Free Post Trial Brief - District Court of Federal Claims - federal

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AGREED-UPON REDACTED COPY MAY BE MADE PUBLIC IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) NORTH STAR ALASKA HOUSING ) PROTECTED INFORMATION TO BE CORPORATION, ) DISCLOSED ONLY IN ACCORDANCE ) WITH U.S. COURT OF FEDERAL Plaintiff, ) CLAIMS PROTECTIVE ORDER ) v. ) ) THE UNITED STATES, ) No. 98-168C ) Judge Francis M. Allegra Defendant. ) ____________________________________) PLAINTIFF'S REPLY TO DEFENDANT'S POST-TRIAL BRIEF Plaintiff North Star Alaska Housing Corporation ("North Star" or "Plaintiff") submits its Reply to the Post-Trial Brief of Defendant United States ("Government" or "Defendant"). INTRODUCTION Government personnel undertook a campaign pursuant to which they intentionally violated the November 6, 1987 lease agreement between the parties ("Lease") by setting an erroneous standard, punishing North Star when it failed to meet that erroneous standard, and refusing to pay North Star for work performed; stripping the Corps of Army Engineers Contracting Officer ("CO") and Contracting Officer's Representative ("COR") of the power to independently decide disputed issues; and securing a stay of litigation for reasons they knew at the time to be baseless, leaving North Star with no viable means of redress for the Government's actions. Government actors undertook these actions out of personal animus towards North Star and its officers and employees, with the intent to harm North Star and with knowledge of the extent to which their actions would harm North Star's business and its asset, Birchwood Homes. In its Post-Trial Brief, the Government seeks to impermissibly restrict North Star's ability to recover its increased operating expenses as a result of the Government's actions. In doing so,

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the Government ignores the fact that its own expert accepted North Star's expert's methodology and that North Star presented the Court with two alternative model for damage: one using its expert, Dr. Mundy's variance analysis to determine the increased operating expenses at Birchwood and another, presented by North Star's treasurer, examining the dollars associated with each of the Government's breaches. The Government then repeats previously rejected arguments that North Star's diminution in value damages, which North Star proved at trial, are not recoverable. The Government also repeats many of the same purported defenses and justifications to actions, such as stockpiling and failing to work authorize occupant-caused damages, which are indefensible, unjustifiable, and were undertaken in bad faith. As set forth in North Star's Post-Trial Brief and Damages Chart, North Star suffered a diminishment in the market value of its investment asset, Birchwood Homes, of at least $8,600,000. In addition, from 1997 through September 1, 2002, North Star's operating expenses increased by $840,000 which, when accounting for the loss of use of these monies, totals a $1,300,000 loss. 1 Also, per the testimony of Ms. Sekyra, damages suffered by North Star over and above the amounts considered in the expert report (or the alterative damages model) total $1,445,972. Additional payroll and subcontractor costs suffered by North Star total, $1,193,593 for a total amount claimed of $12,539,565. ARGUMENT I. The Government's Actions Were Undertaken in Bad Faith In its brief, the Government seeks cover behind legal principles that a mere "misinterpretation" of contract provisions or a "flawed rationale" for conduct do not rise to the

North Star's treasurer, Rhonda Sekyra, offered an alternative model for damages suffered by North Star during the same time period covered by the expert report, which computes damages totaling $876,424.

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level of bad faith. See Defendant's Post-Trial Brief at 24, 27 (citing WRB Corp. v. United States, 183 Ct. Cl. 409, 1968 WL 9146 (April 19, 1968)2 and Kavlar Corp., Inc. v. United States, 211 Ct. Cl. 192, 543 F.2d 1298 (1976)). However, these principles have no application here, where the Government behaved in a manner "designedly oppressive" and "actuated by animus toward the plaintiff." See Kavlar at 211 Ct.Cl. at 192 (recognizing that these factors constitute bad faith). In fact, this Court found bad faith where the Government coerced a contractor into providing labor and materials beyond the contract specifications without compensation, treating the contractor in a manner parallel to the manner in which the Government treated North Star: [T]he Director of the defendant's Inspection Division and his staff in Washington and in the field continued to demand of plaintiff a performance which was impossible after repeated demonstrations which should have convinced them that it was impossible if they had looked at the problem reasonably. They should have been aware that plaintiff's plans were being disrupted by the delay; that its overhead was being increased; that its contract time was running, and, if it should run out before completion of the contract, plaintiff would be subject to the risk of paying liquidated damages at $250.00 per day; that cancellation of plaintiff's contract for inability or refusal to perform would cause confusion and loss which plaintiff would, with reason, go far to avoid. These being the circumstances, the defendant's agents were careful to refrain from requesting in so many words that plaintiff put extra cement or do extra labor, lest such a request might have given plaintiff a valid claim for compensation. Yet, after having repeatedly refused to approve a sample wall built according to the specifications, they approved a sample which they knew contained extra cement and extra labor, conditioning their approval upon plaintiff's agreement to forego any claim to be paid extra compensation. This conduct was in fact oppressive. The care which was taken not to appear to ask for more than was due under the contract while in fact insisting on more seems to us, in the circumstances here present, to show that it was designedly oppressive. We think that it fell below the standard of good faith . . . Struck Constr. Co. v. United States, 96 Cl. Ct. 186, 222 (1942) (emphasis added).3
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The WRB court also found that "where a contract drafted by one party (the Government in this instance) contains an ambiguous provision and the other party (the plaintiff in this case) proceeds upon the basis of a reasonable interpretation of the ambiguous provision, the court will accept such interpretation as fixing the rights and obligations of the parties." WRB, 1968 WL 9146 at *24. 3 The Court in Struck was subject to the old standard pursuant to which Government actors were presumed to act in good faith and contractors needed to show "well nigh irrefragable proof" of the Government's wrongdoing. These standards were overturned by the Court of Federal Claims in 2005. See Plaintiff's Post-Trial Brief at 6 (citing Tecom, Inc. v. United States, 66 Fed.Cl. 736 (2005) (extinguishing presumption that Government acts in good

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A.

