PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Priya Anand, Partner; Douglas Carmichael, Partner
FROM: Patrick Gallagher, Associate
CC: Simone Laroche, Associate
DATE: February 20, 2025
RE: Litigation Reactivation Planning — Whitmore Aerospace LLC v. Hargrove-Dalton Defense Systems, Inc., No. 1:22-cv-10147-RMB (S.D.N.Y.)
CLIENT: Whitmore Aerospace LLC
MATTER NO.: 1019-00005
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I. Purpose and Executive Summary
This memorandum addresses contingency planning for the reactivation of the declaratory judgment action filed by Whitmore Aerospace LLC ("WAL") against Hargrove-Dalton Defense Systems, Inc. ("HDDS") on November 28, 2022. The action has been stayed since March 17, 2023, pursuant to the order of the Honorable Richard M. Brannigan, United States District Judge for the Southern District of New York, pending the conclusion of the Defense Contract Management Agency ("DCMA") administrative review of cost overruns under Prime Contract No. FA8620-19-C-0337, the Advanced Tactical Airframe Platform ("ATAP") program.
As of the most recent — sixth — joint status report filed March 6, 2025, ACO Lt. Col. Sandra M. Vickers has not yet issued a Contracting Officer's Final Decision ("COFD"). The DCMA field audit is complete, but the cost analysis remains under internal legal review at DCMA headquarters in Fort Lee, Virginia. Neither party has been given a firm timeline for the issuance of the COFD, and the administrative proceeding has now been pending for over two and a half years since the stay was entered. This prolonged timeline raises the possibility that the court may, sua sponte or on motion, inquire into the continued propriety of the stay.
Given these circumstances, we should prepare for reactivation of the litigation on relatively short notice once the COFD issues — or, alternatively, if the court lifts the stay due to undue delay. Proactive preparation now will allow us to move quickly when the triggering event occurs, minimizing the window of vulnerability for WAL and maximizing our ability to control the pace of the litigation.
This memorandum addresses the following topics:
(a) the procedural mechanics for reactivation of the stayed action;
(b) anticipated discovery needs, including document discovery, interrogatories, depositions, and third-party subpoenas;
(c) expert-witness requirements in the areas of government-contracts accounting and aerospace manufacturing;
(d) motion-practice strategy, including partial summary judgment on discrete issues, full summary judgment on causation, and potential Daubert motions;
(e) a proposed timeline from reactivation through trial; and
(f) a detailed budget estimate for the active litigation phases, incorporating fees incurred to date.
By way of background, the case involves WAL's single-count declaratory judgment claim seeking a declaration that Section 11.4 of the Teaming Agreement dated June 12, 2019 (the "Teaming Agreement") does not obligate WAL to indemnify HDDS for the $14,726,583 in cost overruns identified in the Cost Overrun Performance Determination ("COPD") dated August 1, 2022. HDDS has asserted a counterclaim for $14,726,583 in contractual indemnification, plus attorneys' fees under Section 11.6 of the Teaming Agreement. The case is assigned to Judge Brannigan for all purposes, with Magistrate Judge Allison P. Kurtz assigned for discovery supervision.
The core dispute centers on whether WAL's indemnification obligation under Section 11.4 is triggered when, as WAL contends: (i) the cost overruns were not "caused by" WAL's "acts or omissions" within the meaning of Section 11.4(b), but rather by force-majeure events (titanium price escalation), HDDS-supplied defective engineering specifications (rework), and HDDS's late delivery of government-furnished equipment (idle-labor charges); and (ii) HDDS's demand improperly includes $1,909,142 in overruns allocated to work packages other than WAL's assigned Work Package 4 ("WP-4").
II. Current Case Posture
A. Procedural History Summary
The procedural history of this action is summarized as follows:
Filing and Pleadings. WAL filed its Verified Complaint for Declaratory Judgment on November 28, 2022, in the United States District Court for the Southern District of New York. The case was assigned to the Honorable Richard M. Brannigan, United States District Judge, and the Honorable Allison P. Kurtz, United States Magistrate Judge, was designated for discovery supervision and general pretrial matters.
HDDS, represented by Leonard Trager and Megan Forsythe of Voss, Trager & Kendall LLP (900 17th Street NW, Suite 800, Washington, D.C. 20006), filed its Answer and Counterclaim on January 13, 2023. The counterclaim asserts a single claim for contractual indemnification under Section 11.4 of the Teaming Agreement, seeking recovery of $14,726,583, plus attorneys' fees under Section 11.6. WAL filed its Reply to the Counterclaim on February 3, 2023, denying all material allegations and asserting affirmative defenses including force majeure, contributory fault by HDDS, failure to satisfy conditions precedent to indemnification, and the contractual limitation on indemnifiable losses to WAL's Work Package.
Stay of Proceedings. WAL filed a Motion to Stay Proceedings Pending Completion of DCMA Administrative Review on February 10, 2023. The motion was supported by the Declaration of Catherine Soo-Hyun Park, WAL's Vice President of Government Contracts, who attested to the status and anticipated significance of the DCMA administrative proceeding, and the Declaration of Priya Anand, which set forth the legal basis for a stay under the primary-jurisdiction doctrine and principles of judicial economy. HDDS did not oppose the motion, and the parties filed a Joint Stipulation in Support of the Stay on February 24, 2023.
Judge Brannigan granted the stay on March 17, 2023, in a written order finding that: (a) the ongoing DCMA administrative proceeding was likely to resolve or substantially narrow the factual predicate underlying both the declaratory judgment claim and the counterclaim; (b) the primary-jurisdiction doctrine counseled deference to the DCMA's expertise in cost-overrun allocation under defense contracts; and (c) neither party opposed the stay. The stay order requires the parties to file joint status reports every 120 days advising the court of the status of the administrative proceeding and whether good cause exists to continue the stay.
