Free Description not available - District Court of Federal Claims - federal

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 1 of 35

IN THE UNITED STATES COURT OF FEDERAL CLAIMS UNITED MEDICAL SUPPLY COMPANY, INC., Plaintiff v. THE UNITED STATES, Defendant PLAINTIFF'S REPLY BRIEF IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT AND ITS RESPONSE AND BRIEF IN OPPOSITION TO DEFENDANT'S COUNTERMOTION FOR SUMMARY JUDGMENT

CASE NO: 03-CV-289 Judge Allegra

SUBMITTED BY: Frank L. Broyles State Bar No. 03230500 Goins, Underkofler, Crawford & Langdon, LLP 1201 Elm Street 4800 Renaissance Tower Dallas, Texas 75270 (214) 969-5454 (214) 969-5902 Fax Attorney for Plaintiff UNITED MEDICAL SUPPLY COMPANY, INC.

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 2 of 35

TABLE OF CONTENTS Page TABLE OF CONTENTS................................................................................................................. i TABLE OF AUTHORITIES .......................................................................................................... ii SUPPLEMENTAL TABLE OF APPENDICES ........................................................................... iii SUMMARY ..................................................................................................................................1 OBJECTIONS TO GOVERNMENT'S SUMMARY JUDGMENT EVIDENCE .........................3 ARGUMENT A. The bankruptcy Court did not dismiss this case for want of jurisdiction ......................4 B. Plaintiff's summary judgment evidence in support of liability for diversion is uncontroverted and plaintiff is entitled to summary judgment on this issue. ......................5 C. Plaintiff's summary judgment evidence in support of damage quantum For diversion is uncontroverted and plaintiff is entitled to summary judgment on its damage claim .............................................................................................................7 D. Plaintiff's summary judgment evidence in support of liability for outstanding invoices is uncontroverted and plaintiff is entitled to summary judgment on this issue........................................................................................16 E. An alternative remedy to Plaintiff is an adjustment in contract price for failure of the government to purchase the contractually agreed minimum of 90% of estimates............................................................................................................17 F. Plaintiff's summary judgment evidence in support of liability and damage quantum for lost goodwill and reputation is uncontroverted and plaintiff is entitled to summary judgment on this issue with respect to both liability and quantum. ................................................................................................19 G. Plaintiff performed its obligations under the Contract, or they were legally excused. .........................................................................................................22 CONCLUSION AND REQUEST FOR RELIEF..........................................................................26

i

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 3 of 35

TABLE OF AUTHORITIES CASES Page

A.R. Sales Co, Inc. v. United States, 51 Fed. Cl. 370, 374 (2002). ...............................................24 Becho Inc. v. United States, 47 Fed. Cl. 595, 604 (2000)................................................................3 Biener v. United States, 17 Cl. Ct. 802 (1989) ..............................................................................18 DeVito v. United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969) .......................................................24 Hughes v. United States, 58 Fed. Cl. 291, 297 (2003).....................................................................3 Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741 (1980) .................................................22,27 Quiman, S.A. v. United States, 39 Fed. Cl. 171, 183 (1997)..........................................................20 Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353, 357 (1951) .....................................22 San Carlos Irrigation and Drainage Dist. v. United States, 111 F.3d 1557, 1563 (Fed. Cir. 1997)............................................................................................20

STATUTES AND RULES

Page

FAR 9.103......................................................................................................................................24 FAR 9.104......................................................................................................................................24 FAR 9.105-2 .............................................................................................................................23,24 FAR 17.207....................................................................................................................................23 F.R.C.P. 9(c) and Fed. Ct. Cl. Rule 9(c) ...................................................................................22,25 F.R.C.P. 56 and Fed. Ct. Cl. Rule 56...............................................................................................2 F.R.C.P. 56(e) and Fed. Ct. Cl. Rule 56(e) ...................................................................................3,4

ii

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 4 of 35

SUPPLEMENTAL TABLE OF CONTENTS FOR APPENDICES (A hard copy of appendices will be submitted to chambers) APPENDIX DESCRIPTION # SIZE REFERENCED IN (pages) PLAINTIFF'S BRIEF AT PAGE(S):
15 10

REFERENCED IN PLAINTIFF'S REPLY BRIEF AT PAGE(S):

1 2 3

1993 Original Solicitation, pp 1 ­ 15 June 30, 1999 email from Sara Bird to various DSCP personnel Solicitation Amendment 008 and Plaintiff's Offer, pp. 1- 25 of 96 Solicitation Amendment 008 and Plaintiff's Offer, pp. 26-50 of 96 Solicitation Amendment 008 and Plaintiff's Offer, pp. 51-75 Solicitation Amendment 008 and Plaintiff's Offer, pp. 76-96 July 10, 1997 Schmitt memo to DAPA Holders Solicitation Amendment 012 and Plaintiff's Offer Contract Award Contract Modification 5 Adopting ADR procedures Contract Modification 6 Adding Additional MTF Contract Modification 20 authorizing lump sum interest on past due invoices Contract Modification 10, exercising option year 1 Contract Modification 16, exercising option year 2

