United States Court of Appeals
                             FOR THE EIGHTH CIRCUIT
                                ________________

                                   No. 05-3405
                                ________________

United States of America,                *
                                         *
             Appellee,                   *
                                         *      Appeal from the United States
      v.                                 *      District Court for the
                                         *      Eastern District of Missouri.
Capital Sand Co., Inc., in personam;     *
M/V Jamie Leigh, its engines,            *             [PUBLISHED]
apparel, tackle, and appurtenances,      *
in rem,                                  *
                                         *
             Appellants.                 *

                                ________________

                                Submitted: May 19, 2006
                                    Filed: October 25, 2006
                                ________________

Before BYE, HANSEN, and SMITH, Circuit Judges.
                          ________________

HANSEN, Circuit Judge.

      The United States brought suit in admiralty against Capital Sand Co., Inc. and
the M/V Jamie Leigh to recover the cost of repairs to a lock and gate on the
Mississippi River that were damaged after an allision with a barge towed by the M/V
Jamie Leigh. See 33 U.S.C. § 408. The district court1 awarded damages to the United
States, and the appellants appeal, disputing only the amount of damages awarded to
the Army Corps of Engineers (Corps) for overhead expenses. After careful review,
we affirm.

                                        I.
       On April 8, 2000, a barge being towed by the M/V Jamie Leigh struck and
damaged miter gate number two of Mississippi River Lock 25, located near Winfield,
Missouri. The Corps is responsible for maintaining and operating Lock 25. After the
allision with the M/V Jamie Leigh, the Corps assessed the damage to miter gate
number two and determined that repairs were needed.

       The process of repairing a miter gate is extensive and requires that the damaged
gate be pulled from the lock, that a temporary replacement be installed, and that the
original gate be repaired and then reinstalled. The Corps determined that it would do
the necessary repair work itself and that it would undertake repairs to miter gate one
at the same time that miter gate two was being repaired; miter gate one had been
damaged in an allision in 1999 but did not require immediate repair at that time.

        Repairs were completed to both miter gates on February 9, 2002, and the Corps
then apportioned the costs to pull and repair the gates between the two allisions. The
initial estimate for the cost of repairs related to the M/V Jamie Leigh allision was
between $350,000 and $600,000. The Government determined that the actual share
of the damages owed by Capital Sand as the owner of the M/V Jamie Leigh was
$303,511.53, and a bill was sent for that amount. Capital Sand did not make any
payments to the Government, and the Government filed suit in the Southern District
of Illinois. The case was later transferred to the Eastern District of Missouri upon the


      1
       The Honorable Stephen N. Limbaugh, United States District Judge for the
Eastern District of Missouri.
                                          -2-
defendants' motion. After the transfer, the Government recalculated the amount of
damages to conform to the rule of Hershey2 and reduced its claim to $280,545.06.
This amount included charges for labor (including overhead), plant rental, travel,
general overhead, supplies, and other various expenses.

      The district court held that Capital Sand was liable for the full amount of
damages claimed by the Government. The court also awarded the Government
prejudgment interest of 2.25 percent per annum and assessed a penalty of $1,000
against Capital Sand pursuant to 33 U.S.C. § 411. Capital Sand and the M/V Jamie
Leigh filed this timely appeal, challenging only the district court's award of
$98,814.69 in overhead expenses as part of the total damage award.

                                          II.
       "In an admiralty case, the findings of fact of a district court, sitting without a
jury, may not be set aside unless clearly erroneous." United States v. M/V Gopher
State, 

, 1187 (8th Cir. 1980) (Gopher State). Only factual findings that
are unsupported by substantial evidence, that are "based on an erroneous conception
of the applicable law," or that upon review of the evidence leave the court "with the
definite and firm conviction that a mistake has been committed" will be found to be
clearly erroneous. 

omitted).

      Damage to a lock or gate "results in liability without fault under the Rivers and
Harbors Act of 1899." Id.; see also 33 U.S.C. § 408. Admiralty cases require the
Corps to prove that the amount claimed as damages, including overhead "is a fair and
reasonable charge for the repairs" and "necessary to complete the job." Gopher State,


      2
       United States v. Am. Commercial Barge & Line Co., No. 88-1793-C-7, slip op.
at 19 (E.D. Mo. Sept. 30, 1991) (J. Hamilton) (requiring that damage award be
apportioned according to the actual repairs needed and caused by the allision, not
including damages from other sources or normal wear and tear of facility), aff'd in part
on other grounds, 

(8th Cir. 1993).
                                           

. The district court has the discretion to grant or withhold damages,
resting its decision "upon principles of equity and justice." United States v. Peavy
Barge Line, 

, 399 (7th Cir. 1984) (citing United States v. M/V Gopher
State, 

, 559 (E.D. Mo. 1979)).

