Free Reply to Response to Motion - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS WISCONSIN ELECTRIC POWER COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. PLAINTIFF'S REPLY TO DEFENDANT'S RESPONSE TO PLAINTIFF'S MOTION FOR LEAVE TO FILE ITS SECOND AMENDED AND SUPPLEMENTAL COMPLAINT In its Response, the Government argues against amendment by Wisconsin Electric Power Company ("WE") of its Complaint, contending that such amendment would "require the dedication of significant resources and impinge upon the Government's trial preparation." Response at 6. To the contrary, amendment of WE's Complaint in no way requires the dedication of significant Government resources. WE merely seeks to update its costs from January 1, 2006 through February 2007 after, at the Government's request, the trial was postponed from March 27, 2007 until September 10, 2007. The costs at issue are the same type of costs previously claimed by WE including cask acquisition costs, cask loading costs, NRC license fees and costs incurred in support of an attempt to license one of WE's existing casks, the VSC-24, as transportable. WE has provided to the Government precisely the same types of supporting documentation previously provided. Now, all that the Government needs to do is have its damages consultant verify the costs and, if the Government believes that it is appropriate, request that its damages expert issue an errata to his expert report to address WE's newly-claimed costs.1 (Senior Judge Merow)

No. 00-697C

1

WE's damages experts have prepared errata to their report to address the newly-claimed costs.

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As noted in our Motion, WE is selling the Point Beach Nuclear Plant ("Point Beach") and the sale is expected to close in October 2007. If the Court permits WE to amend its Complaint to update its costs through February 2007 and the sale transaction closes in October 2007, WE does not expect to file an additional action to claim damages that it incurs from March 2007 through October 2007. Thus, even if some additional effort on the part of the Government's damages expert and consultants is required to respond to WE's Second Amended Complaint, that minimal effort, when balanced against the efficiencies of permitting WE to amend its Complaint and avoid the necessity of filing an additional lawsuit, compels the conclusion that WE's motion for leave to amend should be granted. I. BACKGROUND

In its Background section, the Government's Response generally implies that the Government lacks the documentary evidence that it needs to review the WE costs at issue. To the contrary, on April 10, 2007, the same day that WE filed its motion for leave to amend its Complaint, WE served upon the Government the same type of supporting documentation that the Government previously requested to verify WE's prior costs.2 Thereafter, when the Government requested three additional pieces of data, WE provided that data on May 10, 2007. See Appendix 1-2 (Govt. May 2, 2007 letter) and 3-4 (WE May 10, 2007 letter) (hereinafter "Appx."). WE is not aware of any outstanding Government request for additional data with regard to WE's newly-claimed costs. The data produced by WE to the Government in April and May 2007 includes the following in support of the 2006-2007 costs:

WE's April 10, 2007 letter to the Government explained that "less than a dozen" documents were not included in the production of cost support documentation. Subsequently, on May 18, 2007, WE produced to the Government the five final documents in support of its 2006-2007 costs. These final five documents included two revised purchase orders and three checks.

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electronic labor data (CATS data) from both WE and the Nuclear Management Company ("NMC") (which operates Point Beach), including descriptions for entries in selected fields; electronic files used by WE's expert, the Kenrich Group, in a format that can be manipulated by the Government; paper copies of purchase orders, contracts, invoices and checks for any transactions greater than $5,000; paper copies of monthly bills from NMC to WE; paper copies of accounting reports from WE; an electronic file of a "data dump" from WE's SAP accounting system, reflecting data from all fields of the accounting system; and an electronic file of a "data dump" from NMC's SAP accounting system, reflecting data from all fields of the accounting system.

