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Case Nos. 98-621C and 04-103C (Consolidated) (Judge Hewitt) _____________________________________________________________________________ IN THE UNITED STATES COURT OF FEDERAL CLAIMS _____________________________________________________________________________ COMMONWEALTH EDISON COMPANY and EXELON GENERATION COMPANY, LLC, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. _____________________________________________________________________________ EXELON'S RESPONSE TO DEFENDANT'S MOTION FOR SUPPLEMENTAL FACT DISCOVERY _____________________________________________________________________________ OF COUNSEL: DONALD R. CASSLING NORMAN M. HIRSCH DAVID JIMÉNEZ-EKMAN CHRISTOPHER TOMPKINS Jenner & Block LLP One IBM Plaza Chicago, IL 60611 (312) 222-9350 THOMAS S. O'NEILL Exelon Nuclear Cornerstone II 5th Floor 4300 Winfield Road Warrenville, IL 60555 (630) 657-3770 May 3, 2004 Attorneys for Plaintiffs DAVID A. HANDZO Jenner & Block LLP 601 Thirteenth Street, N.W. Suite 1200 South Washington, D.C. 20005 (202) 639-6000 telephone (202) 639-6066 fax

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Table Of Contents Table Of Authorities ................................................................................................................. ii Table Of Contents To Appendix.............................................................................................. iii Introduction................................................................................................................................1 I. Factual And Procedural Background .............................................................................2 A. B. C. II. III. The Proceedings On The Government's Request For An Audit At The Outset Of Discovery. ..................................................................................2 Fact Discovery ...................................................................................................3 Expert Discovery ...............................................................................................5

The Court Should Not Order Any Relief Regarding Document Production Because It Is Unnecessary .............................................................................................6 The Court Should Not Order An Audit Because It Is Unauthorized And Inappropriate ..................................................................................................................9 A. B. Respectfully, There Is No Authority To Order The Informal Communications Implicit In An Audit ............................................................10 Alternatively, Even If It Were Authorized, An Audit Would Be Unwarranted Here............................................................................................11 ..........................................................................................................................13

Conclusion

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Table Of Authorities Cases Neal & Company, Inc. v. United States, 17 Cl. Ct. 511 (1989) ...................................11 Rules Of The United States Court Of Federal Claims Rule 26(a).....................................................................................................................10

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Table Of Contents To Appendix Transcript of Proceedings Before the Honorable Emily C. Hewitt on July 21, 2003 ...............1 Excerpts from Spreadsheet Showing Detailed Dry Cask Costs (CE 2007738).......................65

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Introduction The Government's Motion For Supplemental Fact Discovery (the "Motion") raises two issues, and only one of them is really in dispute ­ whether the Government should be able to conduct an "audit." Plaintiffs Exelon Generation Company, LLC and Commonwealth Edison Company (collectively "Exelon" or the "Plaintiff") believe that an informal "audit" is unauthorized and unnecessary, and the Government's motion should be denied. As Your Honor may recall, the Court's scheduling orders required the Government to file "any motions regarding supplemental fact discovery" ten days after Exelon's expert disclosures, or April 26, 2004. (3/18/04 Order.) The Court's Order cautioned that supplemental fact discovery "will be allowed only if justice shall so require and because discovery sought is of a nature that could not reasonably have been obtained prior to the close of fact discovery . . ." (Id.) The Government filed its Motion, and has asked the Court to order two kinds of relief: first, order Exelon to produce additional documents in three categories; and second, allow the Government to conduct an "audit" of (a) the actual expenses Exelon has incurred to date constructing dry cask storage, and (b) Exelon's costs of storing Spent Nuclear Fuel ("SNF") at its Zion station. The Government has not asked for permission to take any additional fact depositions in its Motion (or in correspondence or conferences with Exelon's counsel), and we therefore do not understand that the Government is seeking any additional fact depositions. As for the relief the Government has requested, the Motion should be denied for two reasons: (1) an order is not required permitting additional document discovery because Exelon is willing to produce additional documents relating to the topics identified by the Government ­ if there are any; and (2) an "audit" is unauthorized, unnecessary and inappropriate under the circumstances here.

