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Case 1:01-cv-00459-GWM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) ) ) ) Plaintiff, ) ) vs. ) ) THE UNITED STATES OF AMERICA ) ) Defendant. ) ____________________________________) INTERNATIONAL DATA PRODUCTS CORPORATION

No. 01-459C (Judge George W. Miller)

PLAINTIFF'S REPLY MEMORANDUM IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AS TO LIABILITY We briefly address below the Government's contentions in its Opposition to IDP's Cross Motion for Summary Judgment. As we show, IDP's cross motion should be granted because the Government's arguments are without merit. Argument A. The Government Cannot Rely on the Minimum Quantity Clause in the Face of the Termination for Convenience Clause

The Government's primary position in this matter is that the DTV contract is an ID/IQ vehicle with a $100,000 contract minimum, and under Varilease Technology Group, Inc. v. United States, 289 F.3d 795 (Fed. Cir. 2002) and Travel Centre v. Barram, 236 F.3d 1316 (Fed. Cir. 2001), that $100,000 is the limit of the Government's liability to IDP. The problem with the Government's position is that nothing in Varilease or Travel Centre addresses a termination for convenience clause, and nothing in the DTV contract's ID/IQ contract minimum clause applies to a determination of what is owed under the termination for convenience clause. 1

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Varilease and Travel Centre both concerned claims for breaches of contract in which the plaintiff was asserting that it was owed more under the contract than the contract minimum stated in the document. Neither case concerned the application of a contract minimum clause to a claim under the termination for convenience clause of a contract. The Government's entire legal argument, therefore, is facile and simplistic, and misses the entire point of this dispute. See Schweiger Construction Co. v. United States, 49 Fed. Cl. 188, 193-196 (2001) (addressing similar Government contentions concerning contract minimum clauses and their impact). As this case concerns a claim under a contract, and specifically, under the termination for convenience clause in a contract, the issue before the Court is the rights and obligations of the parties under the termination for convenience clause, not the rights and obligations of the parties under the contract minimum clause. To be sure, these clauses may or may not overlap. But, the key then is to determine the overlap if any, and not to ignore the termination for convenience clause and focus solely on the contract minimum clause, as does the Government. Tellingly, the Government's Brief barely mentions the termination for convenience clause. The termination clause in the DTV contract provides as follows with respect to what the Government must pay upon a termination for convenience: (b)(4) The Government shall pay: (i) The reasonable, allowable and allocable costs, determined in accordance with FAR Part 31, incurred by the contractor . . . prior to the date of termination for completed work that has not previously been paid for; for work in process and materials directly related to the terminated portion of the contract . . . . (ii) A reasonable profit on the terminated portion of the work. (iii) In no event shall the sum of the termination amounts payable and any amounts for items delivered under the contract exceed the total contract price.

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DFARS 252.211-7000(b)(4). Under this clause, the only issue before the Court is whether the phrase "total contract price" used in DFARS 252.211-7000(b)(4)(iii), is identical to the $100,000 contract minimum referenced in Clause B.2 of the DTV contract. If it is not, then IDP wins. If it is, then the Government wins. In this case, the "total contract price" is not the $100,000 contract minimum. We know this to be the case for numerous reasons. First, if DFARS 252.211-7000(b)(4)(iii) intended to limit a termination for convenience recovery to the contract "minimum amount,", it would have said "[i]n no event shall the sum of the termination amounts payable and any amounts for items delivered under the contract exceed the minimum amount for award." Instead, however, it states that [i]n no event shall the sum

of the termination amounts payable and any amounts for items delivered under the contract exceed the total contract price." The use of these different phrases is critical. When a document "uses different language in a series of similar provisions, it intends to express a different intention." Kosak v. United States, 465 U.S. 848 (1984) (applying rule to statutory construction). Second, Contract Clause B.2 states both a "minimum amount for award" and a "total" contract price. Specifically, it states, in addition to the "minimum amount for award" that "orders beyond the minimum will be determined by user needs" and that "the total estimated quantities are . . . a value of $100M." If any language tracks to the phrase "total contract price" it is not the "minimum amount for award" language, but rather the "total estimated quantities" language. Third, as is clear from the history of this matter, this indefinite quantities contract was