These productions to the Government include the exact same documents and data that the Government has previously requested to conduct its audit verification. Through its previous audit verification process, the Government was able to confirm that it was not challenging the accuracy of WE's costs for NRC Annual Fees, employee expenses, Pension & Benefits costs, Administrative & General costs, or the labor costs for November 1988 through March 1999.3 See Appx. 5-9 (Govt. January 26, 2007 letter). The Government's Response identifies issues that it contends it would investigate through discovery and that its experts would be required to address in the event WE is permitted to file its Second Amended Complaint. Response at 1-6. The Government misstates the need for discovery and exaggerates the minimal effort required by the Government's damages expert and consultants. If the Government requires depositions of fact or expert witnesses, which WE doubts are necessary, the Government will only need to depose, at most, the supervisor of Point Beach cask loading efforts and possibly WE's damages expert. Neither deposition should take more than a half-day. The Government also asserts that WE will want to depose the

The Government had already agreed to the accuracy of WE's labor costs from April 1999 through December 2005 based on Mr. Kiraly's expert report.

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Government's experts again after they issue updates to their reports. Assuming that these updates raise no new issues (and we see no reason why they should), WE does not anticipate the need to depose any of the Government's experts again. A. Labor Costs The Government asserts that it would need additional discovery regarding WE's newly-claimed labor costs to determine the "appropriate manner in which to respond to them" and alleges that WE has "not provided all of the data necessary to analyze [the] newly claimed labor costs." Response at 3. To the contrary, by May 10, 2007, WE provided all of the data regarding labor costs that the Government ­ and its damages expert, Mr. Stephan Kiraly ­ previously required in order to analyze and verify WE's labor costs. This data was provided by WE to the Government in spreadsheet format on compact disks labeled as WISC 00135472-75 and WISC 00136526. Further, the Government gives no indication how its analysis of WE's newly-claimed labor costs might differ from its analysis of WE's already-claimed labor costs. There is no indication that Mr. Kiraly would engage in a new analysis in order to determine whether WE's newly-claimed costs are subject to the same objections that he has already made against WE's already-claimed labor costs. We would expect that Mr. Kiraly would voice the same objections that he previously voiced. Given that WE has already provided all supporting documentation for the newly-claimed costs, no additional discovery on this issue should be required. B. Employee Expenses The Government argues that further discovery is required to determine "whether there will be additional claim adjustments for employee expenses" included in WE's Second Amended Complaint. Response at 3-4. WE understands that Mr. Kiraly, the Government damages expert, made adjustments to WE's already-claimed employee expenses when he was unable to identify that a person was working on the dry fuel storage project at the time their expense was charged. On April 10, 2007, WE provided all of the data regarding employee -428795-0001/LEGAL13233778.1

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expenses that Mr. Kiraly previously required in order to make any such adjustment to WE's claim for 2006-2007 employee expenses. Moreover, on October 26, 2006, WE provided a sample of receipts for its previouslyclaimed employee expenses. WE provided supporting documentation for 260 randomlychosen employee expense transactions and, after its review, the Government responded on January 26, 2007 by stating: "[b]ased upon the additional documentation, the Government no longer denies the accuracy of the Employee Expenses included in the claim." Appx. 5-9. Given the Government's admission that WE's claimed employee expenses accurately reflect WE's books and records, WE sees no justification for further sampling of WE's 2006-2007 employee expenses. In sum, the Government's damages expert already has all the data necessary to conduct the same Government analysis previously conducted with regard to WE's claimed employee expenses and no additional discovery should be required. C. General & Administrative ("G&A") Costs The Government states that, assuming that the newly-claimed G&A costs do not differ in nature from WE's previously-claimed G&A costs, the Government will apply the same adjustment that it made to WE's previously-claimed costs. Response at 4. WE represents that the newly-claimed G&A costs do not differ in nature from WE's previouslyclaimed G&A costs. In addition, in its April 10, 2007 production, WE provided to the Government the same G&A information previously provided so that the Government can verify this point. This documentation was produced by WE to the Government as KRGWE003859-63. Thus, the Government already has all of the information required to make "the same adjustments" that the Government previously made to WE's G&A costs. With regard to G&A costs recorded by NMC, the Government argues that WE "has not provided the detailed accounting data that would allow these determinations[, in the form of claim adjustments,] to be made." Id. To the contrary, on April 10, 2007, WE provided all -528795-0001/LEGAL13233778.1

