1019-00005 · Whitmore Aerospace LLC · Pleadings

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Plaintiff Whitmore Aerospace LLC ("Whitmore" or "WAL"), a Virginia limited liability company, by and through its attorneys, Calderwood & Harkness LLP, brings this action for declaratory relief pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202, and respectfully alleges as follows. WAL seeks a judicial declaration that the indemnification provision in Section 11.4 of a Teaming Agreement dated June 12, 2019, between WAL and Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS"), does not obligate WAL to indemnify HDDS for $14,726,583 in cost-overrun claims asserted by the U.S. Department of Defense, Defense Contract Management Agency ("DCMA"), under Prime Contract No. FA8620-19-C-0337.

I. NATURE OF THE ACTION

1. This is a declaratory judgment action arising from a dispute over the interpretation and application of an indemnification clause contained in a teaming agreement between an aerospace subcontractor and a prime defense contractor. The dispute concerns the scope and applicability of the indemnification obligation that the prime contractor seeks to impose upon the subcontractor in connection with cost overruns identified on a major Department of Defense program for the development and production of advanced tactical airframe structures.

2. HDDS has demanded that WAL indemnify it for the full $14,726,583 in cost overruns identified in a preliminary DCMA determination issued on August 1, 2022, despite the fact that: (a) the indemnification clause at issue, Section 11.4(b) of the Teaming Agreement, requires that the overruns be "caused by" WAL's acts or omissions; (b) the cost overruns were caused by HDDS's own conduct — including the provision of deficient engineering specifications and the late delivery of government-furnished equipment — and by force-majeure events beyond WAL's control, including the dramatic escalation in the global price of aerospace-grade titanium driven by geopolitical disruptions and pandemic-related supply-chain constraints; and (c) HDDS's demand improperly includes $1,909,142 in overruns attributable to work packages other than WAL's designated Work Package 4 ("WP-4"), for which WAL performed no work and bears no contractual responsibility.

3. WAL brings this action to seek a declaration of its rights and obligations under the Teaming Agreement to resolve this actual, justiciable controversy, which has caused and continues to cause WAL substantial uncertainty and concrete financial harm, including mandatory disclosure obligations to WAL's lender and insurer, contingent-liability treatment in WAL's financial statements, and the ongoing burden of an unresolved demand for nearly $15 million in indemnification that WAL does not owe.

II. THE PARTIES

A. Plaintiff Whitmore Aerospace LLC

4. WAL is a Virginia limited liability company organized and existing under the laws of the Commonwealth of Virginia, with its principal place of business at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151. All members of WAL are citizens of the Commonwealth of Virginia for purposes of diversity jurisdiction under 28 U.S.C. § 1332.

5. WAL was founded in 2006 by Marcus J. Whitmore and Elaine Whitmore, both citizens of Virginia. Since its founding, WAL has specialized in precision-machined turbine components, integrated propulsion sub-assemblies, and structural airframe parts for military and commercial aerospace platforms. WAL operates manufacturing facilities in Chantilly, Virginia, and Huntsville, Alabama, with additional engineering offices in Manassas, Virginia. WAL's facilities incorporate advanced multi-axis CNC machining centers, electron-beam welding capabilities, and proprietary titanium forming processes that have positioned the company as a recognized leader in the fabrication of complex titanium structural assemblies for defense and aerospace applications.

6. WAL employs approximately 1,400 people across its facilities and reported annual revenue of approximately $287 million for fiscal year 2022. WAL's workforce includes approximately 450 skilled machinists, 120 quality assurance engineers, and 90 design and manufacturing engineers, many of whom hold security clearances at the SECRET level or above.

7. WAL holds an active facility security clearance at the SECRET level, issued by the Defense Counterintelligence and Security Agency ("DCSA"), and has served as a subcontractor on over 30 Department of Defense programs since 2009, including programs administered by the U.S. Air Force, the U.S. Navy, and the Defense Advanced Research Projects Agency ("DARPA"). DCMA Northern Virginia, located at 14501 George Carter Way, Chantilly, Virginia 20151, is the contract administration office for WAL. WAL's history of performance on government contracts reflects a consistent record of on-time, on-budget delivery, with no prior instances of cost disallowances, debarment proceedings, or adverse contracting officer final decisions.

8. WAL's registered agent in the Commonwealth of Virginia is CT Statutory Services, 4701 Cox Road, Suite 285, Glen Allen, Virginia 23060.

B. Defendant Hargrove-Dalton Defense Systems, Inc.

9. HDDS is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817. HDDS is therefore a citizen of both Delaware and Maryland for purposes of diversity jurisdiction under 28 U.S.C. § 1332.

10. HDDS is a prime defense contractor specializing in systems integration, avionics, advanced electronic warfare systems, and airframe manufacturing for the United States Department of Defense and allied foreign governments. HDDS employs approximately 12,500 people across its domestic and international operations and reported annual revenue of approximately $3.4 billion for fiscal year 2022. HDDS is one of the largest mid-tier defense contractors in the United States and maintains major manufacturing and integration facilities in Bethesda, Maryland; Fort Worth, Texas; and Palmdale, California.

11. 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 is the program at the center of the dispute giving rise to this action. As the prime contractor, HDDS bears overall responsibility for the management, integration, and delivery of all work performed under the Prime Contract, including the coordination and oversight of all subcontractor work packages.

III. JURISDICTION AND VENUE

12. This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(a) because there is complete diversity of citizenship between the parties — WAL is a Virginia limited liability company whose members are all citizens of Virginia, and HDDS is a Delaware corporation with its principal place of business in Maryland — and the amount in controversy exceeds $75,000, exclusive of interest and costs. Specifically, HDDS has demanded indemnification from WAL in the amount of $14,726,583, which sum substantially exceeds the jurisdictional threshold for diversity jurisdiction.

