Free Motion to Compel - District Court of Federal Claims - federal

Case 1:98-cv-00621-ECH

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS _______________________________________ ) COMMONWEALTH EDISON ) COMPANY, ) ) Plaintiff, ) ) v. ) No. 98-621C ) (Judge Hewitt) UNITED STATES, ) ) Defendant. ) _______________________________________) DEFENDANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS FROM HOLTEC INTERNATIONAL Pursuant to Rules 34(c) and 45 of the Rules of the United States Court of Federal Claims, defendant, the United States, respectfully submits this motion to enforce the subpoena duces tecum served upon nonparty Holtec International ("Holtec") in conjunction with this case. BACKGROUND Holtec manufactures casks used to store spent nuclear fuel. These casks are used by a number of utilities, including Commonwealth Edison ("ComEd"). On December 31, 2003, we issued a subpoena duces tecum, consisting of five document requests, upon Holtec. App. 1.1 We requested documents relating to solicitations and the procurement, fabrication, and delivery of certain casks. We also requested documents relating to the costs (including labor, material, and overhead costs) for the design, licensing, and manufacture of the casks. To determine if the costs that ComEd claims that it has incurred and that it claims it will incur in the future in purchasing spent nuclear fuel storage casks are reasonable, we must conduct an extensive analysis, potentially with the assistance of expert witnesses, of costs over the 16
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"App. __" refers to appendix that accompanies this motion.

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years that Holtec has manufactured these casks and examine cost trends that have occurred in the past and are likely to occur in the future. This analysis requires the examination of many of Holtec's pricing documents. ComEd has asserted in this litigation that Holtec will build its Independent Spent Fuel Storage Installations ("ISFSI") and will supply casks for ComEd. Therefore, only Holtec possesses and can supply the documents that are central to this issue. In this case, ComEd claims damages of hundreds of millions of dollars, a significant portion of which is attributed to costs of building ISFSIs and purchasing casks.2 As a basis for the damages figures supplied in its December 23, 2003 Rule 26 disclosures, ComEd relies upon the actual costs of building its ISFSI at its Dresden 1 nuclear facility, the estimated costs of building its ISFSI at its Quad Cities site, and the actual costs to Exelon Generation Corporation (which now owns ComEd) for its ISFSI at Peach Bottom. On January 14, 2004, Holtec sent us its objections to our subpoena. App. 26. Holtec objects to the subpoena, claiming the subpoena is overly broad, overly burdensome, and not relevant. On January 16, 2004, January 20, 2004, and January 26, 2004, we initiated calls to Holtec's outside counsel in an attempt to narrow the request for documents and to address concerns raised by Holtec. During those conversations, Holtec complained that the request covered 16 years of business. It also complained that our definition of the term "costs" was too broad and was confusing. Finally, it complained that the information we seek is proprietary.

Because ComEd has stamped the amount of its damages claim, as well as the amount of damages that it seeks relating to spent fuel storage casks, as subject to the protective order entered in this case, and because this motion involves a third party that is not subject to the protective order, we are not able to identify any specific information about ComEd's damages claim in this filing. 2

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As a result of the January 20, 2004 telephonic conference, we narrowed our request for documents on the three issues that Holtec mentioned during the telephonic conference. Our January 27, 2004 letter to Mr. Maneri detailed the scope of our narrowed request. App. 30. We agreed to limit requests numbers 1 and 2 to bid proposals, the final cost to the utility, and the signed contract between Holtec and each utility. For requests numbers 3, 4, and 5, we agreed to limit our request to: all cost analyses performed by Holtec for each project which demonstrate Holtec's estimated cost of the project to Holtec; documents showing the actual cost of the project upon completion; documents that show a comparison of actual to estimated costs for each project; and management level reports that show the cost to build the casks. Holtec responded to our January 27, 2004 letter on January 29, 2004, reiterating its unwillingness to comply with the subpoena, even as narrowed. App. 32. Holtec counsel advised us that Holtec keeps its documents in binders arranged by project. We have requested the bid proposals, which we assume would be located at the beginning of the project binders, and the final price to the utility and the contract, which we assume would be located at the back of the project binders. Pulling these types of documents from project binders should be a relatively easy task given the manner in which we have substantially narrowed our production request and the manner in which Holtec keeps files its documents. Further, we have offered to send an attorney or paralegal to Holtec's offices to assist Holtec in the process of retrieving and copying documents from Holtec's files. Thus, we have compromised significantly and narrowed our request in response to Holtec's assertion that responding to the initial subpoena represents a hardship.