Joint Status Reports. Six joint status reports have been filed to date:
1. First Joint Status Report — filed July 15, 2023 (reporting that the DCMA field audit was ongoing and expected to be completed within approximately six months);
2. Second Joint Status Report — filed November 12, 2023 (reporting that the DCMA field audit remained ongoing; no material developments);
3. Third Joint Status Report — filed March 11, 2024 (reporting that the DCMA field audit was nearing completion);
4. Fourth Joint Status Report — filed July 9, 2024 (reporting that the DCMA field audit had been completed and that the cost analysis had been referred to DCMA internal legal review at headquarters);
5. Fifth Joint Status Report — filed November 6, 2024 (reporting that the DCMA internal legal review remained pending; no timeline provided by DCMA); and
6. Sixth Joint Status Report — filed March 6, 2025 (reporting that the DCMA internal legal review continues; the parties jointly requested that the stay remain in effect; the next status report is due on or before July 3, 2025).
discovery and Scheduling. No discovery has been conducted in this action. No scheduling order has been entered. No depositions have been taken, no document productions have occurred, and no written discovery has been served. The case remains in a fully dormant posture with the exception of the periodic joint status reports.
B. DCMA Administrative Status
The DCMA administrative proceeding arises from the Cost Overrun Performance Determination ("COPD") issued on August 1, 2022, by Administrative Contracting Officer Lt. Col. Sandra M. Vickers. The COPD identified total cost overruns of $14,726,583 on Prime Contract No. FA8620-19-C-0337 (the ATAP program), allocated as follows:
• Work Package 4 (WP-4) — Titanium Structural Assemblies (WAL): $12,817,441 (87.03% of total overruns), comprising:
• Titanium raw-material cost escalation: $4,200,000
• Rework costs attributable to non-conforming machining tolerances: $5,100,000
• Idle-labor charges: $2,300,000
• Engineering change proposal ("ECP") implementation costs: $1,200,000
• Miscellaneous: $17,441
• Other Work Packages (Non-WP-4): $1,909,142 (12.97% of total overruns), attributed to work packages performed by HDDS or other team members, not WAL.
HDDS filed its formal response to the COPD and its request for a Contracting Officer's Final Decision on October 15, 2022, pursuant to the Contract Disputes Act, 41 U.S.C. § 7103. In its response, HDDS took the position that the full $14,726,583 in overruns should be allocated to WAL as the responsible subcontractor for WP-4 and other related support functions — a position WAL vigorously disputes, particularly with respect to the $1,909,142 in non-WP-4 overruns.
As reported in the Fourth Joint Status Report filed July 9, 2024, the DCMA field audit was completed at some point prior to that date. Since at least July 2024, the cost analysis has been under internal legal review at DCMA headquarters. Despite repeated inquiries by Ashford & Reeves LLP — WAL's government-contracts regulatory counsel — no firm timeline for the issuance of the COFD has been provided by DCMA. The internal legal review appears to involve complex questions regarding the proper allocation methodology for overruns under the cost-plus-incentive-fee ("CPIF") contract structure, including the application of the 70/30 overrun share ratio and the interaction between the COPD findings and the parties' Teaming Agreement.
Our coordination with Ashford & Reeves LLP (Harold Reeves and Natalie Cheng) has been ongoing throughout the stay period. Ashford & Reeves maintains direct contact with the DCMA Northern Virginia office and has reported that, while the internal legal review appears to be in its final stages, no definitive signal of an imminent COFD has been received. We continue to rely on the January 5, 2023 coordination letter establishing the immediate-notification protocol described further in Section III.C below.
C. Related Matters — Insurance and Lender Status
Meridian Surety & Insurance Group. WAL tendered HDDS's indemnification demand to Meridian Surety & Insurance Group ("Meridian") on September 22, 2022, seeking defense and indemnity coverage under both the Directors & Officers Liability Policy (Policy No. MSI-DO-2022-07814, with $10,000,000 aggregate limit and $250,000 retention) and the Commercial General Liability Policy (Policy No. MSI-CGL-2021-33291, with $25,000,000 aggregate limit and $500,000 self-insured retention).
Meridian issued a reservation-of-rights letter dated November 1, 2022, through its coverage counsel, Rachel Underwood. The reservation-of-rights letter identified two primary bases for potentially denying coverage: (i) the contractual-liability exclusion (Exclusion (b) of the standard CGL form), which excludes liability assumed under contract; and (ii) the government-contract exclusion (Endorsement GC-04), which excludes losses arising from cost overruns or disallowances under government contracts. Meridian reserved the right to deny coverage on either or both of these bases pending further investigation.
Despite a follow-up letter from this firm dated March 10, 2023, requesting that Meridian issue a definitive coverage determination, no such determination has been received. Meridian has neither agreed to provide a defense nor agreed to fund the declaratory judgment action. The matter remains in a state of reservation of rights. Upon reactivation of the litigation, we recommend sending a renewed demand to Meridian (addressed to Rachel Underwood) for a definitive coverage determination. If Meridian continues to withhold a determination, WAL should consider whether to initiate a separate coverage action or declaratory judgment proceeding against Meridian to resolve the coverage question. The potential availability of up to $35,000,000 in aggregate coverage (across both policies) is material to WAL's overall litigation posture and settlement calculus.
Ridgeline National Bank, N.A. WAL delivered an initial notice to Ridgeline National Bank, N.A. ("Ridgeline") pursuant to Section 6.07(b) of the Senior Secured Revolving Credit Agreement dated March 15, 2021 (the "Credit Agreement") on September 28, 2022, followed by a supplemental notice on December 5, 2022, reporting the filing of the declaratory judgment action. The Credit Agreement provides for a $75,000,000 senior secured revolving credit facility, of which $31,200,000 is currently drawn. No event of default has been declared or is anticipated as a result of the pending litigation. However, Section 6.07(b) of the Credit Agreement requires WAL to provide prompt notice of any material litigation or any development that could reasonably be expected to result in a Material Adverse Effect (as defined). A supplemental notice may be required upon reactivation of the litigation or the issuance of the COFD, depending on the substance of the DCMA's findings. We recommend preparing a draft supplemental notice for delivery to David Kreutz, WAL's relationship manager at Ridgeline, upon the occurrence of either triggering event.
Pinnacle Advisory Partners LLC. WAL's independent auditors, Pinnacle Advisory Partners LLC, have classified the potential indemnification liability as "reasonably possible" but not "probable" under ASC 450 (formerly SFAS No. 5). The contingent liability has been disclosed in the footnotes to WAL's audited financial statements for fiscal years 2022, 2023, and 2024 as a contingent liability of up to $14,700,000. No accrual has been recorded. Thomas Brennan, CPA, the engagement partner at Pinnacle, should be alerted if the COFD materially changes the risk profile — for example, if the COFD confirms the full $12,817,441 allocation to WP-4 and establishes a formal cost disallowance. In that event, reclassification from "reasonably possible" to "probable" may be warranted, which would require recording an accrual and could have implications for WAL's financial reporting, debt covenants, and credit facility compliance.