1

21

4A

25

4,9,10,11,13,17 22 9,11,17

4,10,12,13,18,19

4B

25

4C

25

n/a

4D

21

10

6 7 8 9

6 42 10 2

12 4,10,13,22 8,9,10,23 23 10,12,13,18,19 18

10 11

2 9

23 17

12

1

n/a

25

13

1

2,20

25

iii

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 5 of 35

APPENDIX DESCRIPTION #
14 May 11, 1999 Findings of Contract Officer Jennings with Respect to Option Year 2 May 11, 1999 Request by L. Flatley for Approval to Exercise Option Year 2 May 2000 Contract Modification 21, exercising option year 3 signed by Kennedy, Flatley & Gushue May 22, 2000 Findings by Contracting Officer Kennedy with Respect to Option Year 3 omitted March 13, 2001 Contract Modification 26, signed by Contracting Officer Jennings terminating obligation to purchase after April 30, 2001 Internal correspondence of DoD, Bates numbers DSCP-UMS-392-93, 405408, 496, 591, 624-626, 631-633, 639-642, DSCPPV-5131-35, 5140-41. Feb. 14, 2001 Hasting Memo re: payment issue with United Medical

SIZE REFERENCED IN (pages) PLAINTIFF'S BRIEF AT PAGE(S):
4 2,14,19

REFERENCED IN PLAINTIFF'S REPLY BRIEF AT PAGE(S):
11,23,24

15

2

2,14,20

11,24

16

1

2,14

11,25

17

4

2,9,14,19

11,23,24

18 19

3

2

11

20

26

3,4,5,17,18,19, 20,21,22

17

21

1

27

iv

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 6 of 35

APPENDIX DESCRIPTION #

SIZE (pages)

REFERENCED IN PLAINTIFF'S BRIEF AT PAGE(S):
11,16

REFERENCED IN PLAINTIFF'S REPLY BRIEF AT PAGE(S):
6,13

22

23

24 25 26 27

Documents created and maintained by the Department of Defense, Bates Numbers DSCPPV-1238, 1353-59, 1369-76, 5026 Documents created and maintained by the Department of Defense, Bates Numbers DSCPPV-1470-71, 4522-23, DSCP-UMS2136, 2137, 2140-41, 2762. June 18, 1999 Greg Wentzel letter re: size of DAPA database Oct. 10, 2000 Memo re: 3 month extension of Contract Certain Interrogatory Responses of United States Affidavit of William Bandy with Exhibits Affidavit of Robert Imel with Exhibits Affidavit of Frank Brown with Exhibits February 26, 2001 letter from John Cuorato to United Medical committing to pay outstanding invoices Selected pages from First Amended Disclosure Statement filed in Plaintiff's bankruptcy case Selected Pages from the DoD's GEN II Prime Vendor Program Information Supplement Affidavit of Frank Brown Contractor's refusal of Plaintiff's request to mediate disputes Claim filed with Contract Officer Bankruptcy Court Order Transferring Case and Bankruptcy Court's Docket Sheet

9

16

6

3 8

12 2 2,13,14,29 11,12,13,14,15, 17,18,19,20,22, 23,26,27 14,20,25,26 27

15

6,8,10,25 5,6,15,19

28 29 30

10

8,9

1

27

31

8

26

32

8

4

33 34 35 36

16,17 19 35 5

v

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 7 of 35

vi

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 8 of 35

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

UNITED MEDICAL SUPPLY COMPANY, INC., Plaintiff v. THE UNITED STATES, Defendant

CASE NO: 03-CV-289 Judge Allegra

PLAINTIFF'S REPLY BRIEF IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT AND ITS RESPONSE AND BRIEF IN OPPOSITION TO DEFENDANT'S COUNTERMOTION FOR SUMMARY JUDGMENT TO THE HONORABLE UNITED STATES COURT OF FEDERAL CLAIMS: Plaintiff files this reply brief in support of its motion for summary judgment and its response to Defendant's Countermotion for Summary Judgment as follows: I. SUMMARY This case arises out of a requirements contract between Plaintiff and the Government for the distribution of medical supplies to various military facilities in the states of Texas, New Mexico and Oklahoma ("the Lone Star Region"). The supplies to be distributed were those medical supplies for which the Government had entered into distribution and pricing agreements with third parties ("DAPAs") and for which Plaintiff was an authorized distributor. The contract provided two terms of primary relevance to this case: The military facilities in the Lone Star Region subject to the Contract were required to order all of their supplies subject to the Contract from Plaintiff and to pay for those 1

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 9 of 35

conforming supplies received within fifteen days from receipt of both invoice and the supplies. Plaintiff contends that the Government breached the contract by: diverting orders to third parties without first attempting to order from Plaintiff; ordering supplies when it knew or reasonably believed that it could not timely pay because its electronic payment system had failed; and failing to pay for supplies it received and used. The Government's general response is to assert several theories why Plaintiff should not be granted summary judgment. The Government, however, attempts to oppose Plaintiff's summary judgment motion and to obtain its own summary judgment by filing mostly inadmissible summary judgment evidence. Its only two affidavits, for example, do not even purport to be based on personal knowledge as required by Rule 56. Additionally, the Government incorrectly restates several of Plaintiff's contentions and then argues why these incorrectly restated contentions should be denied. As shown by Plaintiff, the restated contentions have nothing to do with this case and the Government's argument is simply not responsive to the issues. Plaintiff filed credible and admissible summary judgment evidence on each element of its claims, while the Government has wholly failed to file sufficient summary judgment evidence to create a genuine issue of material fact on any of them. 2

