Free Response to Proposed Findings of Uncontroverted Fact - 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 RESPONSE TO PLAINTIFF'S PROPOSED FINDINGS OF UNCONTROVERTED FACT 1. On November 6, 1987, the Department of the Army entered

into a lease agreement whereby the Government leased 400 housing units from North Star Alaska Housing Corporation ("North Star") that North Star had developed on Fort Wainwright, Alaska. Plaintiff's Appendix ("Pl. App.") at 1. We agree. 2. The lease, in its maintenance annex, defines the term

"Developer" as "[t]he party who is conveying real property to the United States Government by lease." We agree. 3. The lease provides: Pl. App. at 23 § B.9.

Damage to a housing unit or to other improvements within the project which are beyond normal wear and tear and are caused by the Government or an occupant, his dependents, or invited guests, or which are not corrected by the Government or occupant, shall be repaired by the Developer. The cost of such repairs shall be billed to the Government . . . Repair of damages which occur to the units or other improvements that cannot be attributed to the Government, his agents, officers, occupants, their dependents, or invited guests shall be accomplished by the Developer at no cost to the Government. (Emphasis added.)

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Pl. App. at 30 § C.1.(s). We agree. 4. The lease provides that "[t]he Developer shall be

responsible for all costs, including those for relocating occupants, associated with major unforeseen unscheduled work resulting from fires, acts of God, or structural, electrical or mechanical defect." We agree. 5. The lease provides: Pl. App. at 31 § C.1.(w).

If any of the housing units or improvements are destroyed by fire or other casualty, except in the case of the negligence on the part of the occupant, the Government may, at its sole option, terminate this Lease immediately in respect to the destroyed housing unit or units, and if so terminated, no rent shall accrue to the Developer after the date of such destruction. Pl. App. at 5 Art. X. We agree. 6. The lease obligates North Star to pay and insure for

"loss or damage by fire, lightening, storm, tempest, explosion, impact, aircraft, riot, civil commotion, bursting or overflowing of water tanks, apparatus or pipes, flood; labor disturbances, earthquake, malicious damage (other than Government-caused) or any other casualty or act of God." (emphasis added). Pl. App. at 5 Art. IX

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We agree that the lease contains the quoted language, but otherwise object to this proposed finding of fact to the extent that it sets forth a legal conclusion. 7. The lease requires North Star to "instruct his

employees to report to him any occupant-caused fire or safety hazards . . . in need of maintenance or repair" and to "notify the Government in writing of any occupant-caused fire or safety hazard . . . in need of maintenance or repair . . . [or] which requires the Government's action." (emphasis added). We agree. 8. The lease does not contain a parallel provision to Pl. App. at 29 § C.1.(o)(1)

Section C.1.(o)(1) that [delete "the"] requires the Developer to report a non-occupant caused fire to the Government. We agree. 9. The lease directs the Government to "[n]otify Developer

via work authorization of occupant-caused damages or conditions requiring correction or cleaning and reimbursing Developer for accomplishment of same." We agree. 10. The lease provides that "[t]he Developer is responsible Pl. App. at 32 § C.2.(c)(10).

for obtaining insurance to protect leased facilities and equipment located within the housing site from fire and acts of God. -3-

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The Developer is responsible for correcting damages resulting from fire or acts of God." Pl. App. at 31 § C.1.(x).

Except for the typographical error (for acts of God), we agree. 11. In June, 1989, when a unit fire occurred as a result of

a three year old child playing with a lighter, the Government paid the $44,725.74 cost of repairing the unit. Richard W. Fischer ("Fischer Aff.") ¶ 6, Ex. 4. We agree. 12. In August, 1990, when an occupant-caused kitchen fire Affidavit of

damaged a unit, the Government paid the $6,812.00 cost of repair. Fischer Aff. ¶ 6, Ex. 5. We agree. 13. In July, 1992, the Government refused to pay for a unit Fischer Aff. ¶ 7. The

fire caused by a child using matches.

July, 1992 fire was the subject of a prior lawsuit between the parties, Case 93-88-C in the United States Court of Federal Claims, which was resolved by a Settlement Agreement in 1995. In

that case, Judge Futey denied the Government's motion for summary judgment on the issue of fire damage because "issues of fact remain," noting that "the best evidence of contract interpretation is how the parties act under the arrangement before the dispute." We agree. -4Fischer Aff. ¶ 7, Ex. 6.

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14.

