Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

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

No. 98-168C (Judge Allegra)

DEFENDANT'S MEMORANDUM OF CONTENTIONS OF FACT AND LAW

PETER D. KEISLER Assistant Attorney General

DAVID M. COHEN Director

OF COUNSEL WILLIAM. M. EDWARDS Assistant District Counsel United States Army Corps of Engineers

TIMOTHY P. MCILMAIL Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 307-0361 Facsimile: (202) 514-7965 Attorneys for Defendant

July 20, 2005

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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1 . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF FACTS I.

Management Of Maintenance And Repair During Changes Of Occupancy . . . . . . . . . . . . . . . . . . . . 3 A. B. C. Change-of-Occupancy Inspections . . . . . . . . 3

Work Authorization And Reimbursement Decisions . 9 Downtime Calculations And Liquidated Damages . . . . . . . . . . . . . . . . . . . 12 16 18 19 19 19 20 20 21 21 21 21 22 24 25 29

II. III. IV. V.

Incentive Fees

Refuse Collection . . . . . . . . . . . . . . . . . Fencing Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Claims Respecting Specific Units A. B. C. D. E. F. G.

Carpet And Vinyl Replacement In Units 833 Reimbursement Of Light Fixture In Unit 1029

Correction Of Vinyl In Units 1090 And 1111 . . Vinyl Replacement In Unit 633 . . . . . . . .

Gutter Downspout Repairs In Unit 638 . . . . . Repainting Of Unit 961 And Use Of Black Light To Inspect Painting . . . . . . . . . . . . . Countertop And Carpet In Unit 961 . . . . . .

VI.

Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STATEMENT OF ISSUES OF FACT AND LAW TO BE RESOLVED BY THE COURT

DISCUSSION OF APPLICABLE LEGAL PRINCIPLES . . . . . . . . . . OBJECTIONS TO EXHIBITS . . . . . . . . . . . . . . . . . . .

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

No. 98-168C (Judge Allegra)

DEFENDANT'S MEMORANDUM OF CONTENTIONS OF FACT AND LAW INTRODUCTION Fort Wainwright, in Fairbanks, Alaska, is the site of Birchwood Estates, a 400-unit housing project for soldiers and their families that plaintiff, North Star Alaska Housing Corporation ("North Star") developed and leases to the Government. North Star and the United States and entered into The term of the

the Birchwood Estates lease on November 6, 1987. lease is 19 years and six months.

Although the lease recites

May 5, 2006 as the date that the lease terminates, 19 years and six months from November 7, 1987 is May 5, 2007. North Star alleges that the Government has breached the lease, including in bad faith, particularly the part of the lease that requires North Star to perform maintenance and repair work in units between occupancies and provides for reimbursement to North Star for some of that work. North Star also alleges that

the Government improperly assesses liquidated damages against North Star for not returning units to the Government after the

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units were vacant for maintenance and repair between occupancies. North Star's pretrial memorandum, however, consists mostly of generalizations regarding the Government's actions. Except for

reference to a few unit-specific issues raised in Case No. 032699C, North Star does not identify any unit-specific examples of how the Government has breached the lease with respect to issues such as authorizing work for which North Star will be reimbursed, the calculation of "downtime" of units issued to North Star for "change-of-occupancy" work, or the assessment of liquidated damages for excessive downtime. This approach fails to provide

us with sufficient notice of which unit-specific instances of Government conduct we will be expected to defend at trial. Nevertheless, North Star seeks over $10 million in damages allegedly arising from such actions. Most of that damage claim

will consist of a comparison of Birchwood Estates to Sprucewood Homes, a 300-unit Air Force housing project owned by Polar Star, which itself is owned by Fischer Properties, which also owns North Star. North Star's pretrial memorandum, however, fails

even to mention Polar Star, Sprucewood Homes, or the terms of the lease that governs Sprucewood Homes. This constitutes another

failure to provide sufficient notice of the elements of North Star's case-in-chief. Nevertheless, we expect that the evidence

will fail to demonstrate that the Government has acted in bad

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faith, or that the Government owes North Star more than $10 million in breach damages. STATEMENT OF FACTS I. Management Of Maintenance And Repair During Changes Of Occupancy A. Change-Of-Occupancy Inspections

North Star contends that the Government's change-ofoccupancy inspection process breaches the lease. Plaintiff's

Memorandum Of Contentions Of Fact And Law ("Pl. Mem.") at 4-6, 9. The lease provides for payments of "shelter" and "maintenance" rent to North Star, regardless of how many units are occupied. In addition, Exhibit C to the lease, entitled "Maintenance, Repair and Operational Services Standards Annex," provides, at section C.1(s), for reimbursement to North Star for repair of occupant-caused damage that is beyond normal wear and tear. Section D.7(b)(2) provides that the Government is to identify such occupant damage at a "pretermination inspection" to be held prior to an occupant vacating a unit, and to provide a list of such work items to both the occupant, who is responsible for correcting that damage, as well as to North Star. In addition, section D.7(b)(2) requires that, also at the pretermination inspection, the Government notify North Star of the date and time that the unit will be turned over to North Star for "change-of-occupancy" work. North Star, in turn, is required