13. This Court also has jurisdiction pursuant to 28 U.S.C. §§ 2201 and 2202, the Declaratory Judgment Act, to declare the rights, status, and other legal relations of the parties in this case of actual controversy. As set forth more fully below, a real and substantial controversy exists between the parties regarding WAL's obligations, if any, under the indemnification provisions of the Teaming Agreement, and a declaratory judgment will serve a useful purpose in resolving this controversy and clarifying the legal rights and obligations of both parties.

14. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(1) because HDDS maintains a substantial presence in this District, including a regional office in New York, New York, and transacts significant business here. Venue is also independently proper pursuant to the forum-selection clause in Section 18.2 of the Teaming Agreement, which provides that "[a]ny action or proceeding arising out of or relating to this Agreement shall be brought exclusively in the United States District Court for the Southern District of New York or, if that court lacks subject-matter jurisdiction, in the Supreme Court of the State of New York, County of New York." Both parties consented to personal jurisdiction in this District by executing the Teaming Agreement containing Section 18.2, and both parties agreed that they would not contest jurisdiction or venue in this District.

IV. FACTUAL ALLEGATIONS

A. The Prime Contract

15. On or about September 1, 2019, the United States Air Force, acting through the Air Force Life Cycle Management Center ("AFLCMC") at Wright-Patterson Air Force Base, Ohio, awarded HDDS Prime Contract No. FA8620-19-C-0337 for the Advanced Tactical Airframe Program ("ATAP"). The award followed a full and open competitive procurement process in which HDDS was selected from among four competing offerors, and in which WAL's participation as a subcontractor to HDDS was a material element of HDDS's technical proposal and a factor in the Air Force's evaluation of HDDS's manufacturing capability and supply-chain readiness.

16. The ATAP program involves the design, development, and initial low-rate production of advanced titanium-composite hybrid airframe structures for next-generation tactical aircraft. The program represents one of the Air Force's highest-priority advanced materials initiatives and is intended to develop manufacturing processes and production capabilities for integrating high-performance titanium alloy components with advanced composite structures in tactical aircraft airframes, thereby achieving significant weight savings and improvements in structural performance relative to conventional aluminum airframe designs.

17. The Prime Contract is a cost-plus-incentive-fee ("CPIF") contract with a target cost of $412,000,000, a target fee of 8% ($32,960,000), a ceiling price of $470,000,000, and a share ratio of 70/30 (government/contractor) for cost overruns above the target cost and 60/40 (government/contractor) for cost underruns below the target cost. The CPIF contract structure was selected by the Air Force to account for the substantial technical uncertainty inherent in the ATAP program, which involves the development and qualification of novel manufacturing processes for titanium-composite hybrid structures. The CPIF structure is specifically designed to allocate cost risk between the government and the contractor, recognizing that cost growth may occur for reasons beyond the contractor's control.

18. The base period of performance under the Prime Contract runs from September 1, 2019, through August 31, 2024, a period of five years. The Prime Contract includes two one-year options for additional low-rate production and transition to full-rate production, which, if exercised, would extend the period of performance through August 31, 2026. As of the date of this filing, neither option has been exercised.

19. The Program Executive Officer for the ATAP program is Colonel Brian T. Matsuda, USAF, assigned to AFLCMC at Wright-Patterson Air Force Base, Ohio. The Administrative Contracting Officer ("ACO") responsible for contract administration of the Prime Contract is Lieutenant Colonel Sandra M. Vickers, USAF, assigned to DCMA Northern Virginia. Lt. Col. Vickers is the ACO who issued the Contracting Officer's Preliminary Determination that is at the center of this dispute.

B. The Teaming Agreement

20. On June 12, 2019, approximately two and one-half months before the award of the Prime Contract, WAL and HDDS executed a Teaming Agreement (the "Teaming Agreement" or the "Agreement") under which HDDS, designated as the "Team Lead," and WAL, designated as the "Team Member," agreed to collaborate on the ATAP program. The Teaming Agreement was negotiated over a period of approximately four months, during which the parties exchanged multiple drafts and engaged in detailed negotiations regarding the allocation of work, risk, cost, and liability. The Teaming Agreement, as executed, consists of 22 articles and 7 exhibits, totaling 68 pages.

21. Under the Teaming Agreement, WAL was designated to perform Work Package 4 ("WP-4"), which encompasses the fabrication and delivery of titanium structural assemblies for the ATAP program, including wing-box substructure components, center fuselage longerons, and bulkhead fittings. WP-4 is one of seven work packages under the ATAP program, each assigned to HDDS or one of its subcontractors. WP-4 represents the highest-value subcontracted work package on the program and involves the most technically demanding manufacturing operations, requiring advanced multi-axis machining, precision forming, and specialized heat treatment of Ti-6Al-4V and Ti-5Al-5V-5Mo-3Cr alloys.

22. WAL's share of the Prime Contract target cost under WP-4, as set forth in Exhibit B to the Teaming Agreement, is 18%, or $74,160,000 (calculated as $412,000,000 multiplied by 0.18). This figure represents the target cost for WAL's work and forms the basis for the Teaming Agreement's cost-sharing and indemnification provisions. WAL's subcontract under the ATAP program is structured as a cost-reimbursement subcontract, consistent with the CPIF structure of the Prime Contract.

23. Section 18.1 of the Teaming Agreement provides that the Agreement "shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts-of-law principles thereof." Accordingly, the interpretation of the indemnification clause at issue in this action is governed by New York law.

C. The Indemnification Clause (Section 11.4)

24. Section 11.4 of the Teaming Agreement, titled "Team Member Indemnification," is the indemnification provision at the center of this dispute. Section 11.4 provides, in pertinent part:

"Team Member shall indemnify, defend, and hold harmless Team Lead from and against any and all Losses arising out of or relating to (a) Team Member's negligent acts or omissions, willful misconduct, or material breach of this Agreement in the performance of Team Member's Work Package, or (b) any claim by the U.S. Government that costs incurred under Team Member's Work Package are unallowable, unreasonable, or otherwise subject to disallowance, to the extent such claim is caused by Team Member's acts or omissions."