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intended by the Government and IDP to be a larger contract driven by customer requirements, i.e., their "needs." See Contract Clause B.2. As the DAF explained, ". . . the contractors are obligated to deliver up to the stated maximum if the government orders that much" and that the "stated minimum quantity of supplies" to which the Government is committing is at least the $100,000,000 estimated minimum (or, perhaps, the estimated maximum, though we need not reach that issue), and not the $100,000 minimum amount for award. See Plaintiff's Proposed Findings of Undisputed Facts ("PPFUF") 7. Moreover, even as the Air Force considered termination, the parties knew and "expected [DAF] to place many more orders over the next several years," PPFUF 10, because of the "user needs." PPFUF 4, 6. That is why IDP built its inventories that created the termination cost at issue here, PPFUF 8 ­ to maintain and provide services for these widely known "user needs." PPFUF 6. Fourth, the objective of a termination for convenience settlement is to reflect business expectations and reality, not legal and accounting technicalities, so as to provide a terminated contractor with "fair compensation," not the "minimum amount for award." And the fair compensation is intended to cover both the work that has been completed prior to termination and for preparations made for terminated portions of the contract, including a reasonable allowance for profit. See FAR 49.201. "The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement." Id. Thus, the Government's attempt to apply a technical contract minimum to preclude "fair compensation" is inconsistent with the purpose of the termination for convenience process. We cited several cases in which the Court of Claims has taken the precise position for which IDP contends. While the Government attempts to distinguish these authorities, the

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distinctions the Government attempts to draw either are inaccurate or immaterial. The Government, for example, attempts to distinguish Albano Cleaners, Inc. v. United States, 197 Ct. Cl. 450, 455 F.2d 556 (1972), on the ground that it was really a requirements contract, not an ID/IQ agreement. Defendant's Brief at pp. 8-9. The Government is not impressed with the fact that the contract in Albano had an indefinite quantities clause and that clause was, indeed, the basis for the Government's argument in that case (an argument identical to the Government's argument here).1 The Government also is not impressed with the fact that the Court rejected the Government's argument for precisely the reasons we say that this Court should reject the Government's argument here.2 Rather, the Government argues that Albano

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As described in Albano: Defendant also defends upon the basis of the "Indefinite Quantities" section of the contract. Under this provision, defendant's contractual obligation to plaintiff was to "order supplies hereunder having an aggregate value at the unit prices specified herein of not less than $ 10.00." Defendant says that the amount of cleaning and repair service of foul weather gear that would be required could not be known in advance, and that, since the Supply Center actually did order more than $ 10 worth of services, it has satisfied its obligations under the contract.

Albano Cleaners, Inc. v. United States, 197 Ct. Cl. 450, 458-459, 455 F.2d 556, 561 (1972).
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As described in Albano, the Court ruled as follows: . . . a termination under these provisions requires, in fairness to the contractor, compensating him in accordance with a specified formula. The contractor is at least entitled to recover the expenses he incurred in preparing to fulfill his contractual obligations. An attempted termination under the indefinite quantities clause after ordering the minimum services there specified and without any further responsibility would plainly conflict with the obligations imposed by the termination-for-convenience provisions. Whatever the permissible scope of such an indefinite quantities provision is 5