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to immediately provide the Government with a firm written commitment as to the date and time that the unit will be turned over to the Government for assignment to the next occupant. After the furnishings are removed from the unit, section D.7(b)(3) of the maintenance annex requires the Government to conduct a "termination inspection" with the occupant. Although

North Star contends that work authorizations are supposed to be issued at the conclusion of the termination inspection (Pl. Mem. at 9), section D.7(b)(3) requires only that "[s]ubsequent to the termination inspection," the Government issue to North Star a work authorization for the repair of damages that was the responsibility of the occupant but was not completed at the time of the termination inspection. Beginning sometime after 2000, because of concerns with North Star's performance of work required to repair damage to a unit that was not beyond normal wear and tear, the Government began to implement a somewhat different inspection, notification, and work authorization issuance process. Pursuant to that

process, at the pretermination inspection, a Government housing inspector identifies as much occupant-caused damage that is beyond normal wear and tear that can be identified with the occupant's furnishings still in the unit. The occupant is

provided a generic "cleaning guidelines" list and, as far as the

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inspector is able to determine, a list of the work items that the occupant will be responsible to correct. When the occupant schedules the termination inspection, North Star is notified, sometimes months in advance, of the date that the unit will be turned over for change-of-occupancy work. A termination inspection is scheduled, and North Star is notified of the date of the inspection. A housing inspector identifies

any additional damage that was not apparent when the furnishings were in the unit, and determines whether the occupant will be charged for any damage. After the termination inspection, a Quality Assurance inspection is conducted to identify all damage to the unit and all work required to make the unit ready for a new occupant, regardless of whether the damage or work was already identified during the termination inspections. After the Quality Assurance

inspection, the Government provides to North Star a memorandum listing all change-of-occupancy work that will be required to make the unit ready for a new occupant: both work to repair damage that was not beyond normal wear and tear, and work authorized for reimbursement due to occupant-caused damage that is beyond normal wear and tear. Also after the Quality Assurance

inspection, a contractor other than North Star performs cleaning, preventative maintenance, and yard cleaning at the unit and, from time to time, repair of occupant damage that is beyond normal 5

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wear and tear such as replacement of carpet, vinyl, or countertops. Contrary to North Star's contention that work

authorization issuances are delayed because of this inspection process (Pl. Mem. at 9), work authorizations are actually expedited through that process; normally, the Quality Assurance inspection is conducted the next working day after the termination inspection. After cleaning, the unit is released to North Star for change-of-occupancy work, pursuant to the date identified when the occupant scheduled the termination inspection. The

Government does not repeatedly revise turnover dates without providing North Star with additional turnover time. Without

providing any specific examples, North Star contends that the Government waits until the eve of unit turnover to issue partial work authorizations. Pl. Mem. at 5. Frequently, however, North

Star will request from the Government such work authorizations, even on the eve of unit turnover. Section D.7(d) of the maintenance annex requires that an "acceptance inspection" be conducted upon completion of all change-of-occupancy work. The acceptance inspection must be held

on the date the work is completed if the Government receives notification of completion by 12:00 noon, or before noon of the next work day if notification is received after 12:00 noon, or at a mutually agreeable time. Id. Section H.1(a)(1) requires that 6

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the Government provide notice to North Star of deficient work. The Government follows those requirements. At the acceptance inspection, the Government identifies any deficiencies and provides North Star with a list of items that must be corrected. Although North Star contends that, in view of

a delegation to the contracting officer's representative to direct disputed work, the housing project manager does not possess authority to "order disputed work" (Pl. Mem. at 32), sections C.2(b), (c)(14), and (c)(17) of the maintenance annex provide that the housing project manager is to notify North Star of required work of which North Star may be unaware, and of noncompliance or unsatisfactory work. Section C.2(a) of the maintenance annex gives the Government the right to refuse to accept a unit if the work has not been completed or performed satisfactorily or is otherwise not in conformance with the provisions of the annex. The Government is

not in the practice of rejecting maintenance work that conforms to the lease standard. And, contrary to North Star's contention

at Pl. Mem. at 11, during the first nine years of the lease the Government did not conduct the acceptance inspection based only upon the termination inspections. At least during part of that

period, North Star was required to perform work required of it pursuant to the lease, even if the work had not been identified during the termination inspections. 7