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 10 of 35

Similarly, although Plaintiff filed controverting summary judgment evidence, the Government's failure to file admissible summary judgment evidence in support of its countermotion prevents the Court from granting the Government relief on its countermotion without even addressing the controverting evidence. II. OBJECTIONS TO GOVERNMENT'S SUMMARY JUDGMENT EVIDENCE Although the burden, at least with respect to claims made in Plaintiff's summary judgment motion, is on Plaintiff to establish that there is no genuine issue of any material fact, that burden may be discharged by showing that there is an absence of evidence to support the Government's case. Hughes v. United States, 58 Fed. Cl. 291, 297 (2003). In support of its summary judgment response and countermotion, the Government filed: (i) two affidavits that do not even purport to be based on personal knowledge, and (ii) numerous unauthenticated documents consisting primarily of what appears to be Government internal hearsay and multiple hearsay correspondence and memoranda. With respect to the two Government affidavits, (Government Appdx pp. 1 and 197), Rule 56(e) requires that affidavits be based on personal knowledge, set forth specific facts that would be admissible in evidence, and show affirmatively that the affiant is competent to testify. An affiant must be willing to swear to

personal knowledge for an affidavit to be considered. Becho Inc. v. United States, 47 Fed. Cl. 595, 604 (2000). The two affidavits offered by the Government are not 3

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 11 of 35

based on personal knowledge. The affiants claim they are personally acquainted with the facts. "Personal acquaintance" is not the "personal knowledge" The affidavits are replete with opinions, speculation,

required by Rule 56(e).1

conclusions, and hearsay. Specific objections to these two affidavits are made in Attachments A and B, which objections are incorporated herein by reference. Accordingly, Plaintiff requests the Court strike the affidavits from the summary judgment record for the reasons set forth herein and in Attachments A and B. Most of the documents filed by the Government as summary judgment evidence are miscellaneous, unauthenticated, and unsworn documents that appear to have been created by Government employees. They all are hearsay, and many, if not most, are multiple hearsay. They contain conclusions and speculation not supported by any specific facts. Plaintiff specifically objects to these documents for the reasons set forth in Attachment C and requests that the Court strike the objectionable documents from the summary judgment record. III. ARGUMENT A. The Bankruptcy Court did not dismiss this case for want of jurisdiction. The Government claims, incorrectly, that this case originally was dismissed by the Bankruptcy Court for want of jurisdiction. (Government Br. at 2). The Bankruptcy Court, in its discretion, abstained and transferred the case to

1

It would be difficult to imagine a perjury prosecution based on an allegation that a person falsely swore that he or she was "personally acquainted" with facts.

4

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 12 of 35

this Court. Obviously, the Order speaks for itself, and it and the Bankruptcy Court's docket sheet are in this Court's record. For ease of reference, however, copies are included in Plaintiff's Supplemental Appendix at 36. To the extent that it is relevant how this Court received this case, the summary judgment record establishes that the Bankruptcy Court never dismissed the case, it simply chose to abstain. B. Plaintiff's summary judgment evidence in support of liability for diversion is uncontroverted and plaintiff is entitled to summary judgment on this issue. The Government contends that there are multiple fact questions on whether the Government improperly diverted orders. (Government Br. at 7). The primary focus of the Government's argument on this issue is quantum, not liability. The Government makes a general allegation that there is not summary judgment evidence on the issue of liability, but it does not offer any admissible summary judgment evidence that it did not divert orders while, in contrast, Plaintiff offered both direct admissions by the Government and substantial circumstantial evidence of improper diversion of orders. Plaintiff's direct summary judgment evidence of diversion includes the admission by Colonel Riley that his medical treatment facility had diverted orders through the use of credit cards (Pl. Appdx. Tab 27, paras #9, 10 & 21); the admission by Michael Schmitt as the then director of the prime vendor program at DSCP that orders were being diverted (Pl. Appdx. Tab 27, para #9); the

5

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 13 of 35

admission by Anthony Amendolia that Medical Treatment Facilities ("MTFs") were diverting orders through the use of credit cards (Pl. Appdx. Tab 27, para #9); and the admission by Contract Officer Flatley that DAPA supplies being ordered directly from the manufacturer by Fort Sill and Fort Sheppard were violations of the Contract with United Medical. (Pl. Appdx. Tab 23, p. 9, bates 2762). Plaintiff's circumstantial evidence is overwhelming that the Government diverted orders. First, the Government has not filed a single affidavit from a medical treatment facility ("MTF") representative claiming that the facility did not divert orders, or even that he or she had reason to believe the facility had not diverted orders. Second, Plaintiff on multiple occasions asked why the The regular response was the credit

Government's orders were extremely low.

cards were being used to purchase requirements. (Pl. Appdx. Tab 27, para 9). Third, DSCP recognized that an audit process might need to be implemented to control diversions. (Pl. Appdx. Tab 22 ­ page 10, bates 1370, para #5). Fourth, DSCP advised United Medical during the Contract period that DSCP did not have any enforcement mechanism to prevent diversion of orders but that it was working on the issue. (Pl. Appdx. Tab 27, para 9). Fifth, in response to an interrogatory served by Plaintiff requesting the Government's estimate of diverted purchases by each MTF, the Government did not state "zero," but rather stated it had no basis for such an estimate. (Pl. Appdx. Tab 26, Interrogatory #20). 6