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I.

Factual And Procedural Background. A. The Proceedings On The Government's Request For An Audit At The Outset Of Discovery.

As Your Honor may recall, this is not the first time the Government has made a request to conduct an "audit" of Exelon's damages claims. After the Court denied the Government's summary judgment motions, the Court asked the parties to make proposals regarding the proper and most efficient method for completing discovery. (6/10/03 Opinion & Order at 23.) The parties did not agree on the proper approach: the Government proposed requiring Exelon to submit expert reports on damages prior to any fact discovery, followed by an informal "audit" of those damages by the Government as well as formal fact discovery. (Defendant's Proposal For Further Proceedings Pursuant To The Court's June 10, 2003 Order at 8-9.) In contrast, Exelon proposed a traditional, non-Contract-Disputes-Act schedule in which the parties would conduct fact discovery first, and then submit expert reports based on fact discovery, and then conduct formal expert discovery. (ComEd's Response To The Court's June 10, 2003 Order at 1-2.) The Court set a hearing on July 21, 2003, during which the merits of the competing approaches were argued. During those arguments, Your Honor noted that "the opportunities that are provided for clarity in the record by formal depositions, interrogatories, requests for admission, you know, the standard documents and procedures people use in discovery, I would be very wary in this setting of having informal methods, unless you're moving in a 408 context." (7/21/03 Tr., App. at 35.1) And Your Honor stated that "it's very unlikely to lead to efficiencies in the resolution of the dispute to have informal proceedings unless they are settlement proceedings" (id. at 36), and that "I can't imagine how inappropriate [an audit outside of formal
References to "App." are to pages of the separate appendix filed with this response. Because the appendix contains proprietary material that has been designated as "Confidential Material" pursuant to the Protective Order, the appendix is being filed with the Clerk's office under seal.
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fact discovery] would be in this case" (id. at 34). While the Court did not officially rule on the request for an "audit," the schedule issued the next day was a traditional discovery schedule ­ with no provision for an audit. (7/22/03 Order.) B. Fact Discovery.

During the more than seven months of fact discovery under the Court's schedule, Exelon has provided the Government extensive discovery concerning Exelon's damages claims. In response to Government document requests, Exelon has provided the Government over 200,000 pages of documents2 and over 10,000 electronic files and e-mails. These documents and electronic files relate to Exelon's efforts to manage Spent Nuclear Fuel ("SNF") from the 1970s to the present, including Exelon's most recent efforts to mitigate the effects of DOE's breach of contract. In addition, Exelon has made available nineteen witnesses for both personal and Rule 30(b)(6) representative depositions, and responded to eighteen multi-part interrogatories. The depositions included witnesses familiar with matters ranging from the original execution of the Standard Contract in the early 1980s, to Exelon's efforts to manage SNF during the 1980s and 1990s, to Exelon's current and future plans to store SNF. Finally, Exelon provided detailed initial disclosures under RCFC 26(a)(1) (Gov't App. at 8-20; 83-106) which provided a roadmap for the Government's discovery efforts by identifying both the categories of damages claimed by Exelon and providing a rough estimate of the amount of damages in each category.3 Exelon also provided the Government with extensive material on topics for which additional discovery is sought in the Government's current Motion:
2

This total includes a substantial number of documents Exelon produced prior to the Court's July 22 Order, both during informal damages discussions between the parties and during coordinated discovery regarding the acceptance schedule. 3 In addition, as required by RCFC 26(e), Exelon provided amended initial disclosures during the course of discovery as additional facts came to light which had a material effect on these damages disclosures.