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Section D.7(c) of the maintenance annex requires that North Star perform change-of-occupancy work in compliance with standards specified in section E.1 through E.8(e) of the maintenance annex. Those include a "pleasing appearance"

standard, and that the quality of the work and the repaired areas be fully compatible with adjacent surfaces and match existing color and design. Section E.2(b)(4), for example, requires that

flooring be free of cracks so that it has a pleasing appearance. (Although section C.3(a)(4) of the maintenance annex requires occupants to clean, wax, and polish floors during occupancy, it does not further provide that maintenance be in accordance with manufacturer's instructions.) carpet replacement be in kind. Section E.2(b)(6) requires that North Star specifically

challenges only one "matching" decision of the Government: a carpet replacement decision in Unit 884 (Pl. Mem. at 25), in which North Star used brown carpet to replace blue carpet, inconsistent with section E, and was required, consistent with that section, to make the carpet in the unit match. North Star challenges the requirement to fully paint the interiors of units after certain changes of occupancy (Pl. Mem. at 27), but specifically challenges only one such decision, in Unit 704. Pl. Mem. at 27. Although we expect that North Star

will attempt to introduce course of conduct evidence that, during one period, interior painting had to be performed at the first 8

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change of occupancy subsequent to the years identified in the lease only if the unit had not been painted within the preceding three-year period, section E.8(d) of the maintenance annex unambiguously requires that complete interior painting be accomplished at the first change of occupancy occurring subsequent to the 3rd, 6th, 9th, 12th, 15th, and 18th years of the lease. B. Work Authorization And Reimbursement Decisions

North Star contends that the Government's work authorization and reimbursement decisions breach the lease. Pl. Mem. at 13.

However, the only such decisions that North Star specifically challenges relate to carpet in Units 833, 884, and 961; vinyl in Units 833, 1090, and 1111; interior painting in Units 704 and 961; a light fixture in Unit 1029; a gutter downspout at Unit 638, and a countertop in Unit 961. 34. North Star has the authority to perform, at its own expense, maintenance and repair work to units for which the Government does not issue a work authorization. Section D.7(b)(2) of the Pl. Mem. at 25, 27-30,

maintenance annex requires that North Star, at the pretermination inspection, identify and prepare work orders covering all painting, maintenance, and repair work that it is required to perform. Although section H.(2.) of the maintenance annex

requires that, for those items of work for which North Star is 9

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entitled to reimbursement, the Government shall issue a work authorization authorizing the accomplishment of such work, section C.1 of the maintenance annex makes North Star responsible for the "maintenance, repair, [and] replacement . . . required to support the housing site." The Government is not in the practice of deliberately reducing work authorizations in order to save money. In

addition, the lease does not make the Government responsible for damage to units that North Star decides not to repair. For a

time, North Star was repairing items regardless of whether the Army issued a work authorization to reimburse North Star for the work; North Star, however, no longer consistently follows that practice. North Star's contention that the Government fails to

authorize work to repair occupant-caused damage that is beyond normal wear and tear (Pl. Mem. at 13) is inconsistent with the perception at Fort Wainwright that occupants of Birchwood Estates are held responsible for more repairs, particularly to carpeting, upon vacating a unit than are occupants of other Fort Wainwright housing. Section C.1(p) of the maintenance annex requires that, prior to acceptance of a unit by the Government after completion of maintenance or repair work, North Star clean the entire unit. addition, despite North Star's contention (Pl. Mem. at 35-36) that the lease does not require it to perform cleaning of units, 10 In

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section D.7(b)(3) of the maintenance annex also requires that, subsequent to the termination inspection, the Government issue a work authorization for the accomplishment of cleaning that was the responsibility of the occupant but was not completed at the time of the termination inspection. Although, beginning in 1997,

a cleaning contractor was hired out of concern that North Star was charging too much for the service, the Government occasionally continues to require that North Star perform cleaning, such as during periods when the cleaning contractor is unavailable. Section D.7(c) of the maintenance annex requires that charges for the performance of change-of-occupancy work be in accordance with "the approved list of repair costs." Section

C.1(t) of the maintenance annex provides that the list of repair costs establish cleaning and repair costs to be charged in the event of damage to property and equipment that is "over and above normal wear and tear," and that the list is subject to change annually or from time to time by mutual agreement. Although the

parties have not always agreed upon every item on every year's list, the list of repair costs has been at least partially agreed upon every year. North Star challenges the Government's decision

not to approve the list of repair costs submitted by North Star for 2003 (Pl. Mem. at 31), but the Government approved a list for