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 14 of 35

Sixth, The Government has not provided any credible explanation, other than improper diversion, why orders it submitted to United Medical under the Contract were approximately 15% of estimates. The Government made a

specific representation that United Medical would furnish the MTFs with the majority of their day-to-day requirements for medical supplies. (Pl. Appdx 4, p. 4). The Government's orders from United Medical did not come close to being a "majority" of its requirements. C. Plaintiff's summary judgment evidence in support of damage quantum for diversion is uncontroverted and plaintiff is entitled to summary judgment on its damage claim. The fundamental problem with the Government's argument on quantum is that it is based on the incorrect contention that United Medical simply calculated diversions by subtracting sales from estimates. (Government Br. at 5). The Government then wastes considerable effort in its brief to show the Court how that calculation cannot reasonably estimate Plaintiff's diversion damages. The fact is that Plaintiff did not make such a contention.2 The diversion formula is not complicated. The Government's actual

orders,3 in dollars, submitted to Plaintiff are subtracted from the orders, in

2

The Government also claims that Plaintiff presumed that all purchases made with Government credit cards were diverted orders. (Government Br. at 12). Plaintiff does not make such a presumption and never represented that it was making such a presumption. Actual orders are greater than actual purchases since not all orders were filled. The Government overlooks this fact also.

3

7

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 15 of 35

dollars, it was contractually required to give Plaintiff.

T&M Distributors, Inc.,

ASBCA No. 51,279, 2001 WL 638522, 01-2 BCA ¶31,442.4 The orders it was required to give were orders for all DAPA items for which Plaintiff was an authorized distributor. While that is the dollar volume of diversion, it is only the starting point for calculating damages. Plaintiff, of course, must reduce its dollar damages by the volume of diverted orders that it would not have filled, had the orders been made. Although, Plaintiff made the appropriate reduction, this was totally ignored by the Government. The Government, in response to Plaintiff's interrogatories, admits that actual orders can be reasonably estimated by taking total sales and dividing by the historical fill rate. (Pl. Appdx Tab 26, Interrogatory Response #5). Although Plaintiff's fill rate forms evidence an overall historic fill rate in excess of 90%, Plaintiff's damage expert Imel estimated actual orders and percentage fill of projected orders by using a more conservative 85% to give the Government the benefit of any doubts. (Pl. Appdx. Tab 28, para 7a and 7d).5 Plaintiff's diversion calculation in its summary judgment motion is estimated requirements minus estimated diverted orders (not purchases), reduced by 15% to account for orders by the Government that, for whatever

4 5

In Plaintiff's Westlaw format, this appears on page 21 of 26.

Plaintiff's fill rate percentage was dramatically reduced by the failure of the Government's electronic payment system, since it impacted Plaintiff's credit lines and its ability to purchase product.

8

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 16 of 35

reason irrespective of fault, would not be filled by Plaintiff.

As explained in

Plaintiff's summary judgment motion, the fifteen percent was a conservative number that was substantially larger than the percentage dollar volume of orders that historically had not been filled by Plaintiff. (Pl. Appdx. Tab 28, para 7a and 7d). The potentially dramatic difference between the damage methodology the Government claims Plaintiff used and the damage methodology Plaintiff actually used can be illustrated by example. Assume that Plaintiff historically filled 50% of orders, and the total actual orders had been fifty percent of estimated requirements. Plaintiff's damage methodology would limit diversion damages based to the 25% of estimated requirements that were not ordered but which would have been filled if ordered. Plaintiff eliminated from its damage claim both historically unfilled orders and projected unfilled orders, facts overlooked by the Government. (See Pl. Appdx. Tab 28). The Government's claimed

damage methodology, on the other hand, ignores the unfilled orders portion of the equation. As a result, under this example Plaintiff's damage calculation, according to the Government, would be the 75% difference between actual sales (being 25% of estimate) and the estimate and Plaintiff's actual diversion damages calculation would be 1/3rd of what it would be under the damages calculation the Government claims Plaintiff used. The Government also claims that it was not reasonable for Plaintiff to use the Government's estimated requirements as a baseline to establish actual 9

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 17 of 35

requirements. (Government Br. at 13). The Government then, without summary judgment evidence, offers two theories to support this claim. First, it theorizes generally that its requirements could have been less than its estimates. Second, it claims that the estimates were not just the Government's estimated requirements for med/surg supplies subject to distribution and pricing agreements (DAPAs) as of the date the estimates were provided, but instead they were estimates of the Government's projected requirements for all of its med/surg supplies. (Government Br. at 10).6 The Government's first theory, that its "requirements" could have been significantly lower than its estimates, is contradicted by its responses to Plaintiff's interrogatories and its continued revaluation of the Contract each time it was renewed. In response to interrogatories the Government represented that it had never determined that its estimates were greater than its requirements and that was not contending that there was a reduction in its requirements subsequent to the estimates. (Pl. Appdx. 26, pp. 4, 5 and 8, Government response to

interrogatories 9 and 17). The Government also represented in its Solicitation that the estimates were based on actual historical purchases by the Government. (Pl. Appdx. 4 (Amend 008) and 7 (Amend 012), pages 12 - 13, and page 5,

6

It is undisputed that the only supplies the Government was required to purchase under the Contract were med/surg supplies subject at the time of purchase to DAPAs. Indeed, the only sales that could be made under the Contract were sales of DAPA items.

