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

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) NORTH STAR ALASKA HOUSING ) CORPORATION, ) ) Plaintiff, ) ) v. ) No. 98-168C ) Judge Francis M. Allegra THE UNITED STATES, ) ) Defendant. ) ____________________________________) PLAINTIFF'S POST-TRIAL BRIEF Following trial in Fairbanks, Alaska from August 15 through August 23, 2005 and in Washington, D.C. on September 2, 2005, Plaintiff North Star Alaska Housing Corporation ("North Star" or "Plaintiff") hereby submits its post-trial brief. INTRODUCTION The sworn testimony and documentary evidence presented at trial and in the record prove that the United States Government, on behalf of the United States Army Department of Public Works and the United States Army Engineer District, Alaska (collectively referred to as "Government" or "Defendants'), breached the November 6, 1987 lease agreement between the parties ("Lease") and administered the Lease in a manner that was intentionally designed to ­ and did ­ inflict harm upon North Star, its employees, and its asset, Birchwood Homes.1 It is clear that the Government intentionally administered the Lease in ways which were completely different from its written internal interpretations. Moreover, the Government's own documents and testimony demonstrate animus towards North Star that is astonishing and
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The parties stipulated to many Lease provisions in their August 10, 2005 Stipulation of Facts. In his opening statements, counsel for the United States admitted that the Government breached the Lease. Tr. at 147:6-9.

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personal. From threats to "deduct that [depreciation] from your payments and then if you want to sue us, have at it" (PX 410 at 25) to demands that the authorized representatives of the Contracting Officer not be neutral, to emails regarding blitzing Richard Fischer and dumping Eldon Wartes in "the Chena River" (PX 232; PX 259), the record is replete with evidence of bad faith. Indeed, the Government instituted a criminal investigation for items which internal Government documents state were "from Ed Miller's sloppy work, not any NSAHC conspiracy". PX 230 at 001; PX 147-001. Simply stated, the Government: 1. Established standards for turning around units during change of occupancy which

it knew were wrong. These standards included improper calculation of downtime and failures to allow more time to correct occupant damage. 2. Embarked on concerted efforts to make it impossible to meet its erroneous

standards. These efforts include stockpiling units and releasing them on single days, refusing to follow contractually mandated inspections and notification requirements including refusing to tell North Star what was required until the last minute, constantly changing turnover dates for units, delaying acceptance inspections, and not providing sufficient time to perform the work. Exhibit 447 is replete with example after example of such actions and that exhibit was not refuted in any way by the Government. 3. Intentionally refusing to pay North Star for work it performed claiming first

depreciation for damages caused by occupants, then refusing to issue work authorization for extra work; stopping incentive fee awards, which had been paid for over ten (10) years; refusing to make payments in accordance with the contractually mandated repair cost list; requiring unnecessary interior paints; failing to pay overhead amounts; placing short term occupants at Birchwood; and failing to enforce basic rules of occupant conduct.

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At the start of the Lease in 1987, and continuing for roughly a decade, North Star enjoyed a positive working relationship with the Army. Tr. at 167:14 ­ 168:15 (Fischer); Tr. at 169:10171:19 (Fischer). The Army expressed repeatedly in writing its satisfaction with North Star's performance and appreciation for its contribution to Army housing for military families on Fort Wainwright. PX 5-9, 31, 55. As a reflection of North Star's superior performance, the Army awarded maximum to near-maximum incentive fee awards to North Star for its performance. PX 191 at 002, 017. Then, in 1997 ­ when North Star refused to acquiesce to the Government's use of depreciation and stockpiling ­ the Government changed its dealings with North Star. Tr. at 171:15 ­ 177:13 (Fischer). As the head of military housing for all of Alaska said in an internal document in September 1997, "it isn't business as usual anymore" with respect to North Star. And in 2002, when a settlement the parties attempted to reach in 2000 fell through, the Government intensified its actions against North Star and deducted rent while at the same time administering the Lease in a manner designed to maximize such rent deductions. This was done even though the Contracting Officer was fully aware that such actions diminished the value of the Birchwood property. Tr. at 867:25; 877:2-13; 822:17-884:8 (Hopson). Throughout the years that North Star has endured the Government's contract breaches and bad faith conduct, North Star repeatedly informed Government representatives from Army Housing and the Corps of Engineers, both orally and in writing, of the impact to North Star as a result of the Government's actions. Government representatives were consistently unresponsive ­ and often hostile to ­ these issues. As demonstrated at trial, the only reasonable explanation for the Government's conduct under the Lease is to inflict harm upon North Star. The effects on North Star have been significant. As detailed in the report and testimony of Dr. Mundy, North Star suffered a diminishment in the market value of its investment asset,

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Birchwood Homes, of at least $8,600,000. In addition, from 1997 through September 1, 2002, North Star's operating expenses were increased by $840,000 which, when accounting for the loss of use of these monies, totals a $1,300,000 loss.2 Also, as detailed at trial through 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 as a result of the Government's contract breaches and bad faith actions total $1,193,593 for a total amount claimed of $12,539,565. North Star's damages, exhibits and calculations were unrefuted with the sole exception of the testimony of Mr. Sopp who only testified concerning the $840,000 analysis performed by Dr. Mundy. APPLICABLE LAW I. Breach of Contract North Star's claims of Lease violations by the Government are grounded in breach of contract. In resolving these claims, the Court must interpret the Lease and determine whether there is: "(1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by the breach." Demarco Durzo Dev. Co. v. United States, 60 Fed. Cl. 632, 636 (2004). It is a well-established principle of contract interpretation that if the terms of a contract are unambiguous, the contract must be interpreted to give its terms their ordinary and plain meaning. Hol-Gar Mfg. Corp. v. United States, 169 Ct. Cl. 384, 390 (1965). The contract must be read as a whole, and interpreted to avoid rendering any provision meaningless, superfluous, or in conflict with any another provision. Id. at 395. If the Lease is clear on its face, the Court may rule accordingly.