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2003, based upon information provided by North Star and the correction and recalculation of some of that information. As North Star contends (Pl. Mem. at 16), the Government, on occasion, will issue work authorizations with zero reimbursement amount or no amount where the work does not appear on the list of repair costs. This practice confirms that North Star will be

reimbursed for the work, leaving only the amount of reimbursement undetermined subject to cost information from North Star. In

this manner, the Government has issued work authorizations that are not based upon the list of repair costs, because not every work item appears on the list of repair costs. The Government

has disapproved items for inclusion on the annual list of repair costs because not every item that North Star proposes is a recurring cost of the type normally included on the list of repair costs. The Government began requiring North Star to

submit subcontractor invoices reflecting the actual cost of carpet and vinyl installation as a condition of reimbursement for replacing carpet and vinyl because North Star failed to submit adequate information for the Government to be able to include installation costs on the approved list of repair costs. C. Downtime Calculations And Liquidated Damages

North Star contends that the Government's calculation of downtime and its assessment of liquidated damages for excessive downtime during changes of occupancy breach the lease. 12 Pl. Mem.

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at 2.

North Star, however, challenges no specific calculation of

downtime with respect to any specific unit, and challenges no specific assessment of liquidated damages for excessive downtime. Section D.7(c) of the maintenance annex requires that reimbursable change-of-occupancy work be accomplished during the period North Star is completing other change-of-occupancy work, and section D.7(a) requires that work identified by North Star or the Government during the pretermination and termination inspections be accomplished while the unit is vacant. Although

North Star objects to what it describes as "stockpiling" units for release for change-of-occupancy work, (Pl. Mem. at 3), the lease does not limit how many units the Government may turn over to North Star in any period of time (although it estimates that 30 percent of units will be vacated each year, the lease does not limit how many units will be turned over in a year), nor does it mandate any schedule for the release of units to North Star. In the years before the parties entered into a 2000 agreement to settle Case No. 98-168C, the Government was unable to confidently predict when North Star would turn units back over to the Government after change-of-occupancy work. To ameliorate

that problem, the Government began to release units in batches of eight, on Mondays. Then, for approximately two years during

which the 2000 settlement agreement was in effect, the Government released units in two-unit-per-day batches. 13 When the 2000

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settlement agreement was rescinded in early 2002, and in an attempt not to overwhelm North Star and to allow it to make use of weekends to perform change-of-occupancy work, the Government began releasing units according to a schedule of four units on Fridays and Mondays, and attempted not to release more than eight units in a five-day period. The release of units sometimes occurs weeks after a unit becomes vacant, often because of a "a report of survey." An

occupant charged with responsibility for damage to a unit may challenge that charge by requesting from the Army a report of survey investigation. That investigation, conducted by Army

personnel outside the housing office, can take weeks to perform. The report of survey may absolve the occupant of the requirement to pay for damage, in which case, however, North Star is still reimbursed for the repair of the damage. Section C.1(c)(2) of the maintenance annex requires that North Star furnish sufficient personnel to perform all change-ofoccupancy work. (That does not always happen; North Star, for

example, sometimes has a difficult time scheduling flooring installers who, in North Star's experience, are not always reliable.) Section D.7(d)(1) provides that this work be

completed within three working days after the unit is turned over for that work. The lease does not distinguish between routine

change-of-occupancy work and non-routine change-of-occupancy 14

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work, nor has the Government made that distinction.

(The lease

does distinguish between change-of-occupancy work and the "Scheduled Repair and Renovation" work described in section C.1(v) of the maintenance annex, and which is performed during a tenant's occupancy.) Change-of-occupancy maintenance and repair

has always included replacement of carpet, vinyl and countertops. The Government has, on occasion, provided North Star extra days for units requiring an unusual amount of change-of-occupancy work, such as an unusual number of occupant-caused damage items. Section H.1(d) of the maintenance annex requires that the Government assess liquidated damages for each calendar day of excessive downtime, which section D.5 of the maintenance annex defines as the time during which a unit is vacant, including for change-of-occupancy work. Although in paragraph 33 of its Second

Amended Complaint in Case No. 98-168C, North Star alleges that "downtime days should, under the contract . . . be consecutive, not concurrent," in its pretrial memorandum it contends that "[m]onthly downtime totals should be computed on an average basis." Pl. Mem. at 3.

We do not dispute that calculation of monthly downtime employs averaging. Section D.5(a) provides that unless more than

eight units are turned over in a 5-day work period, the total number of downtime days for units vacant for purposes of changeof-occupancy maintenance shall not exceed the number of move-outs 15

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per month multiplied by three days.

