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

Case 1:03-cv-00289-FMA

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS UNITED MEDICAL SUPPLY COMPANY, INC., ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES, ) ) Defendant. )

No. 03-289C (Judge Allegra)

DEFENDANT'S OPPOSITION TO PLAINTIFF'S DISCOVERY MOTION Pursuant to the Court's order dated July 21, 2006, defendant, the United States, respectfully responds to the motion to compel and for sanctions filed by plaintiff, United Medical Supply Company, Inc., on July 21, 2006, as supplemented on July 31, 2006. PRELIMINARY STATEMENT 1. The Government's efficacy in preserving, gathering, and producing responsive documents in this case has been subpar and disappointing. Nothing in this brief should be construed as arguing otherwise. Among other things, too much time elapsed between the initial e-mail communications between the Defense Supply Center Philadelphia ("DSCP") and the numerous medical treatment facilities ("MTFs") in October 2002, and the point at which we began collecting documents; a very few MTFs inadvertently were not contacted in 2002 at all; and undersigned counsel for defendant delegated the document search in 2005 to an experienced professional employee of the Department of Justice who nonetheless failed to conduct a de novo search, as instructed, and who made representations upon which undersigned counsel, in turn, relied in making representations to the Court and plaintiff which we have learned were wrong. We are not attempting to excuse or explain away these regrettable circumstances.

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2. At the same time, plaintiff's hyperbolic allegations call for a dose, if not more, of realism and perspective. United Medical submitted its certified claim to the contracting officer under the Contract Disputes Act ("CDA") in July 2002. Prior to that, there simply was no "claim" under the contract. (Approximately three months later, United Medical sold its assets to another company without making any effort to retain inventory records or other contemporaneous documents in its possession which were relevant to the claim.) The July 2002 CDA claim (attached), which was authenticated during the recent deposition de bene esse of plaintiff's former president, William Bandy, seeks damages upon four grounds: (i) diverted purchases; (ii) damage to reputation; (iii) "unpurchased stock commitments," i.e., items for which MTFs submitted "usage data," but which they did not purchase by the end of contract performance; and (iv) "early termination." There is no certified claim and, therefore, no claim properly before this Court, see 41 U.S.C. § 605, for unpaid invoices, i.e., "accounts receivable." See Pl. Mot. 3 & n.2. There is no certified claim and, therefore, no claim properly before this Court for "negligent estimates." See id. at 22-23; United Medical Supply Co. v. United States, 63 Fed. Cl. 430, 436 (2004) ("Plaintiff does not contend ­ nor does the evidence produced so far suggest ­ that the DSCP acted in bad faith in computing its estimated needs for the Lone Star Region."). And, although we recognize that the allegation might be relevant to damages, there is no certified claim and, therefore, no claim properly before this Court based upon MTFs' failure to provide "usage data." See Pl. Mot. 22. 3. Tab 1 of the affidavit of Anthony Amendolia of DSCP, filed on July 12, 2006, establishes that, beginning in October 2002, Mr. Amendolia attempted to contact individuals 2

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(often more than one person) at every one of the 18 MTFs still operating at that time, asking the MTFs to preserve documents related to United Medical. Mr. Amendolia followed up with several more e-mails during the fall of 2002. Memories fade. However, Mr. Amendolia's e-mails constitute the best evidence of DSCP's efforts to ensure that documents were retained. At least one person who, according to an affiant, now "has no knowledge" of being contacted in 2001, Master Sergeant Rick Lester, formerly stationed at Vance Air Force Base, see Green Aff. ¶ 3, responded twice to Mr. Amendolia in November 2001, advising DSCP, "[W]e do not have any records." Amendolia Aff. Tab 4. In another instance, an affiant from Sheppard Air Force Base would in all likelihood have denied being contacted by DSCP in 2002, had he not been shown Mr. Amendolia's e-mails to him. Steele Aff. ¶¶ 5-6. The affiant from Fort Hood states that her MTF first received notice of the case in October 2005. Tyler Aff. ¶ 3. This seems unlikely, however, given that the MTF had retained responsive records dating back to 1997. Id. ¶ 4. The affiant from Tinker Air Force Base became aware of the claim on May 10, 2006. Crosby Aff. ¶ 3. However, Jennifer Howell at Tinker was notified of the claim by e-mail in 2002. Amendolia Aff. Tab 2. Consistent with this, Tinker retained prime vendor records from December 1997 forward, and non-prime vendor records starting in 1998. Crosby Aff. ¶ 7. The Air Force retention policy in effect in 2002 required these records to be kept for one year after the fiscal year in which they were created. Id. ¶ 11. Hence, there is no reason to believe substantially more responsive documents would have been available, even assuming Tinker, or the other Air Force MTFs, had been advised of the claim earlier. 4. Indeed, responsive documents from some or all of the contract term are available from 13 of the 18 ordering facilities which existed in 2002. The single largest MTF, Brooke 3