D. Fees Incurred to Date
Total fees and costs incurred in this matter through March 31, 2025, are $487,320. The phase-by-phase breakdown is as follows:
The original estimated litigation budget through trial, as set forth in the engagement letter dated November 1, 2022, was $1,800,000 to $2,400,000 in attorney fees. A revised budget memorandum dated April 15, 2023, prepared by Douglas Carmichael, incorporated reduced dormancy-period monitoring costs of approximately $100,000 per year during the pendency of the stay. The current fee run rate during the stay period has been consistent with that revised estimate.
The active-phase budget projections set forth in Section IX below represent an update to the original engagement-letter estimate, incorporating the current state of the case, anticipated discovery complexity, and expert-witness requirements.
III. Reactivation Trigger Events and Procedural Mechanics
A. Trigger Events
We have identified four principal events that could trigger the reactivation of this litigation. The litigation team should be prepared to respond to any of these scenarios, though we consider the first to be the most likely near-term trigger.
1. Issuance of COFD by ACO Lt. Col. Vickers. This is the primary expected trigger. The stay was entered specifically to await the conclusion of the DCMA administrative review, and the issuance of the COFD will eliminate the predicate for the stay. Once the COFD issues, either party is likely to request that the stay be lifted, and the court will almost certainly agree. The substance of the COFD — including its findings on cost allocation, causation, and the share-ratio calculation — will be critically important to the framing of both WAL's declaratory judgment claim and HDDS's counterclaim.
2. Court sua sponte inquiry or order to show cause. Given the prolonged duration of the stay (now approaching two and a half years, with no end in sight), there is a non-trivial risk that Judge Brannigan may, on his own initiative, issue an order to show cause why the stay should not be lifted for undue delay. Judges in the Southern District of New York are generally attentive to docket management, and a case that has been dormant since March 2023 may attract scrutiny, particularly if the next joint status report (due July 3, 2025) again reports no material progress in the DCMA review. We should be prepared to respond to such an inquiry and, if the stay is lifted before the COFD issues, to proceed with discovery in the absence of the DCMA's final determination.
3. Motion by either party to lift the stay. Either WAL or HDDS could move to lift the stay at any time. For example, HDDS may grow impatient with the administrative timeline and determine that it is in its interest to proceed with the litigation and pursue its $14,726,583 counterclaim without awaiting the COFD. Conversely, WAL might determine that proceeding without the COFD offers a strategic advantage — for example, if WAL concludes that the COFD is likely to be unfavorable and would prefer to litigate the indemnification issue on the basis of the existing COPD rather than a more detailed and potentially adverse COFD. At present, we do not recommend that WAL initiate a motion to lift the stay, but we should revisit this assessment if the DCMA timeline extends beyond mid-2025.
4. Settlement of the underlying DCMA dispute between HDDS and the government. If HDDS reaches a settlement with the government that resolves the cost-overrun dispute under the prime contract, the predicate for the DCMA administrative review would be eliminated, which could moot or substantially reshape the indemnity claim. For example, if HDDS negotiates a settlement that attributes a significant portion of the overruns to government-directed changes or waives certain cost disallowances, the amount at issue in the indemnification dispute could be materially reduced. We should monitor this possibility through Ashford & Reeves, which may have visibility into HDDS's settlement posture with the government.
B. Procedural Steps Upon Reactivation
Upon the occurrence of a triggering event, the following procedural steps will be required to reactivate the case and move it toward a scheduling order:
Lift the Stay. The first step will be to file a joint letter or formal motion to lift the stay. If both parties agree that the predicate for the stay has been eliminated (e.g., upon issuance of the COFD), a joint letter to Judge Brannigan will likely suffice. If only one party seeks to lift the stay, a contested motion may be required. We recommend preparing a draft letter-motion in advance that can be finalized and filed within 24 to 48 hours of the triggering event.
Initial Pretrial Conference. Upon lifting the stay, we should request an initial pretrial conference pursuant to Federal Rule of Civil Procedure 16 and S.D.N.Y. Local Civil Rule 16.1. Given that no scheduling order has been entered and no discovery has been conducted, the case will effectively be starting from the beginning of the pretrial process. We anticipate that the court will refer the case to Magistrate Judge Kurtz for discovery supervision and case management, consistent with the prior assignment.
Rule 26(f) Conference. We expect the court to set a deadline for the parties' Rule 26(f) conference within 14 to 21 days of lifting the stay. At the Rule 26(f) conference, the parties will discuss the nature and basis of their claims and defenses, the possibilities for settlement or alternative dispute resolution, arrangements for initial disclosures, and a proposed discovery plan.
Initial Disclosures. Federal Rule of Civil Procedure 26(a)(1) requires the parties to serve initial disclosures within 14 days of the Rule 26(f) conference, unless otherwise ordered by the court or agreed to by the parties. We should prepare WAL's initial disclosures in advance so that they can be finalized quickly upon reactivation. A preliminary template is discussed in Section X below.
Proposed Case Management Plan. Following the Rule 26(f) conference, the parties will submit a proposed case management plan and scheduling order with proposed deadlines for discovery, expert disclosures, dispositive motions, and trial. We should propose realistic but efficient deadlines that allow WAL adequate time to develop its factual and expert record while maintaining forward momentum. The proposed timeline set forth in Section VIII below reflects our current assessment of the appropriate pace for this case.
C. Coordination with Ashford & Reeves LLP
Effective coordination with Ashford & Reeves LLP (Harold Reeves, Natalie Cheng) — WAL's government-contracts regulatory counsel — is essential to ensure that the litigation team receives prompt notice of COFD issuance and has access to the full administrative record.
Immediate Notification Protocol. Pursuant to the coordination letter dated January 5, 2023, Ashford & Reeves has agreed to alert Calderwood & Harkness within 24 hours of learning of the issuance of the COFD or any other material development in the DCMA administrative proceeding. Notifications are to be directed to Priya Anand, Douglas Carmichael, and Patrick Gallagher by email and telephone. This protocol should be reconfirmed at the next periodic check-in with Ashford & Reeves.
