1019-00005 · Whitmore Aerospace LLC · Pleadings

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

PLAINTIFF/COUNTERCLAIM-DEFENDANT WHITMORE AEROSPACE LLC'S REPLY TO DEFENDANT/COUNTERCLAIM-PLAINTIFF'S COUNTERCLAIM

Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC ("WAL" or "Whitmore"), by and through its attorneys, Calderwood & Harkness LLP, 600 Lexington Avenue, 28th Floor, New York, New York 10022, hereby replies to the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc. ("HDDS"), filed on January 13, 2023 (Dkt. No. 28) (the "Counterclaim"), pursuant to Rule 12(a)(1)(B) of the Federal Rules of Civil Procedure. WAL responds to each numbered paragraph of the Counterclaim as set forth below. To the extent any allegation contained in the Counterclaim is not expressly admitted herein, it is denied. WAL reserves all rights, claims, and defenses available to it under law, equity, or the governing agreements, including without limitation those rights, claims, and defenses set forth in WAL's Complaint filed in this action (Dkt. No. 1).

RESPONSES TO NUMBERED PARAGRAPHS OF THE COUNTERCLAIM

I. Jurisdictional and Party Allegations

1. In response to Paragraph 1 of the Counterclaim, WAL admits that this Court has subject-matter jurisdiction over the claims asserted in the Counterclaim pursuant to 28 U.S.C. § 1332 (diversity of citizenship), as the amount in controversy exceeds Seventy-Five Thousand Dollars ($75,000.00), exclusive of interest and costs, and complete diversity exists between the parties. WAL further admits that this Court has jurisdiction to issue declaratory relief pursuant to 28 U.S.C. §§ 2201–2202.

2. In response to Paragraph 2 of the Counterclaim, WAL admits that venue is proper in the Southern District of New York pursuant to the forum-selection clause set forth in Section 18.2 of the Teaming Agreement dated June 12, 2019 (the "Teaming Agreement"), by which the parties consented to the exclusive jurisdiction and venue of the federal and state courts located in the Borough of Manhattan, City and State of New York.

3. In response to Paragraph 3 of the Counterclaim, WAL admits that HDDS is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817.

4. In response to Paragraph 4 of the Counterclaim, WAL admits that Whitmore Aerospace LLC is a limited liability company organized and existing under the laws of the Commonwealth of Virginia, with its principal place of business located at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151.

5. In response to Paragraph 5 of the Counterclaim, WAL admits that the Teaming Agreement was executed on June 12, 2019, between HDDS (in the capacity of "Team Lead") and WAL (in the capacity of "Team Member"). WAL further states that the Teaming Agreement is a written document that speaks for itself, and WAL respectfully refers the Court to the full text of the Teaming Agreement for a complete and accurate statement of its terms. WAL denies any characterizations of the Teaming Agreement set forth in Paragraph 5 that are incomplete, misleading, or otherwise inconsistent with the actual terms thereof.

6. In response to Paragraph 6 of the Counterclaim, WAL admits that HDDS is the prime contractor under U.S. Air Force Prime Contract No. FA8620-19-C-0337 for the Advanced Tactical Airframe Program ("ATAP"), which was awarded by the Air Force Life Cycle Management Center ("AFLCMC"), Wright-Patterson Air Force Base, Ohio. WAL lacks sufficient knowledge or information to admit or deny any characterizations of the terms or provisions of the Prime Contract beyond what is stated herein and in the Teaming Agreement, and on that basis denies same.

7. In response to Paragraph 7 of the Counterclaim, WAL admits that the Prime Contract is a cost-plus-incentive-fee ("CPIF") contract with a target cost of Four Hundred Twelve Million Dollars ($412,000,000.00), a target fee of eight percent (8%) (i.e., Thirty-Two Million Nine Hundred Sixty Thousand Dollars ($32,960,000.00)), and a ceiling price of Four Hundred Seventy Million Dollars ($470,000,000.00). WAL further admits that the share ratios under the Prime Contract are seventy/thirty (70/30) (government/contractor) for cost overruns and sixty/forty (60/40) (government/contractor) for cost underruns. WAL states that the Prime Contract is a written document that speaks for itself and denies any characterizations thereof that are incomplete or inconsistent with the actual terms of the Prime Contract.

8. In response to Paragraph 8 of the Counterclaim, WAL admits that its scope of work under the Teaming Agreement encompasses Work Package 4 ("WP-4"), which involves the fabrication and delivery of titanium structural assemblies, including wing-box substructure, center fuselage longerons, and bulkhead fittings. WAL further admits that WP-4 represents approximately eighteen percent (18%) of the target cost under the Prime Contract, or approximately Seventy-Four Million One Hundred Sixty Thousand Dollars ($74,160,000.00). WAL states that the Teaming Agreement speaks for itself with respect to the precise scope of WP-4 and denies any characterizations that are inconsistent with or that expand upon WAL's contractual obligations as set forth therein.

9. In response to Paragraph 9 of the Counterclaim, WAL admits the existence of Section 11.4 (Indemnification) in the Teaming Agreement. WAL states that Section 11.4 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.4 for a complete and accurate statement of its terms and conditions. WAL specifically denies any characterization of Section 11.4 set forth in Paragraph 9 that omits, distorts, or fails to give full effect to the causation requirements contained therein, including in particular the language of Section 11.4(b) providing that WAL's indemnification obligation extends only "to the extent such claim is caused by Team Member's acts or omissions." WAL denies all remaining allegations in Paragraph 9 to the extent they are inconsistent with the foregoing.

10. In response to Paragraph 10 of the Counterclaim, WAL admits the existence of Section 11.5 (Limitation of Liability) in the Teaming Agreement, which provides that WAL's aggregate liability under Section 11 shall not exceed one hundred twenty percent (120%) of the value of WAL's Work Package, calculated as Eighty-Eight Million Nine Hundred Ninety-Two Thousand Dollars ($88,992,000.00). WAL states that Section 11.5 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.5 for a complete and accurate statement of its terms and conditions.

11. In response to Paragraph 11 of the Counterclaim, WAL admits the existence of Section 11.6 of the Teaming Agreement, which addresses the recovery of attorneys' fees under certain circumstances. WAL states that Section 11.6 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.6 for a complete and accurate statement of its terms and conditions. WAL denies that HDDS is entitled to recover attorneys' fees under Section 11.6 or otherwise under the circumstances of this case, and further denies any characterization of Section 11.6 that is incomplete, misleading, or otherwise inconsistent with the actual terms thereof.

12. In response to Paragraph 12 of the Counterclaim, WAL admits that Section 18.1 of the Teaming Agreement provides that the Teaming Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts-of-law principles.