A fire occurred at 765 Bataan Court on August 23, 1996,

which the Assistant Fire Chief attributed to the occupant leaving the stove on the "on" position. Fischer Aff. ¶ 8, Ex. 7. The

Government refused to reimburse North Star for the cost of repairing this unit, and the Contracting Officer upheld the Government's refusal in a Decision issued on October 28, 1997. Pl. App. at 75. We agree. 15. In September, 1995, North Star and the Government

resolved Case No. 93-88C through a Settlement Agreement in which North Star agreed to "assume full responsibility for refuse collection and disposal for the remainder of the lease and any extensions of the lease" with the express representation from Government counsel that North Star was required to collect trash once a week and that it was entitled to use the Fort Wainwright landfill, as the Government had done previously. Fischer Aff.

¶ 9 Ex. 1; Affidavit of John Spencer Stewart ("Stewart Aff.") ¶ 4. We agree that, in September, 1995, North Star and the Government resolved Case No. 93-88C through a Settlement Agreement in which North Star agreed to "assume full responsibility for refuse collection and disposal for the remainder of the lease and any extensions of the lease." We do

not agree, however, that Government counsel expressly represented -5-

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that North Star was required to collect trash once a week and that it was entitled to use the Fort Wainwright landfill, or that the Government had, previously, collected trash once a week and used the Fort Wainwright landfill. When North Star failed to

perform its contract obligation, refuse was collected by the Fairbanks Municipal Utility System (FMUS), operated by the City of Fairbanks, Alaska. Refuse from Birchwood has not been Indeed, the 2003

deposited at the Fort Wainwright landfill.

affidavit of North Star's former counsel, John Spencer Stewart, which North Star presents in support of this proposed finding of fact, conflicts with the 1999 testimony of North Star's president, Richard Fischer. When asked in a deposition (attended

by Mr. Stewart as counsel for North Star) to identify the Government representatives who North Star alleged in its complaint had indicated that once-weekly refuse collection was satisfactory, Mr. Fischer identified only a Colonel Brown. Defendant's Appendix ("Def. App.") 28, Tr. 71-73.1 Mr. Fischer

failed to identify any other Government representatives, much less Government counsel, who allegedly had indicated that onceweekly refuse collection was satisfactory. 73. Def. App. 28, Tr. 71-

Although Mr. Fischer, in Mr. Stewart's presence, stated that

he could not recall who else had made such statements and

Appended to Defendant's Response To Plaintiff's Motion For Summary Judgment. -6-

1

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promised to "furnish in addition that other information to you through counsel," he did not supplement his answer with any contention that Government counsel had made that representation to Mr. Stewart during the 1999 settlement negotiations - nor did Mr. Stewart, at the time, offer such a contention. Mr. Stewart

also failed to raise such a contention in a January 1996 letter to Government counsel, even though that letter referenced the 1995 settlement negotiations. Rather, without contending that

the Army had taken any position contrary to the 1995 settlement, Mr. Stewart assured Government counsel that "Mr. Fischer has advised the Government that North Star Alaska Housing Corporation will handle the refuse collection consistent with the demands (unreasonable we believe) of the Government." 16. Def. App. 1.

A memorandum from Karen Goodrich, Chief of Housing at

Fort Wainwright, dated November 22, 1995, states that "[a]n out of court settlement was reached to allow the contractor to decrease pick-up from twice a week to once a week." ¶ 7, Ex. 1; Fischer Aff. ¶ 10, Ex. 9. Stewart Aff.

A November 22, 1995

memorandum from Colonel Kraus, the Director of Public Works, states "[t]he Army standard for adequate housing is weekly curbside trash pickup." Fischer Aff. ¶ 10, Ex. 10. However, a

letter from the contracting officer, dated December 1, 1995, requires North Star to collect refuse twice weekly. Fischer Aff.

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¶

10, Ex. 11.

At the Government's direction, North Star

implemented twice weekly refuse collection. We agree. 17. The defendant prohibited tenants living in Birchwood

Homes from depositing bulk items at the Fort Wainwright landfill. Stewart Aff. ¶ 9. On July 7, 1997, an employee of defendant

turned a Birchwood Homes resident away from the landfill, telling her to dump her bulk items on North Star's porch. All tenants

were provided a three-page handout on refuse collection denigrating North Star's performance. Stewart Aff. ¶ 10 Ex. 2. Paragraphs

We object to this proposed finding of fact.