Failure to Issue Work Authorizations or Provide a List of Occupant Damages

The Government's defense to its failure to issue work authorizations as required is that North Star was physically capable of doing the work without them and the Lease did not prohibit North Star from doing so, and that North Star's preparation of work orders for required painting, maintenance, and repair work somehow erodes the Government's obligation to issue work authorizations for the repair of occupant damages. See Defendant's Post-Trial Brief at 14-15. These arguments have no support in the Lease, which requires the Government to issue work authorizations based on the List of Repair Costs when there is occupant damage to units, PX 1 at 26 § B.33, 32 § C.2(c)(10), 59, Ex. 4, and pursuant to which North Star's ability to prepare work orders for occupant damages depends upon the Government informing North Star of what work is required by providing North Star with a list of occupant damages and associated costs at the pre-termination inspection, which the Government has never done. PX 38 § D.7.(b)(2), PX 113005PX 447; Tr. at 318:23-319:22 (Wartes). Under the Government's rationale, even though (1) the Lease requires the Government to issue a work authorization for the correction of occupant damages prior to North Star performing the work, PX 1 at 26 § B.33, 32 § C.2(c)(10), 59, Ex. 4; (2) the Government embarked on a deliberate campaign to reduce work authorizations, PX 233; PX 1334; and (3) absent a work

faith); H&S Mnfctr'g, Inc. v. United States, 66 Fed.Cl. 301, 311 n. 19 (2005) (finding that the irrefragable proof requirement "has been given its last rites.")); see also Helix Electric, Inc. v. United States, 68 Fed. Cl. 571, 587 n. 30 (2005) (the Tecom court "aptly recognized" that the presumption of good faith has no application or relevance); Rodriguez v. United States, 2006 WL 242658 (January 30, 2006) (acknowledging Tecom in denying Government's motion for summary judgment). 4 The Government suggests that North Star's cash flow reports, which reflect income in excess of budgeted expectations from 1995 through 2001 for the category "Miscellaneous Income and Bonuses," contradict the fact that the Government engaged in a deliberate campaign to reduce work authorizations issued to North Star. The Government's conclusions are unsound because work authorizations are only one element included in that category. PX 414. Similarly unsound is the Government's statement that any diminution in the value of Birchwood Homes as a result of North Star foregoing corrections to occupant damages when the Government fails to issue work authorizations is the fault of North Star; as Dr. Mundy testified at trial, the reduced income stream as a result of the

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authorization North Star cannot be assured reimbursement for work performed, PX 446, the financial consequences of the Government's breaches would be borne by North Star. This is precisely the type of rationale ­ adopted so as "not to appear to ask for more than was due under the contract while in fact insisting on more" ­ that was deemed to violate the duty of good faith and fair dealing in Struck. North Star's damages for work performed to correct occupant damages that the Government failed to work authorize as required are: $20,957 for wall repairs; $22,809 for stoves the occupants failed to maintain; $2500 for refrigerators occupants failed to maintain; and $234,693 for vinyl the occupants failed to maintain; and $94,525 for carpet occupants failed to maintain. See Plaintiff's Post-Trial Brief at 30; Damages Chart at iii.5 Moreover, the Government's attempt to spin its failure to provide the list of occupant damages as little more than a benign omission with no impact to North Star must fail. As demonstrated at trial and as acknowledged by the COR, PX 113 at 005, the Lease entitles North Star to know at the conclusion of the pre-termination inspection what work is required and, of that work, what amounts the Government will reimburse. PX 1 at 38 § D.7.(b)(2). The termination inspection is intended only to document any items not identified at the pretermination inspection due to the presence of household objects or any items the occupant failed to correct that require correction. PX 1 at 38 § D.7.(b)(3). The Government's failure to provide this list impairs North Star's ability to plan its work ahead of time, as the Lease intends, Tr. at 318:23-319:5 (Wartes), which inevitably leads to increased downtime and rent deductions.

Government's failure to reimburse North Star when it does correct occupant damages impacts the discount rate for an investment grade property such as Birchwood and contributes to the diminution in value thereof. Tr. at 952:16953:18 (Mundy). 5 These issues were part of North Star's September 4, 2002 claim to the Contracting Officer, which dealt extensively with the Government's failure to issue work authorizations and to enforce occupant rules. PX 231.

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B.

Stockpiling of Units

In its brief, the Government repeats the same purported justifications for stockpiling that were debunked at trial during cross-examination of Government witnesses and questioning from the bench. Tr. at 2016:21-2019:25 (Kiser); Tr. 1644:2-11 (Goodrich). While it tries to hide behind the doctrine that a flawed rationale does not equate with bad faith, it is inescapable that the Government stockpiled units contrary to its own internal goals, PX 193; the opinions of the CO and COR as to how the Lease should be administered, Tr. 865:13-866:14 (Hopson), Tr. 1864:19-1865:10 (Everett); PX 109 at 0001; and in the face of numerous written and oral objections from North Star explaining the devastating impact to North Star's operation, including increased downtime and rent abatements. See Plaintiff's Post-Trial Brief at 15-16. The Government's position in its brief that stockpiling is acceptable because the Lease does mandate a specific schedule for the release of units echoes the statements of Connie Kiser to Eldon Wartes that she stockpiled units "[b]ecause she can," Tr. at 421:11-15 (Wartes); Tr. at 642:8-20 (Wartes), and is precisely the type of "justification" that the Struck court deemed bad faith. C. Failure to Provide Adequate Notice of Unit Turnover

The six-volume exhibit of unit files, PX 447, is replete with examples of the Government's failure to provide North Star with adequate advance notice of unit turnover, which the Lease states the Government must make every effort to provide between ten to fourteen days in advance. PX 1 at 37 § D.7(b)(1). The Government's failure to provide North Star with sufficient advance notice of unit turnover, and of changing unit turnover dates prior to unit turnover without extending the turnover date, contributes to vast scheduling challenges at North Star. PX 203; PX 336; Tr. at 737:15-16 (Wartes). The Government's attempt to characterize these occurrences as rare, Defendant's Post-Trial Brief at 16, must fail.

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Looking at the time period selected by the Government ­ December 31 2001 through September 5, 2002 ­ a total of 21 of the approximately 100 units sampled by the Government (as opposed to 15) were units for which North Star received less than ten (10) days advance notice.6 In other words, for one-fifth of the units released in that time period, North Star did not receive the between 10 and 14 days advance notice specified in the Lease. PX 1 at 37 § D.7(b)(1). Significantly, in conducting its analysis, the Government examines only initial notifications of change of occupancy ("NSCOs"); when NSCO updates are included in the analysis, the Government's list of units for which North Star is said to have received more than 21 days advance notice of unit turnover is overstated by 16 units.7 The Government's position in its brief that even if it revises turnover dates such that North Star does not receive the advance notice required under the Lease, that it need not provide North Star with any additional planning time, is precisely what the court in Struck deemed bad faith. Finally, the Government's attempt to limit this issue to the time period of December 31, 2001 through September 5, 2002 impermissibly restricts the Court's analysis, as the Government's perpetuation of the same conduct after the claim was filed is properly before the Court pursuant the enlarged claim doctrine, see Section II infra, and the Court acknowledged at trial that the Government's conduct after the filing of North Star's claim is admissible to show bad faith. Tr. at 251:18-25. For 231 units issued after September 4, 2002, North Star received