25. Critically, Section 11.4(b) contains an express causation limitation that confines WAL's indemnification obligation to government claims that are "caused by Team Member's acts or omissions." This causation requirement is not a mere formality; it is a substantive limitation that the parties specifically negotiated during the formation of the Teaming Agreement. As alleged more fully below, the cost overruns at issue in this action were not caused by WAL's acts or omissions, but rather by HDDS's own conduct and by force-majeure events beyond WAL's control. The express causation language in Section 11.4(b) therefore precludes HDDS's indemnification demand.

26. In addition to the causation limitation in Section 11.4(b), the Teaming Agreement contains a separate aggregate liability cap in Section 11.5, which provides that "Team Member's aggregate liability under this Section 11 shall not exceed one hundred twenty percent (120%) of the value of Team Member's Work Package." Applying this formula, WAL's maximum aggregate indemnification liability under Section 11, if any obligation were triggered (which WAL denies), would be $88,992,000 (calculated as $74,160,000 multiplied by 1.20). While HDDS's current demand of $14,726,583 falls below this aggregate cap, WAL notes the cap's existence as further evidence that the parties intended to limit and allocate indemnification risk under the Teaming Agreement, rather than impose unlimited pass-through liability on the subcontractor.

D. The DCMA Contracting Officer's Preliminary Determination

27. On August 1, 2022, ACO Lt. Col. Sandra M. Vickers issued a Contracting Officer's Preliminary Determination ("COPD") with respect to cost overruns identified on the ATAP program. The COPD, designated DCMA Document No. COPD-FA8620-22-001, identifies total cost overruns of $14,726,583 across multiple work packages under the Prime Contract. The COPD was issued to HDDS as the prime contractor and was provided to WAL by HDDS on or about August 10, 2022.

28. The COPD attributed $12,817,441 (approximately 87.03%) of the total cost overruns to WP-4, the titanium structural assembly work package performed by WAL, and $1,909,142 (approximately 12.97%) of the total cost overruns to other work packages unrelated to WAL's scope of work. The non-WP-4 overruns were attributed to Work Package 2 (avionics integration, performed by HDDS internally) and Work Package 5 (composite panel fabrication, performed by Meridian Composites, Inc., another HDDS subcontractor). WAL performed no work under WP-2 or WP-5 and has no contractual obligations with respect to those work packages.

29. According to the narrative analysis contained in the COPD, the WP-4 cost overruns were caused by four principal factors, each of which the COPD identifies and quantifies:

(i) Titanium raw-material cost escalation: approximately $4,200,000 in cost growth attributable to the significant increase in the market price of aerospace-grade titanium alloys (Ti-6Al-4V and Ti-5Al-5V-5Mo-3Cr) during the 2020–2022 period, driven by global supply-chain disruptions, pandemic-related production curtailments at titanium sponge producers, and geopolitical factors including trade restrictions and sanctions affecting major titanium-producing nations;

(ii) Rework necessitated by non-conforming machining tolerances: approximately $5,100,000 in costs associated with the rework and re-machining of titanium structural assemblies that did not conform to specified dimensional tolerances, requiring disassembly, additional machining operations, re-inspection, and in some cases, the scrapping and re-fabrication of non-salvageable components;

(iii) Schedule delays resulting in idle-labor charges: approximately $2,300,000 in idle-labor costs incurred by WAL as a result of production stoppages and schedule delays that prevented WAL's manufacturing workforce from performing productive work during periods when necessary inputs and equipment were unavailable;

(iv) Engineering change proposal ("ECP") implementation costs: approximately $1,200,000 in costs associated with the implementation of engineering change proposals directed by the U.S. Air Force through HDDS, which required modifications to WAL's manufacturing processes, tooling, and quality assurance procedures.

30. The COPD issued by Lt. Col. Vickers is expressly designated as a preliminary determination only. The COPD states on its face that it "does not constitute a final decision of the Contracting Officer" and that HDDS has the right to submit a written response before any Contracting Officer's Final Decision ("COFD") is issued. As of the date of this filing, DCMA has not issued a COFD under the Contract Disputes Act, 41 U.S.C. § 7103, and no costs have been formally disallowed or determined to be unallowable with finality.

31. On October 15, 2022, HDDS filed a formal written response to the COPD and a request for the issuance of a COFD with DCMA, in which HDDS contested certain aspects of the COPD's analysis and requested adjustments to the preliminary cost-overrun figures. The administrative review process at DCMA is ongoing, and the ultimate amount of any cost overruns, if any, that may be formally determined to exist remains uncertain and subject to change. WAL, as a subcontractor, does not have independent privity of contract with the U.S. Government and does not have standing to participate directly in the COFD process; WAL's interests in that process are represented, if at all, by HDDS as the prime contractor.

E. The Causes of the WP-4 Cost Overruns Were Not WAL's Acts or Omissions

32. WAL alleges, upon personal knowledge of its officers, employees, and agents who participated in the performance of WP-4, and upon information and belief as to matters based on HDDS's actions and communications, that the WP-4 cost overruns identified in the COPD were not caused by WAL's acts or omissions within the meaning of Section 11.4(b) of the Teaming Agreement, but rather were caused by circumstances attributable to HDDS's own conduct and/or force-majeure events beyond WAL's control. Specifically:

33. Titanium raw-material cost escalation (approximately $4,200,000): The dramatic escalation in the global price of aerospace-grade titanium during the 2020–2022 period was driven by extraordinary supply-chain disruptions and geopolitical factors that constituted force-majeure events under any reasonable interpretation of that term. These factors include the COVID-19 pandemic, which caused prolonged shutdowns at major titanium sponge production facilities in Russia, Kazakhstan, and China; the imposition of trade restrictions and sanctions affecting Russian titanium exports following geopolitical developments in 2022; and the resulting acute shortage of aerospace-grade titanium alloys in the global market. WAL had no contractual obligation under the Teaming Agreement to absorb commodity-price risk, and the Teaming Agreement contains no provision allocating raw-material price risk to WAL. Moreover, the CPIF structure of the Prime Contract was specifically designed to share cost risks — including material cost growth — between the U.S. Government and the contractor through the 70/30 share ratio for cost overruns above target cost. The titanium cost escalation is not the result of any act or omission by WAL but is instead a macroeconomic and geopolitical phenomenon that affected the entire aerospace industry.