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concerned a requirements contract not because the Albano court said so, but rather because there is a single line in the opinion which states that the contractor had "a right to receive whatever business of the type covered by the contract was generated in the specified contract area." See Defendant's Brief at p. 8. The DTV contract has virtually identical language when it states in Clause B.2(a), that "[o]rders beyond the minimum will be determined by user needs." Under the Government's analysis, therefore, the DTV contract is a requirements contract because IDP had "a right to receive whatever business of the type covered by the contract was generated" by the "user needs." The Government also asserts that Albano is different because the Government there terminated for convenience only a month into the contract, whereas here the Government terminate during the second option year. Defendant's Brief at pp. 10-11. To be sure, this fact is a difference, but there is no legal materiality whatsoever to the distinction. Is the Government now contending that the minimum quantity clause in the DTV contract does not limit the Government's liability in the first month of the contract? We think not. Most surprisingly, the Government asserts that this case is different from Albano because the $100,000 contract minimum in the DTV contract does not apply in the option year.

(see, e.g., The Tennessee Soap Co. v. United States, 130 Ct. Cl. 154, 126 F. Supp. 439 (1954)), such an unusual and unfair interpretation of the clause here involved as defendant proposes could hardly have been in accord with "the rational intention of the parties" when they entered into this contract, Ozark Dam Constructors v. United States, 130 Ct. Cl. 354, 360, 127 F. Supp. 187, 191 (1955), and the court would not be justified in adopting it. Id., 455 F.2d at 561. 6

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Defendant's Brief at p. 11. This argument proves too much. Pursuant to this argument, the phrase "total contract price" used in DFARS 252.211-7000(b)(4)(iii) is $100,000, even though the $100,000 has no application to the option year in which the DFARS clause comes into play! The Government has tripped itself on its own contention. The Government's attempts to distinguish E. H. Sales, Inc. v. the United States , 169 Ct. Cl. 269, 340 F.2d 358 (1965) fare no better than its attempt to distance itself from Albano. The point of E.H. Sales is that the Court addressed there a suit by a plaintiff under a contract with an indefinite quantities clause, not a suit seeking breach damages. There, the plaintiff sought an equitable adjustment under the "changes" article of an indefinite quantities contract, just as IDP seeks here to recover an amount alleged to be due under a termination for convenience clause of an indefinite quantities contract. There, the plaintiff complained that the Government's actions increased its costs, and the Government defended on the ground that its liability was limited to the minimum quantity stated in the contract ($100), as opposed to the estimated quantity ($50,000), id., 340 F. 2d at 359, which, again, is precisely the argument made here by the Government. The Court in E.H. Sales rejected this argument just as this Court should, explaining that it is simply "untenable." Id., 340 F.2d at 360. The Government complains that the contract in E.H. Sales was a contract for specific machines and not a real indefinite quantities contract. Defendant's Brief at p. 12. But, again, that is a distinction without a difference. If the Government is correct here, the existence of the indefinite quantities/contract minimum trumps everything else. If that is so, it should also have trumped everything in E.H. Sales. But, what E.H. Sales teaches us is that the Court cannot blindly apply a contract minimum clause. It must determine if that clause was intended to apply

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to the situation before the Court. Here, as in E.H. Sales, the DTV contract's minimum amount for award was never intended to be the bottom line commitment to IDP or from IDP ­ that is, it is not the "total contract price." Rather, as the DAF explained, ". . . the contractors are obligated to deliver up to the stated maximum if the government orders that much" and that the "stated minimum quantity of supplies" to which the Government is committing is at least the $100,000,000 estimated minimum (or, perhaps, the estimated maximum, though we need not reach that issue), and not the $100,000 minimum amount for award. PPFUF 7. This is evident from the fact that the settlement agreement which led to the clause at issue never changed the $100,000 minimum amount for award, compare PPFUF 4 with PPFUF 6; rather "the settlement agreement reduces the estimated quantities" while "the possibility left open that those quantities may rise in the future." PPFUF 7. The Government attempts to distinguish Goldwasser v. United States, 163 Ct. Cl. 450, 325 F. 2d 722 (1963), a case in which the plaintiff had a printing contract with a $100 minimum and a $40,000 estimate, by again contending that the Court held that the contract really was a requirements contract. Defendant's Brief at pp. 12-13. However, the point in Goldwasser, as in E.H. Sales, is that the parties' actual intentions govern, not the existence of a minimum quantity clause. Here, as in Goldwasser, IDP claims, and the Government does not dispute, that IDP was required to maintain an inventory. See PPFUF 8.3 This point is precisely that which the Court addressed in Goldwasser when the Court rejected the Government's minimum contract quantity