II. Factual Allegations Regarding the DCMA COPD and Cost Overruns

13. In response to Paragraph 13 of the Counterclaim, WAL admits that on August 1, 2022, the Defense Contract Management Agency ("DCMA") Administrative Contracting Officer, Lt. Col. Sandra M. Vickers, USAF, issued a Contracting Officer's Preliminary Determination (the "COPD") identifying Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) in cost overruns on the ATAP program. WAL states that the COPD is a written document that speaks for itself and denies any characterizations of the COPD that are incomplete, misleading, or otherwise inconsistent with its actual content.

14. In response to Paragraph 14 of the Counterclaim, WAL admits that the COPD attributed Twelve Million Eight Hundred Seventeen Thousand Four Hundred Forty-One Dollars ($12,817,441.00), representing approximately eighty-seven and three hundredths percent (87.03%) of the identified cost overruns, to WP-4 (titanium structural assemblies), and One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00), representing approximately twelve and ninety-seven hundredths percent (12.97%) of the identified cost overruns, to other work packages that are not part of WP-4. WAL states that the COPD is a written document that speaks for itself and denies any characterizations inconsistent therewith.

15. In response to Paragraph 15 of the Counterclaim, WAL denies that it is responsible for the entirety of the Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) in cost overruns identified in the COPD. WAL specifically denies that it bears any responsibility whatsoever for the One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) attributed by the COPD to work packages other than WP-4, which by definition fall entirely outside the scope of WAL's obligations under the Teaming Agreement. WAL further denies that it is responsible for the entirety of the WP-4-related cost overruns for the reasons set forth more fully in its Affirmative Defenses below.

16. In response to Paragraph 16 of the Counterclaim, WAL denies HDDS's characterization of the root causes of the WP-4-related cost overruns to the extent such characterization attributes all overruns to WAL's acts or omissions. WAL avers that, according to the narrative section of the COPD itself, the cost overruns attributed to WP-4 include the following approximate categories and amounts:

(a) Approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) in titanium raw-material cost escalation, which constitutes a market-driven force-majeure event beyond WAL's reasonable control, caused by worldwide supply-chain disruptions and commodity-price volatility affecting the aerospace-grade titanium market;

(b) Approximately Five Million One Hundred Thousand Dollars ($5,100,000.00) in rework costs attributable to non-conforming machining tolerances, which were caused by design deficiencies in engineering specifications supplied by HDDS as Team Lead, including without limitation erroneous geometric dimensioning and tolerancing ("GD&T") callouts on Drawing Nos. ATAP-WB-4012 through ATAP-WB-4019;

(c) Approximately Two Million Three Hundred Thousand Dollars ($2,300,000.00) in schedule delays resulting in idle-labor charges, caused by HDDS's untimely delivery of government-furnished equipment ("GFE") to WAL's manufacturing facility in Chantilly, Virginia, including the late delivery of specialized titanium forging dies and inspection tooling; and

(d) Approximately One Million Two Hundred Thousand Dollars ($1,200,000.00) in engineering change proposal ("ECP") implementation costs, arising from ECPs directed by HDDS and the U.S. Government that expanded or modified the scope of WP-4, the costs of which should properly be borne by HDDS as Team Lead or recovered from the Government through equitable adjustment.

17. In response to Paragraph 17 of the Counterclaim, WAL denies that the COPD constitutes a final or binding determination of cost disallowance under the Contract Disputes Act, 41 U.S.C. § 7101 et seq., or otherwise. WAL avers that the COPD, by its own terms, is a preliminary determination subject to further administrative review and adjudication. WAL further avers that HDDS itself has contested the COPD by filing a formal response and request for a Contracting Officer's Final Decision ("COFD") with DCMA on or about October 15, 2022, thereby demonstrating that HDDS does not itself treat the COPD as a final determination of the Government's rights or the parties' liabilities.

18. In response to Paragraph 18 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations referenced in Paragraph 18, and on that basis denies same.

19. In response to Paragraph 19 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations and methodologies referenced in Paragraph 19, and on that basis denies same.

20. In response to Paragraph 20 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations and methodologies referenced in Paragraph 20, and on that basis denies same.

21. In response to Paragraph 21 of the Counterclaim, WAL denies the allegations contained therein. WAL specifically denies that all WP-4-related cost overruns are attributable to WAL's acts or omissions. WAL avers that the causation analysis required under Section 11.4(b) of the Teaming Agreement demands a showing that the cost overruns were "caused by Team Member's acts or omissions," a showing that HDDS has not made and cannot make with respect to the cost categories identified in WAL's response to Paragraph 16 above.

22. In response to Paragraph 22 of the Counterclaim, WAL denies the allegations contained therein. WAL specifically denies any assertion that HDDS's internal cost-allocation methodology is dispositive of the causation inquiry under Section 11.4(b) of the Teaming Agreement. WAL further avers that HDDS's attempt to shift the entirety of the WP-4-related cost overruns to WAL ignores the substantial role played by HDDS's own acts and omissions in causing or contributing to such overruns.

23. In response to Paragraph 23 of the Counterclaim, WAL denies the allegations contained therein. WAL incorporates by reference its responses to Paragraphs 16, 21, and 22 above.

24. In response to Paragraph 24 of the Counterclaim, WAL denies the allegations contained therein. WAL incorporates by reference its responses to Paragraphs 16, 21, and 22 above.

25. In response to Paragraph 25 of the Counterclaim, WAL denies the allegations contained therein. WAL avers that neither the COPD nor any other document or determination establishes that all WP-4-related cost overruns are attributable solely to WAL's acts or omissions, and WAL denies that HDDS has satisfied or can satisfy the causation prerequisite to indemnification under Section 11.4(b) of the Teaming Agreement.

III. Allegations Regarding Pre-Litigation Dispute Resolution

26. In response to Paragraph 26 of the Counterclaim, WAL admits that Section 18.3 of the Teaming Agreement establishes a tiered dispute-resolution procedure consisting of: (i) senior executive negotiation for a period of thirty (30) calendar days following written notice of a dispute; (ii) followed by non-binding mediation administered by the American Arbitration Association under its Commercial Mediation Procedures; and (iii) thereafter, litigation in the courts specified in Section 18.2. WAL further admits that the Teaming Agreement does not contain a mandatory arbitration clause.

27. In response to Paragraph 27 of the Counterclaim, WAL admits that WAL's Chief Executive Officer, Marcus J. Whitmore, and HDDS's Senior Vice President of Programs, William Fong, met on September 30, 2022, and again on October 14, 2022, for the purpose of conducting senior executive negotiations as contemplated by Section 18.3 of the Teaming Agreement. WAL admits that no resolution of the parties' dispute was reached during those meetings. WAL denies any characterization of the substance, tenor, or outcome of those meetings that is inconsistent with the foregoing.

28. In response to Paragraph 28 of the Counterclaim, WAL admits that, following the unsuccessful senior executive negotiations, WAL proposed mediation of the parties' dispute by letter dated October 21, 2022, consistent with Section 18.3 of the Teaming Agreement. WAL further admits that HDDS declined WAL's mediation proposal by letter dated October 28, 2022.