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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If the Court finds that a Lease provision is capable of more than one reasonable meaning, then the contract is ambiguous. See Max Drill, Inc. v. United States, 427 F.2d 1233, 1245-46 (1970). Then, the contract must be interpreted against the drafter, in this case, the Government. Tr. at 159:17-24 (Fischer); HPI/GSA-3C, LLC v. Perry, 364 F.3d 1327 (Fed. Cir. 2004). Further, the parties' interpretation and conduct prior to the dispute is given "great, if not controlling weight." Id. at 1240; Macke Co. v. United States, 467 F.2d 1323, 1325 (Ct. Cl. 1972) ("how the parties act under the arrangement, before the advent of controversy, is often more revealing than the dry language of the written agreement by itself"); J.A. Maurer, Inc. v. United States, 485 F.2d 588, 594 (Ct. Cl. 1973) ( "A party cannot, after a controversy has arisen, arbitrarily abandon the contract interpretations it acted on to the other's knowledge when their relations were harmonious"); Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1058 (Fed. Cir. 1983) ("A principle of contract interpretation is that the contract must be interpreted in accordance with the parties' understanding as shown by their conduct before the controversy."). II. Breach of the Duty of Good Faith and Fair Dealing "Every contract, whether the government is a party or not, contains an implied covenant of good faith and fair dealing." Solar Turbines, Inc. v. United States, 23 Cl. Ct. 142, 156 (1991). The duty of good faith and fair dealing is an implied provision of the Lease, and the Court need not find that a specific provision of the contract was breached in order to find bad faith. See Orlosky Inc. v. United States, 68 Fed. Cl. 296, 311-13 (2005). In order to succeed on this claim, North Star must show that the Government administered the Lease with the intent to impair North Star's right to receive the fruits of the Lease. See id. Prior Court of Federal Claims jurisprudence afforded Government officials the presumption of acting in good faith, and required North Star to provide "well neigh irrefragable

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proof" that the Government acted with the specific intent to injure North Star, or acted with animus. See Libertatia Assocs., Inc. v. United States, 46 Fed. Cl. 702, 706-09 (2000) (citing Kalvar Corp. v. United States, 543 F.2d 1298, 1302 (Ct. Cl. 1976) (bad faith where the contracting officer representative exhibited personal animosity towards the plaintiff, used intimidation and coercion in the course of administering the contract, and took action against the plaintiff for personal gain)); Hubbard v. United States, 52 Fed Cl. 192, 195-196 (2002) (bad faith where the government representative's stated reasons for moving the plaintiff's storage facility were pretextual, and the move was engineered with deliberate disregard for the plaintiff's legitimate business interests). This standard was significantly relaxed in 2005 in the case of Tecom, Inc. v. United States, 66 Fed.Cl. 736 (2005), which involved a government contract with the Air Force for the provision of maintenance services. After an extensive discussion of the United States Supreme Court's, Federal Circuit's, and Court of Federal Claims' jurisprudence on bad faith, the Tecom Court concluded: claims of a breach of the implied covenant of good faith and fair dealing ­ including claims that the duties to cooperate and not hinder performance of a contract have been breached ­ are to be treated like any other claim for breach of contract. The presumption of good faith conduct of Government officials has no relevance. Were it otherwise, and were the presumption considered particular to government officials, it would no longer be the case that `[t]he duty applies to the government just as it does to private parties,' Centex Corp., 395 F.3d at 1304. This would be a rejection of the long-held notion that `the principles which govern inquiries as to the conduct of individuals, in respect to their contracts, are equally applicable where the United States are a party.' United States v. Smith, 94 U.S. 214, 217, 12 Ct.Cl. 119, 24 L.Ed. 1145 (1877). Tecom, 66 Fed.Cl. at 771. As a result of the Tecom decision, "[t]he Government's long touted desideratum that `irrefragable proof' is needed to demonstrate the absence of good faith in the administration of government contracts has been given its last rites." H&S Mnfctr'g, Inc. v. United States, 66 Fed.Cl. 301, 311 n.19 (2005).

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III.

Declaratory Judgment For North Star's claims that ask the Court to declare its rights under the contract, the

Court may issue a declaratory judgment. See 28 U.S.C. § 1491(a)(2); Tiger Natural Gas, Inc. v. United States, 61 Fed. Cl. 287, 292 (2004). DISCUSSION I. The Government Set an Erroneous Standard for North Star's Performance The Government held North Star to an erroneous standard based on a knowingly flawed interpretation of the Lease requirement that downtime for purposes of change of occupancy maintenance "not exceed the number of move-outs (excluding move-outs for purposes of scheduled repairs or fires or acts of God) per month multiplied by 3 days." PX 1 at 36 § D.5.(a). First, the Government disregarded the fact that downtime is measured by working days, not calendar days. PX 1 at 23 § B.10, 36 § D.5(a), 39 § D.7.(d)(1); second, the Government disregarded the fact that North Star is entitled to extra time beyond three days to correct occupant damage to units. PX 1 at 37 § D.5(b). A. The Government Failed to Measure Downtime on an Average Workday Basis

The Lease is clear and unambiguous that downtime is calculated on a working day basis. The Lease defines downtime as: The period of time during which a unit is vacant and has been officially turned over to the Developer for accomplishment of required work. For purposes of this lease agreement, downtime is measured in working days, vice [sic] calendar days. PX 1 at 23 § B.10 (emphasis added). The Lease affords North Star three working days within which to complete change of occupancy work. PX 1 at 39 § D.7.(d)(1). Assuming no more than eight units are released in a five day period, for units vacant for purposes of change of occupancy maintenance, downtime is calculated on an average basis and should not exceed the number of

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moveouts per month multiplied by three days. PX 1 at 36 § D.5-(a). The permissible downtime in a month with ten moveouts is thirty working days. PX 1 at 36 § D.5-(a). The Contracting Officer's Representative ("COR"), Rod Everett, unequivocally interpreted the Lease to calculate downtime in working days, both in an October 19, 1999 internal document, PX 109-002 ("Change of occupancy downtime is calculated in accordance with Sections D.7(c) and D.5(a) of the lease. Section D.7(c) provides the Developer three working days to accomplish change of occupancy maintenance"), and a November 14, 1999 letter to North Star. DX 213 ("Sections D.5(a) and D.7(c) of the lease specify the process for calculation of allowable Change-ofOccupancy downtime. Section D.7(c) provides the Developer with three working days to accomplish Change-of-Occupancy maintenance."). If North Star exceeds the permissible downtime, the Lease permits the Government to assess liquidated damages "based on the most current average daily rate of BAQ plus VHA plus average daily lease cost for each calendar day in excess of the allowable downtime." PX 1 at 55 § H.(d). The use of the words "calendar days" in the penalty provision of the Lease enables the Government to calculate the "average daily lease cost," which is derived from a 30-day calendar month. Nothing in this provision, however, permits the Government to charge North Star for weekends and holidays as it did from 2002 and continuing. Even assuming arguendo that non-working days count against North Star in the penalty phase of downtime calculation, the Government impermissibly counted weekends and holidays against North Star. As admitted by the COR at trial, the Government must first calculate the average number of work days used by North Star for the month prior to assessing downtime, as illustrated by the following scenario (in which weekends are used): Assume that four (4) units are released in a month and assume that none of those units has occupant damage that entitles North Star to extra days beyond three (3)

