Free Motion in Limine - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS UNITED MEDICAL SUPPLY COMPANY, INC., Plaintiff v. THE UNITED STATES, Defendant CONSOLIDATED CASE NOS: MAIN CASE: 03-CV-289 CONSOLIDATED CASE: 07-CV-187 Judge Allegra

PLAINTIFF'S SECOND MOTION IN LIMINE TO THE HONORABLE UNITED STATES COURT OF FEDERAL CLAIMS: On June 19, 2008 the Court ordered the parties to file their motions in limine by August 4, 2008. Plaintiff files its Second Motion in Limine contemporaneously with its First Motion in Limine. With respect to this Second Motion in Limine, Plaintiff

requests the Court exclude from trial scheduled to commence in these consolidated cases in November 2008 testimony of Defendant's expert Derk Rasmussen on the following matters and for the following reasons: The issues presented by Plaintiff's Second Motion in Limine are whether Defendants expert, Mr. Derk Rasmussen, should be permitted to testify at all, and if so, to what extent. Mr. Rasmussen's opinions heavily rely on three serious miscomprehensions about the contract and the law as follows:

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1. Plaintiff cannot prove that it would have been awarded the contract if the estimates had been correct 2. Mr. Killman did not properly consider bid documents because they are necessary to estimate lost profits 3. The Government had the right to order contract items from third parties without first ordering from Plaintiff if Plaintiff did not have the items in stock.



ARGUMENT

The scope of Mr. Rasmussen's report [Attached Exhibit A; Bates Limine Page 32; Bates 3359] Mr. Rasmussen was produced by the Government solely as a rebuttal expert witness. In his capacity as a rebuttal witness he was requested by the Government to answer three questions. First, are the opinions of Plaintiff's expert on diversion

damages (Robert Imel) supported by the documents Mr. Imel reviewed. Second, are the opinions of Plaintiff's expert on negligent estimation damages (Pat Killman) supported by the documents he reviewed. Finally, Mr. Rasmussen was asked to provide an alternative calculation of damages that corrects for any errors made by Mr. Imel and Mr. Rasmussen. Discovery revealed that Mr. Rasmussen had formed many more opinions than those provided in his report, but he did address the three questions and answered as follows: (1) no, (2) no, and (3) $3.6 million to $4.1 million. Plaintiff's Second Motion in Limine Page 2

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Rasmussen Contention: Plaintiff cannot prove that it would have been awarded the contract if the estimates had been correct Mr. Rasmussen suggests that United Medical must prove that it would have been awarded the contract if the estimates had been non-negligently made. [Rasmussen Report, p. 22; Bates 54]. He cites no authority for that proposition, and indeed there is none. Plaintiff's counsel has not found a single negligent estimates case that requires this type of proof. Mr. Rasmussen essentially is contending that the Government is free to estimate whatever it wants since rarely would a contractor be able to show it would have been awarded the contract if appropriate estimates would have been published. How, for example, could a contractor ever show what other bidders and potential bidders would have bid. Rasmussen Contention: Mr. Killman did not properly consider bid documents because they are necessary to estimate lost profits Mr. Rasmussen limits his consideration of available damages to lost profits. [Rasmussen Report, p. 10; Bates 42]. Then he specifically he faults Mr. Killman for failure to adequately consider bid documents because, according to Mr. Rasmussen, Without the bid documents reflecting the incremental fixed costs expected to occur, we are unable to determine the increase in profits that United Medical expected to achieve as a result of enter into the contact. As a result it is impossible to put them back into the position they would have been in under this approach.... [Rasmussen Report, p. 23; Bates 55]. Mr. Rasmussen's contention ignores the controlling case of Hi-Shear Technology Corporation v. United States, 356 F.3d 1372, 1383 (Fed. Cir. 2004). There the Federal Plaintiff's Second Motion in Limine Page 3

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Circuit held that lost profits are not available as damages for negligent estimation. 356 F.3d at 1380. It further held that even true reliance costs are not available as damages for negligent estimation unless the Government terminates for convenience. 356 F.3d at 1383. Rasmussen Contention: The Government had the right to order contract items from third parties without first ordering from Plaintiff if Plaintiff did not have the items in stock. Mr. Rasmussen heavily based his opinions on his misunderstanding that the Government had a right to order contract items from third parties without first ordering from United Medical if United Medical did not have the contract item in stock. [Ex. F; Rasmussen deposition, p. 30-34; Bates 79-80]. This understanding was the foundation for his determination that United Medical could not prove that it could have supplied the diverted orders without inventory reports matching existing stock with the diverted order. The contract required the Government to first order from United Medical before it went outside the contract -- absence of the item in inventory is not an excuse for first ordering from Plaintiff. The affidavit of contracting officer Linda Flatley filed by the Government in response to Plaintiff's motion for summary judgment stated the contract required the Government to order all of the DAPA items from United Medical. [See, Exhibit 1, para

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20 attached to Plaintiff's First Motion in Limine, Bates 3].1 As the Court noted in its summary judgment opinion the contract provides, `(c) Except as this contract otherwise provides, the Government shall order from the Contractor all the supplies or services specified in the Schedule that are required to be purchased by the Government activity or activities specified in the Schedule.'