34. Rework due to non-conforming machining tolerances (approximately $5,100,000): The extensive rework that gave rise to this category of cost overruns was necessitated not by deficiencies in WAL's manufacturing processes, but by deficiencies in the engineering specifications and technical data packages provided by HDDS to WAL. WAL manufactured the titanium structural assemblies — including wing-box substructure components, center fuselage longerons, and bulkhead fittings — in strict conformance with the engineering drawings, specifications, and technical data packages furnished by HDDS pursuant to Section 5.2 of the Teaming Agreement. When the completed assemblies were found to exhibit dimensional non-conformances during subsequent fit-check and integration activities at HDDS's facility, HDDS's own root-cause investigation (documented in HDDS Corrective Action Report No. CAR-2021-0417, dated November 12, 2021) determined that the non-conformances resulted from errors in the engineering model data provided by HDDS's design engineering team, not from WAL's manufacturing execution. HDDS subsequently directed WAL to perform rework on the affected assemblies, which WAL performed at cost in accordance with HDDS's rework instructions. The root cause of the rework was HDDS's engineering errors, not WAL's manufacturing processes, and accordingly the rework costs are not attributable to WAL's acts or omissions.

35. Schedule delays and idle-labor charges (approximately $2,300,000): The schedule delays that gave rise to approximately $2,300,000 in idle-labor charges were caused by HDDS's late delivery of government-furnished equipment ("GFE") that WAL required to commence and continue production operations under WP-4. Specifically, HDDS was responsible under the Teaming Agreement (Section 5.4) for the timely provision of certain GFE items, including specialized tooling fixtures (Type II Assembly Fixtures, Government Property Tag Nos. GP-441 through GP-448) and calibrated inspection gauges, that WAL needed to perform machining, assembly, and inspection operations. HDDS failed to deliver these GFE items on the dates specified in the Integrated Master Schedule, causing production stoppages at WAL's Chantilly facility on multiple occasions between March 2021 and January 2022. WAL repeatedly notified HDDS of the GFE delivery delays and their impact on WAL's production schedule, including through formal written notices dated April 2, 2021; June 18, 2021; September 7, 2021; and November 22, 2021, each of which identified the specific GFE items that were delinquent and the resulting schedule impact. The idle-labor charges were a direct and foreseeable consequence of HDDS's failure to deliver GFE in a timely manner and are not attributable to WAL's acts or omissions.

36. Engineering change proposal implementation costs (approximately $1,200,000): The engineering change proposals that gave rise to approximately $1,200,000 in implementation costs were directed by the U.S. Air Force through HDDS pursuant to the Changes clause incorporated into the Prime Contract (FAR 52.243-1). Specifically, Engineering Change Proposals ECP-ATAP-031, ECP-ATAP-042, and ECP-ATAP-056 were initiated by the Air Force Program Office and flowed down to WAL through HDDS. WAL implemented the ECPs as directed by HDDS, in accordance with WAL's obligations under Section 7.1 of the Teaming Agreement. The costs associated with ECP implementation are allowable costs under the Prime Contract, are properly allocable to the ATAP program, and represent government-directed changes to the work — not the product of any act or omission by WAL. The ECP implementation costs should be recovered by HDDS through the equitable adjustment process under the Changes clause of the Prime Contract.

F. HDDS's Indemnification Demand

37. On September 9, 2022, HDDS, acting through its Vice President and Associate General Counsel, Katherine M. Stanton, sent WAL a formal indemnification demand letter (the "Demand Letter") demanding that WAL indemnify HDDS for the full $14,726,583 in cost overruns identified in the COPD, pursuant to Section 11.4 of the Teaming Agreement. The Demand Letter stated that HDDS "hereby demands that [WAL] indemnify, defend, and hold harmless [HDDS] for any and all Losses arising from the cost overruns identified in the COPD" and demanded that WAL "confirm its acceptance of this indemnification obligation within thirty (30) days." The Demand Letter did not distinguish between WP-4 cost overruns and non-WP-4 cost overruns, and did not identify any specific act or omission by WAL that purportedly caused the cost overruns.

38. HDDS's indemnification demand is improper and overbroad for at least three independent reasons:

(a) The Demand Letter seeks indemnification for the full $14,726,583 identified in the COPD, which includes $1,909,142 in cost overruns attributable to Work Package 2 (avionics integration) and Work Package 5 (composite panel fabrication) — work packages that are entirely outside WAL's scope of responsibility under the Teaming Agreement. WAL performed no work under WP-2 or WP-5, has no contractual relationship with the performers of those work packages, and has no conceivable indemnification obligation with respect to cost overruns arising from work that WAL did not perform. HDDS's inclusion of non-WP-4 cost overruns in its demand to WAL is facially improper and unsupported by any provision of the Teaming Agreement.

(b) Section 11.4(b) of the Teaming Agreement imposes an indemnification obligation only "to the extent such claim is caused by Team Member's acts or omissions." As set forth in detail in Paragraphs 32 through 36 above, the WP-4 cost overruns identified in the COPD were not caused by WAL's acts or omissions, but were instead caused by HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events affecting global titanium supply and pricing, and U.S. Air Force-directed engineering change proposals. Because the causation requirement of Section 11.4(b) is not satisfied, WAL's indemnification obligation has not been triggered.