The Government omits these units: Unit 640, PX 447 at 110-12; Unit 646, PX 447 at 137-40; Unit 883, PX 447 at 465-7; Unit 1127, PX 447 at 1005-7; Unit 1145, PX 447 at 1035-7; Unit 1151, PX 447 at 1084-7. 7 Unit 620, PX 447 at 61-3; Unit 825, PX 447 at 362-4; Unit 856, PX 447 at 409-11; Unit 933, PX 447 at 605-8; Unit 1055, PX 447 at 841-3; Unit 1092, PX 447 at 916-18; Unit 1106, PX 447 at 941-3; Unit 1147, PX 447 at 1057-9; Unit 1148, PX 447 at 1067-9; Unit 1204, PX 447 at 1102-4; Unit 1218, PX 447 at 1138-40; Unit 1237, PX 447 at 1187-9; Unit 1253, PX 447 at 1227-9. In addition, three of the instances identified by the Government as providing North Star with in excess of 21 days advance notice are from outside the time period analyzed. PX 447 at 478 (Unit 884); PX 447 at 1197 (Unit 1240); PX 447 at 1221 (Unit 1251).

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less than ten days' notice for 27 units, or more than ten percent of units.8 In addition, for the 331 units summarized in Plaintiff's Exhibit 447, North Star received 14 days or less advance notice for 142 units, or nearly 43 percent.9 D. Rejection of Maintenance and Additional Inspections

As demonstrated at trial by the unit files in PX 447 and the contemporaneous correspondence of North Star to the Government, the Government embarked on a campaign to improperly reject North Star's maintenance, finding bogus items at acceptance inspections in order to delay acceptance and increase downtime. PX 216; Tr. at 435:21-436:17 (Wartes). Indeed, in 2003, the Government changed inspection procedures to incorporate these new inspection processes, which had the predictable result of frequent rejection of North Star's maintenance and an associated increase in downtime. PX 301, PX 311. The conduct of

See PX 447 at 158 (Unit 701), 1084 (Unit 1151), 2283 (Unit 957), 979 (Unit 1118), 1052 (Unit 1145), 1266 (Unit 604), 1447 (Unit 709), 1639 (Unit 752), 1782 (Unit 813), 1809 (Unit 817), 1898 (Unit 859), 2344 (Unit 971), 2560 (Unit 1048), 2735 (Unit 1125), 2882 (Unit 1202), 3272 (Unit 1037), 1253 (Unit 602), 1879 (Unit 857), 2062 (Unit 910), 2366 (Unit 977), 2410 (Unit 1010), 2509 (Unit 1034), 2925 (Unit 1210), 3122 (Unit 1262), 3166 (Unit 630), 3295 (Unit 1087), and 3356 (Unit 1222). 9 In addition to the units listed in footnote 8, supra, see PX 447 at 989 (Unit 1120), 1326 (Unit 622), 1351 (Unit 633), 1466 (Unit 711), 1670 (Unit 762), 1690 (Unit 772), 1712 (Unit 801), 1722 (Unit 802), 1843 (Unit 845), 1908 (Unit 860), 2423 (Unit 1011), 2452 (Unit 1026), 2567 (Unit 1049), 2579 (Unit 1053), 2712 (Unit 1111), 2844 (Unit 1151), 3077 (Unit 1255), 629 (Unit 946), 1285 (Unit 613), 1319 (Unit 619), 1419 (Unit 701), 1456 (Unit 709), 1505 (Unit 717), 1514 (Unit 718), 1555 (Unit 733), 1601 (Unit 742), 1753 (Unit 806), 2005 (Unit 895), 2035 (Unit 906), 2158 (Unit 939), 2168 (Unit 941), 2382 (Unit 1000), 2634 (Unit 1089), 2720 (Unit 1115), 2855 (Unit 1153), 2901 (Unit 1205), 2952 (Unit 1216), 2999 (Unit 1235), 3200 (Unit 829), 3283 (Unit 1077), 3344 (Unit 1212), 605 (Unit 933), 1700 (Unit 773), 2324 (Unit 966), 2654 (Unit 1097), 2693 (Unit 1109), 2805 (Unit 1141), 3223 (Unit 947), 3234 (Unit 952), 37 (Unit 614), 1211 (Unit 1250), 1344 (Unit 629), 1440 (Unit 708), 1617 (Unit 750), 1995 (Unit 894), 2017 (Unit 896), 2092 (Unit 926), 2103 (Unit 927), 2178 (Unit 942), 2272 (Unit 955), 2540 (Unit 1044), 2598 (Unit 1061), 2643 (Unit 1090), 2815 (Unit 1143), 2828 (Unit 1148), 3262 (Unit 975), 1306 (Unit 619), 1587 (Unit 738), 1680 (Unit 769), 1742 (Unit 805), 1857 (Unit 849), 1889 (Unit 858), 1928 (Unit 866), 2295 (Unit 958), 2305 (Unit 961), 2472 (Unit 1031), 2764 (Unit 1134), 2867 (Unit 1155), 2913 (Unit 1207), 3010 (Unit 1236), 3020 (Unit 1242), and 3318 (Unit 1119).

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Government officials to demand performance of North Star in excess of contract requirements through the implementation of additional inspections and deliberate rejection of maintenance mirrors the conduct in Struck that was found to be bad faith. E. Downtime Calculations

As proven at trial, the Government failed to calculate downtime as required under the Lease on an average weekday basis. See Plaintiff's Post-Trial Brief at 7-9; Tr. at 1846:221855:10 (Everett). Moreover, Government actions such as the failure to provide extra days for extra work, stockpiling of units, failure to provide sufficient notice of unit turnover, issuance of delayed and improper work authorizations, and the improper rejection of North Star's maintenance are designed to and did have the effect of increasing downtime and maximizing rent abatements, which total $210,583 for the months of February 2002 through October 2004. See Plaintiff's Damages Chart at i. Additionally, the Government admits in its brief that it improperly included calendar days, half days, and days for delayed acceptance inspections in its downtime calculations. Defendant's Post-Trial Brief at 19-24. The Government's conduct respecting downtime continued month after month beyond North Star's filing of its September 4, 2002 claim, and North Star's subsequent attempts to obtain relief from the Contracting Officer were rejected the due to advice of counsel that the issue of downtime calculations was already pending. PX 447 at 3378-87; Tr. at 887:8-12 (Hopson). The Government's current attempt to limit the Court's consideration of downtime to February, March, and April, 2002 is thus disingenuous, and ignores both its own prior position, the Court's statements that post-Claim conduct is admissible as evidence of the Government's bad faith, Tr. at 251:18-25, and the fact, detailed in Section II infra, that the Government repeatedly engaged in identical conduct respecting downtime and erroneous downtime calculations after North Star filed its claim.

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F.