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detailed accounting data in support of NMC's G&A costs. The following chart identifies the pages in WE's April 10 production that would reflect NMC's G&A charges and would enable Mr. Kiraly to perform the same G&A calculations that he previously performed. Bates Range WISC 00135664-66 WISC 00135669-71 WISC 00135674-76 WISC 00135681-83 WISC 00135692-94 WISC 00135735-37 WISC 00135763-65 WISC 00135783-85 WISC 00135810-12 WISC 00135895-97 WISC 00135901-03 WISC 00135951-53 WISC 00136013-16 WISC 00136106-08 WISC 00136170-72 WISC 00136228-30 WISC 00136297-99 WISC 00136339-41 WISC 00136377-79 WISC 00136381-83 WISC 00136409-11 WISC 00136413-15 WISC 00136417-19 WE Binder/Code Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 Q ­ 3.0264 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 R ­ 3.0182 NMC Bill January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 September 2006 October 2006 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007

Therefore, the Government already has all relevant information and no additional discovery should be required on this issue. D. Annual NRC Fees The Government has already questioned all of WE's previously-claimed NRC fees. Response at 4. So, no additional discovery should be needed on this issue, particularly given that the Government already has access to NRC personnel and NRC documents. The Government also asserts that Mr. Kiraly's expert report "will likely require updating to reflect the additional claimed costs." Id. WE agrees that Mr. Kiraly may need to

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issue an errata to his prior expert report to question all of WE's newly-claimed NRC fees. That minimal effort hardly justifies denial of leave for WE to amend its Complaint. E. Dual-Purpose Cask Costs The Government asserts that Mr. Kiraly's report "will likely need modification" because of WE's claim for costs to attempt to license the VSC-24 casks for transportation. Response at 5. The cask licensing costs at issue are only approximately $138,000, and minimal effort will be required of Mr. Kiraly to address these costs in an errata. Again, that minimal effort in no way justifies denial of WE's motion to amend its complaint. The Government also asserts that it needs additional discovery regarding the 2006 costs that WE incurred to purchase NUHOMS casks. WE has previously sought NUHOMS acquisition costs in this action and the Government has previously questioned these costs. The Government asserts that it needs additional discovery to permit it "to determine whether similar adjustments are necessary." Id. WE's 2006 NUHOMS cask costs were incurred under the same 2001 contract as WE's prior NUHOMS cask costs. WE produced that contract (and related Purchase Order P4500424608) to the Government in February 2005 as WISC 00007821-94. The Purchase Order identified progress payments scheduled through 2006. Thus, WE's newly-claimed cask costs are precisely the same in character as WE's previously-claimed NUHOMS cask costs. As a result, the Government need not conduct discovery to address WE's newly-claimed NUHOMS costs. Further, Mr. Kiraly's report explains the analytical method that he applied to WE's NUHOMS cask costs. For WE's newly-claimed NUHOMS costs, we expect that Mr. Kiraly will use the same analysis. F. NUHOMS Cask Loading Costs The Government requests additional discovery to determine the basis for 2006 NUHOMS cask loading costs that WE incurred "in a different manner than previous claim submissions." Response at 5. The Government's assertion is misleading and requires correction. In 2006, WE incurred costs in the same manner that it has always incurred costs. -728795-0001/LEGAL13233778.1

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The only difference is that, effective January 1, 2006, NMC created a new accounting code specifically for cask loading costs in order to more efficiently identify and track such costs. For cask loading campaigns prior to 2006, WE employees charged time to the specific functional areas corresponding to their respective positions. For instance, an Operations employee would charge the time that he spent on cask loading efforts to an accounting code with functional area "10" and work activity code "0055." The functional area code of "10" referred to Operations personnel and the work activity code referred to high level waste management. Given that the only change is the use of a new accounting code, we fail to see what discovery the Government would need to conduct regarding this issue. G. Avoided Loading Costs In this action, the Government contends that WE's damages should be offset by the loading costs that WE would have incurred in the non-breach world. With regard to that issue, the Government asserts that WE's 2006 actual loading costs appear to be higher than the estimate for 2006 loading costs that WE once prepared earlier in this litigation when it was claiming future damages. The Government further asserts that it needs to investigate the reasons for these increased actual costs in order to determine the proper methodology for the Government's calculation of its claimed offset. Response at 5-6. With regard to a Government investigation of the reasons for the increased 2006 actual loading costs compared with WE's prior 2006 cask loading estimate, we explained above the use of a new accounting code focused on cask loading beginning in 2006. The implementation of this new, dedicated accounting code may have resulted in a better identification of the loading costs incurred by WE than the prior accounting codes. That is the explanation and we do not see what the Government needs to investigate. The Government further notes that one of its experts, Mr. Brewer, may need to update his report to explain his position on the avoided loading cost issue and that Mr. Kiraly may need to reflect that change in his report. Response at 6. This modest effort on the part of the