COFD Review and Analysis. Upon receipt of the COFD, Ashford & Reeves will provide the litigation team with a full copy of the COFD and any accompanying cost analysis, audit report, or supporting documentation. The litigation team will conduct a detailed review of the COFD to assess its findings, including the allocation of overruns between WP-4 and non-WP-4 work packages, the DCMA's conclusions on causation, and any determinations regarding the applicability of cost-accounting standards or FAR Part 31 cost principles.
Joint Assessment Meeting. A joint assessment meeting between the Calderwood & Harkness litigation team and the Ashford & Reeves regulatory team should be scheduled within 48 hours of COFD receipt. The purpose of this meeting will be to evaluate the COFD findings, assess the implications for the declaratory judgment action and HDDS's counterclaim, determine whether any immediate action is required (e.g., filing an appeal to the Armed Services Board of Contract Appeals), and coordinate the overall litigation and regulatory strategy.
IV. Anticipated discovery Needs
This section outlines the discovery that WAL will need to conduct — and the discovery to which WAL will need to respond — upon reactivation. Because no discovery has been conducted to date, the full scope of fact development lies ahead. The cost-allocation and causation issues at the heart of this case will require extensive documentary evidence, fact testimony from witnesses at both WAL and HDDS, and potentially third-party discovery from DCMA and titanium suppliers.
A. Document discovery
1. WAL Document Production (Plaintiff's Obligation)
As the plaintiff and the party bearing the burden of establishing its entitlement to declaratory relief, WAL will be subject to broad document requests from HDDS. We should anticipate producing documents in the following principal categories:
WP-4 Performance Records. All documents relating to WAL's performance of Work Package 4 — the titanium structural assembly fabrication for the ATAP program. This includes fabrication records, quality control records, inspection reports, non-conformance reports ("NCRs"), material review board ("MRB") dispositions, and corrective action reports. These documents will be central to the causation dispute, as HDDS will seek to establish that WAL's manufacturing processes were responsible for the $5,100,000 in rework costs.
Titanium Procurement Records. Titanium raw-material procurement records, including purchase orders, invoices, supplier correspondence, price-escalation notifications, and hedging or forward-contract documentation. These records are relevant to WAL's force-majeure defense on the $4,200,000 material cost escalation component. WAL will need to demonstrate that the titanium price escalation was an extraordinary, unforeseeable event beyond its control — consistent with recognized supply-chain disruptions in the aerospace-grade titanium market during the relevant period.
Rework Documentation. Root-cause analyses for non-conforming machining tolerances, including engineering investigations into whether the non-conformances were attributable to WAL's manufacturing process (e.g., tooling, CNC programming, operator error) or to errors or ambiguities in the HDDS-supplied engineering specifications. This documentation is critical to WAL's defense that the $5,100,000 rework component was caused by HDDS's defective specifications rather than WAL's workmanship.
Schedule and Labor Records. Schedule records, labor-hour logs, time-and-attendance records, and idle-labor charge documentation relevant to the $2,300,000 idle-labor component. WAL's position is that schedule delays — and the resulting idle-labor charges — were caused by HDDS's late delivery of government-furnished equipment ("GFE"), including tooling fixtures and test equipment that WAL required to proceed with fabrication and assembly operations. Documentation of GFE delivery schedules, delay notices, and cure notices will be essential.
Engineering Change Proposals. All engineering change proposals ("ECPs") and related correspondence relevant to the $1,200,000 ECP implementation cost component. WAL will need to identify which ECPs were directed by HDDS or the government (and therefore not attributable to WAL's acts or omissions) versus those initiated by WAL (which HDDS may argue are WAL's responsibility under the Teaming Agreement).
Internal Communications. Internal communications among WAL personnel — including Marcus Whitmore (CEO), Elaine Whitmore (CFO), Gregory Poole (General Counsel), and Catherine Soo-Hyun Park (VP, Government Contracts) — and communications between WAL and HDDS personnel (principally William Fong, SVP of Contracts & Procurement at HDDS) regarding cost performance, schedule status, overruns, and the indemnification dispute. These communications will include emails, memoranda, meeting minutes, and teleconference notes.
Contract Documents. The Teaming Agreement and all amendments thereto, subcontract purchase orders, task orders, and related contractual documents. While the parties presumably have copies of these documents already, they must be included in any production and identified in initial disclosures.
DCMA Correspondence and Submissions. All correspondence between WAL and DCMA, audit working papers shared with WAL by DCMA, and WAL's submissions to DCMA prepared through or in coordination with Ashford & Reeves LLP. Certain of these documents may be subject to work-product or attorney-client privilege to the extent they reflect legal advice from Ashford & Reeves; a privilege log will be required.
Litigation Hold Compliance. WAL's litigation hold has been in place since November 2, 2022. We must confirm that the hold remains in full force and effect, that all identified custodians' data (including email, electronic documents, and physical files) has been preserved continuously since that date, and that no data has been lost, deleted, or modified. A document readiness audit, as recommended in Section X below, should be conducted promptly to verify compliance and identify any potential preservation issues before reactivation.
2. HDDS Document Requests (Defendant)
WAL will need to serve comprehensive document requests on HDDS to develop the evidentiary record on cost allocation, causation, and the factual basis for HDDS's indemnification demand. We anticipate serving requests for production directed at the following categories:
Prime Contract File. HDDS's complete prime contract file for FA8620-19-C-0337, including the base contract, all modifications, and all attachments, exhibits, and incorporated documents. This file is essential to understanding the CPIF contract structure, the target cost of $412,000,000, the ceiling price of $470,000,000, and the 70/30 overrun share ratio and 60/40 underrun share ratio that govern the parties' financial relationship with the government.
Cost Accounting Records. HDDS's cost accounting records allocating overruns between work packages, including any internal analyses, worksheets, spreadsheets, or reports prepared by HDDS's cost-accounting department. WAL will need to understand the methodology HDDS used to attribute $12,817,441 of the $14,726,583 in overruns to WP-4 and whether that methodology is consistent with the COPD findings and applicable cost-accounting standards.