Failure to Provide Extra Time for Extra Work

The Lease entitles North Star to extra time for extra work, and the Government interpreted the Lease as such prior to a dispute arising. See Plaintiff's Post-Trial Brief at 9-12. The Government's renewal of its position that North Star must complete work in three days ­ regardless of the amount of work to be performed, the number of units being worked on at once, or the amount of advance scheduling notice North Star receives ­ or be subject to rent reductions smacks of the bad faith conduct in Struck, where Government officials in fact demanded extracontractual performance without admitting they were demanding extracontractual performance, and improperly shifted the financial burden to the contractor. G. Refuse Collection

The 1995 Settlement Agreement makes no mention of the Lease provision respecting twice weekly refuse collection, PX 1 at 048, while it twice states the intention of the parties to compensate the Government for its previous undertaking: once weekly collection. DX 363 at 0004 ¶ ¶ 8,10.10 Indeed, after the Settlement Agreement was signed, then-Chief of Housing Karen Goodrich wrote in a memorandum, the purpose of which was to convey accurate information to military families via a telephone hotline, that "[a]n out of court settlement was reached to allow the contractor to decrease pick-up from twice a week to once a week." PX 15. Ms. Goodrich testified at trial that prior to writing such a memo she "probably would have tried to confirm" the accuracy of its contents. Tr. at 1618:12-13 (Goodrich). As a result of the

North Star's counsel, Mr. Stewart, recounted his weekly settlement discussions with Mr. Kinner as follows: "We said, and my authority was, that we would collect the garbage on the same frequency as the government had been collecting the garbage before we agreed to take over that responsibility. And that was once a week." Tr. at 2032:24-2033:10 (Stewart). Mr. Fischer confirmed at trial that "we thought we had an agreement with the Army that it would be in the same manner as which it was previously conducted, which was once a week by the City of Fairbanks." Tr. at 201:2-5 (Fischer). The one document proffered by Defendants as supporting twiceweekly collection is an unsigned draft letter that Mr. Kinner never finalized or provided to Mr. Stewart. DX 437.

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Government reneging on its position, North Star incurred damages totaling $119,790 for the second weekly collection. See Plaintiff's Damages Chart at iii; PX 485 Vol. 2 at 146-153. H. Incentive Fees

The Government's contention that the Government's incentive fee awards are not reviewable is contradicted by the very cases it cites in its brief, George Sollitt Constr. Co. v. United States, 64 Fed. Cl. 229 (2005) (citing Burnside-Ott Aviation Training Ctr. v. Dalton, 107 F.3d 854 (Fed. Cir. 1997)), pursuant to which incentive fee award decisions are reviewable for abuse of discretion to determine "whether the government's award decision was arbitrary and capricious ... as measured by law and procedures set out in the contract." George Sollitt, 64 Fed. Cl. at 247-48. In determining the extent to which incentive fee decisions are arbitrary and capricious, the Court considers: (1) evidence of subjective bad faith on the part of the government; (2) whether there is a reasonable, contract basis for the decision; (3) the amount of discretion given to the government; and (4) whether the government violated an applicable statute or regulation. See United States Fidelity & Guaranty Co. v. United States, 676 F.2d 622, 629-30 (Ct. Cl. 1982) (surety sought to recover progress payments made to a contractor); Keco Indus., Inc. v. United States, 492 F.2d 1200, 1203-04 (Ct. Cl. 1974) (losing bidder contested contract award because the method of performance was known to be unfeasible).11 Here: (1) the

Discretionary Government actions have been found to be arbitrary and capricious where the contractor substantially satisfied the conditions of the contract. See Appeal of N. Am. Rockwell Corp., 72-1 BCA P 9207, ASBCA No. 14329 (1971) (arbitrary and capricious when Government denied incentive fee where Air Force contractor successfully appealed denial of a performance incentive fee because it had produced an acceptable end item in research and development contract), cited in Northrup Grumman Corp. v. United States, 41 Fed. Cl. 645, 654 (1998) (discussing Rockwell); Darwin Constr. Co. v. United States, 811 F.2d 593, 595-96 (Fed. Cir. 1987) (arbitrary and capricious where Government effectuated a default termination solely to avoid further dealings with the contractor); Lion Raisins, Inc. v. United States, 51 Fed. Cl. 238, 247-49 (2001) (arbitrary and capricious when Government suspended a contractor from bidding on a contract when it simultaneously deemed the contractor a responsible bidder and awarded five other interim contracts); Manning Elec. & Repair Co. v. United States, 22 Cl. Ct. 240, 246-47 (1991) (arbitrary and capricious when Government rejected materials that met contract specifications based upon an undisclosed requirement).

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Government acted in bad faith when it refused to even consider incentive fee awards and awarded zero incentive fee award amounts due to "missing documents," "doublebillings," and the "lockset issue," when it knew that none of these issues involved any wrongdoing on the part of North Star; (2) there was no reasonable contract basis for incentive fee awards based upon the Government's erroneous contract interpretation for issues such as depreciation; and (3) the Government's discretion is limited insofar as North Star must be evaluated on an annual basis, based on its performance under the Lease the previous year,12 with an incentive fee board making an incentive fee award decision. PX 1 at 55 § H.(4.); PX 1 at 4 Art. VIII. Moreover, in light of the clearly biased nature of the Government-issued surveys, which deliberately sought to elicit negative responses about North Star based upon the Government's elimination of the self help store and North Star's refusal to acquiesce to the Government's

The Government's own documents prove that the incentive fee board decisions were not based on North Star's performance of Lease requirements and that it was former Chief of Housing, Tom Petersen who directed the incentive fee board to award zero dollar amounts. PX 83; PX 168; PX 302. A January 10, 1996 letter respecting the 1995 incentive fee reduced North Star's incentive fee award due to the disputed issue of refuse collection under the 1995 Settlement Agreement, PX 191 at 034; an April 16, 1997 letter respecting the 1996 incentive fee reduced North Star's incentive fee award due to between occupancy vacancy rates, which are not in North Star's control and are not set forth in the Lease, PX 191 at 084; a January 29, 1998 letter respecting the 1997 incentive fee reduced North Star's incentive fee award due to "execution and management and replacement plans" ­ i.e. depreciation ­ which the Court decided is not permitted under the Lease, PX 191 at 094; a May 12, 1999 letter respecting the 1998 incentive fee reduced North Star's incentive fee award due to turnover in North Star personnel, which is not addressed in the Lease, and excessive downtime, which is a disputed issue under the Lease and where, as detailed at trial in North Star's pre-trial and post-trial filings, the Government calculates downtime improperly and fails to give North Star extra time for extra work. A February 29, 2000 letter respecting the 1999 incentive fee eliminated the incentive fee award due to the refuse collection issue; biased survey results; and alleged "overcharges," PX 191 at 127; a June 9, 2000 letter respecting the first half of the incentive fee for 2000 awarded no incentive fee due to North Star's alleged refusal to accomplish carpet replacement with which it disagreed, i.e. depreciation, PX 191 at 129; a June 15, 2001 letter respecting the second half of the incentive fee for 2000 awarded no incentive fee due to issues such as biased survey results, "life cycle management and replacement planning" ­ i.e. depreciation ­ and the lockset issue, which, as detailed at trial and in North Star's pre and post trial filings, is a ruse, PX 191 at 130; a February 28, 2002 letter respecting the 2001 incentive fee stated the Government's refusal to even consider an incentive fee award due to alleged overcharges and missing documents which, as detailed at trial and in North Star's pre and post-trial filings, were later determined to be due to Government oversight and no fault of North Star, PX 191 at 131; a February 20, 2003 letter awarded a zero dollar amount for 2002 based upon the lockset issue, alleged missing documents (which were never missing), the biased resident survey, and depreciation, PX 302; and a March 9, 2004 letter stated awarded a zero dollar amount for 2003 based upon alleged deficiencies in North Star's maintenance, depreciation, and the biased survey results. PX 386.