9 and 10 of Mr. Stewart's affidavit do not demonstrate that Mr. Stewart's statements are made on personal knowledge. 2 is hearsay. 18. The lease provides that "[a]ll change of occupancy work And Exhibit

must be completed within three working days after the unit becomes available, which shall be determined from the date the unit is turned over to the Developer by the Government for change of occupancy work." We agree. 19. The lease directs North Star to: Pl. App. at 39 ¶ D.7.d.(1).

ensure that downtime while a unit has been turned over to him does not exceed the allowable down time described below . . . . (a) The total number of downtime days for units vacant for purposes of change of occupancy maintenance shall not exceed the number of -8-

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move-outs (excluding move-outs for purposes of scheduled repairs or fires and acts of God) per month multiplied by 3 days. For example, if there are 10 move-outs in 1 month, the total allowable downtime for that month is 30 days. Additionally, in any 5-day work period, more than eight units are turned over to the Developer, two additional days will be allowed for each unit in excess of eight. Pl. App. at 36 §§ D.5 and D.5.(a). We object to the proposed finding of fact because it sets forth a legal conclusion in reliance upon only one portion of the applicable lease language and, therefore, takes the lease out of context. 20. The lease defines downtime as the "period of time

during which a unit is vacant and has been officially turned over to the Developer for accomplishment of required work" and states that "[f]or purposes of this lease agreement, downtime is measured in working days, vice [sic] calendar days." 23 § B.10. We agree. 21. The lease provides: Pl. App. at

Upon completion of all change of occupancy work, the developer will notify the Government of work completion and unit availability . . . The Government will conduct an acceptance inspection in accordance with C.2.(a). Upon written notification of the Government's acceptance, the time period calculated for downtime purposes will be concluded. Pl. App. at 38 § D.7.d. We agree.

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22.

The lease provides that "[i]f the downtime in any one

month for units vacant for purposes of change of occupancy work exceeds the allowable downtime for that month (established in accordance with clause D.5.(a)), the Government shall assess liquidated damages . . . ." We agree. 23. On January 28, 1998, a contracting officer interpreted Pl. App. at 55 § H.1.(d).

the lease as providing "a maximum occupancy downtime per unit of three days for completion after turnover by the Government to the Developer, if eight or less units are turned over within any given 5-day work period," contrary to years of prior practice. Pl. App. at 83. We disagree that the contracting officer's interpretation was contrary to years of prior practice. Otherwise, we agree. 24. In its Motion for Summary Judgment, dated April 19,

2002, the Government, for the first time, took the position that even when more than eight units are released at once, the total amount of turnaround time is limited to three days. 65-66, p. 13-14. We agree that we took that position, but not that it reflects a "new standard." 25. For the first nine years that the lease was in effect, Pl. App. at

turnaround time was calculated by both North Star and the -10-

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Government by totaling the number of released units and multiplying that total by three working days in order to arrive at the total available working days to perform the work; when more than eight units were released in a five work-day period, two additional days for completion times the number of units over eight were added for change of occupancy maintenance. Aff. ¶ 12. We object because this proposed finding is ambiguous. We cannot tell whether North Star is counting concurrently or consecutively. If North Star is counting consecutively, we Fischer

disagree; if concurrently, we agree. 26. An August 12, 1996 memorandum from Thomas B. Petersen,

the Acting Deputy Director of Public Works, refers to the "contractually stipulated average downtime level of 3 days per unit." Pl. App. at 122. We agree. 27. It was not until late 1996 or early 1997 that the

Government informed North Star that it had adopted a new interpretation of the provisions of the lease pertaining to downtime. Fischer Aff. ¶ 13. A memorandum from Karen Goodrich

to the Corps of Army Engineers, dated April 10, 1997, requests that the Corps of Engineers office formally propose changes to the downtime provisions of the lease for, among other reasons, "clarifying other ambiguities." Pl. App. at 108. North Star's

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president wrote to Chief of the Real Estate Division on May 6, 1997, that the Government's newly-formed interpretation of downtime was contrary to years of prior practice. 13, Ex. 14. We disagree that the Government informed North Star that it had adopted a new interpretation of the provisions of the lease pertaining to downtime in late 1996 or early 1997. Paragraph 9 of the affidavit of Willie Mae Harrell, Division Housing Chief for Fort Wainwright, Alaska, establishes that the controversy arose before the 1995 settlement. Def. App. 5. We We Fischer Aff. ¶

agree that the Goodrich memorandum makes that request.