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Government's experts does not come close to constituting justification for denial of WE's motion for leave to amend its Complaint. H. Weighted Average Cost of Capital The Government asserts that Mr. Kiraly's report will need to be updated to address WE's calculation of the weighted average cost of capital ("WACC") on the newly-claimed costs and the calculation of WACC up to the new September 10, 2007 trial date. Id. WE does not disagree that Mr. Kiraly may need to issue an errata to his expert report, but that minimal effort hardly justifies denial of WE's motion. The Government also claims that it needs discovery to investigate the circumstances under which WE's WACC was incurred. Id. No additional discovery is required. The new WACC claimed by WE is based on the same circumstances as the WACC previously claimed by WE. II. A. ARGUMENT

WE Should Be Granted Leave to Amend its Complaint Under Rule 15(a) WE's motion explained there is a broad policy of granting amendments freely based

in part on the belief that decisions on the merits should be made whenever possible, absent countervailing considerations. WE Motion at 2-3. The Government does not and cannot challenge this authority. Indeed, the Rules of this Court permit a party to amend its Complaint in the interests of justice and to facilitate the speedy and inexpensive determination of this action. RCFC 1. WE does not deny that the Government is entitled to test the bases of WE's Second Amended Complaint through audit verification activities or possibly limited discovery and that the Government's experts should be permitted to respond accordingly. However, as demonstrated above, this effort (most of which will be performed by the Government's experts and consultants) does not require the dedication of significant resources. Any effort required of the Government pales in comparison to the penalty that WE will suffer if WE is not permitted to amend its Complaint. Given this Court's ability to freely grant leave to -928795-0001/LEGAL13233778.1

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amend and the heavy burden that WE will bear if leave were denied, WE's motion for leave to amend should be granted. The Government cites cases in which courts have denied parties leave to amend. While the Government correctly articulates the legal standard for such denial, the cases cited by the Government are inapposite. E.W. Bliss Co. v. United States, 77 F.3d 445, 449-450 (Fed. Cir. 1996) (leave to amend denied when plaintiff sought to "add five more issues to the thirteen already asserted" seven months after moving for summary judgment and after plaintiff admitted that it could have earlier requested the documentation that gave rise to the new issues); Essex Electro Engineers, Inc. v. United States, 960 F.2d 1576, 1582-83 (Fed. Cir. 1992), cert. denied, 506 U.S. 953 (1992) (leave to amend denied as untimely when the motion to amend was made in a motion for reconsideration, and the motion to amend was only implicit);4 Te-Moak Bands of W. Shoshone Indians of Nevada v. United States, 948 F.2d 1258, 1260-63 (Fed. Cir. 1991) (leave to amend denied when the supplemental exceptions could have been filed at the time the original exceptions were filed, the records forming the bases for the new exceptions were available to the movant eight years prior to the new exceptions being filed and the exceptions appeared to raise new issues); First Interstate Bank of Billings v. United States, 61 F.3d 876, 881 (Fed. Cir. 1995) (leave to amend denied when defendant sought to mount a new defense close to the time for trial); Spalding & Son, Inc. v. United States, 22 Cl. Ct. 678, 680 (1991) (leave to amend denied as untimely when plaintiff's new theory of replacement damages was "plainly obvious" at the time of the alleged injury, which was nine years prior to the original complaint, and plaintiff had been considering the theory for two years since filing its original complaint); Tenneco Resins, Inc. v. Reeves Brothers, Inc., 752 F.2d 630, 633 (Fed. Cir. 1985) (leave to amend denied where party failed to couple original claim of patent invalidity with a defense of non-

The Government's Response confused the citations for Essex Electro and First Interstate Bank. Response at 7.