        The district court's findings of fact included a breakdown of the "Final Bill"
which reflected actual costs of "$189,344.00 for labor; $4,653.17 for travel, $117.60
for copying and other expenses, $1,368.75 for various contracted services, $3,200.00
for contracted dive services, $5,321.07 for supplies and materials, and $99,506.94 in
equipment costs ('plant rental')."3 (Appellants' Add. at 6.) The labor cost included
charges for General and Administrative overhead (G&A) of $22,702.93 and charges
for Indirect Cost overhead of $76,111.76, for a total overhead charge of $98,814.69.
(Id. at 10.) Capital Sand argues that the award of overhead was error as a matter of
law under Gopher State.

        By definition, "overhead expenses . . . cannot be easily identified with any
individual product or repair." Peavey Barge 

(citing United
Elec., Radio & Mach. Workers v. Oliver Corp., 

, 387 (8th Cir. 1953)).
The purpose of overhead is to allow a company to recover "its general operating
expenses, which are not directly allocable to a particular project." 

is allowable as part of the cost of repairs even if the party suffering an injury decides
to make the necessary repairs itself, as any company hired to do the repairs would
have included overhead charges in its bill to the injured party. See 

and indirect expenses are compensable, but only where there exists
justification for awarding these costs." Gopher 

.


      3
        All references to a breakdown of the repair costs refer to the original bill
prepared by the Corps for $303,511.53. While that amount was reduced in the
aggregate upon transfer to the Eastern District of Missouri, the district court relied on
the original bill when deciding the issue of damages and then reduced in aggregate the
total award to $280,545.06, in addition to prejudgment interest and the $1,000 penalty.
                                           -4-
        The Corps has an obligation to recover its overhead costs, which arises directly
from an Act of Congress codified at 33 U.S.C. § 576. That statute establishes a
revolving fund for necessary expenses related to the maintenance and repair of
facilities and equipment used in the Corps' civil works functions (which include the
repair and operation of the locks and dams on the Mississippi River), specifically
including the furnishing of facilities and services for private persons as authorized by
law. The statute further requires the fund to "be credited with reimbursements . . . for
the cost of equipment, facilities, and services furnished, at rates which shall include
charges for overhead and related expenses . . . and accrued leave . . . ." 33 U.S.C.
§ 576. The Corps has implemented the statute's requirements by regulation. In this
case, the Corps used its own equipment, its shops and facilities, and the services of its
employees to repair the damage caused by the appellants.

       The appellants rely on Gopher State to contest the $98,814.69 in overhead
damages awarded to the Government. In Gopher State, our court upheld the district
court's judgment denying the award of additional overhead charges to the
Government, holding "that the government failed to prove the reasonableness of the
amount claimed above its original estimate for the repairs," particularly regarding the
increased overhead charges. 

The district court had found that the
method used to calculate overhead, which resulted in overhead on overhead, basically
amounted to double recovery for the Government, a finding our court found to be not
clearly erroneous. 

In addition, our court noted the district court's concern
with the fact that the actual bill for overhead was 544% greater than the original
estimated cost for overhead. 

In the case at bar the amount sought,
$280,545.06, is somewhat less than the low end of the original estimate range of
$350,000 to $600,000, thus eliminating the problem of an increase that was
"ridiculous on its face" present in Gopher State. 

     In Gopher State, the original estimate for the work included overhead of $8,000.
The government submitted a final invoice that included overhead of $53,000. The

                                           -5-
district court disallowed the additional overhead because it was arbitrary and a result
of overhead on overhead. The issue was whether the additional overhead was
justifiable. There was no question that overhead was allowable as long as it was
justified. The court's discussion about overhead not being related to the accident and
not being specifically related to the Gopher State job, 

recitation of the
testimony before the district court. Our court held in Gopher State, as 

,
that "[i]ncreased overhead and indirect expenses are compensable, but only where
there exists justification for awarding these costs." 

appellants'
interpretation of Gopher State, overhead is only recoverable if it is directly linked to
a particular repair project. We do not read the Gopher State case to be as limiting as
the appellants argue. To do so ignores the definition of overhead, which requires only
an indirect connection by definition, and ignores the outcome of Gopher State, which
allowed the recovery of justified overhead. We hold that the Corps need not establish
a direct connection between overhead charges and a particular repair project, but may
recover overhead charges that are justified by a reasonable relationship to the repair
work. See Peavy Barge 

-400; Gopher 

;
Am. Commercial Barge & Line Co., No. 88-1793-C-7, slip op. at 19.