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days. Two units are released to North Star on a Tuesday afternoon and accepted back by the Government the following Monday morning. The number of workdays used for each of those units is 3.0 days. Two units are released to North Star on a Tuesday afternoon and accepted back by the Government the following Thursday afternoon. The number of workdays used for each of those units is 2.0 days. The total number of work days used is ten (10) days ­ Wednesday, Thursday, and Friday for Unit 1; Wednesday, Thursday, and Friday for Unit 2; Wednesday and Thursday for Unit 3; and Wednesday and Thursday for Unit 4. The total number of work days to which North Star is entitled is twelve (12) days. Thus, North Star is two (2) work days under the permitted average amount for that month and no rent abatement can be assessed. The Government has never made the conversion from calendar days to work days in its downtime calculations, and in this scenario would assess five (5), rather than three (3), downtime days against North Star for Units 1 and 2, for a total of 14 downdays and a rent abatement. Tr. at 1846:22-1855:10 (Everett). The Government's intentional failure to calculate downtime on an average workday basis ­ as it admitted the Lease requires ­ held North Star to an erroneous standard which, when abrogated, carried a penalty of reduced rent and contributed to the increased operating expenses and elimination of incentive fee awards at North Star. B. The Government Failed to Grant Extra Time for Extra Work

The Government required North Star to complete work in units in three days regardless of the work required, in violation of the Lease and its own interpretation thereof. The Lease distinguishes between work performed as part of routine change of occupancy maintenance and work performed to correct occupant damages to units. Change of occupancy work is "[w]ork identified by the Developer or Government during the pre-termination and final termination inspections which is required to make a unit ready for the next occupant . . . This work includes any routine maintenance and repair." PX at 37 § D.7.(a). Change of occupancy downtime is defined as the "total number of downtime days for units vacant for purposes of change of occupancy maintenance." PX 1 at 36 § D.5(a). The Lease has a separate category for

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"scheduled repair or renovation downtime," which "will be completed on the basis of the actual number of days any specific unit has been turned over to the Developer for such work." PX 1 at 37 § D.5(b). The Lease further distinguishes between maintenance and repair work in setting forth the Government's responsibility to "[n]otify Developer of any maintenance or repair work required of which the Developer may be unaware," PX 1 at 32 § C.2.(c)(14) (emphasis added), and in containing separate categories for rent deductions depending on whether the unit is down for change of occupancy maintenance or scheduled repairs. PX 1 at 55 §§ H.1.(d)-(e). The Government itself interpreted the Lease to afford additional days to North Star. Karen Goodrich, former head of Army Housing at Fort Wainwright, testified that while she was involved with administration of the Lease at Birchwood, she distinguished between work routinely performed as part of change of occupancy maintenance and work authorized work necessitated by occupant damage for purposes of allotting down days. Tr. at 1636:3-16 (Goodrich). The COR, Mr. Everett, in his October 19, 1999 internal Government memorandum, confirmed that the Government had routinely given North Star extra time: The Housing Office has informed me that they have been are affording North Star an additional three days for maintenance if carpet or vinyl replacement is required. This additional time has been granted through an informal verbal agreement between DPW and North Star. PX 109 at 002. At trial, Mr. Everett testified that work such as vinyl and carpet replacement is extraordinary work. Tr. at 1821:1-22 (Everett); Tr. at 1825:23-1826:22 (Everett); DX 213 at 002. In the 1997/1998 timeframe, the Government changed its Lease interpretation and required North Star to complete work in units in three days regardless of the type of work required or reasons therefore. In early 1998, the Government presented North Star's president, Richard Fischer, with a proposed Lease amendment that limited North Star's rights under the contract by specifying the number of days North Star would have for additional work, regardless

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of the extent of the damages or the number of units in North Star's possession at that time. Tr. at 201:16 ­ 8 (Fischer); PX 191 at 089-092. Mr. Fischer contacted then-Contracting Officer Dennis Klein to ask what the benefit was to North Star of executing the amendment, who responded that he believed the Government would begin to leave North Star alone. Tr. at 202:8-20 (Fischer); PX 191 at 005. North Star did not sign the proposed amendment, which would have limited North Star's rights under the Lease. Thereafter, with only a handful of exceptions, the Government permitted North Star only three days regardless of how much work was required, even where a unit required full paint, full carpet, and full vinyl, over and above the change of occupancy work, all of which cannot possibly to be completed within three days. PX 215; Tr. at 431:2-7 (Wartes); Tr. at 431:20432:21 (Wartes). In November 2002, North Star's Site Manager, Eldon Wartes, approached Mr. Everett and Government Housing Manager, Connie Kiser, about the Government's actions to penalize North Star for not completing work in three days regardless of the amount of work required, and the consensus was that three days was often insufficient for North Star to accomplish the work required. Tr. at 455:22-456:14 (Wartes). Indeed, Mr. Everett believed there were "some major problems with downtime," Tr. at 1838:6-7 (Everett), and suggested that Mr. Wartes compile a list of the actual time it takes North Star to perform the various tasks. Tr. at 456:15-457:7 (Wartes). Mr. Wartes drafted such a document immediately and provided it to Mr. Everett. Tr. at 456:8-14 (Wartes); PX 282.3 Mr. Everett never responded, despite admitting at trial that he himself would have given North Star extra time. Tr. at 458:3-5 (Wartes); Tr. at

At trial, Mr. Wartes provided detailed, unrebutted testimony about how much time it takes for North Star to perform the various maintenance and repair tasks in units. Tr. at 240:7-22 (Wartes).

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1841:22-1843:24 (Everett); Tr. at 1872:1-15 (Everett); Tr. at 1965:11-16 (Everett).4 After months passed with no response, Mr. Wartes wrote to Ms. Kiser, with whom he had discussed this issue, asking why no response had been received. PX 303, Tr. at 458:6-459:4. Ms. Kiser did not respond, and the Government never scheduled a meeting to discuss the issue of the actual time it takes North Star to perform work on the units. Tr. at 459:2-460:16, 468:8-469:9 (Wartes). The Government's conduct conflicts with Ms. Kiser's testimony that it would be important to fairly and promptly consider North Star's requests for extra days. Tr. at 1999:15 ­ 2000:1 (Kiser). Numerous examples of the Government's failure to grant extra days are documented in the six-volume exhibit PX 447, which was presented by North Star at trial and remains unrefuted by the Government. See, i.e. PX 447 at 1067-83 (Unit 1148); PX 466 at 001-015 (Unit 1148); PX 447 at 724-726 (Unit 1003); PX 466 at 115-132 (Unit 1003). North Star went through a handful of the unit files at trial, some with photographs documenting their conditions in PX 466, and, was prepared to discuss each and every unit file contained in the six volumes.5 Indeed, despite requesting extra days for extra work on numerous occasions, and despite the COR's interpretation of the Lease, from 2002 through 2004 the Government allowed extra days for a total of only seven units. Tr. at 2094:19-24 (Wartes); PX 431. This conduct had the effect of increasing North Star's operating expenses such as payroll and subcontractor costs and eliminating incentive fee awards. II. The Government Intentionally Made it Impossible for North Star to Meet the Erroneous Standard it Set Having set an erroneous standard for North Star ­ three days per unit regardless of the occupant damage thereto, and failing to count downtime on an average workday basis ­ the
It was Mr. Everett's testimony that he failed to respond to PX 282 because he provided it to the Housing Office, who never responded to his request for input. Tr. at 1838:24-1839:7 (Everett). 5 North Star limited its presentation of unit files because the Court deemed the testimony duplicative.
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Government proceeded to administer the Lease in a manner, contrary to the Lease terms and its own interpretation thereof, that made it impossible for North Star to meet its erroneous expectations and ensured maximum rent abatements against North Star. A. Government Actions 1. Stockpiling