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Costs of ISFSI Construction at Dresden and Quad Cities. During fact discovery, Exelon produced expansive documentation regarding the costs incurred to date for ISFSIs at Dresden and Quad Cities and the costs of storing SNF. Exelon created and produced detailed spreadsheets exported directly from Exelon's accounting system which reflect the actual costs for these activities recorded on Exelon's books, and which are ultimately included in Exelon's audited financial statements.4 These spreadsheets provide both a summary or "rollup" of those costs as well as an extremely detailed accounting of each of the individual line items. A few representative pages of the spreadsheet are included in the Appendix filed with this motion. (App. at 65-86.) Exelon also produced numerous other spreadsheets maintained by the Exelon personnel working on the Dresden ISFSI project and budget documents for the Quad Cities ISFSI projects.5 In addition to these spreadsheets, Exelon made its Director of Accounting, Robert Dvorak, available for deposition regarding Exelon's accounting system and how these costs were captured. The Government also deposed the principal author of the Quad Cities ISFSI budget and at least one other person who assisted in its preparation. Costs Incurred at Zion Generating Station. Like the actual costs incurred at Dresden Station, Exelon provided extensive documentation of the costs it is currently incurring to store SNF at Zion Generating Station, which are similar to the post-shutdown operations and maintenance costs Exelon will incur at other stations as a result of DOE's breach of contract. Exelon has produced the budgets for Zion for the years 2003 and 2004, as well as numerous

These spreadsheets were bates numbered CE 2000004 and CE 2007738. The initial version of the spreadsheet was first produced on October 17, 2003. 5 For example, Exelon produced numerous documents reflecting financial information maintained by Exelon personnel on the Dresden 2-3 project, bates numbered CE 2005999 to CE 2006165, and extensive information related to the Quad Cities project, bates numbered CE 2000004 and CE 2000042 to CE 2000818.

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other documents related to accounting at Zion.6 In addition, Exelon produced detailed spreadsheets from its accounting system, similar to the excerpt contained in the Appendix (at 6586), which detail Exelon's actual costs at Zion in 2003.7 Exelon also made Vernon Voigt, its Zion Controller, available for deposition regarding Exelon's actual and budgeted costs at Zion station in 2003 and 2004. Cask Costs. Exelon has provided extensive documentation regarding its costs of purchasing dry storage casks. These documents include not only the contracts between Exelon and Holtec International, Inc. for the purchase of casks at Dresden and Quad Cities, but extensive documentation of Exelon's evaluation of competing bids to supply casks. Exelon also made the key individuals involved in Exelon's purchase of dry storage casks available for depositions. Property Tax Information. Exelon produced to the Government documents which reflect past and projected property taxes for all of Exelon sites at issue in this litigation in a supplemental production on April 9, 2004.8 C. Expert Discovery.

Following the close of fact discovery, Exelon provided the Government seven reports under Rule 26(a)(2) from five expert witnesses on a variety of issues that Exelon believes may arise in this case. Those expert reports concerned issues that were the subject of extensive fact discovery. The report of Exelon's damages expert, Michael Emmert, which the Government has included in the appendix to its motion (Gov't App. at 24-82), is 50 pages long. Mr. Emmert's
6

Detailed information related to 2003 actual costs is bates numbered CE 2007718 and CE 2007745. These documents are bates numbered CE 213305 to CE 213328, CE 212047, CE 2007747, and CE 2007748.
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198128.
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For example, Exelon produced Zion budget documents bates numbered CE 4000183 and CE 198125 to CE

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report comprehensively discusses the methodology he used to calculate Exelon's damages (Gov't App. at 37-54), and the specific information he examined to calculate each category of damages (id. at 55-72). In addition to the material that the Government included in its appendix, Mr. Emmert's disclosure included hundreds of pages of exhibits and schedules reflecting additional detail concerning the method and information Mr. Emmert used to calculate Exelon's damages. In addition to Mr. Emmert's Rule 26(a)(2) disclosures, on April 29, 2004, Exelon produced the workpapers of three of its experts, including eleven binders of Mr. Emmert's workpapers containing the primary materials reviewed by Mr. Emmert in reaching his conclusions.9 Also, Exelon produced the electronic documentation created by Mr. Emmert and another of its experts to support their respective reports. Exelon continues to work diligently to produce the remainder of the expert backup materials requested by the Government. As indicated in the Government's Motion (at 1), the Government's request for expert document discovery was made on April 19, 2004, four days after Exelon's expert disclosures. By April 29, 2004, Exelon had produced the materials described above, and Exelon continues to work to gather and promptly produce additional responsive materials. We anticipate completing this process shortly. II. The Court Should Not Order Any Relief Regarding Document Production Because It Is Unnecessary. There is simply no dispute over fact document discovery. The bottom line is that, to the extent they exist, Exelon has already produced extensive responsive documents in each of the

