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

Case 1:98-cv-00168-FMA

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS NORTH STAR ALASKA HOUSING CORP., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 98-168C (Judge Allegra)

DEFENDANT'S POST-TRIAL REPLY BRIEF Defendant, the United States, has already addressed, in its post-trial brief, most of the issues that plaintiff, North Star Alaska Housing Corp. ("North Star"), raises in its post-trial brief. I. In addition, we provide the following reply.

North Star Failed To Prove Bad Faith North Star failed to prove that the Government acted in bad

faith in administering the Birchwood Estates lease.

Contrary to

North Star's argument, this Court, even after Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234 (Fed. Cir. 2002), and Tecom, Inc. v. United States, 66 Fed. Cl. 736 (Fed. Cl. 2005), has still applied broadly the presumption that Government officials act conscientiously and in good faith in the discharge of their duties. See KSEND v. United States, 69 Fed. Cl. 103,

119 (2005) (citing Am-Pro); Southern Comfort Builders, Inc. v. United States, 67 Fed. Cl. 124, 153-55 (2005)(same); L.P. Consulting Group, Inc. v. United States, 66 Fed. Cl. 238, 243 (2005) (citing, cf., Tecom). Proving that the Government acted

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in bad faith is intended to be very difficult; indeed, clear and convincing evidence is required to overcome that presumption. See Am-Pro, 281 F.3d at 1239-40. A plaintiff must allege and

prove specific acts of bad faith upon the part of the Government. L.P. Consulting, 66 Fed. Cl. at 243 (citing Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324 (Fed. Cir. 2004)). The

level of proof to overcome this presumption has been equated with evidence of some specific intent to injure the plaintiff. (citing Galen). North Star has failed to meet that high burden. North Star Id.

relies principally upon a few expressions of frustration shown by Government officials (as well as an email authored by Thomas Petersen while he was not a Government employee, but a Government contractor (Plaintiff's Post-Trial Brief ("Pl. Br.") at 2; Plaintiff's Exhibit ("PX") 259; Trial Transcript ("Tr.") 152628)), the Government's refusal to accede to North Star's demands, and its speculation that there is no other plausible explanation for Government lease decisions than that the Government was acting to harm North Star. The Government, however, made its

lease administration decisions with the goal of securing the benefit of the bargain that it made with North Star in executing the lease. For example, after determining, in 1997, that it was not fair for it to have to pay full price to replace years'-old 2

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carpet when an occupant had damaged the carpet beyond normal wear and tear (Defendant's Exhibit ("DX") 410 at p.24-25), the Government, in 2002, instituted a depreciation practice (PX 179, PX 231 at p.41-45) of the type that, years later, this Court upheld in a similar case, WDC West Carthage Associates v. United States, before the United States Court of Appeals for the Federal Circuit reversed this Court's judgment. (Fed. Cir. 2003). 324 F.3d 1359, 1360-61

The Government instituted the practice of

once-per-week release of units to North Star in order to better project the return of units released for change-of-occupancy maintenance, not to harm North Star. 1915-17. Tr. 1619-20, 1642, 1644,

The Government's incentive fees award decisions were

not made to punish North Star (Tr. 1525 at 20-25), but were based upon assessments of North Star's performance. 25, 127-231. PX 191 at p.124-

(Contrary to North Star's characterization of the

"lockset" issue as a fabrication, North Star's Site Manager admitted at trial that he charged the Government for "new" doorlock tumblers knowing that they were not new. Tr. 785 at 14-16.)

And the Government calculated unit downtime according to the manner in which it interpreted the lease (Tr. 1619-20, 1915-17), even if not every Government official involved in lease administration agreed with that interpretation. Even if some of those actions were based upon misinterpretations of the lease, none of them, even taken 3

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together, constitute clear and convincing evidence of an intent to injure North Star. And it should not be surprising that over

the course of a more-than-decade-long contractual relationship involving virtually daily contact between party representatives over a myriad of issues large and small, the personal relationships among the parties' representatives might become strained. It is also not surprising that not every Government

employee who was involved with the administration of the lease agreed with lease administration decisions and practices. But

North Star has not met its high burden of proving by clear and convincing that the Government officials who administered the lease were doing so with the aim of harming North Star. Indeed, several aspects of the course of dealing between the parties contradict North Star's bad faith theory. The Government

did not begin assessing liquidated damages for excess monthly downtime until 2002 (PX 430 at p.1), more than 14 years after the execution of the lease (PX 1 at p.1), even though North Star had previously incurred excess monthly downtime. Tr. 1620 at 15-23.