(c) The COPD on which HDDS's demand is based is a preliminary determination that does not constitute a final decision of the Contracting Officer. No costs have been formally disallowed. The COFD process remains pending, and the ultimate amount and characterization of any cost overruns remain subject to change. HDDS's demand for indemnification based on a preliminary determination is premature.

G. Pre-Litigation Dispute Resolution Efforts

39. Consistent with the dispute-resolution procedures set forth in Section 18.3 of the Teaming Agreement, which requires that the parties engage in good-faith senior executive negotiations before resorting to litigation, WAL engaged in such negotiations with HDDS. Specifically, WAL's Chief Executive Officer and Managing Member, Marcus J. Whitmore, and HDDS's Senior Vice President, Contracts and Procurement, William Fong, met in person on September 30, 2022, in Washington, D.C., and again on October 14, 2022, in New York, New York. During these meetings, WAL presented its position that the indemnification demand was unsupported by the terms of Section 11.4 and the factual record, and proposed a mutual standstill pending resolution of the DCMA administrative review process. HDDS rejected WAL's position and maintained its demand for full indemnification. These senior executive negotiations thus failed to resolve the dispute.

40. On October 21, 2022, WAL, through its counsel at Calderwood & Harkness LLP, sent a written proposal to HDDS's counsel offering to participate in non-binding mediation to resolve the indemnification dispute, as contemplated by Section 18.3 of the Teaming Agreement, which provides that if senior executive negotiations fail to resolve a dispute, "the parties may submit the dispute to non-binding mediation before a neutral mediator mutually agreed upon by the parties."

41. On October 28, 2022, HDDS, through its counsel, declined WAL's mediation proposal. HDDS took the position that the mediation clause in Section 18.3 is permissive, noting that it uses the word "may" rather than "shall," and asserted that HDDS was not obligated to participate in mediation. HDDS further stated that it would "reserve all rights and remedies" under the Teaming Agreement and applicable law, including the right to file a counterclaim or separate action against WAL for breach of the indemnification obligation.

42. Having exhausted the contractual dispute-resolution steps that HDDS was willing to undertake, and having been unable to resolve the indemnification dispute through negotiation or alternative dispute resolution, WAL now seeks judicial resolution of the parties' dispute through this action for declaratory judgment.

V. ACTUAL CONTROVERSY

43. An actual, justiciable controversy exists between WAL and HDDS regarding WAL's obligations, if any, under Section 11.4 of the Teaming Agreement. The parties are in direct and irreconcilable disagreement regarding the interpretation and application of Section 11.4 to the facts and circumstances of the COPD and the ATAP program cost overruns. HDDS has asserted that WAL is obligated to indemnify HDDS for the full $14,726,583 in cost overruns; WAL contends that it has no such obligation. This disagreement is not hypothetical or speculative; it is real, immediate, and concrete.

44. HDDS has asserted a present, concrete demand for $14,726,583 in indemnification from WAL through the Demand Letter dated September 9, 2022. HDDS's demand is not contingent on future events; it is a present, unconditional assertion of WAL's indemnification obligation. WAL disputes that any indemnification obligation has been triggered under Section 11.4 of the Teaming Agreement and, in the alternative, disputes the scope and amount of any such obligation. The parties' positions are adverse and well-defined, and there is no prospect of the dispute resolving itself without judicial intervention.

45. The controversy is ripe for judicial determination. HDDS's Demand Letter creates an immediate and concrete injury to WAL's legal and financial interests that extends beyond the indemnification dispute itself. Specifically:

(a) WAL is required under Section 6.07(b) of its $75,000,000 senior secured revolving credit facility with Ridgeline National Bank, N.A., to promptly disclose any claims, demands, or threatened litigation that, individually or in the aggregate, could reasonably be expected to result in a material adverse effect on WAL's financial condition or operations. WAL disclosed HDDS's indemnification demand to Ridgeline National Bank on September 16, 2022, and the bank has requested ongoing updates regarding the status of the dispute. The unresolved demand has the potential to affect WAL's borrowing capacity and credit terms.

(b) WAL tendered HDDS's indemnification claim to its professional liability insurer, Meridian Surety & Insurance Group, on September 22, 2022, pursuant to WAL's Commercial General Liability and Professional Liability insurance policies. Meridian has acknowledged receipt of the tender and has reserved its rights pending further investigation. The pendency of the claim affects WAL's insurance relationship and may affect WAL's premiums and coverage terms upon renewal.

(c) WAL's independent auditor, Pinnacle Advisory Partners LLC, has been informed of the indemnification demand and is required to assess the demand as a loss contingency under Accounting Standards Codification Topic 450 (ASC 450, formerly FAS 5) in connection with the audit of WAL's financial statements for the fiscal year ending December 31, 2022. Depending on the outcome of the ASC 450 analysis, WAL may be required to accrue a liability or disclose a contingent liability in its audited financial statements, which could materially affect WAL's reported financial position and its relationships with lenders, sureties, and contracting agencies.

46. A declaratory judgment will serve a useful purpose in resolving this controversy and providing certainty to both parties regarding their rights and obligations under the Teaming Agreement. A declaration from this Court will enable the parties to plan their affairs, resolve their financial reporting obligations, and, if necessary, engage in further proceedings with the benefit of a definitive interpretation of their contractual rights. The exercise of declaratory judgment jurisdiction is appropriate in this case because the controversy is between adverse parties, involves a concrete and well-defined legal question of contract interpretation, and will not entangle the Court in abstract or advisory proceedings.

VI. COUNT I — DECLARATORY JUDGMENT (28 U.S.C. §§ 2201–2202)

47. WAL re-alleges and incorporates by reference the allegations set forth in Paragraphs 1 through 46 of this Verified Complaint as if fully set forth herein.