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fallacious depreciation position, DX 427 at 23-24, it is astounding that the Government continues to use them as purported justification for its incentive fee award decisions.13 Significantly, prior to disputes arising between North Star and the Government, the Government praised North Star's performance under the Lease and awarded maximum to near-maximum awards. PX 2, 4, 6, 7, 8, 9, 13. PX 447 at 3389-3404. Damages for incentive fee reduction and elimination in violation of the parameters specified in the Lease total $513,041. See Plaintiff's Damages Chart at i.14 I. 2003 Claims

North Star's responses to the Government's arguments respecting the claims that are part of Case No. 03-2699C are set forth fully in North Star's Post-Trial Brief. II. This Court has Jurisdiction Over North Star's Claims The Government takes the position that the Court's jurisdiction is limited to Government conduct as of the dates North Star filed claims with the Contracting Officer, even though the Government engaged in identical subsequent conduct in violation of the same Lease provisions

Even the Government's analysis of its own survey results is flawed. For example, the Government notes that 16 percent of residents stated they were "very satisfied" with North Star's workmanship in the 1998 survey, yet fails to note that 46 percent of residents responded they were "satisfied," for a total of 62 percent of residents "satisfied" or "very satisfied" with North Star's workmanship. DX 427 at 025. The Government notes that 13 percent responded they were "very satisfied" with the upkeep of common areas, yet fails to note the 49 percent of respondents who were "satisfied," for a total of 62 percent of "satisfied" or "very satisfied" residents. DX 427 at 026. For the 1999 survey, the Government's brief is wrong. Fifteen (15) percent (not seven (7) percent) of respondents said they were very satisfied with North Star's workmanship and 52 percent said they were satisfied, for a total of 67 percent satisfied or very satisfied, up from the previous year's survey. DX 429 at 02-01389. With respect to the common areas, the Government again ignores that 51 percent of respondents were satisfied, for a total of 58 percent of residents satisfied or very satisfied. DX 429 at 02-01391. In 2000, 8 percent of residents said they were "very satisfied" and 43 percent were "satisfied" with the workmanship, for a total of 51 percent satisfied or very satisfied. DX 430 at 01-01617. The "common areas" question was changed to include refuse collection and snow removal, and garnered a 7 percent "very satisfied" and 37 percent "satisfied" rating, with 44 percent of residents still either satisfied or very satisfied. DX 430 at 01-1619. Moreover, in response to North Star's 2000 survey, 42.2 percent of respondents responded that North Star maintained the property in a manner that "substantially exceeds Army standards," and 42.8 percent responded that it maintained the property equal to Army standards, for a total of 85 percent, PX 480 at 1, 13. 14 In light of the Government's conduct towards North Star and its award of substantially diminished incentive fee awards beginning with the award made in 1996, it is not surprising that North Star's 1999 financial actual indicates an expectation of a less-than-maximum incentive fee award for 1998.

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that gave rise to North Star's claims. The Government relies solely on the case of Santa Fe Eng'rs, Inc. v. United States, 818 F.2d 856 (Fed. Cir. 1987), where the Government issued three changes to a contract for an addition and alterations to an Army hospital; the contractor brought a claim for approximately $5 million; and the contracting officer awarded approximately $166,000, which the contractor appealed to the Board of Contract Appeals. The claim to the contracting officer sought compensation for the three changes, whereas the claim to the Board pertained to the entire project. Santa Fe, 818 F.2d at 859 n.2. The Board rejected the appeal for lack of jurisdiction because the contractor's claim to the Board was "entirely new" and a "profound alteration" of the claim presented to the contracting officer. Id. at 859. Here, in contrast, North Star's claims in front of the Court include continuing Government actions and omissions under the Lease, which were perpetuated over time after North Star brought its claims to the contracting officer. Unlike Santa Fe, the questions the Court here must decide are the very same questions brought to the Contracting Officer for decision; the only difference is that with the passage of time and continuation of the identical conduct, the dollar amount has increased. As detailed in North Star's May 5, 2005 Opposition to Defendant's Motion in Limine, the Court has jurisdiction over an "enlarged claim" (as opposed to a "new claim") if (1) "the increase in the amount of the claim is based on the same set of operative facts previously presented to the contracting officer" and (2) "the contractor neither know nor should have known, at the time when the claim was presented to the contracting officer, of the factors justifying an increase in the amount of the claim." Johnson Controls World Service, Inc. v. United States, 43 Fed.Cl. 589 (1999) (quoting AAI Corp. v. United States, 22 Cl. Ct. 541, 544 (1991) (quoting Kunz Constr. Co. v. United States, 12 Cl. Ct. 74, 79 (1987). A recent decision of the Court of Federal Claims, Modeer v. United States, 68 Fed.Cl. 131 (2005), sheds light upon the type of conduct that