There is no evidence that the Government has ever assessed liquidated damages for excess unit downtime pursuant to ¶ H(3)(c) of Exhibit C to the lease. PX 1 at p.54 ¶ (3). And even though

the lease provides that change-of-occupancy work be completed within three days (PX 1 at 39 ¶ 1), even North Star agrees that the Government has allowed North Star more than three days to 4

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complete work in some units, even during the period during which, North Star alleges, the Government acted to harm North Star. (Pl. Br. at 11-12). In view of that evidence, the Court should

reject North Star's bad faith claim. II. The Court Should Reject North Star's "Operating Costs Variance" Damage Theory Because It Is A Total Cost-Type Claim North Star's claim for the variance between the operating costs of Birchwood and Sprucewood Estates resembles a total cost claim that the Court should reject. Under the total cost method,

the measure of damages is the difference between the actual cost of the contract and the contractor's bid. 305 F.3d 1354, 1365 (Fed. Cir. 2002). Raytheon Co. v. White,

The method has always been

viewed with disfavor, in part because of concerns about bidding inaccuracies, which can reduce the contractor's estimated costs, and performance inefficiencies, which can inflate its actual expenditures. Id. Moreover, the total cost method does not

distinguish costs for which the Government is responsible from costs that the contractor should bear. Id. The total cost

method has been used "only when no other mode was available . . . ." Id. (quoting WRB Corp. v. United States, 183 Ct. Cl. 409

(1968)). North Star should not be allowed to rely upon a total costtype claim as a method to establish damages. North Star did not

demonstrate that no other mode was available to identify alleged 5

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damages than by comparing Birchwood to Sprucewood.

In fact,

North Star's identification of alleged "other damages" in addition to its variance model (Pl. Br. at 48-50) proves that another mode was available to identify alleged damages. III. North Star's Discussion Of Discount Rates Omits Relevant Facts North Star omits from its discussion of discount rates (Pl. Br. at 47-48), that Karl Sopp considered the effect of the expiration of the lease in 2007 when he opined that North Star's expert, Dr. Mundy, should have used higher discount rates in his calculus. Tr. 1671-72. North Star also omits that Dr. Mundy did

not agree with Mr. Sopp's discount rates or that North Star has been damaged in the amount of $17.4 million. Tr. 2084. The

Court, therefore, should reject North Star's argument that Mr. Sopp's opinion supports a damage figure higher than that opined upon by Dr. Mundy. IV. Much Of North Star's Claims Are Not Within The Court's Jurisdiction To Entertain Much of North Star's claim rests upon isolated events or events that are not within the Court's jurisdiction to entertain because they have not been presented to the contracting officer in any claim that provides the jurisdictional predicate for these three actions. For example, North Star points specifically to

only two units for which it claims it should have received "extra" time to perform change-of occupancy work (Pl. Br. at 12) 6

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and two units that it claims the Government released without adequate notice (Pl. Br. at 17); none of which was presented to the contracting officer. PX 231 at p.11-13, 48-53, 58. It also

points to the "stockpiling" of units and rent deductions in 2003 (Plaintiff's Post-Trial Brief ("Pl. Br.") at 16, 21), months after the submission to the contracting officer of the September 4, 2002 claim in which it raised that issue. PX 231.