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Army Medical Center in San Antonio, Texas, retained all of its contract records, and all of its credit card records, for the entire contract performance period. (In October 2004, this MTF mistakenly reported the documents had been inadvertently destroyed.) By agreement with plaintiff, 57 boxes (three pallets) of Brooke Army Medical Center records are currently being scanned, entirely at our expense, for production. We are also in the process of scanning 18 boxes of credit card records from 2000 and 2001 from Randolph Air Force Base, and 15 boxes of prime vendor contract and credit card records, covering virtually the entire contract term, from Tinker Air Force Base. In 2005, we produced approximately 36 CDs containing records from 1999 through 2001 from Darnall Army Hospital and Reynolds Army Community Hospital. We have also located, and are scanning for production at our expense, contract and/or credit card records covering one or more years of the contract term from the following eight MTFs: Brooks City Air Force Base; the former AMFLO II (now AMFLOA); Dyess Air Force Base; Goodfellow Air Force Base; Holloman Air Force Base; Cannon Air Force Base; Vance Air Force Base; and Kirtland Air Force Base.1 The five MTFs at which no documents were located are William Beaumont Army Medical Center; Raymond Bliss Army Hospital; Naval Hospital, Corpus Christi; Sheppard Air Force Base; and Altus Air Force Base. However, electronic credit card data for the contract term for all 18 facilities, gathered by the Department of Defense, Office of the Inspector General, were provided to plaintiff in or before June 2006. 5. United Medical argues the MTFs limited their search to credit card records and ignored other potential sources of diverted purchases, such as blanket purchase agreements
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We realized in early August 2006 that Kirtland was inadvertently omitted from the list of ordering facilities from which we obtained affidavits. (Plaintiff has not noted this.) We are securing an affidavit from Kirtland, which we are told has 22 boxes of responsive documents. 4

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("BPAs"). Our affiants focused upon credit card records because, prior to the production of those records, purchases diverted via credit card were the primary, if not sole, focus of plaintiff's claim and its discovery requests. In its discovery requests, plaintiff has made one parenthetical reference to "DBPAs," in a document request served in June 2005, after we began producing credit card data tending to show few diverted purchases. We reasonably understood that June 2005 request to refer to BPA purchases of DAPA items; and we know of none. In any event, we searched for BPA records. Mr. Amendolia's e-mails in the last quarter of 2002 were not limited to any specific type of non-prime vendor purchase records; and the MTFs understood the scope of the search in 2006. See, e.g., Sabroski Aff. ¶ 4 (Cannon Air Force Base searched for credit card records and "other sale purchase transactions"); Baca Aff. ¶ 9 (Dyess Air Force Base located, inter alia, BPA orders); Yuhas Aff. ¶ 9 (Goodfellow Air Force Base located, inter alia, orders placed outside the contract); Love Aff. ¶ 8 (AMFLO located BPA orders); Massey Aff. ¶ 7 (Holloman Air Force Base deemed "Local Purchases" relevant). In point of fact ­ although United Medical never asked about this during discovery ­ numerous MTFs placed few or no BPA orders and, because BPAs are administered by contracting officers, there was little or none of the diversion potential regarding DAPA items that existed with credit cards. 6. Our July 5, 2006 supplemental response to plaintiff's interrogatory number 5, about which United Medical complains, states in the second of its three sentences: "If plaintiff wishes to suggest a methodology (or alternate methodologies) for deriving estimates responsive to this interrogatory from data currently known to be available, the Government will perform the investigation and calculations necessary in order to supply the results under plaintiff's theory or theories." We have manifestly not "refused to answer." See Pl. Mot. 15. 5