The vast majority of these materials are documents previously produced during fact discovery. In addition, Exelon has offered to make available to the Government an additional 23 boxes possessed by Mr. Emmert primarily containing copies of discovery material previously produced to the Government.

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three fact discovery categories identified by the Government. If the Government identifies something more in these categories that should be produced, and if it exists and is not privileged, Exelon will produce it. While there is no dispute, we also do not think that much, if any, additional production will be necessary. Answers to many of the Government's questions may be specifically available in the workpapers we produced after the Government filed its Motion (although almost all of those documents were also already produced in general fact discovery). The Government's Motion also appears to reflect that the Government believes that certain documents "should" exist and have not been produced. This may be a result of a misapprehension of the methods Mr. Emmert used to calculate damages. For example, the Government's Motion seeks additional information regarding Exelon's cost of capital on the incorrect assumption that Mr. Emmert's report states that "ComEd provided to him a weighted average cost of capital (`WACC') to calculate damages." (Motion at 4 (emphasis added).) That is not so. In fact, Mr. Emmert independently calculated Exelon's WACC using publicly-available information (which is contained in the workpapers Exelon recently produced). Similarly, regarding its request for cask cost information, Exelon is not certain how the Government came up with the cask cost range identified in the Government's Motion. The Government states (Motion at 5) that Mr. Emmert's report contains a cask cost estimate from $599,000 to $807,000 but, in fact, no such cask cost estimate appears on the page of Mr. Emmert's report cited in the Motion (Gov't App. at 60). The actual cask cost estimates used by Mr. Emmert are contained in Exhibit 3 to his report and those costs (like all of Exelon's damages) are then escalated and discounted to present value using the methodology Mr. Emmert outlines in his report. Mr. Emmert has used the same extensive documentation of Exelon's cask

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costs that has already been provided to the Government. Exelon is not aware of any additional information on which Mr. Emmert relies, beyond what has already been produced. Finally, we believe that it is necessary to briefly address the introductory comments or complaints, made at pages 1 to 4 of the Government's Motion, criticizing the designation of Mr. Emmert's report as "preliminary" and the lack of a "complete list of documents and data upon which he relied." Those comments may be irrelevant for the time being because, in fact, the Government has not asked for any specific relief on those grounds. However, we want to point out that the Government's criticisms are neither accurate nor well taken. First, the Government's suggestion that it may also later ask for additional discovery because Mr. Emmert's report is labeled "preliminary" is baseless. Mr. Emmert's report is labeled "preliminary" only because the trial in this matter is still over six months away. Exelon will continue to incur costs on a daily basis as a result of DOE's breach, and Mr. Emmert anticipates that, prior to trial, he will be required to supplement his opinion to incorporate updated actual cost information.10 This is information not available today because Exelon continues to incur costs. Furthermore, the Government has only partially quoted from the footnote on this issue, which further explains that "the damage quantification methodology described herein is not currently anticipated to be significantly modified." (Gov't App. at 29 n. 2.) There is no prejudice to the Government from Mr. Emmert's labeling his report as "preliminary." Second, the lack of a "complete list of documents" upon which Mr. Emmert relied would also offer no justification for additional fact discovery. Rule 26(a)(2) does not require a

To the extent that Mr. Emmert's supplemental report will be based on updated factual information, Exelon will continue to supplement its fact discovery as new documents responsive to the Government's requests as required by RCFC 26(e).