It is undisputed that the Government stockpiled units and released them to North Star in groupings of eight or less on a single day, typically a Monday or Friday. The practice of stockpiling is depicted on the calendar of unit events presented by North Star at trial and unrefuted by the Government. PX 447 at 001-026. The practice of stockpiling was put in place in 1997, rescinded in 2000 when the parties attempted a settlement of their disputes, and reinstated following a January 28, 2002 letter from Contracting Officer, Harold Hopson, rescinding the settlement agreement. Tr. at 409:2-410:10 (Wartes); PX 192-033-050; Tr. at 180:15 ­ 20 (Fischer). At the same time the Government resumed its practice of stockpiling, it began reducing North Star's rent when downtime exceeded three days ­ regardless of the extent of occupant damage and the time the corrective work would take, and regardless of how many units North Star was working on at the same time. There is no plausible justification for the practice of stockpiling ­ which has no basis in the Lease and defeats the Government's own turnaround goals ­ other than to shackle North Star with an impossible workload and maximize downtime penalties and rent abatements. The Lease states that downtime days for change of occupancy maintenance shall not exceed the number of moveouts per months multiplied by three days, and that if in any five-day work period more than eight units are turned over to North Star, two additional days will be granted for each unit in excess of eight. PX 1 at 036 § D.5.(a). So long as no more than eight

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units are turned over in a five-day work period, stockpiling offers no benefit to the Government ­ as conceded by Government officials at trial. Tr. at 2016:21-2019:25 (Kiser); Tr. 1644:2-11 (Goodrich). Indeed, stockpiling runs counter to the Government's own goal of a ten-day lag time between the termination of one occupancy and the start of another. PX 93.6 The Contracting Officer, Mr. Hopson, testified that if multiple units are released to a contractor at a time, it requires more staffing on the contractor's part, Tr. at 865:865:13-866:3 (Hopson), and makes it more difficult to meet the downtime requirements of the Lease. Tr. at 866:4-8 (Hopson). Indeed, it was Mr. Hopson's understanding that units would be released to North Star as they became available to and were cleaned by the Government. Tr. at 866:9-14 (Hopson). As the COR, Mr. Everett, articulated in his October 19, 1999 internal memorandum: Section D.7(b)(2) of the lease requires the Government to notify the Developer, in writing, of the date and time the unit will be turned over to the Developer for accomplishment of change of occupancy work. The Developer is then required to immediately provide the Government with a firm date the unit will be turned back over to the Government for assignment to the next occupant. PX 109 at 001. Mr. Everett testified that he would have administered the Lease differently than Housing, Tr. at 1864:19-22 (Everett), and that the Army's practice of simultaneously issuing multiple units to North Star that required a lot of work created a situation that was "very difficult" for North Star. Tr. 1864:23-10 (Everett).7 North Star unequivocally informed the Government of its strenuous objection to stockpiling as early as an April 1997 evaluation meeting:
Contracting Officer Harold Hopson and Former Chief of Housing for the U.S. Army, Tom Petersen, agreed that ten days between occupancies was reasonable. Tr. at 870:12-23 (Hopson); Tr. at 1569:24-1570:3 (Petersen). 7 During a conversation between Mr. Wartes and Mr. Everett in June 2002, Mr. Wartes recollects Mr. Everett stating that "[t]here is no doubt you are set up for failure with how they are issuing units to you. There is no way you can do the work in the allotted time." PX 197 at 001-002. Mr. Wartes also recollects comments by Mr. Everett about high level Government "agendas" and Ms. Kiser dealing with North Star unfairly. PX 197 at 001, Tr. at 417:8-20 (Wartes).
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FISCHER: What purpose is served by your holding back units and not giving us units? How does that serve getting the occupancy up and it seems to me that works to the disadvantage of getting your occupancy up if you hold back from giving us units? PETERSEN: That's how we interpret the contract to provide a manageable work flow. The contract language says, gives us a limit. If we start giving more than that, more time is required to maintain them, so we think that's in compliance with the contract and a more manageable work flow. I know that you don't -FISCHER: I'm not addressing the contract issue. Whatever, aside from the contract issue, for a moment. How is it served? Your goal is to get the units back as soon as possible. *** FISCHER: So, for the sake of your interpretation of the contract, what's happening is that you're delaying getting units back to the occupant? *** FISCHER: It makes absolutely no sense. I want to state this as clearly as I can. It makes absolutely no sense for you to hold units, which is time that units are held back from new occupants, for some contract, because you're wanting to interpret the contract in some way. I mean, it simply doesn't make any sense. You're slowing down. I would think the only goal here, our goal is to get the units back to you as quickly as possible so that you can get those units occupied and we thought that we were, we had a common goal with you in that regard and if we do, then what would best meet that goal is for you to give us those units as quickly as you get them. DX 403 at 10-11. In addition, in April 1997, Mr. Fischer expressed to former head of housing at Fort Wainwright, Karen Goodrich, that the release of units in groupings of eight was counter to what was to be the mutual goal of getting units turned around as quickly as possible. Tr. at 1634:24-1635:3 (Goodrich). Mr. Wartes made frequent attempts, both orally and in writing, to address the Government's stockpiling, but to no avail, Tr. at 410:19-411:4 (Wartes), as did his predecessor, Billee Menefee. Tr. at 412:2-13, PX 192 at 006, 008. At an August 1999 meeting between Mr. Wartes and Government representatives, Mr. Wartes again objected to the Government's method of releasing large groupings of units on a single day of the week. PX 106.