DCMA and AFLCMC Communications. HDDS's communications with DCMA and the Air Force Life Cycle Management Center ("AFLCMC"), including communications with ACO Lt. Col. Sandra M. Vickers and Program Executive Officer Col. Brian T. Matsuda, regarding cost overruns and the WP-4 allocation. These communications may reveal the government's own views on causation and allocation, which could support or undermine WAL's defenses.
COPD Response Documentation. HDDS's formal response to the COPD (filed October 15, 2022) and all supporting documentation. This is particularly important because HDDS's characterization of the overruns to the government may be inconsistent with its characterization in the indemnification demand to WAL — a potential source of admissions or impeachment material.
Engineering Specifications. HDDS's engineering specifications provided to WAL for the titanium structural assemblies, including specifications for the wing-box substructure, center fuselage longerons, and bulkhead fittings. Records of any specification errors, ambiguities, or revisions are critical to WAL's defense that the rework was caused by defective HDDS specifications.
GFE Delivery Records. HDDS's records regarding the delivery of government-furnished equipment to WAL, including delivery schedules, contractual delivery dates, actual delivery dates, delay notices, cure notices, and any correspondence with the government regarding GFE availability. These records are essential to WAL's defense that the $2,300,000 in idle-labor charges was caused by HDDS's late GFE delivery.
Internal Allocation Analysis. HDDS's internal analysis attributing overruns to WAL, including any documents underlying the September 9, 2022 indemnification demand letter sent by William Fong to Marcus Whitmore. This category may reveal the factual and analytical basis — or lack thereof — for HDDS's decision to demand the full $14,726,583 from WAL, including the $1,909,142 in non-WP-4 overruns.
Consultant and Advisor Analyses. While HDDS's communications with Voss, Trager & Kendall LLP are privileged, we should request any non-privileged analyses prepared by consultants, advisors, or independent accountants engaged by HDDS to evaluate cost responsibility, overrun allocation, or the merits of the indemnification claim. HDDS may have engaged a government-contracts accounting firm or technical consultant whose work product is not protected by privilege.
3. Third-Party Subpoenas
We should consider issuing subpoenas under Federal Rule of Civil Procedure 45 to the following third parties:
DCMA. To the extent permissible under Touhy regulations (32 C.F.R. Part 97), we may seek production of the COPD working papers, the field-audit report, and the cost analysis prepared by DCMA in connection with the administrative review. We recognize that the government is likely to resist such a subpoena, and that the Touhy regulations impose substantial procedural requirements, including a determination by the appropriate DoD official that disclosure is in the interest of the United States. As an alternative, we may seek to obtain these materials through the Freedom of Information Act ("FOIA"), or we may negotiate informal production through Ashford & Reeves, which has an established working relationship with the DCMA Northern Virginia office. The COFD itself, once issued, may be obtainable as a public record or through Ashford & Reeves without the need for a subpoena.
Titanium Raw-Material Suppliers. Once WAL's procurement records have been reviewed and the identities of the relevant titanium suppliers have been confirmed, we should consider issuing subpoenas for market-price data, pricing communications, and force-majeure or allocation notices that would support WAL's defense regarding the $4,200,000 material cost escalation. Independent evidence of market conditions — including industry-wide titanium price indices and supplier communications documenting supply-chain disruptions — will strengthen WAL's argument that the price escalation was a force-majeure event beyond its control.
B. Interrogatories
We recommend serving contention interrogatories on HDDS early in the discovery period to require HDDS to articulate the factual basis for its claims with specificity. In particular, the interrogatories should address:
• Attribution under Section 11.4. The factual basis for HDDS's contention that the full $14,726,583 — including the $1,909,142 in non-WP-4 overruns — is attributable to WAL under Section 11.4 of the Teaming Agreement, which by its terms applies only to costs arising from "Team Member's Work Package."
• Causation under Section 11.4(b). Identification of the specific WAL "acts or omissions" alleged to have "caused" each category of overrun — material cost escalation ($4,200,000), rework ($5,100,000), idle labor ($2,300,000), and ECP implementation ($1,200,000). This interrogatory will force HDDS to identify its theory of causation with respect to each component, which will be essential for framing the summary judgment record.
• Attorneys' Fees under Section 11.6. Identification and computation of the attorneys' fees HDDS claims under Section 11.6 of the Teaming Agreement, including the total amount claimed, the billing rates and hours of each attorney who performed work, and the specific provision of Section 11.6 under which fees are sought.
C. Depositions
Anticipated WAL Witnesses (Defense Depositions by HDDS)
HDDS will almost certainly seek to depose the following WAL witnesses. We should begin preparation well in advance of any deposition notices:
• Marcus J. Whitmore (CEO) — Expected to testify regarding high-level contract decisions, executive-level negotiations with HDDS (including the September 30 and October 14, 2022 meetings at which the indemnification demand was discussed), and WAL's overall relationship with HDDS on the ATAP program. Mr. Whitmore's testimony will require careful preparation, as HDDS will likely seek admissions regarding WAL's knowledge of cost overruns and its understanding of the indemnification obligation.
• Elaine Whitmore (CFO) — Expected to testify regarding the financial aspects of the overruns, including WAL's cost accounting for WP-4, the financial impact of the overruns on WAL, and the basis for WAL's position that certain overrun components are not attributable to WAL.
• Catherine Soo-Hyun Park (VP, Government Contracts) — Expected to be a key fact witness. Ms. Park was WAL's primary interface with HDDS on WP-4 performance issues and DCMA interactions, and she prepared the declaration supporting the stay motion. She is likely to be the most extensively deposed WAL witness.
• Gregory Poole (General Counsel) — HDDS may seek to depose Mr. Poole regarding non-privileged factual matters, such as the indemnification demand and WAL's response. We should be prepared to assert privilege as appropriate and, if necessary, seek a protective order limiting the scope of his deposition.
• WAL Manufacturing and Quality Managers (names to be determined) — HDDS will likely seek to depose the WAL personnel directly responsible for the titanium structural assembly fabrication, quality control, and rework activities. These witnesses will testify regarding the root causes of machining tolerance non-conformances and the operational details of WAL's manufacturing process.