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"complete list" of documents; Mr. Emmert does include a comprehensive list of the kinds of documents used in the preparation of his report, which identifies over fifty specific documents he relied upon. (Gov't App. at 78-82.) In addition, Exelon has now produced eleven notebooks of backup documentation for the report. As noted in his report, Mr. Emmert had "access to the documents produced by Exelon and DOE." (Gov't App. at 78.) It would be unduly burdensome ­ and completely valueless ­ for Mr. Emmert to provide a list of every document that has been produced in this litigation: as noted above, Exelon has provided the Government over 200,000 pages of documents and numerous electronic files and e-mails. The Government already has equal access to all of this information.11 And, to the extent it deems appropriate, the Government can ask Mr. Emmert at his deposition about which documents received more attention than others. III. The Court Should Not Order An Audit Because It Is Unauthorized And Inappropriate. At the outset, we note that the Government has not defined what it means by an "audit." If an "audit" means a review by the Government's experts of Exelon's damages claims based on the documents provided by Exelon and the testimony the Government obtained during fact discovery, the Government obviously needs no agreement from Exelon or permission from the Court to perform an audit. Moreover, to the extent the Government determines that, in order to perform its analysis, the Government desires additional fact documents which are within the scope of previously-served fact discovery requests, Exelon is willing to provide reasonable additional access to documents. If this is what is meant by an "audit," there is no dispute: the
11

Indeed, Mr. Emmert has 23 boxes primarily containing discovery material that has already been produced to the Government, including depositions taken by the Government. Exelon has offered to let the Government inspect this material if it wishes. As noted above, Exelon produced Mr. Emmert's workpapers on April 29, 2004, which contain a subset of Exelon's production consisting of the primary documents Mr. Emmert considered in reaching his opinions.

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Government is free to perform this kind of analysis without any Court ruling, and we fully expect that the Government will do so. The bone of contention appears to be the same as it was at the hearing last July: whether the Government's privileges will also include informal, off-the-record, ad hoc access to Exelon employees like an independent financial auditor retained by the Company would. To that, Exelon strenuously objects for two reasons: it is unauthorized, and even if it were, it would be unwarranted here. A. Respectfully, There Is No Authority To Order The Informal Communications Implicit In An Audit.

In theory, there could be two potential sources for the authority to order an audit ­ the rules of this Court, or the Standard Contract. However, as revealed when Your Honor pressed the Government on this point during the July 21, 2003 hearing (7/21/03 Tr., App. at 25-38), neither source provides that authority here. First, the Rules of the United States Court of Federal Claims do not authorize discovery through "audit," or informal communications like those suggested by the Government. Rule 26(a) provides that in discovery, there will be initial disclosures, and then "methods to discover additional matter." Those methods are "depositions upon oral examination or written questions; written interrogatories; production of documents or things or permission to enter upon land or other property under RCFC 34 or 45(a)(1)(C), for inspection and other purposes; physical and mental examinations; and requests for admission." RCFC 26(a)(5). Neither an "audit" nor informal access to a party's agents is one of those methods. There is no other "catch-all" authority for ordering other methods of discovery. The Rules simply do not authorize the relief the Government seeks.

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Second, the Standard Contract also does not authorize an "audit" during litigation to verify a damages claim. To be sure, the Government has the right under the contract to "perform any audits or inspections necessary to determine whether [Exelon] is paying the correct amount under the fee schedule . . ." (Standard Contract Art. VIII.E.1 (emphasis supplied).) This is obviously not a dispute over the correct payment amounts. However, at the July 21, 2003 hearing, the Government asserted that the provision which authorized an audit was Article VIII.E.2, which states, "Nothing in this contract shall be deemed to preclude an audit by the General Accounting Office of any transaction under this contract." This is obviously not a transaction under the Standard Contract and it is not the General Accounting Office that seeks the audit. These provisions of the Standard Contract provide no authority for an audit. Nor does the case cited by the Government confer any authority to order an audit. That case appears to involve an audit that was begun outside of litigation pursuant to agreement between the parties. Neal & Company, Inc. v. United States, 17 Cl. Ct. 511, 514 (1989). And as Your Honor recognized, while audits may be common in cases under the Contract Disputes Act ("CDA"), this is not a CDA case. (7/21/03 Tr., App. at 30). With all due respect, we do not believe that there is any authority to order an "audit," and the Government's request should therefore be rejected. B. Alternatively, Even If It Were Authorized, An Audit Would Be Unwarranted Here.