If, in any 5-day work

period, more than eight units are turned over, two additional days are allowed for each unit in excess of eight. (Section

D.5(b)(2) of the maintenance annex provides that downtime for reasons of scheduled repair or renovation is completed on the basis of the actual number of days the specific unit has been turned over for such work.) North Star and the Government

disagreed regarding the calculation of downtime as early as August 1995, with North Star taking the position that downtime should be calculated consecutively and the Government taking the position that downtime should be calculated concurrently. Although the evidence might show that, on occasion, the Government has miscalculated downdays, North Star does not challenge any specific downtime calculations or rent abatements, making it impossible for us to know which Government actions we will be expected to defend at trial. For example, there were

well over 100 unit turnovers in 2002 alone. II. Incentive Fees In addition to shelter and maintenance rent, Article VIII of the lease provides that, at the Government's option, an annual bonus, in the form of an "incentive fee" of up to 5 percent of the maintenance rent, may be payed, for the period of time for which performance "substantially exceed[s] the established standards" of the lease. Section H.(4.) of the maintenance annex 16

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provides that an incentive fee is for "exceptional performance of standards contained in [the] annex," and requires that the amount of the incentive fee be determined by a three-member Incentive Fee Board based upon an evaluation of North Star's performance over the previous 12-month period. There is no requirement that In its

the board meet in order to make that determination.

pretrial memorandum (Pl. Mem. at 20-21), North Star challenges no specific Incentive Fee Board decision. North Star did not, prior to 1995, always receive maximum incentive fee awards. In 1989, North Star received only a

4.5 percent incentive fee award for November 1987 through November 1988. Soon after the September 1995 settlement

agreement, the Army notified North Star that refuse collection had become an incentive fee issue. In addition, although no

incentive fee has been awarded for any year since 1998, the Government began to warn North Star of problems in performance as early as 1997. In granting an award for 1996, the Government

warned North Star that "occupancy vacancy rates" was an area of performance that was "significantly less than exceptional." Nonetheless, the Government awarded North Star $39,000, noting North Star's assurance to the Government that it had "taken action to correct the situation during the upcoming summer 1997 turnover." In 1999, the Government awarded North Star $3,730 for

1998, noting "excessive downtime during the summer of 1998." 17

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Later incentive fee award decisions took into account North Star performance, including its performance as reflected in resident surveys. III. Refuse Collection North Star contends that, in a September 1995 agreement settling Case No. 93-88C, the Government agreed to allow North Star to collect refuse only once per week, despite the lease requirement that North Star collect refuse twice weekly, and the agreement's provision that North Star assume "full responsibility" for refuse collection. Pl. Mem. at 24-25. The

Government's intent upon entering settlement negotiations was to return North Star's refuse collection performance to that required by the lease, including the requirement to collect refuse twice-weekly, and to require North Star to compensate the Government for the period during which North Star was not performing refuse collection pursuant to the manner prescribed by the lease. The frequency of refuse collection, however, was

never a negotiated item; indeed, the settlement agreement makes no reference to frequency of refuse collection. Contrary to North Star's contention (Pl. Mem. at 23-24), counsel for the Government during the settlement negotiations did not expressly represent that North Star was required to collect trash only once per week, or that it was entitled to use the Fort Wainwright landfill. (The Fort Wainwright landfill issue was not 18

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raised in North Star's November 25, 1997 request for a contracting officer's decision respecting the frequency of refuse collection.) Morever, correspondence in the weeks soon after the

settlement agreement regarding the issue of refuse collection reflect that frequency of collection was not a settlement issue. The correspondence addresses the issue of the site of refuse collection, but not whether refuse was to be collected twice weekly, even though in one of the letters to North Star during that period recites the "twice weekly" provision of the lease. IV. Fencing Policy North Star challenges the Government's "fencing policy" (Pl. Mem. at 24), but does not specifically challenge the Government's erection of fencing at any particular unit. The Government's

fencing policy does not affect North Star's variable operating expenses. V. Claims Respecting Specific Units A. Carpet And Vinyl Replacement In Units 833

North Star challenges the Government's decision not to reimburse North Star for carpet and vinyl replacement in Unit 833. Pl. Mem. at 27-28. The vinyl displayed cracks. The

carpet was 15 years old and, although it had been repaired several times at Government expense, it displayed fraying, unraveling, seam failure and seam runs, and some staining, including bleach stains. The Government reimbursed North Star 19

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for some of the cost of replacing the carpet, to account for the bleach stains. Although the contracting officer referenced

depreciation in his decision, he also noted the carpet's worn condition. B. Reimbursement Of Light Fixture In Unit 1029

North Star challenges the Government's decision to reimburse it for only part of the cost of replacing a light fixture in Unit 1029. Pl. Mem. at 28. When the unit was inspected, North

Star quoted to the Government a price of $89.00 to replace the light fixture. occupant. The Government charged that amount to the

However, North Star replaced the light fixture with an The The

upgraded light fixture and charged the Government $189.50. light fixture did not appear on the list of repair costs. Government reimbursed North Star $107.69, representing the original $89.00 plus markups. C. Correction of Vinyl In Units 1090 And 1111

North Star challenges the Government's decisions regarding vinyl replacement In Units 1090 and 1111. vinyl in Unit 1090 was cracked. Pl. Mem. at 29. The

North Star's attempted repair of

the cracks was, at the acceptance inspection, not accepted by the Government. In Unit 1111, vinyl was found at the Quality

Assurance inspection to be cracked and marred.