WAL Depositions of HDDS Witnesses
WAL should plan to depose the following HDDS witnesses:
• William Fong (SVP, Contracts & Procurement) — Mr. Fong authored the September 9, 2022 indemnification demand letter and is the HDDS executive most directly involved in the cost-allocation methodology, the indemnity demand, the COPD response, and the GFE delivery issues. His deposition will be critical to establishing the factual basis (or lack thereof) for HDDS's attribution of the full $14,726,583 to WAL.
• Diana Castellano (President & CEO) — Depending on the evidence developed in document discovery, we may seek to depose Ms. Castellano regarding program-level decisions on the ATAP program, HDDS's relationship with the government on cost-overrun issues, and any executive-level involvement in the decision to pursue the indemnification claim against WAL.
• HDDS Engineering Leads for the ATAP Program (names to be determined from discovery) — WAL should depose the HDDS engineers responsible for the specifications provided to WAL for the titanium structural assemblies. Their testimony regarding specification accuracy, the origin of ECPs, and any known specification errors or ambiguities will be essential to WAL's rework defense.
• HDDS Cost-Accounting Personnel (names to be determined from discovery) — WAL should depose the HDDS personnel responsible for the cost-accounting methodology used to allocate overruns between work packages. This testimony will be critical to the partial summary judgment motion on non-WP-4 overruns and to the broader causation dispute.
• Renee Aldrich (VP & Associate General Counsel, Litigation) — Ms. Aldrich may have factual knowledge regarding the indemnification demand and HDDS's internal assessment of cost responsibility. While she will likely assert attorney-client privilege on many topics, she may be required to testify on non-privileged factual matters, such as the facts underlying the demand letter and any non-legal analysis of cost allocation.
Third-Party Depositions.
• DCMA Witnesses. Subject to Touhy regulations (32 C.F.R. Part 97), WAL should consider seeking the deposition of ACO Lt. Col. Sandra M. Vickers or her designee regarding the COPD findings, the allocation methodology used by DCMA, and the cost analysis underlying the COPD. We recognize that the government is likely to resist such a deposition, and we should assess the feasibility and cost-effectiveness of pursuing it through the Touhy process. If the COFD has issued by the time depositions commence, the need for a DCMA deposition may be reduced if the COFD provides sufficient detail on the allocation methodology.
D. Discovery Timeline Estimate
We propose an 8-to-10-month discovery period from the date of the Rule 16 scheduling conference, divided into four phases:
Phase 1 (Months 1–3): Initial Disclosures, Document Collection, and Written discovery. During this phase, the parties will exchange initial disclosures under Rule 26(a)(1), propound and respond to document requests and interrogatories, and begin collecting and reviewing documents for production. WAL should serve its document requests and contention interrogatories on HDDS as early as possible in this phase to maximize the time available for HDDS to respond.
Phase 2 (Months 3–6): Document Productions and Commencement of Depositions. During this phase, the parties should complete their document productions, and fact depositions should commence. WAL should prioritize depositions of HDDS witnesses with direct knowledge of the cost-allocation methodology and the indemnification demand, as their testimony will inform the partial summary judgment motion and the expert-witness engagement.
Phase 3 (Months 6–9): Completion of Fact Depositions and Expert Reports. During this phase, all remaining fact depositions should be completed, and the parties should exchange expert reports. WAL's opening expert reports should be served first, followed by HDDS's rebuttal reports and WAL's sur-rebuttal reports, in accordance with the scheduling order.
Phase 4 (Months 9–10): Expert Depositions and Close of discovery. During this final phase, all expert depositions should be completed, and all remaining discovery should be wrapped up. The close of discovery should align with the deadline for filing dispositive motions.
V. Expert Witness Requirements
The complexity of the cost-allocation and causation issues in this case will require expert testimony in two principal areas: (1) government-contracts accounting and damages analysis, and (2) aerospace manufacturing and technical causation. This section outlines the anticipated expert-witness requirements, qualifications, and budget considerations.
A. Damages / Government-Contracts Accounting Expert
Scope of Engagement. WAL will need a damages and government-contracts accounting expert to perform the following tasks:
(a) Analyze the DCMA cost-overrun findings set forth in the COPD and, when available, the COFD, and opine on the validity and reliability of the DCMA's allocation methodology;
(b) Opine on the proper allocation of overruns between WP-4 and non-WP-4 work packages, supporting WAL's position that the $1,909,142 in non-WP-4 overruns should not be attributed to WAL;
(c) Evaluate whether the $12,817,441 attributed to WP-4 was properly calculated under applicable cost-accounting standards, DCAA auditing standards, and FAR Part 31 cost principles;
(d) Assess each component of the WP-4 overruns — titanium material cost escalation ($4,200,000), rework ($5,100,000), idle labor ($2,300,000), and ECP implementation ($1,200,000) — and the causal nexus between each component and WAL's "acts or omissions" under Section 11.4(b) of the Teaming Agreement;
(e) Quantify any appropriate reduction in HDDS's claim based on overrun components attributable to HDDS's own conduct (e.g., defective specifications, late GFE delivery) or to force-majeure events (e.g., titanium price escalation) rather than to WAL's acts or omissions; and
(f) If necessary, opine on the operation of the CPIF contract mechanics, including the 70/30 overrun share ratio, the 60/40 underrun share ratio, the target cost of $412,000,000, and the ceiling price of $470,000,000, and how those mechanics interact with the Teaming Agreement's indemnification provisions.
Qualifications. The ideal candidate will be a CPA or equivalent professional with substantial experience in defense-contract cost accounting, DCAA auditing standards, Cost Accounting Standards ("CAS") compliance, FAR Part 31 cost principles, and CPIF contract mechanics. Experience testifying as an expert witness in government-contracts litigation or before the Armed Services Board of Contract Appeals or the Court of Federal Claims would be strongly preferred. We should identify candidates with credibility before Southern District of New York judges and familiarity with the types of cost-allocation disputes that arise in complex defense-program subcontracting arrangements.
Retention Strategy. We recommend beginning the identification and vetting process for this expert immediately, with a target of retaining the expert within 60 days under an engagement letter structured as a Kovel or consulting arrangement. This structure will preserve work-product protection for the expert's preliminary analyses and communications with the litigation team during the consultative phase. Once the expert's role transitions to testifying expert, the appropriate disclosures under Federal Rule of Civil Procedure 26(a)(2) will be made.