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constitutes the same claim as was previously raised to the contracting officer. In Modeer, the Government became a holdover tenant on land owned by the Modeers due to delays in the Government's completion of environmental clean-up. See Modeer, 68 Fed. Cl. at 138. In August 2003, less than one month after expiration of the Lease, Modeer brought a claim to the Contracting Officer stating that "the Government is a holdover tenant with rent accruing at the pro rata rate of $739,509 per year [$66,125.75 per month] until clean-up is complete." Id. at 134. In December 2003, Modeer filed suit in this Court, seeking five months of back rent plus utility costs for the holdover period, plus interest. The Court found: Here, plaintiff's claim was submitted to the contracting officer before the cleanup was complete and before the total number of months of holdover rent could be ascertained by either the government or the Modeers. This fact, however, is not an impediment to the Modeers' claim for rent for the entire holdover period. It is certainly true that a contractor may not present a new claim to this court that was not first presented to the contracting officer for a final decision. . . . But if the dollar value of a claim increases based on new information available only after the claim was submitted to the contracting officer, it is the same claim, not a new claim, as long as it arises from the same operative facts as the original claim and claims the same categories of relief. . . . Because the holdover rent claim for the entire holdover period arises from the same operative facts and claims the same category of relief as the holdover rent claim for the first month of the holdover period, and because the length of the holdover tenancy could not have been known by the Modeeers at the time they presented the claim to the contracting officer, this court has jurisdiction over the entire holdover rent claim. Id. at 137 (citations omitted). As in Modeer, North Star's claims to the contracting officer are derived from the same facts and seek relief in the same categories as the claims before the Court, and the increase in the damages amount was not ascertainable at the time North Star brought its claims to the Contracting Officer. With respect to downtime and rent abatements, the September 4, 2002 claim states in broad terms that "[t]he Government's downtime calculations appear to be in error" and the Government "is failing" to perform its various Lease obligations in order to

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maximize rent abatements, which has the effect of creating "uncertainty in North Star's stipulated revenue stream" and "devalue[ing] North Star's assets by millions of dollars." PX 231 at 14, 15. With respect to temporary occupants, the September 4, 2002 claim states that "[t]he Government is engaged in a course of conduct" pursuant to which it places temporary occupants at Birchwood. PX 231 at 10. With respect to incentive fees, the claim states that the Government "is failing to make incentive fee awards" and describes "one instance" in 2002 to highlight its conduct. PX 231 at 15.15 With respect to the matching of adjacent replacement items, the October 23, 2002 claim involves the broad issue of "the Government's position on replacing carpet in good condition in undamaged areas of a unit when occupant damaged replacement, with carpet that does not match, is necessary in other areas of the unit." PX 268. For interior painting, the November 21, 2002 claim is similarly broad, asserting that the only reasonable read of the Lease is to require paint based upon the condition of units, and only if a complete interior paint has not been accomplished in the preceding three-year period. PX 281. Accordingly, the Court's jurisdiction extends to Government actions beyond the dates of North Star's claims to the contracting officer because North Star seeks compensation for the identical Government actions, undertaken in violation of the identical Lease provisions, that happen repeatedly, over time, and with respect to unit after unit, in the Government's administration of the 19.5-year Lease of 400 units for a rotating roster of military families. Moreover, as bad faith is an element of each of the three lawsuits that were consolidated for trial, the entirety of the evidence presented by North Star illuminates the Government's course of conduct undertaken with the intent to harm North Star.

Pre-1998 incentive fee deductions were already the subject of Case No. 98-168C when North Star's September 4, 2002 claim was filed.

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III.

North Star's Should be Awarded Damages for the Diminution in Value to Birchwood as a Result of the Government's Actions None of the cases cited by the Government in support of its argument that North Star's

diminution damages are not recoverable apply here. William Green Constr. Co. v. United States, 201 Ct. Cl. 616, 477 F.2d 930 (1973) involved a contractor with three separate General Services Administration ("GSA") contracts, one of which the Government terminated for default and stated its intent to set off amounts owing against the contractor's other projects. See Green, 477 F.2d at 933. The contractor was financially unable to complete the other projects, and the Government terminated them for default as well. See id. The contractor appealed the first default termination and sought damages including losses on the other two GSA contracts, losses on other non-federal projects, and for loss of its whole business. See id. It was the theories of damages that involved losses on other contracts that the Court found to be impermissibly remote and consequential. See id. at 936-7. Similarly, United Med. Supply Co., Inc. v. United States, 63 Fed. Cl. 430 (2005) involved a contractor's attempt to recover damages for loss of goodwill and loss of reputation arising out of delayed payments made by the Government on a requirements contract. The Court found that losses springing directly from contract performance, such as the inability to pay suppliers or obtain credit, were not per se consequential damages but rather could be direct and foreseeable consequences of delayed payment. United Med. Supply, 63 Fed.Cl. at 439-40 (citing Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741 (1980).16

The Government cites Olin Jones for the proposition that damages are barred if they are speculative. The facts of Olin Jones are also easily distinguishable. There, a dredging contractor sought damages arising from delayed payments that impacted its ability to pay its employees and subcontractors, its standing in the business community, and ability to obtain bonding for other projects. The Court allowed damages pertaining to completion of the contract at issue, and disallowed damages pertaining to the ability to obtain other contracts. Olin Jones, 225 Ct.Cl. at 741 n. 4.

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Industrial Indemnity Co. v. United States, 26 Cl. Ct. 443 (1992) is also easily distinguishable. There, a contractor sought damages for its insolvency and closure of its business as a result of the Government's failure to comply with payment terms and wrongful termination of the contract. The Court disallowed the damages because of the lack of foreseeability at the time the contract was entered into that the contractor "could be financially vulnerable to the types of breaches alleged." Industrial Indemnity, 26 Cl. Ct. at 446. Here, in contrast, the Government was well aware that North Star could be financially vulnerable to the types of diminution damages alleged.17 The Government also alleges that North Star's diminution damages are impermissibly hypothetical because Mr. Fischer did not sell or attempt to sell Birchwood Homes. However, other federal appellate courts have determined that an attempt to sell the property is not required in order for a contractor to recover damages for diminution in value. See American National Bank and Trust Co. of Chicago v. K-Mart Corp., 717 F.2d 394 (7th Cir. 1983) (overturning the lower court's rejection of a damages theory that the actions of a landlord in failing to maintain and repair the premises resulted in a diminution of the leasehold value of rental property, absent attempts to sublease the property); John A. Henry & Co. v. T.G. & Y. Stores Co., 941 F.2d 1068 (10th Cir. 1991) (finding that a diminished value theory of recovery, arising out of a lessee's breach of a lease provision prohibiting the cessation of rental payments for a term of twenty years in order to permit the owner to fund and build a 60,000 square foot building on the
The Lease was entered into by virtue of the authority of 10 U.S.C. § 2828, as amended by Section 801 of Public Law 98-115 ("Section 801"). PX 1 at 1. Section 801 introduced privatization into the military housing market; in order to make military family housing an attractive option for the private market, the Government had to make the Section 801 program attractive to investors with the ability to obtain the financing for an undertaking of this magnitude by making the project attractive for long term investment. Indeed, that is the reason the North Star project was structured with a less-than-20-year Lease term ­ as required by Section 801 ­ and an eleven year tail during which the project could continue to generate income after expiration of the Lease. The Government has known since the Lease was entered into the financing terms of the Lease and that the loan secured by North Star to build and maintain the Project totaled $50,000,000.00. PX 453.
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property, does not require actual efforts to sell a property because such a theory is sufficiently certain in nature an origin); see also Boston Edison Co, v. United States, 64 Fed.Cl. 167 (2005 (stating its willingness to award damages based upon a diminution in value theory). Moreover, the cases cited by the Government in its brief are distinguishable. Fifth Third Bank of Western Ohio v. United States, 403 F.3d 1221 (Fed. Cir. 2005) was a Winstar case where the damages claim "calculate[d] the hypothetical cost of replacing goodwill capital with tangible capital in the form of preferred stock," including transaction costs it would have incurred in issuing preferred stock and the dividends it would have been required to pay to investors who brought preferred stock. Fifth Third, 402 F.3d at 1237. It was these damages ­ costs never incurred and dividends never paid for stock never issued ­ that were deemed too hypothetical. Wells Fargo Bank. N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996) was a case where the Court of Federal Claims awarded lost profits damages for Government actions under a loan agreement that led to a reduction of the bank's capital and impaired the bank's ability to make other loans. The Federal Circuit reversed because, in contrast to cases where lost profits are recoverable, "the purpose of the guarantee was to enable Wells Fargo to make profits from the interest on its loan to High Plains, not on some other loans it might make." Wells Fargo, 88 F.3d at 1023. Here, North Star does not seek damages for impacts to any projects other than Birchwood, and thus its diminution in value damages are not hypothetical. See Smokey Bear, Inc. v. United States, 31 Fed. Cl. 805 (1994) (denying a motion to dismiss lost profit damages for the project at issue). The Government lodges two additional criticisms of Dr. Mundy's analysis of North Star's diminution damages: that it is limited to pre-2002 financial data and that it does not adequately consider the Lease expiration and Outlease. Neither has merit. As Dr. Mundy testified at trial, he limited his analysis to pre-2002 financial data because the valuation date was the September