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D.

Vinyl Replacement In Unit 633

North Star challenges the Government's decision to require replacement of vinyl in Unit 633 at North Star's expense. Mem. at 30. Pl.

The 15-year-old vinyl displayed cracks, stains, and

a non-pleasing appearance, but no evidence of occupant damage beyond normal wear and tear. E. Gutter Downspout Repairs In Unit 638

North Star challenges the Government's decision not to reimburse North Star for repairs to a gutter downspout at Unit 638. Pl. Mem. at 33. North Star replaced the gutter The Government had

downspout, then requested reimbursement.

determined that the downspout had been damaged through normal wear and tear. F. Repainting Of Unit 961 And Use Of Black Light To Inspect Painting

North Star challenges the Government's decision to require repainting of Unit 961 and use of black light to inspect painting. Pl. Mem. at 34. The painting of the unit did not

sufficiently cover the walls, according to both visual and black light inspection. G. Countertop And Carpet In Unit 961

North Star challenges the Government's decision not to require replacement of damaged countertops and carpet in

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Unit 961.

Pl. Mem. at 34.

The carpet was stained, displaying a

non-pleasing appearance, and the countertop was chipped. VI. Damages North Star's damage claims include a $9.9 million claim, part of which is an $8.6 million diminution of value claim based upon a 2002 appraisal of Birchwood Estates. The appraisal

compares Birchwood Estates to only one other property, Sprucewood Homes, a 300-unit housing project at Eilesson Air Force Base. And, instead of comparing the incomes of those properties, it compares the growth rate in the properties' variable operating expenses. The other part of North Star's $9.9 million claim is a $1.3 million claim based upon an alleged $840,000 increase in the growth rate of the variable expenses associated with Birchwood Estates from 1997 to 2002 as compared to Sprucewood Homes. Star's appraiser attributes that deviation to Government administration of the leases of Birchwood Estates as compared to Sprucewood Homes, without conducting any independent investigation into the causes of the deviation. Indeed, several North

of the breach issues that North Star raises, such as fencing, rent abatements, unrepaired damages through failure to "work authorize," and enforcement of tenant rules respecting yard appearance and vehicle parking, are not issues that would add to the variable expenses of Birchwood Estates. 22

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The appraisal also assumes that the Government's lease of Birchwood Estates will continue through 2018, even though the lease provides for its termination in 2007. Also, the appraiser

does not apply Contract Disputes Act interest to the $840,000 deviation, he applies a 15 percent reinvestment rate. North Star's "diminution in value" theory sidesteps the accounting for the actual cost of the breaches that North Star alleges, risking exaggeration of those costs. North Star could

have challenged before the contracting officer each of the Government's rent abatements, each of its work authorization decisions, each of its complete interior painting orders, and each of its depreciation determinations. That would have

provided both the contracting officer and, presumably, this Court, with the actual costs of the breaches that North Star alleges. Rather, North Star seeks to offer a damage theory that

is not connected to the breaches it alleges. We expect that the evidence will show that the Government withheld approximately $111,000 for depreciation of replacement items such as carpeting. We also expect that the evidence will

show that the fire damage to 765 Bataan Court cost approximately $15,000 to repair. The Court does not possess jurisdiction to

entertain any other fire damage claims; Case No. 98-168C raises the issue of only the fire at 765 Bataan Court.

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STATEMENT OF ISSUES OF FACT AND LAW TO BE RESOLVED BY THE COURT 1. Has the Government breached the maintenance annex of the

lease with respect to any specific housing units? 2. In view of North Star's specific challenge to only a few

instances of Government maintenance and repair decisions with respect to particular units, what other unit-specific Government maintenance and repair decisions, if any, are part of this case? 3. In view of North Star's challenge to no specific

downtime calculations or rent abatements, what downtime calculations or rent abatements, if any, are part of this case? 4. In view of North Star's challenge to no specific

applications of a depreciation schedule to reimbursement work, what applications of such a schedule, if any, are part of this case? 5. In view of North Star's challenge to no specific

incentive fee decision, what incentive fee decisions, if any, are part of this case? 6. Has the Government breached it duty to deal with North

Star in good faith, including with respect to incentive fee award decisions? 7. Is North Star responsible for a second weekly refuse

collection?

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8.