North Star also points to a change of inspection procedures in February 2003. Pl. Br. at 20. It claims that 20 per cent of

the units turned over to North Star between September 1, 2002, and March 31, 2005, were "short term occupancies of less than 16 months." Pl. Br. at 23. It claims rent abatements from 2002

to 2004 (Pl. Br. at 26), even though its September 4, 2002 claim only raised the issue of rent abatements for February through June 2002. PX 231 at p.13-14. It claims incentive fees through

2004 (Pl. Br. at 28), even though its complaint in Case No. 98168C (Fed. Cl.) and its September 4, 2002 claim cover only incentive fees for 1998 through 2001. Case No. 98-168 Second

Amended Complaint at p.17 ¶ 60; PX 231 at p.15. In addition, North Star claims payroll costs through 2005, subcontractor costs through 2004, and depreciation through 2004. Pl. 28-29, 36. It claims costs for unspecified wall repairs,

stoves, refrigerators, vinyl, carpet (Pl. Br. at 30), "matching items" (Pl. Br. at 32), and painting (Pl. Br. at 38) that have 7

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not been raised to the contracting officer.

And although the

Court granted the Government's motion in limine to exclude evidence of damage relating to refuse collection, it claims $119,790 upon that claim. Pl. Br. at 38. North Star claims

overhead through February 2003 (Pl. Br. at 39), and even raises as an issue a criminal investigation conducted in 2003. at 45. Pl. Br.

The Court does not possess jurisdiction to entertain See

these new claims not presented to the contracting officer.

Santa Fe Eng'rs, Inc. v. United States, 818 F.2d 856, 858 (Fed. Cir. 1987). Much of North Star's alleged "other damages" in addition to those Dr. Mundy allegedly identified are, too, based upon events that were not clearly and unequivocally presented to the contracting officer and therefore are not within the Court's jurisdiction to entertain. See Contract Cleaning Maintenance, For

Inc. v. United States, 811 F.2d 586, 592 (Fed. Cir. 1987). example, North Star asserts claims for wall repairs, stoves,

refrigerators, vinyl, and carpet allegedly damaged by occupant neglect, but in its claim to the contracting officer North Star focused upon alleged occupant neglect of yards and, although it mentioned pet damage to carpets, it provided no specific examples. PX 231 at p.2-4. Although North Star presented to the

contracting officer the issue of unissued work authorizations, it referenced only two units related to that issue. 8 PX 231 at p.4-

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5.

Although it presented to the contracting officer the issue of

improper and untimely work authorizations, North Star referenced, at most, only 23 units related to that issue. 30-45. PX 231 at p.5-9,

The depreciation claim that North Star presented to the

contracting officer, for which it currently claims $205,585 (Pl. Br. at 36), referenced only nine units. PX 231 at p.8, 41-44.

North Star also asserts two separate claims for a total of $39,345 in allegedly unpaid overhead: from 1998 through May 2000 and from May 2003 through February 2003 (Pl. Br. at 39), but to the contracting officer presented no specific instances of unpaid overhead. PX 231 at p.9. And although North Star presented to

the contracting officer the issue of inspections, unit turnovers, maintenance, and downtime, it only referenced only 11 units and five months of downtime related to those issues. 15, 48-73. PX 231 at p.11-

Finally, contrary to North Star's current claim for

"deviation" damages from 1997 through September 1, 2002, to the contracting officer, North Star represented that the Government had increased its costs of operating Birchwood (when compared to Sprucewood) from 1997 through only 2001. PX 231 at p.17.

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V.

Responses To North Star Alleged Damages Chart Finally, pursuant to the Court's September 2, 2005

instructions, we provide, as an electronic attachment to this document, responsive annotations to North Star's chart of alleged damages. Respectfully submitted, PETER D. KEISLER Assistant Attorney General

s/David M. Cohen DAVID M. COHEN Director

OF COUNSEL ANA-VALLI GORDON Assistant District Counsel United States Army Corps of Engineers Galveston District

s/Timothy P. McIlmail TIMOTHY P. MCILMAIL Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 514-4325 Facsimile: (202) 514-7965 Attorneys for Defendant

February 21, 2006

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Certificate of Filing I hereby certify that on February 21, 2006, a copy of the foregoing Defendant's Post-Trial Reply Brief was filed electronically. I understand that notice of this filing will be

sent to all parties by operation of the Court's electronic filing system. system. Parties may access this filing through the Court's

s/Timothy P. McIlmail