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4, 2002 claim. Tr. at 942:20-943:9 (Mundy); 1030:8-11 (Mundy). Moreover, Dr. Mundy's analysis did account for the Lease expiration and payments under the Outlease, and was based upon the reasonable assumption that the Government would continue to occupy the premises, and that any rentals to the private market would quickly fill. Tr. at 1098:22-1101:21 (Mundy); Tr. at 1077:13-1079:5 (Mundy). However, even assuming the property experiences a vacancy rate, North Star's diminution damages, using Mr. Sopp's after condition discount rate, rise to $17.4 million. Tr. at 2075:15-2078:24 (Mundy). IV. North Star Should be Awarded its Damages that are Based on Estimates The Government argues that North Star may not recover damages that are based on estimates, citing as its sole authority Luria Brothers & Co. v. United States, 177 Ct.Cl. 676, 369 F.2d 701 (1966). There, the contractor sought damages for additional work performed pursuant to a construction contract, including loss of productivity. The contractor's sole witness was a former employee of ten years who was chief of construction during the Project, whose testimony was unrebutted by the Government. Luria, 177 Ct.Cl. at 712. The Court found that loss of productivity "almost always . . . has to be proven by the opinions of expert testimony," but nonetheless awarded damages on the loss of productivity claim, reducing the amount based on its experience with estimates in other cases with similar conditions. Id. at 713-4. "[I]f a reasonable probability of damage can be clearly established, uncertainty as to the amount will not preclude recovery." LaSalle Talman Bank v. United States, 317 F.3d 1363, 1374 (Fed. Cir. 2003) (vacating decision and remanding case for calculation of lost profits damages) (quoting Locke v. United States, 283 F.2d 521, 524 (Ct. Cl. 1960)). In other words, "it is not essential that the amount thereof be ascertainable with absolute exactness or mathematical precision: It is enough if the evidence adduced is sufficient to enable a court or jury to make a

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fair and reasonable approximation." S.W. Electronics & Mfg. Corp. v. United States, 655 F.2d 1078, 1088 (Ct. Cl. 1981) (reversing Board decision that barred recovery when contractor used estimates of the quantity of defective units requiring correction")(quoting Elec. & Missile Facilities v. United States, 416 F.2d 1345, 1358 (Ct. Cl. 1969). Stated another way, "the measure of damages is not an exact science calling for a hard and fast rule, but is a determination based upon the facts and circumstances of each case... we must determine an amount which represents a reasonable recovery." Kings Electronics Co. v. United States, 341 F.2d 632, 639-40 (Ct. Cl. 1965) (awarding estimated extra costs based on the company president's attempt to reproduce the original cost analysis which led to plaintiff's bid because, though not completely accurate it was "a reasonable guide for measuring damages."); see also CCM Corp. v. United States, 20 Cl. Ct. 649, 656-57 (1990) (permitting recovery of unrebutted estimated damages for the additional cost of waterproofing based upon a letter from the company president listing elements of the costs derived from a subcontractor's quote). As detailed at trial, North Star's damages for replacement of occupant damaged refrigerators and stoves, $2500 and $22,809 respectively, and replacement of carpet and vinyl due to lack of maintenance, $94,525 and $234,693, respectively, are based on reasonable, conservative estimates of the site manager, Mr. Wartes, of the number of items replaced on an annual basis, multiplied by the cost of such items based upon item invoices. Tr. at 1491:91494:15 (Wartes); PX 485 Vol. 2 at 155-553; Plaintiff's Post-Trial Brief at 30; Damages Chart at iii. Such estimates are an acceptable means of calculating damages under prior decisions of this Court, and were unrebutted by the Government at trial.

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V.

North Star Should be Awarded its Damages for Increased Operating Expenses North Star presented the Court with two alternative damages models to compensate North