       In this case, G&A overhead includes costs for the personnel involved in helping
effectuate the repairs, such as labor costs for the processing travel vouchers for travel
to the repair site and the labor costs of the procurement specialists who place orders
for needed repair parts and supplies–separate from the actual cost of the purchased
items. G&A overhead covers the work of "the administrative divisions – Finance,
Contracting, Command, Resource Management, Personnel, Security and Safety"
(Appellee's Br. at 9), all of which played a role in enabling the repair process to
happen, yet none having costs easily or directly attributable to this specific project or
repair. Anytime a steel beam was ordered or a paycheck was issued for a person
working on the repair project, these administrative departments were involved and
thus incurred costs related to the repair process. The same is true of Indirect Cost
overhead charges. These charges, while again not easily attributable to any one repair

                                           -6-
order or broken down by project, are related to the repair process in that they include
items such as electricity for the buildings and equipment actually used to make the
repairs, the salary of supervisors who oversee a multitude of projects at a time, and the
cost of purchasing tools used for a variety of repairs, not just this one in particular.
(See 

Like any private business, the Corps must incur necessary expenses
just to stay in the business of maintaining the nation's waterborne shipping lanes.
There was ample testimony in this case that established a relationship between the
overhead charges and the repair work to justify an award of overhead.

        Cases applying Gopher State support our interpretation, as courts within this
circuit, relying on Gopher State's holding regarding unjustified and unreasonable
damages–particularly the overhead charges–have continued to award overhead
damages when they are warranted. See Am. Commercial Barge Line, No. 88-1793-C-
7, slip op. at 18-19 (finding award of overhead based on fixed percentage of 110% of
labor costs was fair and reasonable as related to service base where repair work on
damaged miter gate took place); Complaint of Valley Towing Serv., 

,
146-47 (E.D. Mo. 1985) (including overhead in damage award for repairs to power
plant for damage caused by being struck by barges that broke away from towboat);
Shappert Eng'g Co. v. Steel City Marine Transp., Inc., 

, 1380 (E.D.
Mo. 1985) (recognizing that overhead expenses can be recovered as part of damage
award, but finding that a 33% overhead charge was not justified or reasonable where
the calculation was not explained). Other circuits also have adopted a rule that is
comparable to the reasonable and justified holding seen in Gopher State. See Peavy
Barge 

(citing Gopher State and upholding award of overhead
charges to the Corps after finding that assessed costs were reasonable); Dillingham
Shipyard v. Associated Insulation Co., 

, 1326-27 (9th Cir. 1981)
(recognizing that company that undertakes repairs to damaged object itself, rather than
outsourcing the repairs, is entitled to recover overhead damages as part of the cost of
repair); Freeport Sulphur Co. v. S/S Hermosa, 

, 304 (5th Cir. 1976)
(stating that "[t]he cost of repairs performed internally by the injured party, including

                                           -7-
overhead, are recoverable in a negligence action"); Avondale Indus., Inc. v. Int'l
Marine Carriers, Inc., Civ. A. No. 90-4570, 

, at *3 (E.D. La. Jan. 13,
1995) (awarding overhead costs as part of damage award), aff'd, 

(1995)
(unpublished); Inland Oil & Transp. Corp. v. Ashland Oil, Inc., 

, 860
(W.D. Ky. 1982) (holding that overhead charges were recoverable in suit for cost of
repairs).

       Turning then to the issue of whether the amount of the overhead in this case
was reasonable, we conclude that the district court did not clearly err in finding that
it was. Gopher 

(standard of review). The district court held
that the Government had satisfied its burden of establishing that the costs billed to
Capital Sand for overhead were justified and supported by the record. Witnesses for
the government included two accountants from the Corps who "testified that they
personally and regularly checked overhead calculated rates to ensure that the [Corps']
Revolving Fund was properly recouping overhead costs." (Appellants' Add. at 11.)
The Corps periodically made adjustments to the overhead rate to comply with
Congress's express intent that the Corps recover overhead expenses, while ensuring
that no more was recovered than what was necessary to recoup those expenses. An
independent accountant testified for the Government and stated that the overhead
charged to Capital Sand was not "layer[ed]" overhead and that the 109% of direct
labor costs4 charged as total overhead was "reasonable and consistent with the norms
of industry in terms of the method used and the rates charged." (Id. at 11-12.)