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infringement for five years and, after its original motion for leave was denied, party did not appeal the denial of leave for another five years); and Datascope Corp. v. SMEC, Inc., 962 F.2d 1043, 1045 (Fed. Cir. 1992) (leave to amend to pierce the corporate veil denied when evidence on the record long-supported the movant's awareness that defendantcorporation would not be able to satisfy a large judgment). The circumstances of WE's motion for leave to amend are completely dissimilar from these cases. There has been no undue delay or dilatory behavior by WE. Indeed, WE filed its motion for leave to amend and the supporting documentation for the newly-claimed costs forty-one days after the close of the accounting period in question and forty-six days after trial in this matter was rescheduled for September 10, 2007. The Government mischaracterizes the costs at issue in WE's Second Amended Complaint as presenting "new issues" and including "costs that were not previously known" and the Government complains that WE's actual costs differ from WE's previously-claimed costs. Response at 8. To the contrary, WE is not presenting any new claims, defenses or issues. As explained above, each cost claimed in WE's Second Amended Complaint is precisely the same as costs previously-claimed. This is confirmed by the fact that, in its Response, the Government groups the newly-claimed costs into the same categories as the costs previously-claimed: labor costs, employee expenses, G&A costs, annual NRC fees, cask costs, cask loading costs and WACC. Response at 3-6. The bases for WE's amended claim are the same as the bases for WE's existing claim. The Government still has not picked-up WE's spent nuclear fuel. Thus, WE still has to store its spent fuel somewhere (namely, dry storage) and, not surprisingly, WE continues to incur the same type of damages that it previously incurred. The Government next argues that its potential cask loading offset for 2007 is too difficult to compute because it is "much more difficult to model when within 2007 [WE's] assemblies would have been loaded [for pickup by DOE]." Response at 9 (emphasis in original). There are several responses. First, the Government's assertion simply provides - 11 28795-0001/LEGAL13233778.1

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further indication that the Government's claimed offset for avoided cask loading costs is too speculative as this Court has previously held. See Tennessee Valley Authority v. United States, 69 Fed.Cl. 515, 542-43 (2006); Sacramento Mun. Utility District v. United States, 70 Fed.Cl. 332, 372 (2006); and Pacific Gas & Elec. Co. v. United States, 73 Fed.Cl. 333, 416 (2006). Second, while WE believes that the Government's claimed offset is too speculative, we see no reason why the Government's experts could not calculate the claimed offset based on assumed loading dates. Third, when Government counsel recently advised WE counsel of this concern and explained that it was based on WE's inclusion of a partial year (the first two months of 2007) in its damages update, WE proposed to use a December 31, 2006 damages cutoff to resolve this Government concern. Appx. 10-11 (WE May 16, 2007 letter). The Government next asserts that WE has offered insufficient proof for its Second Amended Complaint by providing "vague generalities" and by not submitting "specific evidence." Response at 9-10. This Government assertion strains credulity. WE's April and May 2007 productions provide all the data that the Government has previously requested in order to analyze and verify WE's previously-claimed costs. See Section I, supra. B. WE Should Be Allowed to Supplement Its Complaint Under Rule 15(d) WE's motion demonstrated that the purpose of Rule 15(d) is to promote as complete an adjudication of the dispute between the parties as possible by permitting a plaintiff to supplement its Complaint when there has been an increase in the damages identified in the original Complaint. WE Motion at 4-5. The Government does not and cannot challenge this authority. Here, the allegations of WE's Second Amended Complaint all concern damages resulting from DOE's same and continuing breach of the Standard Contract. The Government insists that its experts be permitted to analyze WE's newly-claimed costs and to issue updates to their previous reports. Response at 10. The Government also seeks "complete discovery" regarding WE's updated costs. Id. WE agrees that Government - 12 28795-0001/LEGAL13233778.1