29. In response to Paragraph 29 of the Counterclaim, WAL denies the allegations contained therein to the extent HDDS characterizes WAL as having failed to engage in good-faith dispute resolution or as having otherwise frustrated the dispute-resolution process contemplated by Section 18.3 of the Teaming Agreement. WAL avers that it was WAL — not HDDS — that proposed mediation in accordance with the Teaming Agreement's tiered dispute-resolution procedure, and that it was HDDS that declined to participate in mediation, thereby bypassing a contractually contemplated step in the dispute-resolution process.

30. In response to Paragraph 30 of the Counterclaim, WAL admits that HDDS sent a formal indemnification demand letter to WAL on September 9, 2022, demanding payment of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00). WAL denies that it is obligated to indemnify HDDS in the amount demanded or in any amount, for the reasons set forth herein and in WAL's Affirmative Defenses below.

IV. Count I — Breach of Contract / Contractual Indemnification

31. In response to Paragraph 31 of the Counterclaim, WAL denies that it has breached any obligation under Section 11.4 of the Teaming Agreement or any other provision of the Teaming Agreement. WAL specifically denies that its refusal to pay HDDS's indemnification demand constitutes a breach of contract.

32. In response to Paragraph 32 of the Counterclaim, WAL denies that Section 11.4 of the Teaming Agreement requires WAL to indemnify HDDS for the full Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) identified in the COPD, or for any portion thereof. WAL avers that the indemnification obligation under Section 11.4(b) is expressly limited to claims that are "caused by Team Member's acts or omissions," a condition that has not been satisfied.

33. In response to Paragraph 33 of the Counterclaim, WAL denies that its acts or omissions caused the cost overruns identified in the COPD. WAL denies that the indemnification obligation under Section 11.4(b) of the Teaming Agreement has been triggered. WAL incorporates by reference its responses to Paragraphs 15, 16, and 21 through 25 above.

34. In response to Paragraph 34 of the Counterclaim, WAL denies that HDDS has suffered any "Losses" as that term is defined in the Teaming Agreement that are indemnifiable under Section 11.4. WAL avers that the COPD is a preliminary determination, that no costs have been formally disallowed by the Contracting Officer or any appellate tribunal, and that the administrative review process remains pending. Accordingly, HDDS has not yet incurred any actual, cognizable loss that would trigger WAL's indemnification obligation, even assuming arguendo that the causation requirement of Section 11.4(b) were satisfied, which WAL denies.

35. In response to Paragraph 35 of the Counterclaim, WAL denies all allegations contained therein to the extent they assert WAL's liability for the cost overruns identified in the COPD or otherwise. WAL denies that HDDS is entitled to indemnification from WAL under Section 11.4 or any other provision of the Teaming Agreement.

36. In response to Paragraph 36 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.

37. In response to Paragraph 37 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.

38. In response to Paragraph 38 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.

39. In response to Paragraph 39 of the Counterclaim, WAL denies that HDDS is entitled to recover attorneys' fees under Section 11.6 of the Teaming Agreement or otherwise. WAL avers that the attorneys'-fees provision of Section 11.6, properly construed, does not entitle HDDS to fees under the circumstances of this case, where WAL has not breached the Teaming Agreement and the Counterclaim is without merit.

40. In response to Paragraph 40 of the Counterclaim and the prayer for relief contained therein, WAL denies that HDDS is entitled to any of the relief requested, including without limitation: (a) contractual indemnification in the amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) or any other amount; (b) attorneys' fees; (c) costs; (d) pre-judgment or post-judgment interest; or (e) any other relief whatsoever. WAL demands strict proof of each and every element of each claim asserted in the Counterclaim.

AFFIRMATIVE DEFENSES

Without assuming the burden of proof on any issue for which the burden properly rests with HDDS, and without waiving any argument that HDDS has failed to state a claim upon which relief can be granted, WAL asserts the following affirmative defenses to HDDS's Counterclaim:

FIRST AFFIRMATIVE DEFENSE

Failure to Satisfy the Causation Requirement of Section 11.4(b)

Section 11.4(b) of the Teaming Agreement limits WAL's indemnification obligation to claims by the United States Government that costs incurred under the Prime Contract are "unallowable, unreasonable, or otherwise subject to disallowance, to the extent such claim is caused by Team Member's acts or omissions" (emphasis added). The phrase "to the extent such claim is caused by Team Member's acts or omissions" imposes a causation requirement that is an express condition precedent to any indemnification obligation on the part of WAL. The cost overruns identified in the COPD were not caused by WAL's acts or omissions but rather by factors attributable to third parties, market conditions, and HDDS's own conduct, including without limitation: (1) titanium raw-material price escalation, a market-driven event beyond WAL's reasonable control, accounting for approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) of the overruns attributed to WP-4; (2) deficiencies in engineering specifications supplied by HDDS in its capacity as Team Lead, which necessitated extensive rework, accounting for approximately Five Million One Hundred Thousand Dollars ($5,100,000.00); (3) HDDS's failure to timely deliver government-furnished equipment to WAL's manufacturing facility, causing idle-labor charges of approximately Two Million Three Hundred Thousand Dollars ($2,300,000.00); and (4) engineering change proposals directed by HDDS and the U.S. Government that expanded or modified the scope of WP-4, resulting in implementation costs of approximately One Million Two Hundred Thousand Dollars ($1,200,000.00). Because the causation prerequisite to indemnification under Section 11.4(b) has not been and cannot be satisfied, HDDS's Counterclaim fails as a matter of law and of fact.

SECOND AFFIRMATIVE DEFENSE

Force Majeure

To the extent that the cost overruns identified in the COPD relate to titanium raw-material cost escalation — approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) — such escalation constitutes a force-majeure event that was beyond WAL's reasonable control. The escalation in the price of aerospace-grade titanium was caused by worldwide supply-chain disruptions and commodity-market volatility that were unforeseeable at the time the Teaming Agreement was executed and that could not have been avoided or mitigated through the exercise of reasonable diligence. Under applicable New York law and the force-majeure and excusable-delay provisions of the Teaming Agreement, WAL is not liable for costs or damages attributable to force-majeure events. HDDS's Counterclaim is barred, in whole or in part, to the extent it seeks to impose liability on WAL for costs arising from such events.

THIRD AFFIRMATIVE DEFENSE

Overbreadth of Demand — Non-WP-4 Overruns

HDDS's Counterclaim seeks indemnification in the total amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00), which includes One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) — representing approximately twelve and ninety-seven hundredths percent (12.97%) of the total — that was attributed by the DCMA COPD to work packages other than WP-4. WAL's scope of work under the Teaming Agreement is expressly limited to WP-4 (titanium structural assemblies). WAL has no conceivable indemnification obligation — contractual or otherwise — for cost overruns arising from work packages that fall entirely outside the scope of its contractual responsibilities. HDDS's Counterclaim is overbroad and must be dismissed, at a minimum, to the extent it seeks indemnification for the One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) in non-WP-4 overruns.