48. Pursuant to 28 U.S.C. §§ 2201 and 2202, WAL is entitled to a declaration of its rights and legal relations with respect to HDDS's indemnification demand under Section 11.4 of the Teaming Agreement dated June 12, 2019. An actual controversy exists between the parties within the meaning of the Declaratory Judgment Act, and a declaratory judgment will serve a useful purpose in terminating the uncertainty and controversy that has arisen between the parties.

49. WAL respectfully requests that this Court enter a declaratory judgment declaring that:

(a) Section 11.4 of the Teaming Agreement does not obligate WAL to indemnify HDDS for the cost overruns identified in the DCMA Contracting Officer's Preliminary Determination dated August 1, 2022, because: (i) the cost overruns were not "caused by" WAL's acts or omissions within the meaning of Section 11.4(b), as the cost overruns resulted from HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events affecting global titanium supply and pricing, and U.S. Air Force-directed engineering change proposals; (ii) the COPD is a preliminary determination and no costs have been formally disallowed or determined to be unallowable, unreasonable, or subject to disallowance by a Contracting Officer's Final Decision; and (iii) Section 11.4(a) has not been triggered because WAL has not engaged in negligent acts or omissions, willful misconduct, or material breach of the Teaming Agreement in the performance of Work Package 4;

(b) Even if Section 11.4 of the Teaming Agreement is otherwise applicable to the COPD cost overruns, WAL's indemnification obligation extends only to cost overruns "caused by" WAL's acts or omissions, and the factual record — including HDDS's own Corrective Action Report No. CAR-2021-0417, WAL's contemporaneous written notices of GFE delivery delays, the U.S. Air Force-originated engineering change proposals, and the publicly documented global disruption in titanium supply — establishes that the WP-4 cost overruns were caused by HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events (titanium price escalation), and U.S. Air Force-directed engineering change proposals, none of which constitute acts or omissions by WAL;

(c) HDDS's demand for indemnification in the amount of $14,726,583 is overbroad and unsupported by the Teaming Agreement because it includes $1,909,142 in cost overruns attributable to Work Package 2 (avionics integration) and Work Package 5 (composite panel fabrication), for which WAL performed no work and bears no responsibility under the Teaming Agreement, and for which no provision of Section 11.4 or any other provision of the Teaming Agreement imposes any indemnification obligation on WAL.

VII. PRAYER FOR RELIEF

WHEREFORE, Plaintiff Whitmore Aerospace LLC respectfully requests that this Court:

1. Enter a declaratory judgment in favor of WAL and against HDDS consistent with the declarations sought in Paragraphs 49(a), (b), and (c) of Count I above, declaring that WAL has no obligation to indemnify HDDS under Section 11.4 of the Teaming Agreement for the cost overruns identified in the DCMA Contracting Officer's Preliminary Determination dated August 1, 2022;

2. Award WAL its reasonable attorneys' fees and costs incurred in this action, to the extent permitted by applicable law or by the terms of the Teaming Agreement, including but not limited to Section 18.5 of the Teaming Agreement, which provides that the prevailing party in any action arising under the Agreement shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing party;

3. Grant such other and further relief as this Court deems just and proper in the circumstances of this case.

VIII. DEMAND FOR JURY TRIAL

Plaintiff Whitmore Aerospace LLC hereby demands a trial by jury on all issues so triable in this action, pursuant to the Seventh Amendment to the United States Constitution and Rule 38 of the Federal Rules of Civil Procedure.

VERIFICATION

STATE OF VIRGINIA COUNTY OF FAIRFAX

I, Marcus J. Whitmore, being duly sworn, depose and state as follows:

1. I am the Founder, Chief Executive Officer, and Managing Member of Whitmore Aerospace LLC, the Plaintiff in this action. I am authorized to execute this verification on behalf of Whitmore Aerospace LLC.

2. I have read the foregoing Verified Complaint for Declaratory Judgment and am familiar with the contents thereof. The factual statements set forth in the Verified Complaint are true and correct to the best of my knowledge, information, and belief, formed after reasonable inquiry. Where statements are made upon information and belief, I believe them to be true.

3. I make this verification in accordance with 28 U.S.C. § 1746 and upon my personal knowledge of the facts and circumstances described herein, as well as upon my review of documents and records maintained by Whitmore Aerospace LLC in the ordinary course of its business.

________________________________________

Marcus J. Whitmore Founder, CEO, and Managing Member Whitmore Aerospace LLC

Sworn to and subscribed before me this __ day of November 2022.

________________________________________

Notary Public Commonwealth of Virginia My Commission Expires: _____

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand (NY Bar No. 4587231) Douglas Carmichael (NY Bar No. 3219847) Patrick Gallagher (NY Bar No. 5412063) 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 455-7800 Facsimile: (212) 455-7801

Email: panand@calderwoodharkness.com

Email: dcarmichael@calderwoodharkness.com

Email: pgallagher@calderwoodharkness.com

Simone Laroche (DC Bar No. 1048592) 1900 K Street NW, Suite 1100 Washington, D.C. 20006 Telephone: (202) 661-4400 Facsimile: (202) 661-4401

Email: slaroche@calderwoodharkness.com

Attorneys for Plaintiff Whitmore Aerospace LLC

Dated: November 28, 2022

WHITMORE AEROSPACE LLC,

<!-- indent:2 -->Plaintiff,<!-- /indent -->	Civil Action No. 1:22-cv-10147-RMB
v.	VERIFIED COMPLAINT FOR

