Free Motion for Order to Show Cause - District Court of Federal Claims - federal

Case 1:06-cv-00436-MCW

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ULYSSES, INC. Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 06-436C (Judge Williams)

DEFENDANT'S MOTION TO LIFT STAY AND TO ISSUE SHOW CAUSE ORDER Defendant, the United States, respectfully requests this Court: (1) to lift the stay imposed by its February 26, 2008 order; and (2) to order plaintiff, Ulysses, Inc., to show cause why its complaint should not be dismissed ­ and judgment entered for the United States upon its counterclaims ­ for failure to prosecute this case in accordance with this Court's rules. I. Factual And Procedural Background On June 1, 2004, Ulysses filed a complaint in the United States Court of Federal Claims, (No. 04-938C), seeking $44,625 for the alleged wrongful cancellation of a purchase order. Ulysses filed a second complaint (No. 04-939C) for the alleged cancellation of a second purchase order. Those cases were consolidated and subsequently dismissed, without prejudice, due to Ulysses's failure to obtain a contracting officer's final decision. In February 2006, Ulysses submitted claims to the contracting officer seeking damages for the alleged wrongful cancellation of both purchase orders. Pl. Compl. ¶ 26. The contracting officer (CO) issued a final decision denying the claims on April 7, 2006. Pl. Compl. ¶ 28. Following the CO's denial of Ulysses's claims, Ulysses continued to pursue those claims, filing, on May 30, 2006, a new complaint in this Court, the above-captioned case. Ulysses again seeks damages allegedly resulting from the cancellation of both purchase orders. Pl. Compl. ¶ 34-36.

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On May 17, 2007, we filed a motion to amend the answer to assert affirmative defenses and counterclaims based upon the False Claims Act, 31 U.S.C. § 3729 et seq., the special plea in fraud, 28 U.S.C. § 2514, and the fraud provision of the Contract Disputes Act ("CDA"), 41 U.S.C. § 604. On July 16, 2007, Ulysses notified this Court that Ulysses did not oppose our motion to amend the answer and to add counterclaims. See July 19, 2007 Scheduling Order. This Court accordingly granted our motion. Id. On January 4, 2008, Ulysses moved for a protective order to stay the deposition of Demetrios Tsoutsas "pending the outcome of [a] criminal investigation." Plaintiff's January 4, 2008 Motion at 6. We opposed that motion. On February 26, 2008, the Court held oral argument on plaintiff's motion for a protective order to stay the deposition of Mr. Tsoutsas. On that same date, the Court issued an order converting plaintiff's motion for protective order to a motion to stay this case, and granted the motion, thus staying proceedings in this case "until the criminal investigation . . . is resolved." On July 9, 2008, plaintiff's counsel, Mr. Kenneth J. Haber, filed a motion for leave to withdraw as counsel, upon the ground that Ulysses had terminated Mr. Haber's representation of plaintiff. We did not object to Mr. Haber's motion. On July 16, 2008, Mr. Tsoutsas, Ulysses, and a related company, Melstrom Manufacturing Corp., were indicted in the District of New Jersey for seven counts of mail fraud and two counts of false statements. See July 16, 2008 Indictment (attached hereto as Exhibit A) (citing 18 U.S.C. §§ 2, 1001, 1341). The indictment involves allegations unrelated to the alleged contracts and parts at issue in this case. Moreover, the indictment does not mention the agency involved in this case, the Defense Supply Center Columbus.

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On July 18, 2008, the Court issued an order deferring Mr. Haber's motion "until the stay in this case is lifted." July 18, 2008 Order. In particular, the Court explained that, pursuant to Rule 83.1(c)(8) of the Rules of the United States Court of Federal Claims "(RCFC"), "[a] corporation may only be represented by counsel." July 18, 2008 Order (citing Talasila, Inc. v. United States, 240 F.3d 1064, 1066 (Fed. Cir. 2001), for the proposition that "The requirement of [former] Rule 81(d)(8) that a corporation be represented by an attorney in the Court of Federal Claims is clear, unqualified, and ... does not contemplate exceptions."). On August 15, 2008, the Court held a status conference, during which the Government concurred with Mr. Haber that the stay should be lifted, and that his motion to withdraw should be granted. The Government also proposed that the Court issue an order to Ulysses directing it to show cause why its complaint should not be dismissed ­ and judgment entered in favor of the United States upon its counterclaims ­ if Ulysses failed to retain counsel in compliance with RCFC 83.1. We file the instant motion in support of that request. II. Argument The Court's stay of this case should be lifted. In Afro-Lecon, Inc. v. United States, 820 F.2d 1198 (Fed. Cir. 1987), the United States Court of Appeals for the Federal Circuit held that the General Services Administration Board of Contract Appeals erred in denying the appellant's "motion to stay the company's civil claim until completion of the criminal trial which concerned the same facts." 820 F.2d at 1200 (emphasis added). At the time the Court granted Ulysses's motion to stay, neither undersigned counsel, nor the Court, were aware of the precise scope of either the criminal investigation or of the possible indictment. Now, however, the indictment has been issued and it clearly does not encompass any of the allegations that the form the basis of the