Star for its increased expenses resulting from the Government's actions. The first model, presented by North Star's expert, Dr. Mundy, calculates the variance in the costs to operate Birchwood from 1997 to 2002 as $840,000, or $1.3 million when accounting for the loss of use of those monies. PX 411 at 063, 065; Tr. at 982:6-17.18 The second model, presented by North Star's treasurer, Ms. Sekyra, examines the dollars associated with the Government's actions in the same time period considered by Dr. Mundy, which total $876,424. See Plaintiff's Post-Trial Brief at 49-50; Damages Chart at iii, v. Ms. Sekyra also testified respecting North Star's damages incurred after the time period considered by Dr. Mundy, which total $1,445,972, plus another $1,193,593 in increased payroll and subcontractor costs. See Plaintiff's Post-Trial Brief at 48-50; Damages Chart at i-ii, iv. Despite representing to the Court and counsel that it would be calling Al Dordan to counter the damages testimony of Ms. Sekyra, Tr. at 1786:24-1787:4, Tr. at 1874:6-9, Tr. at 1884:3-5, the Government never did so, and presented no testimony to rebut the damages North Star presented at trial.19 In its brief, the Government seeks to undermine Dr. Mundy's analysis of North Star's increased operating expenses, while seemingly ignoring the extensive testimony
Contract Disputes Act interest serves to compensate contractors for interest accrued on an award of damages dating back to the date the claim was filed. 41 U.S.C. § 611. Application of the reinvestment rate, on the other hand, serves to compensate North Star for the loss of use of the $840,000 during the time those monies were unavailable, from 1997 through September 2002. PX 411 at 065. 19 The Government's suggestion that the abnormality is the decrease in Polar Star's variable operating expenses as opposed to the increase in North Star's variable operating expenses is disingenuous, as the testimony throughout trial proved the multitude of abnormal Government actions under the Lease, which impacted North Star's operating expenses and cash flow. The Government also appears to suggest a lack of evidence of North Star's expectations when the Lease was executed. However, North Star's expectations were simply that the Government would follow the Lease (and its initial interpretation thereof) and would, by way of example, supervise occupants, work authorize occupant damage, provide time beyond three days for completion of repair work, follow the notification and inspection procedures of the Lease, and release units as they came available rather than in stockpiled groupings.
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presented by Ms. Sekyra. However, the Government's own expert, Karl Sopp, believed that Dr. Mundy used a valid approach in calculating North Star's increased operating expenses, objecting only to the use of Sprucewood as a control Project. PX 454 at 008. As Dr. Mundy explained at trial, a control project was necessary to determine the variance in the subject project, Birchwood, Tr. at 946:12-948:10 (Mundy), and Sprucewood was an appropriate control project of 300 military housing units on Eielson Air Force Base, owned by Polar Star, which has the same president as North Star. Tr. at 944:6-946:8 (Mundy); Tr. at 948:11-949:14 (Mundy). Moreover, any differences between Birchwood and Sprucewood are accounted for in the methodology employed by Dr. Mundy. Tr. at 1127:16-1128:13 (Mundy); Tr. at 1145:22-1149:5 (Mundy). Because Dr. Mundy used the control project, Sprucewood, his methodology does not require that specific breaches be linked to specific operating expenses,20 but rather examines the overall operating characteristics of both the Birchwood and Sprucewood projects. Tr. at 1127:21-1128:1 (Mundy). Moreover, the alternative damages model North Star presented for the same time period as that considered by Dr. Mundy, which links specific breaches to specific damage amounts, reveals damages to North Star in line with those arrived at by Dr. Mundy of $876,424. See Plaintiff's Damages Chart at iii, v. 21 Similarly, Dr. Mundy's

Thus, stockpiling, which increases downtime and the overall management burden to North Star, is accounted for to the extent it occurred, but is not factored into the analysis during the time period the 2000 Settlement Agreement was in effect. The Government's contention that Dr. Mundy allegedly gave contradictory testimony on stockpiling is misleading. Dr. Mundy actually stated that "[s]ome of the problems, for example, stockpiling, that's something I did not deal with at all. However, the analysis made [sic] reflect the stockpiling problem." Tr. at 1028:11-13 (Mundy). 21 North Star does not seek duplicative damages; rather, it has provide the Court with alternative damages for the time period examined by Dr. Mundy which total $876,424. Damages for the time period after that studied by Dr. Mundy total $1,445,972, and damages for increased payroll and subcontractor reports total $1,193,593 once the amounts that overlap with the time period of Dr. Mundy's analysis are removed. See Plaintiff's Damages Chart at iv. Ms. Sekyra used a damages model to determine the variance in payroll costs from a base amount, Tr. at 1206:81208:4 (Sekyra); PX 485 Vol. 2 at 001-085, and thus the identities of the specific North Star employees who contributed to the increased payroll are not germane to the analysis.

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research design adjusts for changes in the consumer price index, which would impact both Sprucewood and Birchwood equally. Tr. at 1051:4-24 (Mundy). The year 1996 was an appropriate base year for Dr. Mundy to use, as problems at Birchwood began in earnest in 1997, when the Government imposed depreciation upon North Star and where high level Government officials threatened North Star with monetary repercussions at recorded meetings. PX 191 at 109; DX 410 at 24-26. It is of no consequence that certain expenses for the years 1997 through 2001 may have been below the 1995 level, as the model used by Dr. Mundy looks at the deviation of overall operating expenses from a base year. Indeed, the post-1995 financial actuals include a separate line item for paint and carpet or flooring, which are common work authorization items, whereas the 1995 financial actuals include these items in the "building maintenance/work authorization" category. PX 414 at 001008. Moreover, the operating expenses for 1995 total $544,343 ($534,441 using the redacted copy at PX 414), which are less than the operating expenses for 1996, and thus the overall operating expense deviation would be greater were 1995 chosen as the base year. PX 414, PX 411 at 063, Data Table 10. The decrease in salary payments from 1998 to 1999, as reflected on the financial actuals, are attributable to North Star's bringing former site manager, Dennis Wertz, back to the project to assist with the transition of site managers to Eldon Wartes. PX 414 at 004. Dr. Mundy performed his initial analysis in conjunction with North Star's filing of its September 4, 2002 claim, and thus North Star's 2002 data was not available to him when he performed his initial analysis. Therefore, in calculating the base deviation number of $840,000. Dr. Mundy estimated the 2002 data based upon the 2001 data available to him as of the September 4, 2002 data date. PX 411 at 064-5, Tables 10 and 11; Tr. at 942:20-943:9 (Mundy); Tr. at 1030:8-11 (Mundy). In addition, Dr. Mundy performed his analysis based upon

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unredacted versions of North Star and Polar Star's financial actuals, which accounts for the differences between the variable operating expenses reflected in data table 10, PX 411 at 064, and the sum of the expense line items in PX 414. However, because Dr. Mundy's analysis uses a control property, and because Dr. Mundy used an unredacted version of the financial actuals in analyzing the operating expenses at both North Star and Polar Star, the model controls for these differences. Moreover, even using the figures proffered by the Government in its brief, the deviation in operating expenses at Birchwood from a base year of 1996 exceeds $400,000. CONCLUSION For the foregoing reasons, and as set forth in North Star's Post-Trial Brief and at trial, judgment should be entered for North Star on its claims for breach of contract, breach of the duty of good faith and fair dealing, and declaratory judgment and damages awarded in the amount of $12,539,565, plus appropriate statutory interest.

DATE: February 21, 2006

Respectfully Submitted,

s/Paul W. Killian ____________________________________ PAUL W. KILLIAN Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 887-4000 (phone) (202) 887-4288 (fax)

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CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the Agreed-Upon Redacted Copy of Plaintiff's Reply to Defendant's Post-Trial Brief was electronically filed this 23rd day of February, 2006.

s/Paul W. Killian ___________________________ Paul W. Killian