DECLARATORY JUDGMENT

HARGROVE-DALTON DEFENSE SYSTEMS, INC.,

Defendant.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
Plaintiff Whitmore Aerospace LLC ("Whitmore" or "WAL"), a Virginia limited liability company, by and through its attorneys, Calderwood & Harkness LLP, brings this action for declaratory relief pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202, and respectfully alleges as follows. WAL seeks a judicial declaration that the indemnification provision in Section 11.4 of a Teaming Agreement dated June 12, 2019, between WAL and Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS"), does not obligate WAL to indemnify HDDS for $14,726,583 in cost-overrun claims asserted by the U.S. Department of Defense, Defense Contract Management Agency ("DCMA"), under Prime Contract No. FA8620-19-C-0337.
I. NATURE OF THE ACTION
1. This is a declaratory judgment action arising from a dispute over the interpretation and application of an indemnification clause contained in a teaming agreement between an aerospace subcontractor and a prime defense contractor. The dispute concerns the scope and applicability of the indemnification obligation that the prime contractor seeks to impose upon the subcontractor in connection with cost overruns identified on a major Department of Defense program for the development and production of advanced tactical airframe structures.
2. HDDS has demanded that WAL indemnify it for the full $14,726,583 in cost overruns identified in a preliminary DCMA determination issued on August 1, 2022, despite the fact that: (a) the indemnification clause at issue, Section 11.4(b) of the Teaming Agreement, requires that the overruns be "caused by" WAL's acts or omissions; (b) the cost overruns were caused by HDDS's own conduct — including the provision of deficient engineering specifications and the late delivery of government-furnished equipment — and by force-majeure events beyond WAL's control, including the dramatic escalation in the global price of aerospace-grade titanium driven by geopolitical disruptions and pandemic-related supply-chain constraints; and (c) HDDS's demand improperly includes $1,909,142 in overruns attributable to work packages other than WAL's designated Work Package 4 ("WP-4"), for which WAL performed no work and bears no contractual responsibility.
3. WAL brings this action to seek a declaration of its rights and obligations under the Teaming Agreement to resolve this actual, justiciable controversy, which has caused and continues to cause WAL substantial uncertainty and concrete financial harm, including mandatory disclosure obligations to WAL's lender and insurer, contingent-liability treatment in WAL's financial statements, and the ongoing burden of an unresolved demand for nearly $15 million in indemnification that WAL does not owe.
II. THE PARTIES
A. Plaintiff Whitmore Aerospace LLC
4. WAL is a Virginia limited liability company organized and existing under the laws of the Commonwealth of Virginia, with its principal place of business at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151. All members of WAL are citizens of the Commonwealth of Virginia for purposes of diversity jurisdiction under 28 U.S.C. § 1332.
5. WAL was founded in 2006 by Marcus J. Whitmore and Elaine Whitmore, both citizens of Virginia. Since its founding, WAL has specialized in precision-machined turbine components, integrated propulsion sub-assemblies, and structural airframe parts for military and commercial aerospace platforms. WAL operates manufacturing facilities in Chantilly, Virginia, and Huntsville, Alabama, with additional engineering offices in Manassas, Virginia. WAL's facilities incorporate advanced multi-axis CNC machining centers, electron-beam welding capabilities, and proprietary titanium forming processes that have positioned the company as a recognized leader in the fabrication of complex titanium structural assemblies for defense and aerospace applications.
6. WAL employs approximately 1,400 people across its facilities and reported annual revenue of approximately $287 million for fiscal year 2022. WAL's workforce includes approximately 450 skilled machinists, 120 quality assurance engineers, and 90 design and manufacturing engineers, many of whom hold security clearances at the SECRET level or above.
7. WAL holds an active facility security clearance at the SECRET level, issued by the Defense Counterintelligence and Security Agency ("DCSA"), and has served as a subcontractor on over 30 Department of Defense programs since 2009, including programs administered by the U.S. Air Force, the U.S. Navy, and the Defense Advanced Research Projects Agency ("DARPA"). DCMA Northern Virginia, located at 14501 George Carter Way, Chantilly, Virginia 20151, is the contract administration office for WAL. WAL's history of performance on government contracts reflects a consistent record of on-time, on-budget delivery, with no prior instances of cost disallowances, debarment proceedings, or adverse contracting officer final decisions.
8. WAL's registered agent in the Commonwealth of Virginia is CT Statutory Services, 4701 Cox Road, Suite 285, Glen Allen, Virginia 23060.
B. Defendant Hargrove-Dalton Defense Systems, Inc.
9. HDDS is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817. HDDS is therefore a citizen of both Delaware and Maryland for purposes of diversity jurisdiction under 28 U.S.C. § 1332.
10. HDDS is a prime defense contractor specializing in systems integration, avionics, advanced electronic warfare systems, and airframe manufacturing for the United States Department of Defense and allied foreign governments. HDDS employs approximately 12,500 people across its domestic and international operations and reported annual revenue of approximately $3.4 billion for fiscal year 2022. HDDS is one of the largest mid-tier defense contractors in the United States and maintains major manufacturing and integration facilities in Bethesda, Maryland; Fort Worth, Texas; and Palmdale, California.
11. 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 is the program at the center of the dispute giving rise to this action. As the prime contractor, HDDS bears overall responsibility for the management, integration, and delivery of all work performed under the Prime Contract, including the coordination and oversight of all subcontractor work packages.
III. JURISDICTION AND VENUE
12. This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(a) because there is complete diversity of citizenship between the parties — WAL is a Virginia limited liability company whose members are all citizens of Virginia, and HDDS is a Delaware corporation with its principal place of business in Maryland — and the amount in controversy exceeds $75,000, exclusive of interest and costs. Specifically, HDDS has demanded indemnification from WAL in the amount of $14,726,583, which sum substantially exceeds the jurisdictional threshold for diversity jurisdiction.