FOURTH AFFIRMATIVE DEFENSE

No Formal Disallowance — COPD Is Preliminary

The DCMA COPD dated August 1, 2022, is a preliminary determination that does not constitute a Contracting Officer's Final Decision ("COFD") under the Contract Disputes Act, 41 U.S.C. § 7101 et seq., and does not represent a final, binding adjudication that any costs under the Prime Contract are unallowable, unreasonable, or subject to disallowance. Indeed, HDDS itself has contested the COPD by filing a formal response and request for issuance of a COFD with DCMA on or about October 15, 2022, thereby acknowledging the preliminary nature of the COPD and disputing its findings. As of the date of this filing, no COFD has been issued, no costs have been formally disallowed, and the administrative review process remains pending. Section 11.4(b) of the Teaming Agreement requires a "claim by the U.S. Government that costs . . . are unallowable, unreasonable, or otherwise subject to disallowance" before any indemnification obligation arises. A preliminary determination that is itself being contested by the very party seeking indemnification does not constitute a ripe, final claim sufficient to trigger the indemnification obligation under Section 11.4(b). HDDS's Counterclaim is premature and should be dismissed.

FIFTH AFFIRMATIVE DEFENSE

Comparative Fault / Contributory Conduct of HDDS

To the extent that any cost overruns attributable to WP-4 are determined to fall within the scope of Section 11.4(b) of the Teaming Agreement — which WAL denies — such overruns were caused or substantially contributed to by HDDS's own acts and omissions in its capacity as Team Lead and prime contractor under the Prime Contract. HDDS's contributory conduct includes, without limitation:

(a) Providing defective, incomplete, or erroneous engineering specifications to WAL, including flawed geometric dimensioning and tolerancing callouts on critical structural-assembly drawings, which necessitated costly rework;

(b) Failing to timely deliver government-furnished equipment, including specialized titanium forging dies and inspection tooling, to WAL's manufacturing facility, causing schedule delays and idle-labor charges; and

(c) Directing the implementation of engineering change proposals that expanded or modified the scope of WP-4 without providing corresponding cost adjustments or equitable adjustments to WAL.

Under New York law, HDDS's own fault in causing or contributing to the cost overruns bars or proportionately reduces any recovery against WAL. See N.Y. C.P.L.R. § 1411.

SIXTH AFFIRMATIVE DEFENSE

Failure to Mitigate

HDDS failed to take reasonable steps to mitigate the cost overruns identified in the COPD, as required under New York law. HDDS's failure to mitigate includes, without limitation: (a) failing to timely identify and address the engineering-specification deficiencies that caused rework on WP-4; (b) failing to escalate and resolve government-furnished-equipment delivery delays in a timely manner; (c) failing to seek an equitable adjustment from the U.S. Government under the Changes clause or other applicable provisions of the Prime Contract to recover costs attributable to directed ECPs, GFE delays, and defective specifications; and (d) failing to pursue available administrative remedies to contest or reduce the cost overruns identified in the COPD in a timely and diligent manner. HDDS's failure to mitigate bars or reduces any recovery against WAL.

SEVENTH AFFIRMATIVE DEFENSE

Contractual Limitation of Liability (Section 11.5)

Even if WAL were found to have an indemnification obligation under Section 11.4 of the Teaming Agreement — which WAL expressly denies — Section 11.5 of the Teaming Agreement imposes an absolute cap on WAL's aggregate liability under Section 11 in the amount of one hundred twenty percent (120%) of the value of WAL's Work Package, calculated as Eighty-Eight Million Nine Hundred Ninety-Two Thousand Dollars ($88,992,000.00). While the current indemnification demand of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) falls below this contractual cap, WAL asserts this defense to preserve and protect its rights in the event HDDS attempts, during the course of this litigation or otherwise, to expand its damages claim beyond the limitation set forth in Section 11.5. WAL reserves all rights with respect to this defense.

EIGHTH AFFIRMATIVE DEFENSE

Reservation of Additional Defenses

Discovery in this action has not yet commenced, and the DCMA administrative review proceedings remain pending. WAL reserves the right to assert additional affirmative defenses as the facts developed through discovery and the outcome of the DCMA administrative review proceedings may warrant. The assertion of the affirmative defenses set forth herein shall not be deemed a waiver of any other defense, claim, or right available to WAL under law, equity, or the Teaming Agreement, including without limitation any defense that may be identified during the course of further investigation and discovery.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC respectfully requests that the Court enter judgment as follows:

(a) Dismissing the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc. in its entirety, with prejudice;

(b) Denying HDDS's request for contractual indemnification in the amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00), or in any other amount;

(d) Granting WAL its costs and disbursements incurred in defending against the Counterclaim;

(e) Granting such other and further relief as this Court deems just and proper.

JURY DEMAND

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC hereby demands a trial by jury on all issues so triable in connection with the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc.

Dated: February 3, 2023 New York, New York

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand (NY Bar No. 5187234)

Douglas Carmichael (NY Bar No. 4923817) Patrick Gallagher (NY Bar No. 5301492)

600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 554-7800 Facsimile: (212) 554-7801

Email: panand@calderwoodharkness.com

Email: dcarmichael@calderwoodharkness.com

Email: pgallagher@calderwoodharkness.com

Attorneys for Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC

CERTIFICATE OF SERVICE

I, Priya Anand, hereby certify that on February 3, 2023, a true and correct copy of the foregoing Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC's Reply to Defendant/Counterclaim-Plaintiff's Counterclaim was served via the Court's CM/ECF electronic filing system upon all counsel of record, including:

Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 331-4400 Counsel for Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc.

________________________________________

Priya Anand

WHITMORE AEROSPACE LLC,

<!-- indent:2 -->Plaintiff/Counterclaim-Defendant,<!-- /indent -->	Case No. 1:22-cv-10147-RMB
<!-- indent:1 -->v.<!-- /indent -->	Hon. Richard M. Brannigan