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ARGUMENT I. THE DOCUMENTS THAT WE SEEK FROM HOLTEC ARE RELEVANT AND NECESSARY TO OUR ANALYSIS

Holtec has no basis to assert that the documents we seek are irrelevant to our defense of this litigation. ComEd is claiming damages of hundreds of million of dollars, based almost exclusively upon estimates of what it expects to pay in the future for casks and ISFSI construction. As part of its damages scenarios, ComEd predicts future inflation in the industry and future cost trends relating to casks and ISFSI development. In fact, it bases its future projections on anticipated costs of casks and services from Holtec, the entity from which we are attempting to obtain information through this subpoena. We are seeking documents relating to the cost to Holtec of manufacturing casks for two reasons. First, we anticipate that our experts will perform a market analysis of the cask and ISFSI construction market to determine if there is space ­ both adequate demand for the products and a healthy profit margin ­ in the market for additional cask and ISFSI manufacturers. An economic analysis can determine if Holtec's profits are unusually high and the likelihood that others will enter the market creating more competition and lowering overall prices. If this economic analysis establishes that other manufacturers are likely to enter the market, which would likely create competitive pressures that would reduce market prices, ComEd's prospective damages based upon Holtec's current costs are necessarily too high and would need to be adjusted downward. Because the bulk of ComEd's damages are future damages, prospective market trends in cask and ISFSI manufacturing are an important factor in the Government's review of ComEd's damages. It would be extremely difficult to construct an adequate

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market-wide economic analysis without the documents concerning the manufacture, design, and installation of the casks and ISFSIs. Alternatively, even if an economic analysis established that new entrants into the market are unlikely, a review of the costs to Holtec to produce casks and ISFSIs would provide further understanding into ComEd's future damages. It is unlikely that the costs of casks and ISFSIs will remain static over the next 10 to 40 years, the period when ComEd will allegedly be purchasing casks and constructing ISFSI. Based upon a review of the actual costs incurred by Holtec to design, manufacture, engineer and license its products, we can determine whether and the amount by which these costs will decrease over time. Only an economic analysis of Holtec's costs can determine if the future costs asserted by ComEd as damages are reasonable. Only Holtec can provide information about its costs and profits in producing these casks, information that is essential for our analysis as to whether ComEd's damages are reasonable. Although Holtec has expressed concern about producing proprietary information, the protective order filed in the case protects all proprietary documents and information produced by parties and non-parties to the litigation. In addition to documents regarding Holtec's costs to design, manufacture, engineer, and license its products, we are also seeking documents and information about the prices that Holtec has charged to each of its nuclear utility clients over time, again in an effort to determine if the estimated costs that ComEd is assuming in its damages claims are reasonable. By analyzing the amounts that Holtec has charged for these products over the course of its 16 years in business, we can determine whether ComEd's estimates are reasonable.

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II.

