Free Motion for Reconsideration - District Court of Federal Claims - federal

Case 1:98-cv-00168-FMA

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

No. 98-168 C, 02-1632C Judge Francis M. Allegra

MEMORANDUM IN SUPPORT OF PLAINTIFF'S MOTION TO RECONSIDER STAY OF CASE Based on the in camera submission of the Government respecting a potential criminal investigation of North Star, on April 3, 2003 the Court entered a stay of litigation in Case Nos. 98-168C and 02-1632C. The Government made its in camera submission on March 28, 2003. Earlier that week North Star received a letter from the Department of the Army, dated March 24, 2003, which very generally outlined audit findings. The Government is apparently using these findings to instigate a criminal investigation of North Star and a stay of North Star's case before the Court. A copy of the March 24 letter is attached hereto as Exhibit A. Placed in proper perspective and described herein, based on the lease and ongoing correspondence between the Government and North Star, it is respectfully suggested that these so-called audit findings are completely unsupported and warrant neither a criminal investigation nor a stay of litigation. Rather, it appears clear that the Government, for reasons known only to those who initiated this potential investigation, is punishing a government contractor which, other than for this one facility, receives uniformly high marks for its efforts in military housing. Moreover, North Star has had no opportunity to respond to these "audit findings" because the Government will not

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even provide a copy of the underlying audit report and no entrance or exit interviews have ever been conducted. A copy of the Government's most recent letter of April 28, 2003 is attached hereto as Exhibit B. Had the Government permitted North Star to respond to these allegations and been willing to listen to the facts there would be no valid basis for continuing to investigate. For those reasons and those set forth below, North Star respectfully requests that the Court reconsider its ruling and lift the stay of the case in its entirety. Alternatively, North Star seeks a partial lifting of the stay which would permit document discovery and dispositive motions to proceed. Moreover, the Government should be ordered to furnish copies of all requested audit reports to North Star, as has been previously promised. I. North Star Has Not Received a Copy of the Audit Reports it has Requested North Star has made repeated requests for a copy of the audit report, which the Government previously promised to provide. As set forth in the correspondence attached hereto as Exhibit C, as of February 28, 2002, an audit report had been received by the Government. North Star requested a copy of the audit report on March 15, 2002, but did not receive one. And, in a letter dated April 12, 2002, also included in Exhibit C, then Chief of Housing, Thomas Petersen, stated that North Star could obtain a copy of the 13 Dec 2001 audit from the Housing Manager, and that the Government would be conducting a further audit of North Star. To date North Star has not received a copy of the December 13 audit report or any others. In a letter dated September 19, 2002, the Government told North Star that it could expect the specifics of the next audit report by the end of September. Having received nothing, North Star requested copies of the audit report on October 15, 2002, March 7, 2003, and March 17, 2003, and again on April 16, 2003. Although the Government's March 24, 2003 letter (Exhibit A) indicates that this audit report is complete, the request has been refused. In addition to being

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deprived of an audit report, and contrary to best practices, North Star has also never been afforded the courtesy of an entrance, interim, or exit interview as is provided by other audit agencies such as the Defense Contract Audit Agency and the General Accounting Office. See DCAA Contract Audit Manual §§ 10-212, 4-302, 4-303, 4-304; GAO Auditing Standards § 7.4. Accordingly, North Star respectfully requests that the Court order the Government to provide it with a copy of both the December 13 audit report and the audit report referred to in the Government's March 24 letter. II. The Audit Report's "Findings" Do Not Implicate North Star in Any Wrongdoing A. As Has Been Repeatedly Explained by North Star, the Lockset Issue Represents an Immaterial and Inadvertent Mistake for Which the Government Has Already Been Reimbursed

The genesis for the audit at issue here was the Government's allegation that North Star installed used locksets and billed for new ones. However, contrary to the Government's statement, after a new site manager took over who was unfamiliar with the practice, North Star replaced the cylinder portion of the lockset (where the key hole is), but mistakenly did not replace the outer portion of the lockset. After the project manager realized his error, North Star reimbursed the Government for the $135 overcharge. North Star has made repeated attempts to discuss the issue with the Government, as demonstrated by the letters included in Exhibit C dated March 15, 2002, October 15, 2002, and March 4, 2003 to no avail. B. As Has Been Repeatedly Explained by North Star, the Issue Respecting the Contents of the Facility History Files Is Not a Lease Violation