This issue is important to the lawsuit. The prime vendor program anticipated two types of contracts: a "JITO/EDO" contract and a "Stockless Contract." Some

MTFs had the right to transfer from the JITO/EDO contract to the Stockless Contract. None of the MTFs in the Lone Star Region exercised that option; they all remained under the JITO/EDO contract. These facts are undisputed. Under Solicitation Amendment 016, [attached Exhibit B; Bates 60-66], Plaintiff was required to fill EDOs (i.e., extended delivery orders) within ten (10) days from date of order. In contrast, Plaintiff was required to fill JITOs (i.e., just in time orders) within 24-hours. An issue completely overlooked by Mr. Rasmussen was the rationale for having these two types of orders. The Government was expected to use EDOs when it had not provided Plaintiff with usage data. Usage data was an essential prerequisite to maintaining an inventory of a given item. Plaintiff was not expected to stock items for

1

"That under the contract, the customers were required to order all DAPA items that they used from the prime. However, the customers did not have to purchase all their medical/surgical requirements from DAPAs...."

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which it did not have usage data and the Government was expected to order those items using the EDO method. Mr. Bandy testified about the EDO process. Those extended delivery orders received by United Medical were forwarded by United Medical to the DAPA manufacturer and if United had to use overnight courier to meet the 10-day delivery obligation it did so at its own expense. Bates 68-71]. Mr. Rasmussen's incorrect legal conclusion is a serious flaw in his report. His argument is based on the fact that United Medical could not produce inventory reports showing that it had the diverted items in stock at the time they were ordered by the Government, but the overwhelming evidence is that the Government routinely used third parties to fill EDOs and EDO items were not required or expected to be in United Medical's inventory. Mr. Rasmussen's opinions belittle the importance of usage data. [Ex. A; p. 5, numbered paragraph 16; Bates 48] he states, The MTFs were required to provide the prime vendor with usage data, or the item and associated quantities that it intended to order from the prime vendor. [footnote omitted]. He then immediately thereafter states, There does not appear to have been any requirement that the MTFs provide usage data.... In his report [Ex. C; Bandy deposition, pp. 154-156, 166;

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He explained the conflict as not artfully worded, but attempted to trivialize the problem by stating that the primary consequence of unprovided usage data was a fill rate adjustment. [Ex. F; Rasmussen Depo trans. P. 35; Bates 80]. It is undisputed that the success of the prime vendor program depended on the MTFs providing accurate usage data. For example, Mr. Mike David, one of the

Government's top prime vendor managers, testified in his deposition at p. 32 [Ex D; Bates 73] as follows: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Q. Do you have an opinion as to the significance of usage data being accurately provided to the prime vendors? A. Yes. Q. What is your opinion? A. That is the most crucial aspect of the program, because that's how we measure your performance. Q. When you say that's how we measure your performance, when you say "your," you're referring to a prime vendor? A. Yes, sir, because we want support for you. We give you our usage so you can stock the items, then we'll come to you for those items we told you we would. That's how we assure that you have those items that we're asking you for. So that's the single most important thing on getting good prime vendor support is giving you good accurate usage. Then it's the prime vendor's responsibility to stock to those levels that we told you we were going to use.

As a final note on this issue, Mr. Rasmussen correctly notes that the Government MTFs did, in fact, bypass ordering DAPA items from United Medical before they ordered from third parties. He quotes from the deposition of Ms. Debra Thompson at page 13 of his report [Ex. A; Bates 45] as follows: Plaintiff's Second Motion in Limine Page 7

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Okay, if [United Medical] stocked it, if they had it on hand, and it was a DAPA item, we would order it. But if it was a nonrecurring item, they did not have it on had.... So if it was nonrecurring, and they did not stock it, we had to seek other means to buy it. Ms. Thompson was a responsible logistics employee at two of the major MTFs: BAMC in San Antonio and Fort Hood in Killen, Texas. Mr. Rasmussen omits a

significant piece of her testimony. She was unaware that the contract provided for an extended delivery option. This, in a nutshell, illustrates a portion of the problem. MTFs, especially the few largest ones, did not provide usage data on many items, United Medical, as a consequence, did not have these items in stock, so the MTFs simply went to other purchase methods. Mr. Rasmussen's report is defective for a number of other reasons. For example, he ignored the multiple findings of multiple contracting officers that United Medical had met its obligations under the contract. [See Exhibit E, for example, Bates 74-77]. However, the above illustrate well the incorrect foundation on which all his opinions are based and his testimony should be excluded from trial. Signed August 4, 2008. Respectfully submitted, s/ Frank L. Broyles Frank L. Broyles TX State Bar No. 03230500 Goins, Underkofler, Crawford Plaintiff's Second Motion in Limine Page 8

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& Langdon, LLP 1201 Elm Street 4800 Renaissance Tower Dallas, Texas 75270 (214) 969-5454 (214) 969-5902 Fax Attorney for Plaintiff

CERTIFICATE OF SERVICE Service of a copy of the foregoing including exhibits will be accomplished via the Court Clerk's ECF system. s/ Frank Broyles

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS UNITED MEDICAL SUPPLY COMPANY, INC., Plaintiff v. THE UNITED STATES, Defendant CONSOLIDATED CASE NOS: MAIN CASE: 03-CV-289 CONSOLIDATED CASE: 07-CV-187 Judge Allegra

EXHIBITS TO PLAINTIFF'S SECOND MOTION IN LIMINE



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