U.S. District Judge

HARGROVE-DALTON DEFENSE SYSTEMS, INC.,

Hon. Allison P. Kurtz

Defendant/Counterclaim-Plaintiff.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
PLAINTIFF/COUNTERCLAIM-DEFENDANT WHITMORE AEROSPACE LLC'S REPLY TO DEFENDANT/COUNTERCLAIM-PLAINTIFF'S COUNTERCLAIM
Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC ("WAL" or "Whitmore"), by and through its attorneys, Calderwood & Harkness LLP, 600 Lexington Avenue, 28th Floor, New York, New York 10022, hereby replies to the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc. ("HDDS"), filed on January 13, 2023 (Dkt. No. 28) (the "Counterclaim"), pursuant to Rule 12(a)(1)(B) of the Federal Rules of Civil Procedure. WAL responds to each numbered paragraph of the Counterclaim as set forth below. To the extent any allegation contained in the Counterclaim is not expressly admitted herein, it is denied. WAL reserves all rights, claims, and defenses available to it under law, equity, or the governing agreements, including without limitation those rights, claims, and defenses set forth in WAL's Complaint filed in this action (Dkt. No. 1).
RESPONSES TO NUMBERED PARAGRAPHS OF THE COUNTERCLAIM
I. Jurisdictional and Party Allegations
1. In response to Paragraph 1 of the Counterclaim, WAL admits that this Court has subject-matter jurisdiction over the claims asserted in the Counterclaim pursuant to 28 U.S.C. § 1332 (diversity of citizenship), as the amount in controversy exceeds Seventy-Five Thousand Dollars ($75,000.00), exclusive of interest and costs, and complete diversity exists between the parties. WAL further admits that this Court has jurisdiction to issue declaratory relief pursuant to 28 U.S.C. §§ 2201–2202.
2. In response to Paragraph 2 of the Counterclaim, WAL admits that venue is proper in the Southern District of New York pursuant to the forum-selection clause set forth in Section 18.2 of the Teaming Agreement dated June 12, 2019 (the "Teaming Agreement"), by which the parties consented to the exclusive jurisdiction and venue of the federal and state courts located in the Borough of Manhattan, City and State of New York.
3. In response to Paragraph 3 of the Counterclaim, WAL admits that HDDS is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817.
4. In response to Paragraph 4 of the Counterclaim, WAL admits that Whitmore Aerospace LLC is a limited liability company organized and existing under the laws of the Commonwealth of Virginia, with its principal place of business located at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151.
5. In response to Paragraph 5 of the Counterclaim, WAL admits that the Teaming Agreement was executed on June 12, 2019, between HDDS (in the capacity of "Team Lead") and WAL (in the capacity of "Team Member"). WAL further states that the Teaming Agreement is a written document that speaks for itself, and WAL respectfully refers the Court to the full text of the Teaming Agreement for a complete and accurate statement of its terms. WAL denies any characterizations of the Teaming Agreement set forth in Paragraph 5 that are incomplete, misleading, or otherwise inconsistent with the actual terms thereof.
6. In response to Paragraph 6 of the Counterclaim, WAL admits that HDDS is the prime contractor under U.S. Air Force Prime Contract No. FA8620-19-C-0337 for the Advanced Tactical Airframe Program ("ATAP"), which was awarded by the Air Force Life Cycle Management Center ("AFLCMC"), Wright-Patterson Air Force Base, Ohio. WAL lacks sufficient knowledge or information to admit or deny any characterizations of the terms or provisions of the Prime Contract beyond what is stated herein and in the Teaming Agreement, and on that basis denies same.
7. In response to Paragraph 7 of the Counterclaim, WAL admits that the Prime Contract is a cost-plus-incentive-fee ("CPIF") contract with a target cost of Four Hundred Twelve Million Dollars ($412,000,000.00), a target fee of eight percent (8%) (i.e., Thirty-Two Million Nine Hundred Sixty Thousand Dollars ($32,960,000.00)), and a ceiling price of Four Hundred Seventy Million Dollars ($470,000,000.00). WAL further admits that the share ratios under the Prime Contract are seventy/thirty (70/30) (government/contractor) for cost overruns and sixty/forty (60/40) (government/contractor) for cost underruns. WAL states that the Prime Contract is a written document that speaks for itself and denies any characterizations thereof that are incomplete or inconsistent with the actual terms of the Prime Contract.
8. In response to Paragraph 8 of the Counterclaim, WAL admits that its scope of work under the Teaming Agreement encompasses Work Package 4 ("WP-4"), which involves the fabrication and delivery of titanium structural assemblies, including wing-box substructure, center fuselage longerons, and bulkhead fittings. WAL further admits that WP-4 represents approximately eighteen percent (18%) of the target cost under the Prime Contract, or approximately Seventy-Four Million One Hundred Sixty Thousand Dollars ($74,160,000.00). WAL states that the Teaming Agreement speaks for itself with respect to the precise scope of WP-4 and denies any characterizations that are inconsistent with or that expand upon WAL's contractual obligations as set forth therein.
9. In response to Paragraph 9 of the Counterclaim, WAL admits the existence of Section 11.4 (Indemnification) in the Teaming Agreement. WAL states that Section 11.4 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.4 for a complete and accurate statement of its terms and conditions. WAL specifically denies any characterization of Section 11.4 set forth in Paragraph 9 that omits, distorts, or fails to give full effect to the causation requirements contained therein, including in particular the language of Section 11.4(b) providing that WAL's indemnification obligation extends only "to the extent such claim is caused by Team Member's acts or omissions." WAL denies all remaining allegations in Paragraph 9 to the extent they are inconsistent with the foregoing.
10. In response to Paragraph 10 of the Counterclaim, WAL admits the existence of Section 11.5 (Limitation of Liability) in the Teaming Agreement, which provides that WAL's aggregate liability under Section 11 shall not exceed one hundred twenty percent (120%) of the value of WAL's Work Package, calculated as Eighty-Eight Million Nine Hundred Ninety-Two Thousand Dollars ($88,992,000.00). WAL states that Section 11.5 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.5 for a complete and accurate statement of its terms and conditions.
11. In response to Paragraph 11 of the Counterclaim, WAL admits the existence of Section 11.6 of the Teaming Agreement, which addresses the recovery of attorneys' fees under certain circumstances. WAL states that Section 11.6 is a written contractual provision that speaks for itself, and WAL respectfully refers the Court to the full text of Section 11.6 for a complete and accurate statement of its terms and conditions. WAL denies that HDDS is entitled to recover attorneys' fees under Section 11.6 or otherwise under the circumstances of this case, and further denies any characterization of Section 11.6 that is incomplete, misleading, or otherwise inconsistent with the actual terms thereof.
12. In response to Paragraph 12 of the Counterclaim, WAL admits that Section 18.1 of the Teaming Agreement provides that the Teaming Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts-of-law principles.
II. Factual Allegations Regarding the DCMA COPD and Cost Overruns
13. In response to Paragraph 13 of the Counterclaim, WAL admits that on August 1, 2022, the Defense Contract Management Agency ("DCMA") Administrative Contracting Officer, Lt. Col. Sandra M. Vickers, USAF, issued a Contracting Officer's Preliminary Determination (the "COPD") identifying Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) in cost overruns on the ATAP program. WAL states that the COPD is a written document that speaks for itself and denies any characterizations of the COPD that are incomplete, misleading, or otherwise inconsistent with its actual content.