10

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 18 of 35

respectively). Since the estimates were based on historical requirements and there was not any reduction in requirements subsequent to the estimates, the use of the estimates, absent better evidence of actual requirements, is intuitively reasonable, especially since Government does not offer any affidavit of any MTF representative that the MTF's actual requirements were significantly less than its estimates and each of the three times the Government renewed the Contract, it revisited its original estimates of requirements and made no changes. (Pl. Appdx 14, p. 1; Appdx 15, block 9a, p. 1; Appdx. 16, block 4, p. 1; Appdx 17, block 4, p. 1; Appdx 19, p. 1). The Government's other theory why the use of estimates as a baseline for actual requirements was not reasonable is that the estimates, it claims, were estimates of its total med/surg supply requirements, not just med/surg requirements that were, at the date of the estimate, subject to existing DAPAs . (Government Br. at 10). There are at least six (6) reasons why this theory can be, and should be, rejected at the summary judgment level. First, it is not what the Solicitation represents and the Solicitation language cannot reasonably be interpreted to support the Government's summary judgment position. The Solicitation included the following language: "Estimated Annual Requirements: Based on a 12-month reporting period, the medical treatment facilities that will be covered by the contract locally spent an estimated $57,665,500 per year for those types of medical/surgical products covered by the proposed contract."

11

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 19 of 35

(Pl. Appdx. 4 (Amend 008) and 7 (Amend 012), page 12 and page 5, respectively).7 "B. Only items appearing on a DPSC Medical DAPA or IDTC will be ordered and delivered under the Prime Vendor Contract. All items are brand name specific and generic commercial products which are identified by the manufacturer's item descriptions and part numbers and conform to the manufacturer's commercial specifications. Estimated requirements listed in Section B reflect annual estimated requirements based upon usage figures provided by the participating order facilities." Emphasis added. (Pl. Appdx. 4, p. 13). Given the language in subparagraphs a and b above, it is virtually impossible to reconcile the Solicitation with the Government's summary judgment position that "those types of medical/surgical products covered by the proposed contract" means, "all medical/surgical products." Why would the

Government not just use the word "all" if that is what was meant, instead of using the words "those types?" The second reason to reject the Government's theory that the estimates were estimates of all med/surg items, is that there is not any summary judgment evidence to support this theory. There are not, for example, affidavits of any MTF representatives attesting that the estimates it provided were estimates of total med/surg sales. A third reason to reject the Government's theory is that during the Solicitation period DSCP itself clearly took the position, internally, that the

7

Note: the use of the word "spent." Also note the use of the word "covered" instead of "covered or that might become covered."

12

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 20 of 35

estimates being provided were not estimates of total med/surg purchases, but current DAPA purchases. Linda Flatley wrote in an internal DSCP memo, "The annual estimates were developed by the ordering facilities in conjunction with their Military Service Representatives. These estimates were as accurate as possible at the time of development, but as additional classes of items are added the Distribution and Pricing Agreement (DAPA) database, the potential for increased sales rises." (Pl. Appdx. Tab 22, page 17, bates 5026). This memo was written by Ms. Flatley to justify the contract insertion of maximums so that if DAPA items were added that increased sales, the Contract would not have to be resolicited. (Flatley memo, supra). Amendment 0012

contained a provision for yearly maximums, which were approximately 210% of the estimated yearly purchases. (Pl. Appdx. 7, P.5). A fourth reason to reject the Government's theory is that the Government admits in its brief that, "the estimate was consistently described as the current requirements for the general `type' of medical and surgical items covered by DAPAs." (Government Br. at 9). This is precisely Plaintiff's position -- the estimates were estimates of current requirements for medical/surgical items covered by DAPAs, not estimates of total medical/surgical requirements that included non-DAPA items. A fifth reason to reject the Government's theory is that the Government represented that "the prime vendor chosen by DSCP will furnish the ordering facilities with the majority of their normal day-to-day brand name specific and generic medical supplies." (Pl. Appdx. 4, p. 4, 2nd paragraph). That statement, 13

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 21 of 35

with its reference to "majority" cannot be reconciled with the position that the estimates of requirements were estimates of all med/surg items. A sixth reason to reject the Government's contention is that there is not any summary judgment evidence of a material difference between the total requirements and the requirements for supplies covered by then existing DAPAs. The Government's contention that the represented estimates were

estimated requirements for all med/surg items instead of just estimates of its requirements for supplies then covered by a DAPA would be relevant only if the requirements for total med/surg items was significantly larger than the requirements for the DAPA items. There is no evidence of this, and certainly the Government is in a position to provide that evidence if it were true. The Government then offers another theory why Plaintiff's damage model is not reasonable. It claims that there is inadequate summary judgment evidence that United Medical was an authorized distributor for essentially all DAPA items. Plaintiff provided specific and uncontroverted summary judgment

evidence on the issue. Bill Bandy, who was president of United Medical during the Contract period and extremely experienced in the medical supply distribution industry, in his affidavit, stated that United Medical was an authorized distributor for an estimated 99% of all DAPA items. The Government claims that there were numerous DAPA holders with whom Plaintiff did not have distribution agreements. But the Government does not tie this alleged piece of information into its contention. Both the 14

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 22 of 35

Government and Plaintiff agree that the bulk of med/surg supplies that were in the DAPA database were rarely, if ever, purchased by the MTFs. Indeed, the Government concluded following an intensive study of the DAPA database purchasing history, that only 12% of the DAPA items were actually being purchased in any significant quantities by the MTFs. (Pl Appdx 27, para #17; Pl. Appdx 24, page 2, para 1 of Part II). The Government does not provide any summary judgment evidence that it required any items from DAPA holders with whom Plaintiff did not have a distribution agreement. Just as it did in T&M Distributors, Inc., ASBCA No. 51,279, 2001 WL 638522, 01-2 BCA ¶31,442, the Government argues that Plaintiff cannot recover on its diversion claim because there is not sufficient documentation to support the claim and basis for damage methodology. The T&M Distributors Board, notwithstanding any shortage of documentation, imposed liability on the Government for diversion of orders through the use of Government credit card purchases. The Board found that the "missing" documentation was peculiarly within the knowledge of the Government, the Government's failure to come forward with facts raised an inference in favor of the contractor, and that the contractor's burden is simply to provide a basis for considering the damage projection sufficiently accurate.8

8

This discussion is located on page 19 of 26 in the Westlaw printed format.