Even if it were authorized, the Government should not be permitted the proverbial "second bite at the apple" it now seeks. As described above, the Government's fact discovery in this case, involving hundreds of thousands of pages of documents and nineteen witness depositions, can only be described as extensive. The Government was able to obtain ­ and should have obtained ­ through fact discovery all of the information the Government may have 11

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reasonably needed to perform whatever expert analysis it deemed prudent. As we understand it, the Government's "audit" would have two components: access to documents and personnel. It had both of those, in spades, during fact discovery. The Government was free to, and often did, have its experts sit in fact depositions and propose questions to ask. Permitting an "audit" now would simply give the Government a second and unwarranted chance to ask things the Government should have inquired about during the first go-round. Moreover, the vehicle suggested by the Government for obtaining this additional information ­ informal oral access to Exelon employees ­ is destined to create problems. Without a formal record of the information provided, there could be disputes about what was said; that is, after all, why depositions are sworn and on the record. With attorneys participating in these interviews, they could become witnesses. As the Court observed on July 21, 2003, this is not part of a settlement process. Nor is it an attempt by one party to verify the good faith representation regarding the size of a claim by another party through an audit. Rather, this is drawn out, contested litigation of a large-scale, disputed commercial claim. Your Honor properly observed that, against this factual context: "I can't imagine how inappropriate [an audit outside of formal fact discovery] would be in this case" (id. at 33). After the extensive fact discovery Exelon has provided over the last eight months, almost entirely without incident or dispute, the Court's observation remains as true today as it was last summer.

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Conclusion The Government's Motion should be denied. There is no dispute over document discovery: as it did during fact discovery, Exelon is working to provide the Government with documents that it has requested, to the extent they exist. The Government's audit request is unauthorized and unfounded, and amounts to an unfair attempt to get a "second bite at the apple." The Government has not shown it is entitled to any relief, and its Motion should be denied. Dated: May 3, 2004 Respectfully submitted, By: /s David A. Handzo (by /s Christopher Tompkins) DAVID A. HANDZO Jenner & Block LLP 601 Thirteenth Street, N.W. Suite 1200 South Washington, D.C. 20005 (202) 639-6000 telephone (202) 639-6066 fax COUNSEL FOR PLAINTIFFS EXELON GENERATION COMPANY LLC and COMMONWEALTH EDISON COMPANY, on their own behalf and on behalf of MidAmerican Energy Company, successor-in-interest to IowaIllinois Gas and Electric Company

Of Counsel: Donald R. Cassling Norman M. Hirsch David Jiménez-Ekman Christopher Tompkins Jenner & Block LLP One IBM Plaza Chicago, IL 60611 (312) 222-9350 Thomas S. O'Neill Exelon Nuclear Cornerstone II 5th Floor 4300 Winfield Road Warrenville, IL 60555 (630) 657-3770

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Certificate of Filing and Service I hereby certify that on this 3rd day of May 2004, a copy of the foregoing "Exelon's Response To Defendant's Motion For Supplemental Fact Discovery" 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. Parties may access this filing through the Court's system. I also hereby certify that on this 3rd day of May 2004, I caused a copy of Appendix In Support Of Exelon's Response To Defendant's Motion For Supplemental Fact Discovery, which was filed separately under seal, to be served via hand delivery on: HAROLD D. LESTER U.S. Department of Justice Commercial Litigation Section Civil Division 1100 L Street, N.W. Room 12068 Washington, D.C. 20005 SHARON A. SNYDER U.S. Department of Justice Commercial Litigation Section Civil Division 1100 L Street, N.W. Room 12068

/s Christopher Tompkins Christopher Tompkins