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The stockpiling that was reinstated in 2002 reached epidemic levels by August 2003, creating a situation that Mr. Wartes described as a "nightmare." PX 447-020; Tr. at 469:10-24. At trial, Mr. Wartes described the units he received on just one day ­ Friday, August 8, 2003 ­ where four units, all of which required extensive work and the work of subcontractors, were released simultaneously and where North Star was allocated only three days for each unit, with downtime being assessed for the excess. PX 447-020; Tr. at 469:25-475-6. The next workday, Monday August 11, brought five more units requiring subcontracted work for which only three days were permitted. Tr. at 477:14-478:3 (Wartes), PX 430-080. These August 8 and August 11 units were vacant prior to being turned over to North Star for time periods ranging between 28 and 82 days. PX 447 at 020. Indeed, practically all of the stockpiled units released in July and August 2003 required extensive, time-consuming flooring work, yet North Star was held to a three-day limit before penalties were assessed. Tr. at 739:7-16 (Wartes). As Mr. Wartes described at trial, stockpiling had a "huge" impact on North Star's ability to schedule work in units because "[t]here's no way I can schedule subcontractors to be in these units all at the same time. I can't have crews in at the same time. It's just a scheduling nightmare." Tr. at 407:23-1 (Wartes). He elaborated: I'm juggling and shuffling and moving people around to try to do the best possible job, trying to figure out what work is expected of me, because I don't have preliminary notification. So all these units are coming to me at the same time I'm trying to say, well, the government wants this done and this and not in this one. So shuffling subcontractors around. Trying to call in extra subcontractors and the same thing with the work crews. It's just chaotic. Tr. at 408:6-15 (Wartes). Mr. Wartes went on to testify about the stress that the Government puts on North Star's relationship with subcontractors in the Fairbanks community as a result of the need to constantly reschedule work. Tr. at 408:16-409:1 (Wartes). Indeed, the Government's practice of stockpiling made North Star's ability to meet the Government's erroneous standard ­

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nor more than three days regardless of type or amount of work required in units, with penalties assessed for weekends and holidays ­ impossible. It also contributed to the increased operating expenses at North Star such as payroll and subcontractor costs and elimination of incentive fees. 2. Improper Notification and Rescheduling

The Lease contains a series of notification and inspection procedures, routinely ignored by the Government, that are intended to provide North Star with sufficient advance notice of work required on units and to permit North Star to adequately plan its work. Under the Lease North Star schedules work on units based on the inspection and turnover dates provided by the Government on the Notification of Scheduled Change of Occupancy ("NSCO") form. PX 1 at 58. North Star should know 21 days in advance, or at a minimum 14 days in advance, when a unit will be turned over by the Government. PX 1 at 37 § D.7.(b). Mr. Everett specifically acknowledged these requirements in his October 19, 1999 internal memorandum. PX 109-001. At trial, North Star provided numerous examples of units where the Government failed to provide North Star with the required notice and even provided the NSCO after inspections had already taken place, and units where the Government revised the date of unit turnover with no advance notice. See, i.e. PX 447 at 513-24 (Unit 895); PX 447 at 052-060 (Unit 619).8 Indeed, from April to mid-June 2003, 33 of 47 units scheduled for issue to North Star were rescheduled, with North Star held to a strict 3-day turnaround time. PX 336; Tr. at 737:15-16 (Wartes). North Star wrote to the Government on June 27, 2002 respecting revised unit turnover dates; the lack of timely notifications; the Government's failing to distinguish between maintenance and repair work; failing to provide North Star with a copy of the list of occupant damage and corresponding costs at the pre-termination inspection; failing to issue work
8

The Government also breached the acceptance inspection provisions of the Lease for these units.

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authorizations for occupant-caused damage; and issuance of work authorizations that omit pricing information or list zero reimbursement amounts. PX 203.9 As stated in the letter and as reiterated by North Star at trial, the combination of Government actions, for example constantly revising turnover dates, unilaterally choosing the next turnover date, and penalizing North Star when work on units is not completed within three days, holds North Star to an impossible standard, especially considering the scheduling and rescheduling of work crews and contractors that results. Tr. at 424:6-22 (Wartes). This, too, contributed to increased operational expenses, including subcontractor costs (Tr. at 853:3-8 (Wartes)) and the elimination of incentive fees. 3. Failure to Follow Inspection Procedures

The Lease establishes two inspections that take place prior to release of a unit to North Star for work: a pre-termination inspection and a termination inspection. The Government routinely violated the Lease and its own interpretation thereof and ignored the required inspection procedures, which Mr. Everett articulated in his November 1999 position paper: · This [pre-termination] inspection is scheduled after the Housing office is notified by the occupant of an impending move.. . . . The Government provides the occupant with a list of his work requirements and the associated costs derived from the approved list of repair costs. A copy of this list is also given to the Developer. This [termination] inspection is conducted jointly by the Government and the occupant after all furnishings have been removed. . . . The purpose of this inspection is to insure the work identified as the occupants [sic] responsibility during the pre-termination inspection has been accomplished and to identify any other work required which was not discovered when the furnishings and household goods were still in the unit. The Government then issues a work authorization to the Developer for repair of damages which were the occupants [sic] responsibility but not completed at the time of the inspection.

·

PX 113 at 004-005.
9

The Government's conduct respecting work authorizations put North Star in a classic "Catch 22" situation ­ absent a complete work authorization it cannot be assured reimbursement, PX 446, but if it waits for a completed work authorization the downtime clock continues to run, resulting in reduced rent. Tr. at 427:19-430:6 (Wartes).

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At the pre-termination inspection, which is conducted while the occupant is still living in the unit, the Government is required to provide North Star with a copy of a list of work and associated costs, based on the List of Repair Costs, for which the occupant is liable. PX 1 at 38 § D.7.(b)(2). During the time period pertinent to the litigation, the Government never provided North Star with a copy of this list, PX 44710; Tr. at 318:23-319:22 (Wartes), despite the clear Lease requirements and the interpretation thereof by the COR. PX 113-005. Indeed, Mr. Everett testified that if such a list was not provided to North Star, "[i]t certainly should have been." Tr. at 1832:10 (Everett). The Government's failure to provide the required list impairs North Star's ability to plan its work ahead of time. Tr. at 319:23-319:5 (Wartes). The termination inspection, which is conducted while the unit is vacant, is the last step before unit turnover; under the Lease, "[s]ubsequent to the termination inspection, the Government will issue to the Developer a work authorization for the repair of damages, or accomplishment of cleaning, which are the responsibility of the occupant but were not completed at the time of the termination inspection." PX 1 at 38 § D.7(b)(3). Contrary to the Lease requirements and the COR's statements that the purpose of the termination inspection is to identify any work not discovered while the occupant's furnishings were in the unit, the Government frequently changed its maintenance demands in the days leading up to and sometimes the day of a unit's release, making North Star's task of scheduling in-house and subcontracted crews nearly impossible. Tr. at 180:24-181:16 (Fischer); PX 113 at 005; Tr. at 1834:5-19 (Everett). In an August 28, 2002 letter to Ms. Kiser, North Star expressed its grave concerns about the Government's administration of the Lease in this manner. PX 228; Tr. at 618:9-620:24 (Wartes).
The blue cover sheets for each unit covered by PX 447 show that this list was never provided to North Star. The Government offered no evidence or testimony to the contrary.
10