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Government's counterclaims. Accordingly, and for all of the reasons stated in our opposition to Ulysses's motion to stay this case, we respectfully request that this Court lift its stay of this case. We further respectfully request that this Court issue a show cause order due to Ulysses's failure to retain new counsel in this case in compliance with RCFC 83.1. Moreover, as we proposed in the August 15, 2008 status conference, the show cause order should warn Ulysses that if it fails to retain counsel, it will "suffer a default judgment on [the] pending counterclaims." Chemray Coatings, Corp. v. United States, 27 Fed. Cl. 470 (1993). Indeed, in Chemray, the Court considered a factual situation remarkably similar to that of the instant case. The Court, on defendant's motion, allowed plaintiff less than a month to "secure substitute counsel . . . both to prosecute its action and to defend against defendant's counterclaims." Id. at 472. The Court also ordered that "i[f] plaintiff fails to comply with this order, the court will dismiss its case for failure to prosecute pursuant to RCFC 41(b)" and, "[t]hereafter, defendant may move for entry of default judmgent for the full amount of defendant's counterclaims." Id. (ordering "[t]he Clerk of the Court [to] serve a copy of this order on plaintiff's chief executive officer"). In Midstar, Inc. v. United States, 33 Fed. Cl. 669 (1995), then-Chief Judge Smith adopted the approach of this Court in Chemray, and similarly ordered as follows: This case is before the court on counsel for the plaintiff's motion to withdraw and defendant's motion to compel discovery and/or to show cause why this case should not be dismissed and judgment entered for defendant. For the reasons stated below, this court finds that these motions should be granted such that plaintiff's current attorney of record may withdraw, and plaintiff is ordered to substitute new counsel and respond to defendant's discovery request. Failure to comply with this order within thirty days will

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force this court to dismiss plaintiff's complaint and grant the motion by the government to recover the full amount of its counterclaim. 33 Fed. Cl. at 670 (emphasis added). Accordingly, this Court will not be divested of jurisdiction over the Government's counterclaims even if Ulysses's complaint is dismissed for failure to prosecute its case in accordance with the Rules of this Court. See, e.g., Joseph Morton Co., Inc. v. United States, 3 Cl. Ct. 780, 783 (1983) ("The fact that it has been concluded that plaintiff's pleaded contract claim is not meritorious does not deprive the Claims Court of counterclaim jurisdiction in this matter under 28 U.S.C. §§ 1503, 2508"); Am. Nat'l Bank and Trust Co. of Chicago v. Untied States, 23 Cl. Ct. 542, 544 n.2 (1991) (citing Morton for proposition that "[d]ismissal of plaintiff's complaint . . . for failure to state a claim upon which relief can be granted does not divest the court of jurisdiction to hear defendant's counterclaim."); ASCO-Falcon II Shipping Co. v. United States, 32 Fed. Cl. 595, 605 (1994) (citing cases).1 Finally, should the Court grant our motion to issue a show cause order, we also respectfully request the Court to instruct the Clerk of the Court to serve the order upon Mr. Demetrios Tsoutsas, President of Ulysses, Inc. ("Ulysses"), including, out of an abundance of caution, Ulysses's new counsel in the criminal case, Mr. James S. Friedman.

On the other hand, the dismissal of the complaint for lack of jurisdiction carries with it the dismissal of any counterclaim filed in the matter by the United States. Mulholland v. United States, 175 Ct. Cl. 832, 846, 361 F.2d 237, 245 (1966); Somali Development Bank v. United States, 205 Ct.Cl. 741, 751-52, 508 F.2d 817, 822 (1974). In this case, the Court's jurisdiction over plaintiff's complaint is not in question. -5-

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CONCLUSION For the reasons stated above, we respectfully request that this Court grant our motion to lift the stay of this case and to issue an order to show cause.

Respectfully submitted, GREGORY G. KATSAS Assistant Attorney General JEANNE E. DAVIDSON Director s/ Deborah A. Bynum DEBORAH A. BYNUM Assistant Director s/ Matthew H. Solomson MATTHEW H. SOLOMSON Trial Attorney Commercial Litigation Branch Civil Division, U.S. Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 305-3274 September 5, 2008 Counsel for Defendant

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EXHIBIT A

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