The Government admits the inventories were required, but just does not admit that the inventories were "extensive." See Government Response to PPFUF 8. Extensiveness obviously is dependent on who is judging the inventory ­ IDP who paid for it, or the Government who got its benefit. 8

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defense, identical to that raised here by the Government: . . . the contractor was bound to keep his facilities available to print 10,000 copies a week of the newspaper whenever the Government might elect to order them. This would have prevented him from accepting any other business requiring the need of these facilities. It would have been a one-sided bargain, bordering upon a lack of mutuality under the facts of this case. The contract should not be given this construction if it can be avoided. Id., 325 F.2d at 724. Here, as in Goldwasser, there is indeed a conflict between clauses that states that the Government can order only $100,000 in items, but that IDP must maintain an inventory to service $100,000,000 in business, and that if the contract is terminated, IDP can recover up to the total contract price. It is this conflict which IDP asks the Court to resolve, and which the Government asks the Court to ignore. In sum, therefore, the breach of contract judicial decisions on which the Government relies, Varilease and Travel Centre, are inapposite to our case. The judicial decisions on which IDP relies are directly on point and not distinguishable in any material way. The logic of IDP's authorities clearly apply here, and summary judgment for IDP is required. B. The Government is not Entitled to Enforce A Warranty or Upgrade Requirement Post-Termination

The Government cites no law to support its position that it may demand post-termination warranty work. Instead, it attempts to distinguish the law on which IDP relies, without citing anything to the contrary. The Government's arguments are, once again, without merit. The Government's first contention is that because the Small Business Administration statute does not say that a termination of a contract must be "in its entirety," then it must allow partial terminations. Defendant's Brief at p. 14. Not only is this argument inconsistent with the purpose of the statute which is to require termination of a contract when it is no longer a contract

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with a small business, it is textually challenged given that the statute does not address partial terminations in any way. The Government next contends that the numerous Boards of Contract Appeals decisions IDP cited are inapplicable because they don't concern warranty work, but rather concern "correcting deficiencies in work." Defendant's Brief at p. 14. The definition of warranty work is correcting deficiencies, so that the Government's semantics game is, once again, without merit. Finally, the Court should reject the Government's half-hearted attempt to distinguish the law which IDP cites. We urge the Court to ask itself a simple question. If any of the minutia of the Government's attempts to distinguish the case law are of any import, then what is the alternative law on which the Government relies? The Government cites no authority contrary to IDP's position, and IDP's position is totally logical and consistent with FAR. As the primary commentator in this area concludes, "once a contract has been terminated for convenience, the act is treated as final and the contractor's obligations to properly complete the terminated work are considered to be at an end." R. Nash & J. Cibinic, Federal Procurement Law, at p. 1117 (3d ed. 1980). Thus, "the contractor is not obligated to correct defective work in the terminated portion of the contract." Id., at 1118.

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CONCLUSION For the foregoing reasons, summary judgment on behalf of IDP should be entered as to liability.

Respectfully submitted, s/Edward J. Tolchin Edward J. Tolchin Fettmann, Tolchin & Majors, P.C. 10509 Judicial Drive, Suite 300 Fairfax, Virginia 22030 (703) 385-9500 (703) 385-9893 (Fax) Counsel for Plaintiff Certificate of Service I hereby certify that on this 26th day of October 2004, the foregoing Plaintiff International Data Products Corp.'s Reply Memorandum in Support of Plaintiff's Motion for Summary Judgment as to Liability was filed electronically with the Court and served on all counsel of record by the same means. s/Edward J. Tolchin Edward J. Tolchin

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