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The Government responded on September 12, 2002, contrary to the Lease and the COR: There is nothing in the lease/contract which prohibits the government from inspecting the units any time it may want to nor is there anything in the lease/contract which specifies that we may not add, change or delete any maintenance we determine necessary. PX 237. Indeed, Ms. Kiser admitted at trial that, she did not base work authorizations on what was identified at the termination inspection, Tr. at 2011:7-18 (Kiser); Tr. at 2012:20-23 (Kiser). The Government's position is particularly troubling in light of the fact that North Star bases the scope of work required in units on the results of the pre-inspection and termination inspections, as well as Government maintenance logs and work authorizations. Tr. at 240:23-241:13 (Wartes). Changes in maintenance requirements impact downtime, which the Government used to abate rent payments and eliminate the incentive fee. The Lease also provides for acceptance inspections to be conducted after North Star performs work on a unit. Acceptance inspections are required to be conducted jointly within the next half-day of a unit being turned back to the Government by North Star, PX 1 at 31 § C.(2), and the downtime clock runs until the unit is accepted back by the Government. PX 1 at 38 § D.7.(d). As demonstrated at trial, and as noted on the unrefuted blue cover sheets in PX 447, the Government breached these provisions on numerous occasions, either conducting acceptance inspections late and charging North Star for downtime; conducting acceptance inspections without a North Star representative present; or finding bogus items at the acceptance inspections in order to delay acceptance and increase downtime. PX 216; Tr. at 435:21-436:17 (Wartes). This conduct contradicts the COR's own interpretation of the Lease in his November 1999 position paper and at trial. PX 113 at 005-6; Tr. at 1834:22-1836:8 (Everett). In February 2003, the Government notified North Star of changed inspection procedures, including excluding North Star from inspections performed by the Government quality assurance

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inspector for purposes of identifying North Star's work responsibilities. PX 301; Tr. 741:20743:19 (Wartes); Tr. at 744:25-745:19 (Wartes). North Star responded by letter dated March 11, 2003, detailing the impacts of the Government's inspection changes. PX 311. This March 11 letter contained information similar to information North Star had shared with the Government in August 2002 respecting North Star's inability to plan and schedule its work as a result of the Government's changed inspection procedures. Tr. at 749:14-19 (Wartes). The Government responded in a March 24, 2003 memorandum that falsely accused North Star of requesting the objectionable inspection procedures. PX 314; Tr. at 747:8-748:2 (Wartes). North Star sought a decision of the Contracting Officer, who opined ­ without any apparent contractual support and contrary to the COR's position ­ that the Lease does not limit the Government in the number of inspections it may use to determine maintenance requirements. PX 326 at 007. In September 2003, a month where North Star suffered extensive stockpiling and rent deductions, PX 447 at 021, North Star informed the Government again of the impacts of the additional extracontractual inspections. PX 367. Despite the clear language of the Lease and repeated pleas from North Star to follow the required inspection protocol, the Government's conduct persisted, contributing to increased operational expenses, such as payroll and subcontractor costs, at North Star. 4. List of Repair Cost Book and Invoicing Requirements

The Lease establishes a billing relationship between North Star and the Government pursuant to which North Star's charges for work authorized tasks and materials are determined in advance, pursuant to the annually updated List of Repair Costs, which is derived from the Government-issued Engineered Performance Standards. PX 1 at 30 § C.1.(t). The List of Repair Costs "will be subject to change annually or from time to time by mutual agreement of the Developer and the Government." PX 1 at 30 § C.1.(t). Invoices are submitted at the end of the

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month for accounting purposes. PX 1 at 55 § H.(3). This process facilitates North Star's ability to be paid for work performed to correct occupant damage contemporaneously with performance of the work. The Contracting Officer acknowledged that amounts in the List of Repair Costs represent North Star's pre-approved reimbursement amounts. Tr. at 906:15-907:6 (Hopson). Starting in the spring of 2002, the same time the Government reinstituted stockpiling and began reducing North Star's rent for failure to turn units around in three days regardless of their condition, the Government began to unilaterally remove items from the List of Repair Costs, flooring items in particular. Around the same time, it demanded invoices on a routine day-today basis rather than on the monthly basis specified under the Lease. PX 186. North Star wrote to the Government about this conduct, PX 190, but to no avail. Tr. 606:10-608:15 (Wartes). In 2003, the Government again refused to approve items that had been on previous Lists of Repair Costs. PX 341; PX 352; Tr. at 692:17-700:2 (Wartes). As North Star repeatedly informed the Government, the Government's refusal to reimburse North Star based on the List of Repair Costs, but rather requiring item-by-item invoices creates precisely the type of burden the cost book was designed to avoid. Tr. at 608:21609:7 (Wartes). Indeed, North Star does not always have receipts because it buys in bulk and uses items in its stock from year to year. Tr. at 611:6-21 (Wartes). Ms. Kiser, however, was unresponsive to these issues. Tr. at 611:22-612:14 (Wartes). Indeed, when North Star, in an attempt to get paid, provided invoices, Ms. Kiser still found reason not to pay and remained unresponsive to North Star's attempts to explain, in detail, the reason for the figures on the invoices. PX 223; Tr. at 612:15-615:6 (Wartes); Tr. at 1865:17-25 (Everett). The Government's conduct with respect to the List of Repair Costs and invoicing requirements of the Lease adds

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time onto the turnaround process that the List of Repair Costs was designed to avoid, and presents yet another hurdle to North Star in meeting the Government's erroneous standards. 5. Failure to Enforce Rules

The Government contributed to the volume of damage in units by failing to enforce rules of conduct at Birchwood. Among the Government's responsibilities under the Lease are to "[e]stablish and disseminate to occupants rules and regulations governing occupancy of the units" and "[e]nsure occupant compliance with all rules and regulations." PX 1 at 32 § C.2.(c)(1), (3). Among the Government's responsibilities which will be performed by the occupants are "[c]leaning interior walls, woodwork and other surfaces," "[c]leaning, waxing and polishing floors," and "[c]leaning stoves, refrigerators, ovens, exhaust fans, sinks, tubs, plumbing fixtures, and other household equipment." PX 1 at 33 § C.3(a)(3), (4), (6). The Government failed to perform these responsibilities, or to ensure that occupants performed them.11 The Government's allocation of three days only regardless of the work to be performed during change of occupancy meant that "it would be impossible to conduct a turnaround in three days given the condition of these units." Tr. at 187:23-25 (Fischer). 6. Short-term Occupants

The Housing office determines the extent to which temporary occupants are placed at Birchwood as opposed to other housing communities. The more short term occupancies, the more unit turnovers and the greater the management burden on North Star. Of 385 units turned over to North Star between September 1, 2002 and March 31, 2005, 20 percent were short term occupancies of less than 16 months; applying a conservative estimate of staff hours and rates

In contrast, previously, the Government sent residents to attend briefings on how to properly care for units. Tr. at 670:6-673:14 (Wartes).