14. In response to Paragraph 14 of the Counterclaim, WAL admits that the COPD attributed Twelve Million Eight Hundred Seventeen Thousand Four Hundred Forty-One Dollars ($12,817,441.00), representing approximately eighty-seven and three hundredths percent (87.03%) of the identified cost overruns, to WP-4 (titanium structural assemblies), and One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00), representing approximately twelve and ninety-seven hundredths percent (12.97%) of the identified cost overruns, to other work packages that are not part of WP-4. WAL states that the COPD is a written document that speaks for itself and denies any characterizations inconsistent therewith.
15. In response to Paragraph 15 of the Counterclaim, WAL denies that it is responsible for the entirety of the Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) in cost overruns identified in the COPD. WAL specifically denies that it bears any responsibility whatsoever for the One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) attributed by the COPD to work packages other than WP-4, which by definition fall entirely outside the scope of WAL's obligations under the Teaming Agreement. WAL further denies that it is responsible for the entirety of the WP-4-related cost overruns for the reasons set forth more fully in its Affirmative Defenses below.
16. In response to Paragraph 16 of the Counterclaim, WAL denies HDDS's characterization of the root causes of the WP-4-related cost overruns to the extent such characterization attributes all overruns to WAL's acts or omissions. WAL avers that, according to the narrative section of the COPD itself, the cost overruns attributed to WP-4 include the following approximate categories and amounts:
(a) Approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) in titanium raw-material cost escalation, which constitutes a market-driven force-majeure event beyond WAL's reasonable control, caused by worldwide supply-chain disruptions and commodity-price volatility affecting the aerospace-grade titanium market;
(b) Approximately Five Million One Hundred Thousand Dollars ($5,100,000.00) in rework costs attributable to non-conforming machining tolerances, which were caused by design deficiencies in engineering specifications supplied by HDDS as Team Lead, including without limitation erroneous geometric dimensioning and tolerancing ("GD&T") callouts on Drawing Nos. ATAP-WB-4012 through ATAP-WB-4019;
(c) Approximately Two Million Three Hundred Thousand Dollars ($2,300,000.00) in schedule delays resulting in idle-labor charges, caused by HDDS's untimely delivery of government-furnished equipment ("GFE") to WAL's manufacturing facility in Chantilly, Virginia, including the late delivery of specialized titanium forging dies and inspection tooling; and
(d) Approximately One Million Two Hundred Thousand Dollars ($1,200,000.00) in engineering change proposal ("ECP") implementation costs, arising from ECPs directed by HDDS and the U.S. Government that expanded or modified the scope of WP-4, the costs of which should properly be borne by HDDS as Team Lead or recovered from the Government through equitable adjustment.
17. In response to Paragraph 17 of the Counterclaim, WAL denies that the COPD constitutes a final or binding determination of cost disallowance under the Contract Disputes Act, 41 U.S.C. § 7101 et seq., or otherwise. WAL avers that the COPD, by its own terms, is a preliminary determination subject to further administrative review and adjudication. WAL further avers that HDDS itself has contested the COPD by filing a formal response and request for a Contracting Officer's Final Decision ("COFD") with DCMA on or about October 15, 2022, thereby demonstrating that HDDS does not itself treat the COPD as a final determination of the Government's rights or the parties' liabilities.
18. In response to Paragraph 18 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations referenced in Paragraph 18, and on that basis denies same.
19. In response to Paragraph 19 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations and methodologies referenced in Paragraph 19, and on that basis denies same.
20. In response to Paragraph 20 of the Counterclaim, WAL denies the allegations contained therein to the extent they assert that WAL's acts or omissions "caused" the cost overruns identified in the COPD within the meaning of Section 11.4(b) of the Teaming Agreement. WAL further states that it lacks sufficient knowledge or information to admit or deny specific internal HDDS cost-accounting allocations and methodologies referenced in Paragraph 20, and on that basis denies same.
21. In response to Paragraph 21 of the Counterclaim, WAL denies the allegations contained therein. WAL specifically denies that all WP-4-related cost overruns are attributable to WAL's acts or omissions. WAL avers that the causation analysis required under Section 11.4(b) of the Teaming Agreement demands a showing that the cost overruns were "caused by Team Member's acts or omissions," a showing that HDDS has not made and cannot make with respect to the cost categories identified in WAL's response to Paragraph 16 above.
22. In response to Paragraph 22 of the Counterclaim, WAL denies the allegations contained therein. WAL specifically denies any assertion that HDDS's internal cost-allocation methodology is dispositive of the causation inquiry under Section 11.4(b) of the Teaming Agreement. WAL further avers that HDDS's attempt to shift the entirety of the WP-4-related cost overruns to WAL ignores the substantial role played by HDDS's own acts and omissions in causing or contributing to such overruns.
23. In response to Paragraph 23 of the Counterclaim, WAL denies the allegations contained therein. WAL incorporates by reference its responses to Paragraphs 16, 21, and 22 above.
24. In response to Paragraph 24 of the Counterclaim, WAL denies the allegations contained therein. WAL incorporates by reference its responses to Paragraphs 16, 21, and 22 above.
25. In response to Paragraph 25 of the Counterclaim, WAL denies the allegations contained therein. WAL avers that neither the COPD nor any other document or determination establishes that all WP-4-related cost overruns are attributable solely to WAL's acts or omissions, and WAL denies that HDDS has satisfied or can satisfy the causation prerequisite to indemnification under Section 11.4(b) of the Teaming Agreement.
III. Allegations Regarding Pre-Litigation Dispute Resolution
26. In response to Paragraph 26 of the Counterclaim, WAL admits that Section 18.3 of the Teaming Agreement establishes a tiered dispute-resolution procedure consisting of: (i) senior executive negotiation for a period of thirty (30) calendar days following written notice of a dispute; (ii) followed by non-binding mediation administered by the American Arbitration Association under its Commercial Mediation Procedures; and (iii) thereafter, litigation in the courts specified in Section 18.2. WAL further admits that the Teaming Agreement does not contain a mandatory arbitration clause.
27. In response to Paragraph 27 of the Counterclaim, WAL admits that WAL's Chief Executive Officer, Marcus J. Whitmore, and HDDS's Senior Vice President of Programs, William Fong, met on September 30, 2022, and again on October 14, 2022, for the purpose of conducting senior executive negotiations as contemplated by Section 18.3 of the Teaming Agreement. WAL admits that no resolution of the parties' dispute was reached during those meetings. WAL denies any characterization of the substance, tenor, or outcome of those meetings that is inconsistent with the foregoing.
28. In response to Paragraph 28 of the Counterclaim, WAL admits that, following the unsuccessful senior executive negotiations, WAL proposed mediation of the parties' dispute by letter dated October 21, 2022, consistent with Section 18.3 of the Teaming Agreement. WAL further admits that HDDS declined WAL's mediation proposal by letter dated October 28, 2022.