The correspondence also demonstrates North Star's attempts to communicate with the Government respecting the alleged issue of the facility history files. As set forth in the letters dated January 17, 2002, March 15, 2002, October 15, 2002, and March 4, 2003, there were no documents missing from North Star's files. Rather, North Star previously maintained work

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authorizations in a separate on-site filing area since work authorizations tend to be thick and occupy significant file space. Indeed, as set forth in the letter dated January 17, 2002, the Contracting Officer's Representative told North Star's site manager that North Star's practice of storing documents in the maintenance office rather than in file folders is "totally acceptable" as long as an appropriate reference system is installed. When the auditors were reviewing North Star's facility history files in response to the lockset issue, North Star informed the auditors where the work authorizations were located and offered to retrieve the boxes for them. The auditors responded that they did not wish to see them. Later, when the Government requested review of the work authorization portion of the files, North Star provided them for the Government's review. In addition, at the Government's request that North Star store work authorizations inside the facility history files, North Star complied and consolidated their files. Regardless, the Government continues to harass North Star on this issue. C. There is No Basis for a Criminal Investigation or Stay of Litigation Based on Allegations Respecting Specialized Labor Charges

The Government's allegations of unsubstantiated specialized labor charges by North Star are equally specious. Pursuant to Section C.1.(t) of the lease, the Contracting Officer specifically directed North Star to bill the Government at the labor rates set forth in the Department of Labor Wage Determinations listed in the Service Contract Act ("SCA"). Pursuant to that direction, North Star has been charging specialized labor rates for specialized work performed by qualified persons employed by it. In October 2002, North Star was directed to bill the Government at the general maintenance rate for all work performed regardless of the type of work. Because the Government refused to pay any invoices it disagreed with, including undisputed amounts, North Star revised its billings to reflect the general maintenance rate for all work performed, with a

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reservation of rights to seek payment in the future at the appropriate specialized rates. Thus, the agreement is a contract argument and nothing more. Neither the lease nor other contract documents required that SCA rates be paid to North Star employees during the maintenance phase of the project. Indeed, as set forth in a December 9, 2002 letter from the Department of Labor ("DOL"), attached hereto as Exhibit D, the DOL determined that the SCA did not apply and that the "Contracting Agency, U.S. Army, Corp. of Engineers, left out the required stipulations in the contract that notifies the Contractor, North Star Alaska Housing, that SCA applied and no attempt was made to include a Wage Determination." Moreover, examining the economics of the situation, the reimbursements for labor that North Star has received from the Government on work authorizations in 2002, even when charged at the Government-directed specialized rates, do not cover North Star's expenses for the work. See Affidavit of Rhonda Sekyra. As North Star has told the Government on several occasions, it loses money on Government ordered work authorizations and would prefer never to do them. Specifically, as set forth in the Affidavit of Rhonda Sekyra, Government work authorizations require approximately 50% of the site manager's work hours. Thus, when that supervision cost is direct charged to the cost of work authorizations for 2002, North Star loses almost $43,000 including the project overhead cost. North Star loses $17,419.62 even before any overhead is allocated. Indeed, even if the site manager's time is not directly allocated and his salary cost is merely included in project overhead cost, North Star loses $3,864 on the approximately $59,000 of labor charges for work authorizations. Finally, as illustrated by the Labor Rates-Comparables chart, attached hereto as Exhibit F, the rates North Star charges the Government for work authorizations are significantly less than

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those charged by other maintenance contractors in the Fairbanks area. Thus, the Government's "finding" respecting specialty rate charges is nothing more than a contract dispute, at best ­ and a contract dispute which, even if North Star wins, North Star will continue to lose money. D. The Government, Not North Star, Issues Work Authorizations

The Government claims that there were 26 instances where two work authorizations were issued for the same work. Under the lease, it is the Government, not North Star, who issues work authorizations for occupant-caused work for which North Star is entitled to reimbursement. Thus, there are several possible explanations for duplicate work authorizations, such as that the Government issued duplicate work authorizations, that work authorizations were inadvertently duplicated before being filed, or that the auditors are identifying as duplicates work authorization for the same type of work on the same units that actually arise out of different occurrences. There is no allegation that North Star charged the Government twice or that the Government paid twice for the same work. North Star is not aware of any instance in which the Government was inadvertently wrongly billed, although the Government's failure to identify the units for which alleged duplicate work authorizations were issued has restricted North Star's ability to confirm this. Moreover, the Government's allegation must be placed in proper perspective. The Government has alleged 26 instances of duplicate work authorizations out of a volume of hundreds of work authorizations ­ and approximately one thousand work authorization items ­ per year.1 III. Based on the Audit Findings Revealed to North Star, the Government Cannot Make the Necessary Showing to Justify a Stay of Litigation