Is the Government responsible for the difference in cost

between operating Birchwood Estates and operating Sprucewood Homes, a 300-unit housing project at Eilesson Air Force Base? 9. What damages, if any, is North Star entitled to recover? DISCUSSION OF APPLICABLE LEGAL PRINCIPLES Unless North Star has raised the propriety of unit-specific Government actions with the contracting officer, the Court does not possess jurisdiction to entertain claims based upon those actions. When submitting a complaint to this Court pursuant to

the Contract Disputes Act, a contractor may not raise any new claims not presented and certified to the contracting officer. See Santa Fe Eng'rs, Inc. v. United States, 818 F.2d 856, 858 (Fed. Cir. 1987). Moreover, each Government downtime calculation

and work authorization decision is potentially unique; no pattern or practice of Government conduct can reasonably be inferred from examination of a few such actions. Even if North Star's September 4, 2002 claim to the contracting officer is sufficient to raise to the contracting officer challenges to unit-specific Government decisions respecting items such as downtime calculations, liquidated damages, work authorizations, and depreciation, that claim raises only those issues that had already occurred by September 4, 2002. Except for the unit-specific issues raised in Case No. 03-2699C, the Court does not possess jurisdiction to entertain unit25

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specific claims based upon events that occurred after September 4, 2002. The lease does not entitle North Star to incentive fees, or require the Government to award incentive fees, even if North Star's performance substantially exceeded the standards of the lease. Where a contract provides that an action is at the

Government's option, the Government is under no contractual obligation to take that action, and the Government does not breach the contract by not taking the action. See Brighton Vill.

Assocs. v. United States, 31 Fed. Cl. 324, 334 (1994), aff'd, 52 F.3d 1056 (Fed. Cir. 1995). The lease provides that an

incentive fee may be paid at the Government's option; therefore, a Government decision not to pay an incentive fee does not breach the contract. Although the Government has an obligation to exercise the incentive fee option in good faith, see United States Fid. & Guar. Co. v. United States, 230 Ct. Cl. 355, 365, 676 F.2d 622, 628 (1982), regarding this and other good faith issues that North Star raises, Government officials are presumed to carry out their duties in good faith. (Fed. Cir. 1986). Spezzaferro v. FAA, 807 F.2d 169, 173

North Star contends that "[i]n order to

succeed on its claim for breach of the duty of good faith and fair dealing, North Star must show that the Government administered the lease with the intent to destroy North Star's 26

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right to receive the fruits of the Lease."

Pl. Mem. at 39.

Although that showing would be an example of a breach of the duty of good faith and fair dealing, see Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240-41 (Fed. Cir. 2002), North Star must provide clear and convincing evidence of such an intent to make that showing. Id. at 1239, 1241. Even if

Government officials take actions based upon incorrect contract interpretations, those actions do not amount to bad faith. See

Kalvar Corp., Inc. v. United States, 211 Ct. Cl. 192, 200, 543 F.2d 1298, 1302 (1976). North Star apparently intends to offer evidence of the parties' course of conduct prior to the arising of disputes as evidence of what the lease requires, even where, as with the provision governing the frequency of complete interior paintings of units (Pl. Mem. at 27), the lease is unambiguous. a contract. (1992). A lease is

Corman v. United States, 26 Cl. Ct. 1011, 1015

When construing a contract, a court first examines the Barron Bancshares, Inc. The

plain meaning of its express terms.

v. United States, 366 F.3d 1360, 1375 (Fed. Cir. 2004).

parol evidence rule is a rule of substantive law that prohibits the use of external evidence to add to or otherwise modify the terms of a written agreement in instances where the written agreement has been adopted by the parties as an expression of their final understanding. Id. The rule thus renders 27

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inadmissible evidence introduced to modify, supplement, or interpret the terms of an integrated agreement. Id.

Evidence of the parties' course of dealing constitutes this kind of parol evidence that is prohibited by the rule. Id. If

the terms of a contract are clear and unambiguous, they must be given their plain meaning--extrinsic evidence is inadmissible to interpret them. Id. But see Gresham & Co., Inc. v. United

States, 200 Ct. Cl. 97, 120, 470 F.2d 542, 555 (1972) (holding that an unambiguous contract requirement that has been suspended or waived through administration of the contract cannot be suddenly revived to the prejudice of a party who has changed his position in reliance on the suspension). A contract provision is only ambiguous if it is susceptible to more than one reasonable meaning. at 1375-76. Barron Bancshares, 366 F.3d

Section E.8(d) of the maintenance annex is

susceptible to only one reasonable meaning: complete interior painting of units is required at the first change of occupancy occurring subsequent to specified years of the lease agreement, regardless of how recently such painting had previously been accomplished. otherwise. Damages are barred if they are speculative or remote. Olin No prior course of conduct is admissible to prove

Jones Sand Co. v. United States, 225 Ct. Cl. 741, 743 n.3 (1980). North Star's diminution in value damage claim is speculative. 28