B. Aerospace Manufacturing / Technical Expert
Scope of Engagement. WAL will need an aerospace manufacturing and technical expert to perform the following tasks:
(a) Evaluate the root causes of the machining tolerance non-conformances that gave rise to the $5,100,000 rework component, including whether the non-conformances were attributable to deficiencies in WAL's manufacturing process or to errors, ambiguities, or unreasonable tolerances in the HDDS-supplied engineering specifications;
(b) Assess whether HDDS's engineering specifications for the titanium structural assemblies — including the wing-box substructure, center fuselage longerons, and bulkhead fittings — met applicable industry standards and were reasonably capable of being manufactured to the specified tolerances using standard aerospace-grade titanium machining processes;
(c) Evaluate the reasonableness of WAL's manufacturing processes for titanium structural assemblies, including CNC machining parameters, tooling selection, quality control procedures, and inspection methods;
(d) Opine on the causal link between HDDS's late delivery of government-furnished equipment and the $2,300,000 in idle-labor charges, including whether the GFE delays were the proximate cause of the idle labor or whether WAL could have mitigated the impact through alternative work sequencing; and
(e) If necessary, provide tutorial testimony at trial to explain titanium machining processes, non-conformance root-cause analysis, and the technical aspects of the ATAP program to the court.
Qualifications. The ideal candidate will be an aerospace or mechanical engineer with substantial experience in defense manufacturing, preferably with specific expertise in titanium machining and airframe structural assembly fabrication. Experience with military aircraft programs and familiarity with the types of titanium alloys and machining processes used in airframe substructures would be highly desirable. Academic credentials (advanced degree in aerospace or mechanical engineering) and prior expert-witness experience are preferred.
Team Coordination Note. Simone Laroche's background in aerospace engineering (B.S., Virginia Tech) will be a significant asset in coordinating with this expert, evaluating the technical issues, and assisting with deposition preparation and trial examination. We recommend that Ms. Laroche serve as the primary point of contact for the technical expert.
C. Expert Budget Considerations
We estimate combined expert fees of $200,000 to $400,000, encompassing retention, analysis, report preparation, deposition preparation, and trial testimony. The damages and government-contracts accounting expert is likely to represent the larger portion of this estimate, given the complexity of the cost-allocation analysis and the volume of financial data to be reviewed. The technical expert's engagement may be somewhat smaller in scope, depending on the strength of the documentary evidence on the specification and GFE issues.
These estimates are incorporated into the overall budget projections set forth in Section IX below.
VI. Motion-Practice Strategy
WAL's motion-practice strategy upon reactivation should be tailored to maximize the likelihood of narrowing or eliminating HDDS's claims before trial. We have identified four principal categories of anticipated motion practice, each of which is discussed below.
A. Potential Summary Judgment on Non-WP-4 Overruns
The Argument. HDDS's counterclaim seeks recovery of the full $14,726,583 identified in the COPD, including $1,909,142 (12.97%) in overruns that the COPD itself attributes to work packages other than WP-4. Under the plain text of Section 11.4 of the Teaming Agreement, WAL's indemnification obligation applies only to government claims "arising out of or relating to Team Member's Work Package." WAL's assigned Work Package under the Teaming Agreement is WP-4 — titanium structural assemblies. WAL had no involvement whatsoever in the non-WP-4 work packages, and the COPD makes no finding that the non-WP-4 overruns are attributable to WAL's conduct.
This argument should be a strong candidate for partial summary judgment. The relevant facts — that the Teaming Agreement limits indemnification to WAL's Work Package, that WP-4 is WAL's Work Package, and that the COPD allocates $1,909,142 to non-WP-4 work packages — are likely to be undisputed. The question is purely one of contract interpretation under New York law (the governing law specified in Section 18.1 of the Teaming Agreement).
Timing. We recommend filing this motion early in the discovery period — ideally within the first three to four months of reactivation — once the factual record on the COPD allocation is established through initial disclosures and document production. Because the motion turns primarily on the contract language and the undisputed COPD allocation, it should not require extensive fact discovery. An early ruling on this issue would reduce HDDS's claim from $14,726,583 to at most $12,817,441 and could establish favorable precedent within the case on the scope of Section 11.4.
Potential Counterarguments. HDDS may argue that Section 11.4 should be interpreted more broadly — for example, that WAL's overruns on WP-4 caused cascading delays or cost impacts on other work packages, making WAL indirectly responsible for the non-WP-4 overruns. This argument, however, would require HDDS to establish a causal link between WAL's WP-4 performance and the non-WP-4 overruns that the COPD does not appear to support. We should be prepared to address this argument in the motion briefing.
B. Summary Judgment on Causation (Section 11.4(b))
The Core Dispute. The causation requirement in Section 11.4(b) — which requires that the government claim be "caused by Team Member's acts or omissions" — is the central battleground in this case. WAL's position is that the overruns were not caused by WAL's acts or omissions, but rather by three independent causes:
(a) Titanium Price Escalation ($4,200,000): The dramatic increase in aerospace-grade titanium prices during the relevant performance period constituted a force-majeure event beyond WAL's control. WAL will argue that the price escalation was caused by global supply-chain disruptions, not by any act or omission of WAL.
(b) Rework Due to Defective HDDS Specifications ($5,100,000): WAL will contend that the machining tolerance non-conformances that necessitated costly rework were caused by errors or unreasonable tolerances in the engineering specifications provided by HDDS, not by deficiencies in WAL's manufacturing process.
(c) Idle-Labor Charges Due to Late GFE Delivery ($2,300,000): WAL will argue that the idle-labor charges were the direct result of HDDS's failure to deliver government-furnished equipment on schedule, which left WAL's production workforce idle during the delivery delay.
Assessment. This motion will be more complex and fact-intensive than the non-WP-4 partial summary judgment motion. Its strength will depend heavily on the outcome of the COFD (which may contain findings on causation), the results of fact discovery (including document productions and depositions), and the expert-witness analysis. HDDS will likely argue that causation is a disputed factual issue that cannot be resolved on summary judgment and must be tried.