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experts likely will have to update their reports, but this is hardly a significant burden. The Government ­ and its experts ­ have all the data and documentation upon which to base such updates. Further, the Government is entitled to conduct an audit verification of WE's newlyclaimed costs. Again, however, this is not a significant exercise because the same types of costs are at issue and only a little more than a year of costs is at issue. Further, this work will be performed by consultants who work for the Government, not Government counsel. Thus, it will not impact Government counsel's preparation for trial. The Government's consultants have five months from now to complete audit verification and WE placed the Government on notice of the potential need to review and verify additional costs in March 2007, seven months before the trial date. Appx. 12-13 (WE March 9, 2007 letter). As noted, if the Government requires depositions of fact or expert witnesses, which WE doubts are necessary, the Government will only need to conduct, at most, two half-day depositions. Assuming that any updates to the Government's expert reports raise no new issues (and we see no reason why they should), WE does not anticipate the need to depose any of the Government's experts again. C. WE Should Be Allowed to Amend Its Complaint in the Interest of Judicial Efficiency WE's motion explained that judicial efficiency would be served by allowing WE to amend its Complaint to update its damages. As explained, WE expects to sell Point Beach in October 2007. If the transaction closes as scheduled, WE expects that allowing WE to amend its Complaint will obviate the need for WE to file another action to seek future damages. WE Motion at 7-8. Incongruously, the Government argues that WE will suffer minimum prejudice if WE's motion is denied. Response at 10. The Government argues that WE should claim the costs at issue in an entirely new and separate lawsuit. The Government's assertion is devoid of merit. It will obviously be extremely prejudicial to WE if WE is required to file an - 13 28795-0001/LEGAL13233778.1

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entirely new lawsuit to claim one or two years of costs when WE can include all of its claims in this lawsuit. Further, the Government fails to consider the interests of judicial efficiency. The Government cannot seriously contend that it is more efficient for this Court to hear two WE lawsuits rather than one such lawsuit. An additional consideration is the Government's pending motion for partial summary judgment seeking to deny WE's claim for WACC. If the Government were to prevail in this motion, WE will suffer significant economic harm in having its receipt of the newly-claimed costs delayed by the years necessary to litigate a second lawsuit. Another consideration is that WE will have to incur the costs for counsel to litigate a second lawsuit. Moreover, requiring WE to litigate another lawsuit to seek the costs at issue would place a serious burden on the WE witnesses. As the Court knows, it has taken seven years to get to trial in this current action and a number of WE witnesses are becoming quite elderly. Asking these same personnel to testify in another seven years in a second lawsuit places a heavy burden on these individuals. Finally, although this issue was not raised by the Government, WE submits that the filing of the Second Amended Complaint to update WE's damages will not lengthen this trial because no new issues are raised by the damages update. In sum, both judicial efficiency and basic fairness compel the conclusion that WE should be permitted to file its Second Amended Complaint and thereby update its damages.

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III.

CONCLUSION

For the foregoing reasons, WE respectfully requests that the Court grant WE's Motion for Leave to File Its Second Amended and Supplemental Complaint under Rule 15(a) and 15(d) and allow WE to file its Second Amended and Supplemental Complaint. Dated: May 21, 2007 Respectfully submitted, s/Richard W. Oehler by s/Emily C.C. Poulin Richard W. Oehler Perkins Coie LLP 1201 Third Avenue, Suite 4800 Seattle, Washington 98101-3099 (206) 583-8419

Of Counsel: Donald J. Carney Mary Rose Hughes Perkins Coie LLP 607 Fourteenth Street, N.W. Washington, D.C. 20005 (202) 434-1675

Attorneys for Plaintiff WISCONSIN ELECTRIC POWER COMPANY

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CERTIFICATE OF SERVICE
I certify under penalty of perjury that, on May 21, 2007, I caused a copy of the foregoing "Plaintiff's Reply to Defendant's Response to Plaintiff's Motion for Leave to File Its Second Amended and Supplemental Complaint" to be filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. s/ Emily C.C. Poulin Emily C.C. Poulin

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