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Unlike the property in Boston Edison Co. v. United States, 64 Fed. Cl. 167, 182-84 (2005), where the Court allowed the plaintiff to rely upon a diminution in value of property damage theory to prove breach damages, Birchwood Estates has not been sold at a price allegedly reduced by Government breaches; indeed, North Star has not even attempted to sell Birchwood Estates. And

there is no evidence that North Star has actually suffered, much less reported in any of its financial documents, any loss commensurate with the damage allegedly identified in North Star's appraisal of the market value of Birchwood Estates. In addition,

unlike the type of situation to which the Court analogized in Boston Edison, 64 Fed. Cl. at 183, this is not a case in which the cost of repairing alleged damage to property far exceeds the alleged diminution in value to the property, such that the diminution in value would be a more reasonable measure of damage than would the actual cost of repairing the damage. Moreover,

North Star's diminution in value assessment is remote; it compares Birchwood Estates to another property without calculating the effect of any particular Government action upon the value of Birchwood Estates. OBJECTIONS TO EXHIBITS We object to the admission of Plaintiff's Exhibit 40 because the documents in that exhibit are protected by the attorneyclient privileged and were inadvertently produced to plaintiff. 29

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Because they concern units to which North Star has not referred in any of the complaints in this case, or in any of the requests for contracting officer decisions that underlie this case, we object to the admission of Plaintiff's Exhibits 111, 141, 149, 164-67, 185, 246, 247, 253, 267, 272, 277, 331, 336, 364, 365, 367, 368, 371, 372, 381, 387, 391, 396, 403, 404, 408, 415, 423, 424, and 427 because they are irrelevant. To the extent that they concern units to which North Star has not referred in any of the complaints in this case, or in any of the requests for contracting officer decisions that underlie this case, we object to the admission of documents included in Plaintiff's Exhibits 412, 447, and 449 because they are irrelevant. To the extent that North Star might offer Plaintiff's Exhibits 261, 263, 264, 266, 267, 269-72, 277, 282, 285, 290, 291, 298, 299, 301-03, 308, 309, 311, 313, 314, 316, 322-24, 326, 329, 335, 336, 340, 355, 363-65, 368, 378, 379, 396, 403-05, 408, 417, 446-49, and 455 to prove allegations set forth in Case Nos. 98-168C and 02-1632C, we object to those exhibits because they are irrelevant. Those exhibits concern events arising after

the filing of the April 16, 2002 Second Amended Complaint in Case No. 98-168C, and after the submission of North Star's September 4, 2002 claim to the contracting officer underlying Case No. 021632C. 30

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We object to Plaintiff's Exhibit 316 also because it is irrelevant. That exhibit is a March 25, 2003 request for

contracting officer's decision respecting inspection procedures and notification. Case No. 03-2699C, however, does not include

an appeal from a contracting officer's decision in response to that request. We object to Plaintiff's Exhibits 382-87, 391-93, 395, 396, 398, 402, 434, and 435 because they are irrelevant. Those

exhibits concern events arising after the filing of the November 20, 2003 complaint in Case No. 03-2699C, the most recent complaint filed in this case. To the extent that North Star might offer Plaintiff's Exhibits 409, 410, 413, 414, and 456 to prove damages in Case No. 02-1632C, we object to those exhibits to the extent that they might be offered to prove damages arising after September 4, 2002, the date that North Star submitted the claim to the contracting officer that underlies Case No. 02-1632C. To the extent that North Star might offer Plaintiff's Exhibits 335, 336, 340, 363-65, 367, 368, 391, 430, 431, 448, and 455 to prove damages arising from downtime calculations (or work authorization decisions not raised in Case No. 03-2699C) that occurred after the submission of North Star's September 4, 2002 claim to the contracting officer, we object to those exhibits

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because the Court does not possess jurisdiction to entertain claims for such damages. To the extent that North Star might offer Plaintiff's Exhibit 449 to prove fire damages other than those to 765 Bataan Court, we object to that exhibit because it is irrelevant; Case No. 98-168C only alleges a breach concerning a fire to 765 Bataan Court. Respectfully submitted, PETER D. KEISLER Assistant Attorney General

s/David M. Cohen DAVID M. COHEN Director

OF COUNSEL WILLIAM. M. EDWARDS Assistant District Counsel United States Army Corps of Engineers

s/Timothy P. McIlmail TIMOTHY P. MCILMAIL Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 307-0361 Facsimile: (202) 514-7965 Attorneys for Defendant

July 20, 2005

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Certificate of Filing I hereby certify that on July 20, 2005, a copy of the foregoing Defendant's Memorandum Of Contentions Of Fact And Law was filed electronically. I understand that notice of this

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

s/Timothy P. McIlmail