15

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 23 of 35

D. Plaintiff's summary judgment evidence in support of liability for outstanding invoices is uncontroverted and plaintiff is entitled to summary judgment on this issue. The Government has pleaded the affirmative defense of accord and satisfaction. Instead of providing any evidence of an accord and satisfaction, The Government simply attacks Plaintiff's books and records without providing any foundation for such an attack. The Government's apparent position here is that it cannot determine how much, if any, it owes Plaintiff, but that this is Plaintiff's fault. Plaintiff's summary judgment evidence in support of both liability and quantum are its account receivable business records. The Government's

controverting argument is that Plaintiff's books and records are not reliable. Again, the Government does not provide any admissible summary judgment evidence to support its contention. The Government claims it has made a substantial effort to determine what it owes Plaintiff, but that Plaintiff has not been cooperative. (Government Br. at 14 and 15). There is no identification of what effort was made and why such effort would have revealed anything of relevance. Plaintiff's summary judgment

evidence is that it has been fully cooperative. It provided the Government with a 125-page list of Government purchase order numbers that Plaintiff's records show remain unpaid in full or in part. (Pl. Supp. Appdx. 33). The Government summary judgment response offers no explanation why it cannot respond from its records to each of these calls. Plaintiff invited the Government to inspect

16

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 24 of 35

Plaintiff's books and records, an invitation that was not accepted. Supplemental Appdx. 33, para 4).

(Pl.

The Government admits that, as of January 19, 2001, it owed Plaintiff at least $284,000, of which $111,000 was past due. (Pl. Appdx. 20, p. 2, bates 0393). The customary, or at least expected, evidence to refute a claim such as the one being made by Plaintiff would be the regularly kept Government accounts payable records including evidence of payments to Plaintiff. The Government has not provided any of that information. Absent any summary judgment evidence from the Government that controverts Plaintiff's claims on this issue, Plaintiff's summary judgment evidence establishes liability and quantum for Plaintiff's outstanding invoice claim. E. An alternative remedy to Plaintiff is an adjustment in contract price for failure of the government to purchase the contractually agreed minimum of 90% of estimates. As a possible alternative remedy to breach of contract remedies, Plaintiff is entitled to renegotiation of its contract fee for failure of the Government to purchase the agreed minimum 90% of estimates. The Government contends that this Contract provision is ineffective for three reasons: (1) it is inconsistent with a "requirements contract" and its inclusion would create a "patent ambiguity," (2) Plaintiff failed to specifically point out the provision to the Contract Officer, and (3) Plaintiff failed to timely request a renegotiation. (Government Br. at 15-17).

17

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 25 of 35

As a matter of law, the provision is not inconsistent with a "requirements" contract. Government "requirements" contracts can provide for an increase in contract price if a defined minimum purchases are not made. Biener v. United States, 17 Cl. Ct. 802 (1989). Since courts are required to construe a contract to

avoid an ambiguity, Biener at 807, this Contract can be construed to be a case where the parties simply agreed to a requirements contract with adjustments if minimum purchases were not made. Like the Plaintiff in Biener, United Medical, as an alternative to its remedies for breach, is entitled to an equitable adjustment in contract price because the Government failed to purchase the agreed Contract minimum equal to 90% of the estimate. When the Government awarded Plaintiff the Contract, the Government incorporated into the Contract the terms of Plaintiff's offer. (Pl. Appdx. 8, p. 1). The offer provided for a renegotiation of the fee (Pl. Appdx. 4, p. 6, Pl Appdx. 7 p. 6.). The parties do not disagree that the Contract was a requirements contract. The Government's obligation to order all of its requirements would not have been excused simply because the 90% threshold had been reached. The Contract, thus, could not have been an indefinite quantity contract. Since there is not any patent ambiguity, no duty could be imposed on United Medical to bring the provision to the attention of the Contract Officer. Plaintiff notes that the provision was quite prominent. It appeared in Plaintiff's responses to both Solicitation Amendments 008 and 012, was in a different typeface from most of the document and appeared prominently at the bottom of 18

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 26 of 35

page 6 of each bid response. (Pl. Appdx 4 and 7). Moreover, there is not any competent summary judgment evidence that the Contract Officer was not aware of the provision. In fact, the provision is so prominent it would be almost impossible to overlook by someone reviewing Plaintiff's bid percentages. With respect to the claim that Plaintiff failed to request renegotiation, Plaintiff on multiple occasions expressed concern about the low order volume, and was assured by DSCP that the ordering facilities would "catch up." (Pl.