Strategy. We recommend evaluating the strength of a full summary judgment motion on causation after expert reports and fact depositions have been completed. As an alternative or complementary strategy, WAL may move for partial summary judgment on specific overrun components — for example, moving for summary judgment on the material escalation component ($4,200,000) on force-majeure grounds while acknowledging that other components (e.g., rework) may present triable issues. A component-by-component approach may be more likely to succeed than an all-or-nothing motion and would further reduce WAL's exposure even if some components survive summary judgment.
C. Motion to Dismiss or Strike HDDS's Attorneys' Fee Claim
HDDS's counterclaim seeks attorneys' fees under Section 11.6 of the Teaming Agreement. We should carefully analyze the language of Section 11.6 to determine whether it applies to WAL as the indemnitor or only to HDDS as the indemnitee in a recovery posture.
If Section 11.6 is limited to fees incurred by the indemnitee "in enforcing its rights under this Section 11," HDDS's claim for fees incurred in prosecuting the counterclaim may be supportable on its face. However, we should consider whether WAL's declaratory judgment action — which seeks a declaration of non-liability under Section 11.4 — constitutes a "defense" to indemnification that would not trigger the fee-shifting provision. Under New York law, fee-shifting provisions are strictly construed, and the question of whether a declaratory judgment action by the indemnitor triggers a fee-shifting clause that references enforcement by the indemnitee is not settled.
We should also assess whether the fee provision is enforceable as drafted under New York law. New York courts generally enforce contractual fee-shifting provisions in commercial agreements between sophisticated parties, but the provision must be unambiguous and must clearly apply to the circumstances at issue. If the language of Section 11.6 is ambiguous as to its application to the present dispute, WAL may have grounds for a motion to dismiss or strike the fee claim.
We recommend deferring a final recommendation on this motion until the pre-reactivation preparation phase, when a detailed analysis of Section 11.6's language can be completed.
D. Daubert Motions
We should anticipate that HDDS will challenge WAL's experts under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and its progeny. In particular, HDDS may challenge the reliability of our damages/accounting expert's methodology for attributing overruns to HDDS or force-majeure causes rather than to WAL, or may challenge the technical expert's methodology for concluding that specification defects rather than manufacturing process deficiencies caused the rework.
Conversely, WAL should be prepared to challenge HDDS's opposing expert's methodology on cost allocation and causation if that methodology departs from accepted government-contracts accounting standards or relies on unsupported assumptions. We should identify potential Daubert vulnerabilities in HDDS's expert analysis as early as possible — ideally during the expert-report review phase — and prepare Daubert motions if warranted.
Both of WAL's experts should be retained and prepared with Daubert challenges in mind. This means ensuring that their methodologies are well-documented, grounded in accepted principles within their respective fields, and capable of withstanding rigorous cross-examination and judicial scrutiny.
VII. Settlement Considerations Upon Reactivation
WAL's settlement posture has been, and should continue to be, informed by the pendency of the DCMA administrative review and the substance of the COFD once issued.
Prior Analysis. As discussed in Priya Anand's email of August 8, 2024, to Marcus Whitmore and Gregory Poole, we recommended deferring any settlement overtures to HDDS until after the issuance of the COFD. The rationale for this recommendation was that the COFD will materially affect the parties' relative leverage: if the COFD significantly reduces the WP-4 allocation or attributes costs to HDDS or to government-directed changes, WAL's negotiating position will be substantially strengthened; conversely, if the COFD confirms the full allocation to WP-4, WAL's position will be weakened, though not eliminated, because the causation defense under Section 11.4(b) would remain available. We continue to endorse this recommendation.
Post-COFD Assessment. Upon issuance of the COFD, the litigation team should conduct a thorough reassessment of WAL's settlement posture in light of the actual DCMA findings. The key variables that will inform this assessment include:
• Whether the COFD confirms, reduces, or increases the $12,817,441 allocation to WP-4;
• Whether the COFD makes findings on the causation of specific overrun components (e.g., attributing the titanium price escalation to market conditions or the rework to specification defects);
• Whether the COFD results in a formal cost disallowance that changes the ASC 450 contingent-liability classification from "reasonably possible" to "probable"; and
• Whether the COFD triggers any rights or obligations under the Teaming Agreement, the CPIF contract structure, or applicable law that were not previously in play.
Settlement Range Analysis. WAL's maximum contractual exposure under Section 11.5 of the Teaming Agreement is $88,992,000 (calculated as 120% of the $74,160,000 WP-4 contract value). However, HDDS's actual claim is $14,726,583, which is well within the cap, so the cap is not a practical limitation in this case. The settlement target should be a resolution at a discount to $14,726,583, potentially reflecting the following deductions:
• Exclusion of non-WP-4 overruns ($1,909,142), which WAL contends are not covered by Section 11.4;
• Reduction for overrun components attributable to HDDS's own conduct (defective specifications, late GFE delivery) rather than WAL's acts or omissions; and
• Reduction for force-majeure components (titanium price escalation) that are not properly attributable to WAL under Section 11.4(b).
The specific settlement range will depend on the strength of WAL's defenses as developed through the COFD and discovery, and on a realistic assessment of litigation risk. A further analysis of settlement value should be prepared once the COFD has been received and reviewed.
Mediation. Section 18.3 of the Teaming Agreement provides for non-binding mediation of disputes. HDDS declined WAL's mediation request on October 28, 2022, taking the position that the mediation clause was permissive rather than mandatory. While we did not press the issue at that time (in part because the stay motion was already being prepared), the court may encourage or direct the parties to participate in mediation upon reactivation. If the court refers the case to mediation, or if HDDS's posture has changed, mediation may be a cost-effective mechanism for resolving the dispute, particularly if the COFD has narrowed the factual disputes between the parties.
VIII. Proposed Reactivation Timeline
The following table sets forth our proposed timeline for the active litigation phases, from pre-reactivation preparation through trial. The timeline assumes an 18-to-20-month duration from the date the stay is lifted through the conclusion of trial.
Total Estimated Duration: 18–20 months from reactivation to conclusion of trial.
This timeline is subject to adjustment based on the court's scheduling preferences, the complexity of discovery as it unfolds, and the extent to which dispositive motions narrow or resolve the issues. If the court's docket is congested or if discovery disputes arise, additional time may be required. Conversely, if summary judgment disposes of significant portions of the case, the timeline to resolution could be shortened.