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7. We respectfully submit that, however frustrating the Government's efforts to meet our discovery obligations may have been to the Court and counsel alike, the epithet "discovery abuse" is not at all justified. See Pl. Mot. 18. ARGUMENT United Medical devotes only approximately eight of the 23 pages of its brief to the issues identified in the Court's July 21 order: "the [specific] sp[ol]iation sanctions it is seeking [and] a legal and factual analysis for their application in this case[.]" See Pl. Mot. 16-23. Plaintiff requests three forms of relief: "(1) deeming certain specified facts established, (2) compelling a prompt supplementation of the Affidavits to complete the detailed descriptions required in the Court's order of April 26, 2006, and (3) imposing monetary sanctions as the Court deems appropriate." Pl. Mot. 2-3; see id. at 22. With respect to the second request above, we respectfully defer to the Court to determine whether we have complied with its April 26 order. Should the Court determine that further steps are required in order to comply, we will take them. With respect to the first request, United Medical cites no decisions in which a court has "deem[ed] certain facts established" in circumstances such as these; that is not the remedy, even when the standard for drawing adverse inferences is met, which, here, it is not. Plaintiff's request for monetary sanctions should be denied upon the grounds, among others, that United Medical has not "explain[ed]" or supported its monetary request "in detail," as required by the order. I. There Has Been No Bad Faith Plaintiff begins by attempting to minimize and evade controlling precedent. Pl. Mot. 1617. Even assuming there is "considerable tension," as the Court stated in Klump v. United 6

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States, 54 Fed. Cl. 167, 175 n.13 (2002), between Eaton Corp. v. Appliance Valves Corp., 790 F.2d 874 (Fed. Cir. 1986), and Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566 (Fed. Cir. 1996), with respect to the standard for drawing adverse inferences, there is no doubt as to which is the "controlling case." See Pl. Mot. 17. When decisions of panels of the United States Court of Appeals for the Federal Circuit appear to conflict, "the precedential decision is the first." Newell Cos., Inc. v. Kenney Mfg. Co., 864 F.2d 757, 765 (Fed. Cir. 1998). Sensonics could not, and did not, overrule Eaton. See, e.g., Columbia First Bank v. United States, 58 Fed. Cl. 54, 56 (2003). Pursuant to Eaton, "the test is whether the court could draw 'from the fact that a party has destroyed evidence that the party did so in bad faith.'" 790 F.2d at 878 (quoting S.C. Johnson & Son, Inc. v. Louisville & Nashville R.R., 695 F.2d 253, 258 (7th Cir. 1982)). "If a court finds that both conditions precedent, evidence of destruction and bad faith, are met, it may then infer that the evidence would be unfavorable to the destroying party if introduced in court." Id. By its terms, this test "cannot apply" to evidence that has, in fact, been produced. Id. And, as explained in S.C. Johnson, which is quoted in Eaton, "the crucial element is not that the evidence was destroyed but rather the reason for the destruction." 695 F.2d at 258 (emphasis added); accord Klump, 54 Fed. Cl. at 175. In a reversal of the respective positions of the parties in Columbia First Bank, here, "[plaintiff] argues that [defendant's] failure to implement adequate safeguards for the documents . . . constituted bad faith. [Plaintiff] is able to point to many cases in other districts where this is the case, but none in this circuit." 54 Fed. Cl. at 703. There is absolutely no evidence, direct or circumstantial, which could support the conclusion that Government documents were destroyed by anyone in bad faith, i.e., with an intent to affect this litigation. Our failure to retain a portion 7