11

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required for turnover, North Star incurred $68,759 as a result of the Government's placement of short term occupants at Birchwood. PX 485 Vol. 1 at 001-131; Tr. at 1180:5-1182:18 (Sekyra). 7. Re-Painting of Unit 961 and Use of Black Light to Inspect Painting

Despite the fact that North Star painted the bathroom in unit 961, the Government ordered North Star to repaint the bathroom because the paint did not look acceptable under a black light. Tr. at 460:17-468:7 (Wartes); Tr. at 710:16-713:13 (Wartes). Black lights are used at Birchwood to detect urine in carpet, not to judge the adequacy of a paint job; indeed, the Lease sets forth a visual standard for pleasing appearance, not a standard through enhanced visual mechanisms. PX 1 at 39 § E. Whatever was deemed objectionable by the Government was likely a cleaning fluid applied by the occupant as, even after North Star repainted, the wall had the same appearance under a black light. Tr. at 465:24-466:17 (Wartes). The Contracting Officer issued a COD favorable to the Government, PX 377, and North Star incurred $179 unnecessarily repainting Unit 961. PX 409 at 022; Tr. at 735:15-21 (Wartes). B. Financial Consequences 1. Abatement of Rent

The Government began to use downday calculations to deduct rent from North Star starting with an April 17, 2002 letter informing North Star of rent deductions for February and March, 2002. PX 430 at 010.12 North Star responded on April 30, 2002 requesting the backup to the Government's downtime calculations, PX 231-060, and again on May 24, 2002, when it had

For the first nine years of the Lease, the Government and North Star agreed on downtime calculation, and it was not until 1997 that the Alaska District came to believe that the Lease contained conflicting language respecting downtime calculations and considered pursuing a claim for excess downtime.

12

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still not received a response to its April 30 request. PX 231-062.13 In its May 24 letter, North Star advised the Government that the rent reductions diminished the value of Birchwood. Having still received no response, North Star wrote to the Contracting Officer on May 30, 2002, referencing North Star's prior request for backup and advising that the Government's actions call into question North Star's rental stream and directly impact the capitalization rate and investment value of the property. PX 231-063. Other than inquiring of the contracting officer's representative, the Contracting Officer made no personal investigation of the facts alleged in North Star's May 30 letter. Tr. at 885:19-24 (Hopson). For each rent abatement North Star continued to request backup in writing, PX 431, and the Government continued to ignore North Star's requests. By letter dated March 5, 2003 to Mr. Everett, copied to Mr. Hopson, North Star recounted its unsuccessful attempts to meet with the Government in order to determine how the Government calculates downtime. DX 172. Despite his awareness that reducing North Star's rent impacted North Star's income stream and thus the value of the property, Tr. at 867:23-868:21 (Hopson), Tr. at 883:17-884:8 (Hopson), Mr. Hopson made no attempt to meet with North Star. Tr. at 887:5-7 (Hopson).14 As demonstrated at trial, the Government's process for assessing downtime was inherently flawed: the Government's Housing Manager, Ms. Kiser, did the initial calculation; she passed it onto the COR, Mr. Everett, for approval; and Mr. Everett then informed North Star of the Government's calculation. Despite the admitted seriousness of the penalty of abating rent, the COR merely "spot checked" Ms. Kiser's downtime calculations, Tr. at 1855:33-1856:9
Although these letters were not addressed directly to Mr. Hopson, they were appended to North Star's September 4, 2002 claim, which was addressed to Mr. Hopson. 14 Mr. Hopson testified that he thought that the Government's downtime calculations were being provided to North Star, and that if they weren't, they should have been. Tr. at 884:9-885:13 (Hopson). The Government did not begin to respond to North Star's requests for backup until September 2002. PX 430 at 030; Tr. at 1855:141857:15 (Everett).
13

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(Everett), leading to obvious errors such as delayed acceptance inspections to slip through and count against North Star. PX 447. It is no mere coincidence that the Government began its campaign of rent abatements at the same time that it held North Star to a strict three-day turnaround standard regardless of the amount or cause of work in units, reinstituted stockpiling, charged weekends and holidays against North Star, disregarded notification and inspection requirements, and ignored Lease requirements respecting the List of Repair Costs. From 2002 to 2004, the Government penalized North Star $210,583 for alleged excess downtime, PX 485 Vol. 1 at 248-462; PX 430; Tr. at 1195:3-1196:8 (Sekyra). Government actions designed to maximize downtime were in place for all the months for which rent was reduced. PX 447 at 001-026 2. Reduction and Elimination of Incentive Fee Awards

Under the Lease, North Star is evaluated on an annual basis based on its "performance over the preceding twelve-month period" by an "incentive fee board" comprised of "three (Army) Officers or civilian personnel." PX 1 at 55 § H.(4.). The incentive fee is awarded "for exceptional performance of standards contained in this annex, not to exceed 5 percent of the "Maintenance Rental." PX 1 at 55 § H.(4.). Article VIII of the Lease directs that incentive fees shall be determined by an incentive fee board based on North Star's operation of the Premises in accordance with the Lease, in a maximum amount of five percent of the maintenance rental for all housing units. PX 1 at 4. The Government commenced a campaign pursuant to which it steadily reduced and then eliminated incentive fees based on items, detailed herein, such as North Star's failure to acquiesce to depreciation, excess downtime, between occupancy vacancy rates, the "lockset issue," "missing documents," and biased survey results. PX 191 at 084, 094, 124, 127-137. Indeed, in a December 1997 memorandum, Chief of Housing Tom Petersen wrote that North

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Star's refusal to acquiesce to the Government's depreciation demands warrants a zero incentive fee award amount, because to do otherwise would be "a derelection [sic] of the Board's explicit and implicit duties in representing the best interests of the U.S. Government." PX 83. In November 2001, Mr. Petersen stated that the issue of the locksets "continues to preclude any consideration for incentive award." PX 168. In 2002, the Government cited lockset and missing document issues to again withhold incentive fees from North Star; PX 302.15 As detailed above, North Star was set up for failure by the Government, who set an impossible standard ­ three days regardless of the work ­ and penalized North Star for not adhering to it. The Government's implementation of resident surveys at Birchwood further evidences its deliberate actions to set North Star up for failure. In a January 1998 letter respecting the incentive fee award, the Government informed North Star of a "significant change" in the evaluation process: introduction of an annual resident survey. PX 191 at 094-095. The May 1999 incentive fee letter attributed the incentive award decision to the results of the resident survey. PX 105-001. These surveys, which the Government used to evaluate North Star, asked biased questions clearly designed to elicit negative assessments of North Star such as: As this questionnaire is being prepared, NSAHC has begun the process of eliminating its self help store. We understand that this decision will result in a decline in service. How satisfied are you are you with how well this decision will result in a decline in service. How satisfied are you with how well this reduction of service is being communicated with resident?16 NSAHC advised the government, in June, 1998, that they had experienced an almost complete turnover of employees. Did you, as a tenant, experience any decline in service which you felt was attributed to this high employee turnover? In their original proposal, NSAHC proposed the replacement of carpet in each unit at approximately seven year intervals (at least twice during the lease period).
North Star's attempts to inform the Government about the impropriety of using the lockset and missing document issues to withhold incentive fees from North Star went unheeded. PX 264; PX 308. 16 The Government, not North Star, closed the self help store. PX 103.
15