Appdx 27, para 9). Prior to filing its claim for an adjustment to the Contract Price, Plaintiff requested mediation of its disputes. (Pl. Supp. Appdx 34). This was refused. Plaintiff also requested mediation of its disputes in the claim itself, which included the claim relating to the price adjustment for failure of the Government to purchase 90% of the total estimates. (Pl. Supp. Appdx., 35 pp.17, 29,34,38). There would have been no basis for renegotiation until the ordering shortage, if any, could be determined. The ordering shortage could not be

determined until the purchasing and delivery obligations of buyer and seller respectfully had ended. Plaintiff submitted its request for renegotiation shortly thereafter. F. Plaintiff's summary judgment evidence in support of liability and damage quantum for lost goodwill and reputation is uncontroverted and plaintiff is entitled to summary judgment on this issue with respect to both liability and quantum. The Government argues that Plaintiff's claims for damage to goodwill and reputation should be denied because the claim is based on lost profits associated 19

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 27 of 35

with other, unrelated contracts (Government Br. at 17).

The Government's

argument is not responsive to Plaintiff's claim. Plaintiff has not based its claims for lost goodwill and lost reputation on lost profits from other contracts. During approximately a one-year period, described in particular in Plaintiff's summary judgment brief, the Government experienced catastrophic problems with its electronic payment system. It never disclosed this to Plaintiff during the contract period. It simply kept ordering medical supplies, while blaming its failures to pay on Plaintiff's invoicing system. At the time it ordered, the Government knew that it probably could not timely pay Plaintiff, but it needed the medical supplies. So it kept ordering with knowledge that it was putting Plaintiff a risk of a complete business failure. The Government cites San Carlos Irrigation and Drainage Dist. v. United States, 111 F.3d 1557, 1563 (Fed. Cir. 1997) for the proposition that Plaintiff must prove the Government's breach was the sole cause of Plaintiff's loss. (Government's Br. at 17). The San Carlos Court simply held that a "but for"

proximate cause test must be applied. It did not hold that the Government's breach must be the sole proximate cause. 111 F.3d at 1557. The issue facing that Court was whether damages resulting nine years after the Government's breach were recoverable. The Court held that the Plaintiff could not prove "but for" the Government's breach its damages would not have occurred. Similarly, the Government's reliance on Quiman, S.A. v. United States, 39 Fed. Cl. 171, 183 (1997) is not helpful to the Government's case. (Government Br. 20

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 28 of 35

at 17). That Court simply stated that the breach must produce the damages inevitably and naturally. Plaintiff's summary judgment evidence meets the Quiman test. The

Government knew Plaintiff was a small business, that Plaintiff's asset based lender had taken a security interest in the Government's payments and that the Government's payments under the Contract were to be made directly to this lender. The internal documents produced by the Government during discovery in this case and filed as part of the summary judgment record establish that the Government knew that it would put Plaintiff out of business if it delayed payments over even a short period of time, if, during that same time, it kept ordering a substantial volume of supplies. The Government recognized that this situation would result in the loss of Plaintiff's credit lines. The Government failed to timely pay over an extended period of time while, at the same time, it kept ordering supplies from Plaintiff without disclosing that its electronic payment system had failed. The result was the inevitable as predicted by the Government; Plaintiff became unable to pay its contractors, employees, lenders and vendors, with a natural loss of business reputation. The Government has not pleaded intervening cause as an affirmative defense and there is no summary judgment evidence provided by the Government that the damages claimed by Plaintiff for lost goodwill and damage

21

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 29 of 35

to reputation were caused by anything other than the electronic payment system failure. Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353, 357 (1951) and Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741, 743-44 (1980) are cited by the Government to support its contention that Plaintiff may not recover lost profits unrelated to the Government contract at issue. (Government Br. at 18).

Plaintiff's claims for lost goodwill and damage to reputation are not related to lost profits on other contracts. Olin Jones specifically held that a Plaintiff can recover for damage to reputation caused by the Government's failure to pay sufficiently impaired Plaintiff's financial condition to the extent that Plaintiff could not pay its vendors and employees. Plaintiff has pleaded and proven with summary judgment evidence the elements required for recovery of lost goodwill, which are set forth in Olin Jones. The Government, on the other hand, has not filed any controverting summary judgment evidence on this issue. G. Plaintiff performed its obligations under the Contract, or they were legally excused. The Government alleges in its brief that Plaintiff's contract performance, or lack thereof, contributed to its damages. While this was not made a specific argument point by the Government, it is so pervasive that Plaintiff believes it requires some response. The Government has neither pleaded any failures of a condition precedent as required by Rule 9(c), nor offered any admissible 22

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 30 of 35

summary judgment evidence in support of this contention. Furthermore, the allegation is contradicted by the Government's own certifications of complete contractor performance made annually at time of Contract renewal. The issue also is of questionable significance to this summary judgment proceeding. To the extent, if any, that Plaintiff's performance failures required to the Government to fill orders from third parties, that factor is accounted for in the fill rates and damage reductions based on fill rates. To the extent, if any, that Plaintiff did not comply with the Government's invoicing protocol, surely the Government cannot be claiming it is excused from paying for supplies it received and did not return. Plaintiff's summary judgment evidence includes uncontroverted

certifications by the various contract officers and his or her supervisors that Plaintiff fully performed all its obligations under the contract. (Pl. Appdx Tabs 14 and 17). The Contract was a requirements contract for one year, renewable, at the sole option of the Government, each year for four years. The Government exercised three of its four options. Each time the Government elected to renew the Contract, the Government's Contracting Officer was required by FAR 17.207 to make and document a determination that the exercise of the option was the most advantageous method of meeting the Government's need and that United Medical was a responsible contractor determined in accordance with FAR 9.105-

23

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 31 of 35

2.

