmonize and give meaning to all of its provisions. And the ITT Arctic Services Inc. v. United States case of 1975 asserted that an interpretation which gives a reasonable meaning to all parts will be preferred to one which leaves a portion of its useless.

On the contrary the interpretation Transpace suggested would require the Court to ignore significant parts of the contract, and especially ignore this part: “whether or not involving an alleged breach of this Agreement“.

Besides it would also lead to ignore the article 6 of the Preliminary Agreement which stated that: “TCI shall not make any prior claim based on an expressed or implied provision of this Agreement, including a breach of this Agreement, against the U.S. Government… for the improper performance or nonperformance by the U.S. Government… of this… Agreement“.

Due to the notion of precedent, the United States Claims Court chose NASA’s contractual interpretation and held that the disputes clause in the Preliminary Agreement applied to all disputes, whether or not involving a breach.

Transpace argued that the administrative remedies provided in the clause were futile and so the Court should not force the plaintiff to submit to these procedures. But the case United States v. Grace & Sons: “A court may not require the parties to exhaust their administrative remedies when it’s clear evidences show that such procedure is inadequate or unavailable” and the Court also precised that: “the inadequacy or unavailability of administrative relief must clearly appear before a party is permitted to circumvent his own contractuel agreement“.

However it is clear from the facts of the case that the inadequacy or unavailability of administratif relief did not clearly appear. Thus the parties are not prevented from reaching a settlement of TCI’s breach claim.

Finally, Transpace requested the court not to dismiss the complaint but rather to stay the action pending in order to avoid any expenses of refiling a complaint. But the United States Claims Court dismissed the complaint.

To sum up, on November 21, 1990, the United States Claims Court held that the disputes clause in the Preliminary Agreement covered breach claims and that Transpace Carriers Inc. failed to exhaust the administrative remedies provided in the disputes clauses. The Court found that the administrative remedies were not unavailable or inadequate and therefore the defendant’s motion for summary judgment was granted. In conclusion the plaintiff’s complaint was dismissed.

We observe from this judgment, as well as other judgments rendered at the same time, that the opening of the space market to private actors necessarily leads to more contractual disputes.