HOLTEC'S OBJECTIONS TO OUR SUBPOENA LACK MERIT

Holtec claims that our document production request is overly broad and burdensome, citing to certain definitions included in the document request. These are merely generic claims invoked as an attempt to avoid having to comply with the subpoena, proven by the fact that, despite our attempts to narrow the scope for all five requests, see January 27, 2004 letter (App. 30), Holtec steadfastly refuses to cooperate with our document request. In addition to the concessions contained in the January 27, 2004 letter, we agreed to accept electronic versions of documents and to accept synopses of projects, but Holtec refuses even to discuss agreement to any production. The fact that Holtec is not a party to this case does not relieve Holtec of its obligation to supply documents that are, indeed, relevant to this case. Holtec supplies casks used for spent nuclear fuel storage. The nuclear industry is a highly regulated industry, and, as a result, the regulatory requirements applicable to the industry ensure that there are documents available for review by Government entities. It is a cost of doing business in this industry, and companies in this industry structure their record keeping as part of the cost of doing business. Holtec has sold, or has contracts to sell, products and/or services to a large sector of the nuclear industry. In fact, Holtec has a very high share of the market for these casks. Holtec should not be able to use a highly regulated and publicly funded industry to make profits, but to refuse to provide information about the cask business when the information it possesses about cask costs are an integral part of the damages claimed by the plaintiff in this case. When faced with damages of the magnitude of those being claimed by ComEd, it is imperative that we determine the reasonableness of these claims against the Federal Treasury. 6

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Holtec further argues that we should obtain these documents from other sources, such as other nuclear utilities that are also plaintiffs in similar cases. The spent nuclear fuel cases have not been consolidated. Therefore, other nuclear utilities are not parties to this litigation. Holtec relies upon one court decision as support for this point. However, that decision, Haworth, Inc. v. Herman Miller, Inc., 998 F.2d 975 (Fed. Cir. 1993), stands for the proposition that, when seeking discovery of information that is as likely to be in the possession of its party-opponent as a nonparty, the party seeking discovery must first compel discovery of the information from its party-opponent before doing so against a nonparty in an ancillary discovery proceeding. In Haworth, Herman Miller moved to compel production of a settlement agreement between its party-opponent, Haworth, and a nonparty, Allsteel, from Haworth in an ancillary discovery proceeding. Id. at 976. Because Haworth was as likely to have a copy of the settlement agreement as Allsteel, the district court in the ancillary proceeding required Herman Miller to request the court in its case to compel the agreement from its party-opponent before seeking the same discovery from Allsteel in the ancillary proceeding. Id. at 978. Even disregarding the distinction that this dispute does not involve an ancillary discovery proceeding in another jurisdiction, Haworth does not apply to the facts of this dispute. The cost information we have requested from Holtec is not likely to be in the possession of the utility plaintiff in this case, or, for that matter, in the possession of any of the utility plaintiffs in any of the other similar cases pending before this Court. Only Holtec will have the documents identifying the costs to it for the ISFSI products it sells. Therefore, the Haworth case does not provide Holtec the relief it seeks, and certainly does not stand for the proposition that nonparties are exempt from their obligation to respond to valid subpoenas. See Truswal Systems Corp. V. Hydro-Air Engineering, Inc, 813 7

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F.2d 1207, 1210 (Fed. Cir. 1987) ("administration of justice would not be aided, however, by a rule relieving all persons from giving particular evidence on the sole ground that they are not parties to the suit"). CONCLUSION For the foregoing reasons, we respectfully request that this Court order Holtec to respond to our subpoena, as narrowed by our January 27, 2004 letter. Respectfully submitted, PETER D. KEISLER Assistant Attorney General s/David M. Cohen DAVID M. COHEN Director OF COUNSEL: SHARON SNYDER MARIAN E. SULLIVAN Commercial Litigation Branch Civil Division Department of Justice Washington, D.C. 20530 JANE K. TAYLOR Office of General Counsel Department of Energy Washington, D.C. 20585 s/Harold D. Lester, Jr. HAROLD D. LESTER, JR. Assistant Director Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 305-7562 Fax: (202) 307-2503 Attorneys for Defendant March 12, 2004

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CERTIFICATE OF FILING, AND CERTIFICATE OF SERVICE I hereby certify that on this 12th day of March 2004, a copy of foregoing "DEFENDANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS FROM HOLTEC INTERNATIONAL" 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 certify under penalty of perjury that on this 12th day of March 2004, I caused to be served by United States mail (first-class mail, postage prepaid) copies of "DEFENDANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS FROM HOLTEC INTERNATIONAL," addressed to counsel for Holtec International, as follows: FRANCIS P. MANERI Dilworth Paxson LLP 457 Haddonfield Rd., Suite 700 Cherry Hill, NJ 08034 856-663-8855

s/ Harold D. Lester, Jr.