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of the documents which should have been retained resulted from communications failures, inattention to detail by various individuals, and other circumstances reflecting, at most, negligence upon the Government's part. Even assuming, solely for purposes of argument, that these facts "hint[ed] at bad faith," the facts would justify no relief. Klump, 54 Fed. Cl. at 175. II. The Extreme Evidentiary Remedy Sought Is Unavailable, In Any Event Even assuming the Court determines the Eaton bad faith standard is satisfied here, United Medical points to no instance, and we know of none, in which any court has "enter[ed] a sanctions order establishing . . . controlling facts" based upon spoliation. See Pl. Mot. 22. Even when the applicable standard for spoliation is found to be satisfied, a court will, at most, draw a rebuttable adverse inference, solely with regard to the content of any missing evidence. See, e.g., Sensonics, 81 F.3d at 1573 ("[I]f evidentiary imprecision is due to inadequacy of the infringer's records, uncertainty is resolved against [it]."). And, even in such cases, "[s]ome extrinsic evidence of the content of the [missing] evidence is necessary for the trier of fact to be able to determine in what respect and to what extent it would have been detrimental." Hudson Trans. Lines, Inc. v. Zozichowski, 142 F.R.D. 68, 77 (S.D.N.Y. 1991). The focus remains, in other words, upon the evidence itself: Spoliation may provide some basis for inferring that the evidence would have been unfavorable to the party responsible; but spoliation remains only one factor in a trial court's determination, after hearing the parties' arguments, of the facts which are, or would have been, supported by the evidence. In addition to being unprecedented, plaintiff's request that the Court make a factual finding "establishing" the dollar value of the Government's requirements for items covered by the contract is not even logically supportable in this case. As noted, inferences do not substitute for 8

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evidence. United Medical has received, or will shortly receive, at our expense, sufficient evidence, responsive to its document requests, from the large majority of the MTFs, including the single largest MTF, as well as overlapping data from the Office of the Inspector General, to develop and support at trial its own estimates of the Government's requirements and purchases. Plaintiff raises arguments concerning the comprehensiveness and weight of the records produced. See Pl. Mot. 13-15, 23. However, those are arguments for trial. Among its many other evidentiary options at trial, plaintiff can, and should, for example, compare the 57 boxes of paper credit card records being produced (as TIFF files) from Brooke Army Medical Center to the data gathered by the Office of the Inspector General for that facility, in order to test plaintiff's argument that the latter information "does not represent the universe of potential diverted purchases." See id. at 14. Plaintiff is likewise entirely free to advance at trial factual arguments based upon its extrapolations from the Fort Hood records. Id. There are by now, in fact, a surfeit of documents from the MTFs and elsewhere ­ at least 100 bankers' boxes in all, assuming electronic records are printed out ­ which neither plaintiff nor defendant is likely to be able to review in full, as opposed to relying upon sampling. This mountain of evidence cannot simply be ignored, in favor of a sweeping presumption. The volume of records which have been or will soon be produced by the Government contrasts sharply, we further note, with the fewer than eight boxes of company records, covering the entire contract term, which were produced by plaintiff in April 2005. Mr. Bandy has testified for trial that United Medical alienated possession and control of what must have been tens of thousands of pages of relevant business records in a bankruptcy sale in October 2002, several months after it retained litigation counsel and submitted its CDA claim to DSCP. 9

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III.

Plaintiff Adduces No Support For Any Other Relief United Medical neither alleges nor adduces evidence that it has incurred attorney fees in

connection with its repetitive motions to compel. (It does not even represent that its litigation counsel, who in actuality represents the creditors of the bankruptcy estate, is compensated upon a fee basis. See Pl. Mot. 22-23.) In any event, the Government's conduct has not been obstructive or contemptuous. We have never resisted producing responsive records of the MTFs. Meanwhile, the one issue with respect to which United Medical specifically seeks supplementation of the Government's affidavits is the "outstanding receivables" claim, which this Court, as noted, lacks jurisdiction to entertain. See id. at 23. (The Government's inquiries regarding the invoices were, in any event, not performed by the MTFs, which were not involved in the payment process, see United Medical, 63 Fed. Cl. at 433, but by DSCP personnel and counsel.) Accordingly, the Court should award no monetary sanctions and no other miscellaneous relief. This case should proceed to resolution at trial, so that the parties can make their liability and damages arguments to the Court, based upon the evidence that is available. CONCLUSION For the reasons given above, we respectfully request the Court to deny plaintiff's July 31, 2006 motion in its entirety. Respectfully submitted, PETER D. KEISLER Assistant Attorney General s/David M. Cohen DAVID M. COHEN Director

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OF COUNSEL: KATHLEEN HALLAM Chief Trial Attorney Defense Supply Center Philadelphia

s/Kyle Chadwick KYLE CHADWICK Senior Trial Counsel Commercial Litigation Branch Department of Justice Attn: Classification, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 305-7562 Attorneys for Defendant

August 9, 2006

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CERTIFICATE OF FILING I certify that on August 9, 2006, the attached was filed electronically. I understand that service is complete upon filing and parties and others may access this filing through the Court's electronic system. s/Kyle Chadwick

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