disagree that the interpretation was newly formed and contrary to years of practice. The affidavits of Ms. Harrell, Thomas

Petersen, Rodney Everett, and Connie Kiser dispute that downtime was ever calculated "consecutively." 15-16 ¶¶ 2-3; 20-21 ¶ 6. 28. In early 1998, the Government sought to modify the Def. App. 4 ¶ 3; 6-7 ¶ 4;

downtime provisions of the lease, and presented North Star with a draft Supplemental Agreement pertaining to down time and repairs. Fischer Aff. ¶ 14, Ex. 15. the Supplemental Agreement. We disagree because this statement is legally and factually incorrect. At no time during contract performance has the In North Star did not agree to execute

Government sought to modify the downtime provisions. -12-

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violation of FRCP 408, North Star attempts to suggest that the subject of offers and counteroffers in an extended ADR negotiation was a request by the Government to alter the terms of the contract. As a matter of law, that offer does not exist Also, quite clearly,

outside the context of those discussions.

the Government only contemplated such a change in the context of the numerous significant changes to the contract pending in those discussions. 29. The lease provides:

Damages to a housing unit or to other improvements within the project which are beyond normal wear and tear and are caused by the Government or an occupant, his dependents, or invited guests, which are not corrected by the Government or occupant, shall be repaired by the Developer. The cost of such repairs shall be billed to the Government. Pl. App. at 30 § C.1.(s).

We agree. 30. U.S. Army Alaska Army Family Housing Policy states that

"[p]et damage is never considered `fair wear and tear' and residents will be held financially liable for government efforts to reclean and/or replace carpeting, other building components, and areas outside damaged by pets." We agree. 31. The lease defines a work authorization as an "official Fischer Aff. ¶ 15, Ex. 17.

document issued by the Government for the accomplishment of work

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by the Developer and which is used to verify entitlement for reimbursement." Pl. App. at 26 § B.33.

We agree. 32. lease. We agree. 33. The contracting officer issued a decision on March 26, There is no depreciation schedule contained in the

1998 imposing a ten year depreciation schedule on carpet requiring replacement due to occupant-caused damage. 94. We agree. 34. Work authorization spreadsheets from 1994 and 1995 show Pl. App. at

that the Government previously issued work authorizations for the replacement of pet and occupant-damaged carpet. 15, Ex. 16. We agree. 35. North Star received a letter from the Government, dated Fischer Aff. ¶

July 9, 1997, stating that "[e]ffective immediately, all charges for damages to carpet will be figured using a ten (10) year life expectancy in ALL housing areas." Fischer Aff. ¶ 15, Ex. 18.

This letter reflected a complete change in policy from that which had been in force from the inception of the lease. We agree that the letter contains the quoted language, but disagree that the letter reflected any change in policy from -14-

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that which had been in force from the inception of the lease, rather than merely a decision to enforce the terms of the lease. 36. At a quarterly evaluation meeting on October 15, 1997,

Colonel Brown told North Star's President, Richard Fischer that he and his lawyers were "going to come up with a depreciated schedule" and "figure out some way to deduct that from your payments." Fischer Aff. ¶ 17, Ex. 21 We agree. 37. At a hearing before Judge Bruggink on February 11,

1999, Government counsel, Donald Kinner, stated on the record that: [i]f the primary reason to replace carpet is because of tenant damage, then it's the Army's responsibility . . . . if carpet has usable life left but for the tenant damage, well, then that would be on the Government's ­ and the Army understands that interpretation of the contract because that's what I think is the correct interpretation of the contract. Pl. App. at 123. We agree. 38. Absent excessive tenant abuse, ten-year old modern

carpet such as that used at North Star will last indefinitely if properly maintained. Aff.") ¶ 5. Affidavit of Lewis G. Migliore ("Migliore

Also, pet damage, particularly pet urine on carpet, Migliore Aff. ¶ 6.

ruins carpet, regardless of the carpet's age. We disagree.

Mr. Fischer testified that carpet needs Defendant's Proposed Findings Of -15-

to be repaired and replaced.

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Uncontroverted Fact 9; Def. App. 30-31, Tr. 139-40.