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As a tenant, which do you feel best applies? [The replacement cycle is adequate; Replace carpet more frequently; Replace carpet less frequently; Carpet should last entire 20 yr. lease term]. DX 427 at 23-24. Nonetheless, Former Chief of Housing, Mr. Petersen, stated with respect to the Government-conducted surveys that "[w]e considered that to be a very important tool and a very objective tool that saw the specific problem, but also gave pretty much a fair and unbiased picture of not only the maintenance up there, but other events that were happening. . . ." Tr. at 1525:15-19 (Petersen). North Star's own resident surveys, conducted door-to-door by a Fischer Properties representative unaffiliated with North Star, show the overwhelmingly positive opinion residents have of North Star. Tr. at 1210:3-1216:13 (Sekyra); PX 480; PX 257. Under the Lease, North Star is entitled to fair consideration of its performance by a properly-composed incentive fee board. However, the Government withheld incentive fee award dollars based upon its own erroneous interpretations of the Lease and deliberately biased surveys. The difference between the maximum incentive fee award amount and the incentive fee amount awarded by the Government to North Star through 2004 totals $513,041. PX 409 at 007; Tr. at 1196:22-1197:22 (Sekyra). 3. Additional Payroll and Subcontractor Costs

The Government's actions to impair North Star's ability to perform under the Lease were extremely taxing on North Star's management burden and caused North Star to incur additional payroll and subcontractor costs. Tr. 1206: 8-1209:20 (Sekyra).17 North Star's additional payroll

When Mr. Wartes became North Star's Site Manager in 1998, North Star had four salaried employees and six part-time employees. Tr. at 235:4-10 (Wartes). By 2002, North Star's staffing had increased to approximately eighteen employees in the summer and twelve employees in the winter, five of which are salaried full-time employees. Moreover, North Star relies on subcontractors to perform carpet and vinyl flooring work, Tr. at 239:2-24 (Wartes), which increased tremendously as a result of Government actions under the Lease.

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from 1997 through 2005 was $696,287. PX 485 Vol. 2 at 001-085.18 Its additional subcontractor costs from 1996 through 2004 was $652,606. PX 485 Vol. 2 at 001-085. The Government offered no rebuttal whatsoever to these damages. III. The Government Refused to Take Financial Responsibility for Items for Which it Knew it Was Required to Pay A. Failure to Work Authorize Occupant Damage

The Lease requires the Government to issue work authorizations for the correction of occupant damage. PX 1 at 26 § B.33; 32 § C.2.(c)(10); 59, Ex. 4. North Star is not permitted to negotiate or settle costs for correction of occupant-caused damages directly with occupants, PX 1 at 30 § C.1.(s), and thus the Government's issuance of a work authorization is North Star's only means of getting paid for work performed. Government issuance of a work authorization for the correction of occupant-caused damage is not optional, but is a requirement of the Lease: For those items of work identified elsewhere in this annex, for which the Developer is entitled to reimbursement in addition to the monthly lease and maintenance rent, the Government shall issue a work authorization. . . . Developer charges for this work will be based upon the approved list of repair costs. PX 1 at 55 § H.(2.) (emphasis added). Indeed, absent the benefit of a work authorization, North Star cannot be assured reimbursement. PX 446. In his October 19, 1999 internal document, Mr. Everett acknowledged that "[i]tems which are determined by the Government to be occupant caused damage will be work authorized." PX 109-001. The Government engaged in a deliberate campaign to reduce the number of work authorizations issued to North Star and breached its contractual obligation to issue work

$155,300 of this amount is covered in North Star's damages for increased payroll damages from 1997 through September 1, 2002, the time period covered by the expert report.

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authorizations when occupants damaged units. On September 10, 2002, Ms. Kiser sent an email to, among others, Mr. Hopson and Mr. Petersen recounting that: The average monthly work authorizations are: cy: 2000 $13468.08 cy: 2001 $15,039.60 cy: 2002 $5,257.15 (reduced due to imposition of depreciation schedule and aggressive monitoring of occ damage vs fair wear) PX 233. Yet, Mr. Hopson took no action when, one week after North Star filed its September 4, 2002 claim alleging a deliberate reduction in work authorized corrections, he received an email from Ms. Kiser confirming such a reduction. Tr. at 899:21-900:5 (Hopson). Even Mr. Petersen got involved in the minutiae of work authorization reduction, directing in July 2000 that items such as butter dishes and ice trays not be work authorized and to automatically "assume that they were disposed of by the resident because of deterioration." PX 133. In the same email message, he instructed Government officials involved with Birchwood to "start cleaning up the work authorization list and scrub it well for next year." PX 133. Clearly there was a campaign by the Chief of Housing in Fort Richardson and carried out by the Birchwood Housing Manager to burden North Star with the cost of correcting occupant damages. Among the unrefuted amounts North Star incurred due to the Government's failure to work authorize occupant damages are $20,957 for wall repairs necessitated by occupant damage (PX 485 Vol. 1 at 517-521; Tr. at 1203:15-1204:11 (Sekyra)), $22,809 for stoves that occupants failed to maintain as required under the Lease (PX 485 Vol. 2 at 155-161; Tr. at 1171:13-1172:18 (Sekyra)); $2500 for un-maintained refrigerators (PX 485 Vol. 2 at 162-163; Tr. at 1172:191173:12 (Sekyra)); $234,693 to replace vinyl not maintained by occupants (PX 485 Vol. 2 at 164-290; Tr. at 1173:22-11-1177:14 (Sekyra)); and $94,525 for carpet not maintained by occupants (PX 485 Vol. 2 at 291-553; Tr. at 1177:15-1179:18 (Sekyra).

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1.

Failure to Work Authorize Occupant-Caused Fire Damage

Among the damage that the Government refused to pay for was occupant-caused fire damage. This issue was resolved in North Star's favor in the Court's October 4, 2004 Order on Summary