The summary judgment record evidences that each Contracting Officer,

including the Government's Affiant Linda Flatley, concluded annually that, "United Medical Supply has demonstrated a full understanding of the Government requirements and has performed all the required tasks and functions cited in the aforementioned contract." The Contracting Officers further concluded, in accordance with FAR 9.105-2, that "[United Medical] is a commercially recognized large volume distributor of medical/surgical products. It has been determined that United Medical Supply, from a critical review of its commercial operations, can handle the financial and logistical obligations of this Contract without difficulty [and is] considered to be responsible within the meaning of FAR 9.103 and 9.104." (Pl. Appdx, Tabs 14 and 17). See also, Pl. Appdx. 15, box 12a, in which Ms. Flatley and Mr. Jennings claim, at the time the Government exercised its second option, that Plaintiff had met the required delivery dates. The Government is now attempting to disavow these determinations by asserting, unsupported by any admissible summary judgment evidence that United Medical failed to perform "all the required tasks and functions." The Government renewed the Contract three times. By renewing the Contract without requiring any corrective performance action on the part of United Medical, the Government waived its objections, if any, concerning United Medical's performance. The Government waives claims for non-performance if it fails to terminate within a reasonable time after the default under circumstances indicating forbearance, the contractor relies on the failure to terminate, and the contractor continues performance under the contract with the agency's knowledge and implied or express consent. DeVito v. United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969), cited with approval by A.R. Sales Co, Inc. v. United 24

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 32 of 35

States, 51 Fed. Cl. 370, 374 (2002). When the Government renewed the contract, the renewals were not made subject to any corrective performance by Plaintiff. (Pl. Appdx. Tabs 12, 13, 16). Plaintiff's continued performance establishes

reliance and the Government's claim that Plaintiff's performance was an issue "from day one" establishes the requisite Government knowledge. Plaintiff must plead that it complied with conditions precedent under the Contract. It may plead generally. And it did so plead. (Plaintiff's amended complaint, para #108). The Government, on the other hand, must specifically plead facts to controvert Plaintiff's allegation. (Rule 9(c)). The Government did not so plead.9 Indeed, the Government claims that it cannot make any estimate of the dollar impact of Plaintiff's alleged performance failures. (Pl. Appdx. 26, page 08, Government response to interrogatory 12 and pages 2 and 3, Government response to interrogatory 4). The failure of the Government to specifically plead failures to perform in the face of Plaintiff's Complaint allegation that Plaintiff did perform, the annual certifications by the Government that Plaintiff performed, the unconditional annual Contract renewals by the Government, and the failure of the Government to file any admissible summary judgment evidence of any failure by Plaintiff to

9The

Government's answer to the allegation was, "The allegations in paragraph 108 are legal conclusions and plaintiff's characterizations of its case, to which no response is required; to the extent they may be deemed allegations of fact, they are denied."

25

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 33 of 35

perform, eliminate any genuine dispute as to the issue, if relevant, of Plaintiff's performance under the Contract.

IV. CONCLUSION AND REQUEST FOR RELIEF The Government obviously has major problems with its summary judgment proof ­ mostly it does not have any. Summary judgment standards

require the Government to come forth with credible controverting evidence; it cannot avoid summary judgment simply by advancing numerous theories why it may not be liable. There is an absence of evidence to support the Government's case. As to quantum on the issue of diversion damages, the Government was in a position to come forth with evidence to support its contention that Plaintiff's expert's opinions and assumptions are baseless, as it alleges, but it did not do so. It claims to have performed an intensive review of DAPA purchases, but has not provided that review as part of the summary judgment record. It would be logical and legally appropriate to assume that this review, if it rebutted Plaintiff's claims, would have been offered. On the issue of quantum for damage to reputation and lost goodwill, the Government's defense is that the damages Plaintiff seeks are future lost profits and Plaintiff is not entitled to future lost profits. Plaintiff never made a claim for future lost profits. Plaintiff provided uncontroverted summary judgment

26

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 34 of 35

evidence for each element of the factors recited in Olin Jones necessary to recover its damages to reputation and lost goodwill. Finally, Plaintiff's summary judgment evidence on the issue of nonpayment is credible and unrebutted. Plaintiff's regularly kept books and records evidence amounts due and owing. Plaintiff has provided the

Government with the 125 pages of Government purchase orders (calls) Plaintiff contends is unpaid. Plaintiff has invited inspection of its books and records. There is no summary judgment evidence before this Court that Plaintiff's books and records are not reliable or that the Government does not owe the money claimed for outstanding invoices. For the reasons stated above, Plaintiff requests that its objections to the Government's summary judgment evidence be sustained, that its motion for summary judgment be granted, and that Defendant's countermotion for summary judgment be denied. Plaintiff further requests that the Court grant such further relief to which Plaintiff justly may be entitled.

27

Case 1:03-cv-00289-FMA

Document 32

Filed 01/05/2004

Page 35 of 35

Signed January 5, 2004. Respectfully submitted,

/s/ Frank L. Broyles Frank L. Broyles State Bar No. 03230500 Goins, Underkofler, Crawford & Langdon, LLP 1201 Elm Street 4800 Renaissance Tower Dallas, Texas 75270 (214) 969-5454 (214) 969-5902 Fax Attorney for Plaintiff

28