However, in

view of the holding in WDC West Carthage Associates v. United States, 324 F.3d 1359 (Fed. Cir.), and only for the purpose of this motion, we do not dispute that depreciation may not be assessed against ten year old carpet. 39. Section H.(4.) to the lease provides that: Incentive Fee Board: An incentive fee, for exceptional performance of standards contained in this annex, not to exceed 5 percent of the "Maintenance Rental", will be determined on an annual basis by a board composed of three (Army) Officers or civilian personnel who will evaluate the Developer's performance over the preceding twelve-month period. The board will make a determination within 60 days after the end of the period to grant all, some, or none of the incentive award fee. The 5 percent incentive fee shall not be applied to work ordered by the Government for damages or caused by occupants as contained in C.1.(t). (Emphasis added). Pl. App. at 55 § H.(4.).

We agree. 40. Article VIII of the lease provides that:

In addition to rents stipulated in Article IV of this Lease, the Government, at its option, may pay the Developer an incentive fee not to exceed 5 percent (5%) of the maintenance rental for all housing units, for the period of time for which Developer's performance of the obligations and responsibilities contained herein are evaluated and found by the Government to substantially exceed the established standards. The amount of the incentive fee shall be determined by an Incentive Fee Board based upon the performance of the Developer in operating the Premises in accordance with its obligation. Exhibit "C" contains the provisions to establish the makeup of the Board and the procedures for determining such bonuses

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Pl. App. at 4 Art. VIII. We agree. 41. For the seven years prior to the 1995 settlement of

Case 93-88-C, the Government evaluated North Star's performance over the preceding 12 month period and granted North Star 100% of the available awards. Fischer Aff. ¶¶ 3-4, Ex. 2. During that

time, the Government collected refuse once weekly, paid the cost of replacing occupant and pet-damaged carpet, paid the cost of repairing occupant-caused fire damage, and calculated downtime by totaling the number of released units and multiplying that total by three working days in order to arrive at the total available working days to perform the work, and when more than eight units were released in a five work-day period, two additional days for completion of change of occupancy maintenance were added for each unit in excess of eight. It was only after the Government

changed its interpretation of the lease with respect to those issues that the incentive fees were diminished and then eliminated altogether. We disagree. The affidavits of Ms. Harrell, Ms. Kiser,

Mr. Petersen, and Mr. Everett establish that the controversy regarding downtime arose before the 1995 settlement, and dispute that downtime was ever calculated "consecutively." 3; 6-8 ¶ 4, 9; 15-16 ¶¶ 2-3; 20-21 ¶ 6. Def. App. 4 ¶

We also disagree that

incentive fees were ever linked to the Government's -17-

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interpretation of the lease - those fees were linked to North Star's performance; including performance unrelated to downtime. Def. App. 22-23 ¶¶ 10, 11. 42. A $56,943.50 incentive fee award for North Star's 1995

performance was $10,674.15 below the maximum award amount because of the refuse collection and downtime issues. Ex. 12. Fischer Aff. ¶ 11,

A $39,000.00 incentive fee award for North Star's 1996

performance was $19,835.80 below the maximum amount, because of occupancy turn around time under the government interpretation. Fischer Aff. ¶ 13, Ex. 13. A $21,272.00 incentive fee award for

North Star's 1997 performance was $38,699.35 below the maximum because, it is believed, of the carpet replacement issue. Fischer Aff. ¶ 15, Ex. 18. The incentive fee awarded by the Army

in 1998 was $3,730.00 out of a possible $60,867.35, due to turnover time for units. Fischer Aff. ¶ 19, Ex. 22.

We agree with the amounts stated, but disagree with the impression that the amounts were dictated by the refuse collection and downtime issues. Mr. Petersen's affidavit

establishes that North Star's decision to create "a central trash collection point" was a factor in one award decision. 19 ¶ 4. Def. App.

We also disagree that incentive fees were ever linked to

the Government's interpretation of the lease - those fees were linked to North Star's performance; including performance

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unrelated to refuse collection and downtime issues. 22-23 ¶¶ 10, 11.

Def. App.

Respectfully submitted, PETER D. KEISLER Assistant Attorney General S/DAVID M. COHEN DAVID M. COHEN Director S/DONALD E. KINNER DONALD E. KINNER Assistant Director Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 305-7561 Facsimile: (202) 305-7644 Attorneys for Defendant

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

June 18, 2004

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Certificate of Filing I hereby certify that on June 18, 2004, a copy of the foregoing Defendant's Response To Plaintiff's Proposed Findings Of Uncontroverted Fact 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. access this filing through the Court's system. S/DONALD E. KINNER Parties may