29. In response to Paragraph 29 of the Counterclaim, WAL denies the allegations contained therein to the extent HDDS characterizes WAL as having failed to engage in good-faith dispute resolution or as having otherwise frustrated the dispute-resolution process contemplated by Section 18.3 of the Teaming Agreement. WAL avers that it was WAL — not HDDS — that proposed mediation in accordance with the Teaming Agreement's tiered dispute-resolution procedure, and that it was HDDS that declined to participate in mediation, thereby bypassing a contractually contemplated step in the dispute-resolution process.
30. In response to Paragraph 30 of the Counterclaim, WAL admits that HDDS sent a formal indemnification demand letter to WAL on September 9, 2022, demanding payment of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00). WAL denies that it is obligated to indemnify HDDS in the amount demanded or in any amount, for the reasons set forth herein and in WAL's Affirmative Defenses below.
IV. Count I — Breach of Contract / Contractual Indemnification
31. In response to Paragraph 31 of the Counterclaim, WAL denies that it has breached any obligation under Section 11.4 of the Teaming Agreement or any other provision of the Teaming Agreement. WAL specifically denies that its refusal to pay HDDS's indemnification demand constitutes a breach of contract.
32. In response to Paragraph 32 of the Counterclaim, WAL denies that Section 11.4 of the Teaming Agreement requires WAL to indemnify HDDS for the full Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) identified in the COPD, or for any portion thereof. WAL avers that the indemnification obligation under Section 11.4(b) is expressly limited to claims that are "caused by Team Member's acts or omissions," a condition that has not been satisfied.
33. In response to Paragraph 33 of the Counterclaim, WAL denies that its acts or omissions caused the cost overruns identified in the COPD. WAL denies that the indemnification obligation under Section 11.4(b) of the Teaming Agreement has been triggered. WAL incorporates by reference its responses to Paragraphs 15, 16, and 21 through 25 above.
34. In response to Paragraph 34 of the Counterclaim, WAL denies that HDDS has suffered any "Losses" as that term is defined in the Teaming Agreement that are indemnifiable under Section 11.4. WAL avers that the COPD is a preliminary determination, that no costs have been formally disallowed by the Contracting Officer or any appellate tribunal, and that the administrative review process remains pending. Accordingly, HDDS has not yet incurred any actual, cognizable loss that would trigger WAL's indemnification obligation, even assuming arguendo that the causation requirement of Section 11.4(b) were satisfied, which WAL denies.
35. In response to Paragraph 35 of the Counterclaim, WAL denies all allegations contained therein to the extent they assert WAL's liability for the cost overruns identified in the COPD or otherwise. WAL denies that HDDS is entitled to indemnification from WAL under Section 11.4 or any other provision of the Teaming Agreement.
36. In response to Paragraph 36 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.
37. In response to Paragraph 37 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.
38. In response to Paragraph 38 of the Counterclaim, WAL denies all allegations contained therein. WAL incorporates by reference its responses to the preceding paragraphs.
39. In response to Paragraph 39 of the Counterclaim, WAL denies that HDDS is entitled to recover attorneys' fees under Section 11.6 of the Teaming Agreement or otherwise. WAL avers that the attorneys'-fees provision of Section 11.6, properly construed, does not entitle HDDS to fees under the circumstances of this case, where WAL has not breached the Teaming Agreement and the Counterclaim is without merit.
40. In response to Paragraph 40 of the Counterclaim and the prayer for relief contained therein, WAL denies that HDDS is entitled to any of the relief requested, including without limitation: (a) contractual indemnification in the amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) or any other amount; (b) attorneys' fees; (c) costs; (d) pre-judgment or post-judgment interest; or (e) any other relief whatsoever. WAL demands strict proof of each and every element of each claim asserted in the Counterclaim.
AFFIRMATIVE DEFENSES
Without assuming the burden of proof on any issue for which the burden properly rests with HDDS, and without waiving any argument that HDDS has failed to state a claim upon which relief can be granted, WAL asserts the following affirmative defenses to HDDS's Counterclaim:
FIRST AFFIRMATIVE DEFENSE
Failure to Satisfy the Causation Requirement of Section 11.4(b)
Section 11.4(b) of the Teaming Agreement limits WAL's indemnification obligation to claims by the United States Government that costs incurred under the Prime Contract are "unallowable, unreasonable, or otherwise subject to disallowance, to the extent such claim is caused by Team Member's acts or omissions" (emphasis added). The phrase "to the extent such claim is caused by Team Member's acts or omissions" imposes a causation requirement that is an express condition precedent to any indemnification obligation on the part of WAL. The cost overruns identified in the COPD were not caused by WAL's acts or omissions but rather by factors attributable to third parties, market conditions, and HDDS's own conduct, including without limitation: (1) titanium raw-material price escalation, a market-driven event beyond WAL's reasonable control, accounting for approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) of the overruns attributed to WP-4; (2) deficiencies in engineering specifications supplied by HDDS in its capacity as Team Lead, which necessitated extensive rework, accounting for approximately Five Million One Hundred Thousand Dollars ($5,100,000.00); (3) HDDS's failure to timely deliver government-furnished equipment to WAL's manufacturing facility, causing idle-labor charges of approximately Two Million Three Hundred Thousand Dollars ($2,300,000.00); and (4) engineering change proposals directed by HDDS and the U.S. Government that expanded or modified the scope of WP-4, resulting in implementation costs of approximately One Million Two Hundred Thousand Dollars ($1,200,000.00). Because the causation prerequisite to indemnification under Section 11.4(b) has not been and cannot be satisfied, HDDS's Counterclaim fails as a matter of law and of fact.
SECOND AFFIRMATIVE DEFENSE
Force Majeure
To the extent that the cost overruns identified in the COPD relate to titanium raw-material cost escalation — approximately Four Million Two Hundred Thousand Dollars ($4,200,000.00) — such escalation constitutes a force-majeure event that was beyond WAL's reasonable control. The escalation in the price of aerospace-grade titanium was caused by worldwide supply-chain disruptions and commodity-market volatility that were unforeseeable at the time the Teaming Agreement was executed and that could not have been avoided or mitigated through the exercise of reasonable diligence. Under applicable New York law and the force-majeure and excusable-delay provisions of the Teaming Agreement, WAL is not liable for costs or damages attributable to force-majeure events. HDDS's Counterclaim is barred, in whole or in part, to the extent it seeks to impose liability on WAL for costs arising from such events.
THIRD AFFIRMATIVE DEFENSE
Overbreadth of Demand — Non-WP-4 Overruns
HDDS's Counterclaim seeks indemnification in the total amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00), which includes One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) — representing approximately twelve and ninety-seven hundredths percent (12.97%) of the total — that was attributed by the DCMA COPD to work packages other than WP-4. WAL's scope of work under the Teaming Agreement is expressly limited to WP-4 (titanium structural assemblies). WAL has no conceivable indemnification obligation — contractual or otherwise — for cost overruns arising from work packages that fall entirely outside the scope of its contractual responsibilities. HDDS's Counterclaim is overbroad and must be dismissed, at a minimum, to the extent it seeks indemnification for the One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142.00) in non-WP-4 overruns.