In its letter, the Government also requests that North Star notify the Government when a Quality Control program has been implemented. As the Government is well aware, a Quality Control program was approved by Government officials and implemented by North Star at the lease's inception, and remains in place to this day. Indeed, a copy of this Quality Control program was provided to the Government during discovery in this litigation. 6

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In determining whether to stay litigation pending the outcome of a criminal investigation, the Courts look to whether the movant has made a clear showing that (1) the issues in the civil action are related and substantially similar to the issues in the criminal investigation; (2) hardship or inequity will exist if the civil case goes forward while a criminal investigation is pending; and (3) the duration of the requested stay is not immoderate or unreasonable. See St. Paul Fire and Marine Ins. Co. v. United States, 24 Ct. Cl. 513, 515 (1991) (citing C3, Inc. v. United States, 5 Cl. Ct. 659, 660 (1984)). With respect to prong one, the audit findings do not significantly overlap with the issues in Case Nos. 98-168C and 02-1632C. Although North Star raised the lockset and facility history file issues in Case No. 02-1632 for the limited purpose of illustrating the Government's behavior in using those issues to fail to consider incentive fee awards to North Star, none of the other issues identified in the Government's audit findings are part of the pending civil litigation. Accordingly, the stay should be lifted and litigation should proceed. With respect to prong two, because the issues in the civil litigation are distinct from the issues raised in the audit findings, there is no apparent hardship to the Government if discovery is permitted to go forward because permitting the civil case to go forward will not in any way compromise the criminal investigation. This is not a case where the civil litigation and criminal investigation will require the Government to "churn over the same evidentiary material," and thus discovery in the civil litigation can be easily tailored so as not to interfere at all with the subject matter of the criminal investigation. See id. at 516 (quoting Peden v. United States, 512 F.2d 1099 (1975)). Finally, with respect to prong three, North Star has not been privy to the length of stay requested by the Government, and although it is encouraged by the Court's order that Defendant's file a status report on or before July 1, 2003 and every sixty days thereafter, even this period is too long where there is no evidence of wrongdoing. Based on the first two

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prongs, a stay of litigation is not justified at this time because the civil litigation and criminal investigation do not implicate substantially similar or related issues, and proceeding with the civil litigation will not cause any hardship to the Government. IV. Alternatively, the Court Should Partially Lift the Stay to Permit Document Discovery and/or Dispositive Motions to go Forward As an alternative, North Star urges the Court to partially lift the stay so that North Star and the Government can at least proceed with document discovery. Proceeding with document discovery will not cause undue hardship to the Government and will permit the parties to prepare their respective cases for a Spring 2004 trial date. In addition, North Star urges a partial lifting of the stay to permit briefing to go forward on North Star's Motion for Summary Judgment on Counts I, II, III, IV, and V and the Government's Motion for Summary Judgment on Counts V and VII in Case No. 98-168C. North Star respectfully suggests that permitting the parties to brief and argue these motions for a possible dispositive ruling cannot impact any potential criminal investigation at all. WHEREFORE North Star respectfully requests that the stay be lifted for all purposes or, alternatively, that the litigation be reopened for the limited purpose of conducting document discovery and/or proceeding with briefing, argument, and rulings on all pending motions. North Star further requests that the Court order the Government to provide it with a full and complete copy of the December 13 audit report and the audit report that is the subject of the Government's March 24 letter. Respectfully submitted, s/ Paul W. Killian ____________________________________ PAUL W. KILLIAN Akin Gump Strauss Hauer & Feld LLP

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1333 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 887-4000 Dated: May 16, 2003

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CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing Memorandum in Support of Plaintiff's Motion to Reconsider Stay of Case was served electronically, this 16th day of May, 2003, on: Donald E. Kinner, Esq. Assistant Director Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Attorney for Defendant s/ Paul W. Killian _________________________ Paul W. Killian

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