      The important differences between Gopher State and the case before us now are
found in the facts and in the record before us on review. The record justifying the


      4
       One of the issues before the district court involved a challenge to the
reasonableness of the labor costs. The court held that the labor charges were
reasonable and that finding was not appealed. The district court also found that the
overhead percentage rate applied to the direct labor costs was reasonable, which was
also not challenged in this appeal.
                                          -8-
award of overhead expenses in this case is much more defined and extensive than the
record in Gopher State, and the problems pointed out by the district court in Gopher
State, such as double recovery, are not present here. Our holding in Gopher State was
simply that the district court's determination that overhead expenses were not justified
or reasonable was not clearly erroneous. In this case, the Government made a
substantial record before the district court regarding how the charges were calculated
and to what they were applied, evidence which the district court found credible. Upon
review of this record, we hold that it was not clearly erroneous for the district court
to award the overhead expenses it did, and that it committed no error of law.



                                          III.

      Accordingly, we affirm the judgment of the district court.

BYE, Circuit Judge, dissenting.

       I believe this case is directly controlled by our decision in United States v. M/V
Gopher State, 

(8th Cir. 1980), which requires reversal of the district
court's decision. I therefore respectfully dissent.

        Under Gopher State, the government cannot recover overhead expenses as an
item of damages in an admiralty case unless it proves both that 1) the amount is
reasonable, and 2) the overhead arose naturally and is factually related to the
particular breach. Gopher 

-90. In this case, the government
witnesses admitted the claimed overhead expenses were not directly related to the
specific repair work at issue. Specifically, with respect to the $22,702.93 of overhead
referred to as "general and administrative" expenses, the government's witness
testified as follows:



                                          -9-
      Q.     In other words, by definition, Miss Craig, the general and
             administrative expenses charged to the Jamie Leigh repair project
             were not factually related and were not directly incurred as a result
             of that incident, were they?

      ...

      A.     That's correct.

      ...

      Q.     Can we agree that every penny of the $22,702.93 that were
             (sic) charged as general and administrative overhead to the
             Jamie Leigh project would have been incurred by the Corps
             of Engineers regardless of that incident?

      A.     Yes, sir.

      ...

      Q.     And the expenses that the St. Louis District Corps of Engineers
             must incur in order to maintain its offices are encompassed in the
             general and administrative expenses that have been charged to the
             Jamie Leigh repair project even though they don't relate
             specifically to it; correct?

      A.     Correct.

      Q.     The idea is that the Corps of Engineers attempts to recoup those
             costs from third parties who cause damage to certain Corps
             property even though those costs have nothing to do directly with
             repairing those damages?

      A.     Correct.

Trial Transcript at 25-29.



                                         -10-
      With respect to the $76,111.76 of overhead referred to as "indirect cost
overhead," the government's witness testified as follows:

      Q.        And by definition, isn't it true that not one penny of the
                $76,111.76 of the indirect costs overhead add-on that you
                calculated is directly attributable or factually related to the Jamie
                Leigh repair project?

      A.        That's – that is correct.

       Therefore, the record in this case clearly indicates the government's proof failed
to satisfy the second of Gopher State's two requirements, that is, proof the overhead
was factually related to the particular breach involved.

      In Gopher State, just as in this case, the government sought to recover overhead
calculated pursuant to a predetermined formula governed by federal regulations,
without showing the overhead was directly related to the specific repair work
performed. The district court rejected that approach. We affirmed, stating:

      Testimony in this case revealed that a percentage of the overhead charges
      was applied to the miter repair job but that those charges were not
      specifically related to nor incurred as a result of the Gopher State job.
      In particular, the government failed to specify how the overhead
      calculated related to the costs of that job. As the district court found,
      "(t)he overhead charges were not based upon actual expenditures of
      overhead items related to the accident but were calculated under
      regulations promulgated by the Corps of Engineers and determined by
      the staff of the St. Louis District Corps of Engineers."

Gopher 

(quoting United States v. M/V Gopher State, 472 F.
Supp. 556, 558 (E.D. Mo. 1979)).


                                            -11-
       The Court attempts to distinguish Gopher State on its facts, pointing out the
overhead request in Gopher State was more egregious in some respects than the
overhead request made in this case. While this may be true, I believe the legal holding
of Gopher State is indistinguishable. As a matter of law, Gopher State establishes that
any overhead calculated pursuant to the Corps's predetermined formula, with no
attempt to show the overhead is directly related to the specific repair work performed,
is not recoverable. If Gopher State is unsound, and the government ought to recoup
overhead based solely on the Corps's regulatory formula, that issue should be
addressed by the en banc court rather than a three-judge panel. See, e.g., United States
v. Hutman, 

, 777 (8th Cir. 2003) (indicating one panel cannot overrule
another).

      For the reasons discussed, I respectfully dissent.
                       ______________________________




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