FOURTH AFFIRMATIVE DEFENSE
No Formal Disallowance — COPD Is Preliminary
The DCMA COPD dated August 1, 2022, is a preliminary determination that does not constitute a Contracting Officer's Final Decision ("COFD") under the Contract Disputes Act, 41 U.S.C. § 7101 et seq., and does not represent a final, binding adjudication that any costs under the Prime Contract are unallowable, unreasonable, or subject to disallowance. Indeed, HDDS itself has contested the COPD by filing a formal response and request for issuance of a COFD with DCMA on or about October 15, 2022, thereby acknowledging the preliminary nature of the COPD and disputing its findings. As of the date of this filing, no COFD has been issued, no costs have been formally disallowed, and the administrative review process remains pending. Section 11.4(b) of the Teaming Agreement requires a "claim by the U.S. Government that costs . . . are unallowable, unreasonable, or otherwise subject to disallowance" before any indemnification obligation arises. A preliminary determination that is itself being contested by the very party seeking indemnification does not constitute a ripe, final claim sufficient to trigger the indemnification obligation under Section 11.4(b). HDDS's Counterclaim is premature and should be dismissed.
FIFTH AFFIRMATIVE DEFENSE
Comparative Fault / Contributory Conduct of HDDS
To the extent that any cost overruns attributable to WP-4 are determined to fall within the scope of Section 11.4(b) of the Teaming Agreement — which WAL denies — such overruns were caused or substantially contributed to by HDDS's own acts and omissions in its capacity as Team Lead and prime contractor under the Prime Contract. HDDS's contributory conduct includes, without limitation:
(a) Providing defective, incomplete, or erroneous engineering specifications to WAL, including flawed geometric dimensioning and tolerancing callouts on critical structural-assembly drawings, which necessitated costly rework;
(b) Failing to timely deliver government-furnished equipment, including specialized titanium forging dies and inspection tooling, to WAL's manufacturing facility, causing schedule delays and idle-labor charges; and
(c) Directing the implementation of engineering change proposals that expanded or modified the scope of WP-4 without providing corresponding cost adjustments or equitable adjustments to WAL.
Under New York law, HDDS's own fault in causing or contributing to the cost overruns bars or proportionately reduces any recovery against WAL. See N.Y. C.P.L.R. § 1411.
SIXTH AFFIRMATIVE DEFENSE
Failure to Mitigate
HDDS failed to take reasonable steps to mitigate the cost overruns identified in the COPD, as required under New York law. HDDS's failure to mitigate includes, without limitation: (a) failing to timely identify and address the engineering-specification deficiencies that caused rework on WP-4; (b) failing to escalate and resolve government-furnished-equipment delivery delays in a timely manner; (c) failing to seek an equitable adjustment from the U.S. Government under the Changes clause or other applicable provisions of the Prime Contract to recover costs attributable to directed ECPs, GFE delays, and defective specifications; and (d) failing to pursue available administrative remedies to contest or reduce the cost overruns identified in the COPD in a timely and diligent manner. HDDS's failure to mitigate bars or reduces any recovery against WAL.
SEVENTH AFFIRMATIVE DEFENSE
Contractual Limitation of Liability (Section 11.5)
Even if WAL were found to have an indemnification obligation under Section 11.4 of the Teaming Agreement — which WAL expressly denies — Section 11.5 of the Teaming Agreement imposes an absolute cap on WAL's aggregate liability under Section 11 in the amount of one hundred twenty percent (120%) of the value of WAL's Work Package, calculated as Eighty-Eight Million Nine Hundred Ninety-Two Thousand Dollars ($88,992,000.00). While the current indemnification demand of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00) falls below this contractual cap, WAL asserts this defense to preserve and protect its rights in the event HDDS attempts, during the course of this litigation or otherwise, to expand its damages claim beyond the limitation set forth in Section 11.5. WAL reserves all rights with respect to this defense.
EIGHTH AFFIRMATIVE DEFENSE
Reservation of Additional Defenses
Discovery in this action has not yet commenced, and the DCMA administrative review proceedings remain pending. WAL reserves the right to assert additional affirmative defenses as the facts developed through discovery and the outcome of the DCMA administrative review proceedings may warrant. The assertion of the affirmative defenses set forth herein shall not be deemed a waiver of any other defense, claim, or right available to WAL under law, equity, or the Teaming Agreement, including without limitation any defense that may be identified during the course of further investigation and discovery.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC respectfully requests that the Court enter judgment as follows:
(a) Dismissing the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc. in its entirety, with prejudice;
(b) Denying HDDS's request for contractual indemnification in the amount of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583.00), or in any other amount;
(c) Denying HDDS's request for attorneys' fees under Section 11.6 of the Teaming Agreement, or otherwise;
(d) Granting WAL its costs and disbursements incurred in defending against the Counterclaim;
(e) Granting such other and further relief as this Court deems just and proper.
JURY DEMAND
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC hereby demands a trial by jury on all issues so triable in connection with the Counterclaim of Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc.
Dated: February 3, 2023 New York, New York
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand (NY Bar No. 5187234)
Douglas Carmichael (NY Bar No. 4923817) Patrick Gallagher (NY Bar No. 5301492)
600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 554-7800 Facsimile: (212) 554-7801
Email: panand@calderwoodharkness.com
Email: dcarmichael@calderwoodharkness.com
Email: pgallagher@calderwoodharkness.com
Attorneys for Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC
CERTIFICATE OF SERVICE
I, Priya Anand, hereby certify that on February 3, 2023, a true and correct copy of the foregoing Plaintiff/Counterclaim-Defendant Whitmore Aerospace LLC's Reply to Defendant/Counterclaim-Plaintiff's Counterclaim was served via the Court's CM/ECF electronic filing system upon all counsel of record, including:
Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 331-4400 Counsel for Defendant/Counterclaim-Plaintiff Hargrove-Dalton Defense Systems, Inc.
________________________________________
Priya Anand
WHITMORE AEROSPACE LLC,
Plaintiff/Counterclaim-Defendant, | Case No. 1:22-cv-10147-RMB
v. | Hon. Richard M. Brannigan
U.S. District Judge
HARGROVE-DALTON DEFENSE SYSTEMS, INC.,
Hon. Allison P. Kurtz
Defendant/Counterclaim-Plaintiff. | U.S. Magistrate Judge

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

RESPONSES TO NUMBERED PARAGRAPHS OF THE COUNTERCLAIM

AFFIRMATIVE DEFENSES

FIRST AFFIRMATIVE DEFENSE

SECOND AFFIRMATIVE DEFENSE

THIRD AFFIRMATIVE DEFENSE

FOURTH AFFIRMATIVE DEFENSE

FIFTH AFFIRMATIVE DEFENSE

SIXTH AFFIRMATIVE DEFENSE

SEVENTH AFFIRMATIVE DEFENSE

EIGHTH AFFIRMATIVE DEFENSE

PRAYER FOR RELIEF

JURY DEMAND

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

CERTIFICATE OF SERVICE

WHITMORE AEROSPACE LLC,

HARGROVE-DALTON DEFENSE SYSTEMS, INC.,

Record

Parties

Dates

Amounts