13. This Court also has jurisdiction pursuant to 28 U.S.C. §§ 2201 and 2202, the Declaratory Judgment Act, to declare the rights, status, and other legal relations of the parties in this case of actual controversy. As set forth more fully below, a real and substantial controversy exists between the parties regarding WAL's obligations, if any, under the indemnification provisions of the Teaming Agreement, and a declaratory judgment will serve a useful purpose in resolving this controversy and clarifying the legal rights and obligations of both parties.
14. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(1) because HDDS maintains a substantial presence in this District, including a regional office in New York, New York, and transacts significant business here. Venue is also independently proper pursuant to the forum-selection clause in Section 18.2 of the Teaming Agreement, which provides that "[a]ny action or proceeding arising out of or relating to this Agreement shall be brought exclusively in the United States District Court for the Southern District of New York or, if that court lacks subject-matter jurisdiction, in the Supreme Court of the State of New York, County of New York." Both parties consented to personal jurisdiction in this District by executing the Teaming Agreement containing Section 18.2, and both parties agreed that they would not contest jurisdiction or venue in this District.
IV. FACTUAL ALLEGATIONS
A. The Prime Contract
15. On or about September 1, 2019, the United States Air Force, acting through the Air Force Life Cycle Management Center ("AFLCMC") at Wright-Patterson Air Force Base, Ohio, awarded HDDS Prime Contract No. FA8620-19-C-0337 for the Advanced Tactical Airframe Program ("ATAP"). The award followed a full and open competitive procurement process in which HDDS was selected from among four competing offerors, and in which WAL's participation as a subcontractor to HDDS was a material element of HDDS's technical proposal and a factor in the Air Force's evaluation of HDDS's manufacturing capability and supply-chain readiness.
16. The ATAP program involves the design, development, and initial low-rate production of advanced titanium-composite hybrid airframe structures for next-generation tactical aircraft. The program represents one of the Air Force's highest-priority advanced materials initiatives and is intended to develop manufacturing processes and production capabilities for integrating high-performance titanium alloy components with advanced composite structures in tactical aircraft airframes, thereby achieving significant weight savings and improvements in structural performance relative to conventional aluminum airframe designs.
17. The Prime Contract is a cost-plus-incentive-fee ("CPIF") contract with a target cost of $412,000,000, a target fee of 8% ($32,960,000), a ceiling price of $470,000,000, and a share ratio of 70/30 (government/contractor) for cost overruns above the target cost and 60/40 (government/contractor) for cost underruns below the target cost. The CPIF contract structure was selected by the Air Force to account for the substantial technical uncertainty inherent in the ATAP program, which involves the development and qualification of novel manufacturing processes for titanium-composite hybrid structures. The CPIF structure is specifically designed to allocate cost risk between the government and the contractor, recognizing that cost growth may occur for reasons beyond the contractor's control.
18. The base period of performance under the Prime Contract runs from September 1, 2019, through August 31, 2024, a period of five years. The Prime Contract includes two one-year options for additional low-rate production and transition to full-rate production, which, if exercised, would extend the period of performance through August 31, 2026. As of the date of this filing, neither option has been exercised.
19. The Program Executive Officer for the ATAP program is Colonel Brian T. Matsuda, USAF, assigned to AFLCMC at Wright-Patterson Air Force Base, Ohio. The Administrative Contracting Officer ("ACO") responsible for contract administration of the Prime Contract is Lieutenant Colonel Sandra M. Vickers, USAF, assigned to DCMA Northern Virginia. Lt. Col. Vickers is the ACO who issued the Contracting Officer's Preliminary Determination that is at the center of this dispute.
B. The Teaming Agreement
20. On June 12, 2019, approximately two and one-half months before the award of the Prime Contract, WAL and HDDS executed a Teaming Agreement (the "Teaming Agreement" or the "Agreement") under which HDDS, designated as the "Team Lead," and WAL, designated as the "Team Member," agreed to collaborate on the ATAP program. The Teaming Agreement was negotiated over a period of approximately four months, during which the parties exchanged multiple drafts and engaged in detailed negotiations regarding the allocation of work, risk, cost, and liability. The Teaming Agreement, as executed, consists of 22 articles and 7 exhibits, totaling 68 pages.
21. Under the Teaming Agreement, WAL was designated to perform Work Package 4 ("WP-4"), which encompasses the fabrication and delivery of titanium structural assemblies for the ATAP program, including wing-box substructure components, center fuselage longerons, and bulkhead fittings. WP-4 is one of seven work packages under the ATAP program, each assigned to HDDS or one of its subcontractors. WP-4 represents the highest-value subcontracted work package on the program and involves the most technically demanding manufacturing operations, requiring advanced multi-axis machining, precision forming, and specialized heat treatment of Ti-6Al-4V and Ti-5Al-5V-5Mo-3Cr alloys.
22. WAL's share of the Prime Contract target cost under WP-4, as set forth in Exhibit B to the Teaming Agreement, is 18%, or $74,160,000 (calculated as $412,000,000 multiplied by 0.18). This figure represents the target cost for WAL's work and forms the basis for the Teaming Agreement's cost-sharing and indemnification provisions. WAL's subcontract under the ATAP program is structured as a cost-reimbursement subcontract, consistent with the CPIF structure of the Prime Contract.
23. Section 18.1 of the Teaming Agreement provides that the Agreement "shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts-of-law principles thereof." Accordingly, the interpretation of the indemnification clause at issue in this action is governed by New York law.
C. The Indemnification Clause (Section 11.4)
24. Section 11.4 of the Teaming Agreement, titled "Team Member Indemnification," is the indemnification provision at the center of this dispute. Section 11.4 provides, in pertinent part:
"Team Member shall indemnify, defend, and hold harmless Team Lead from and against any and all Losses arising out of or relating to (a) Team Member's negligent acts or omissions, willful misconduct, or material breach of this Agreement in the performance of Team Member's Work Package, or (b) any claim by the U.S. Government that costs incurred under Team Member's Work Package are unallowable, unreasonable, or otherwise subject to disallowance, to the extent such claim is caused by Team Member's acts or omissions."
25. Critically, Section 11.4(b) contains an express causation limitation that confines WAL's indemnification obligation to government claims that are "caused by Team Member's acts or omissions." This causation requirement is not a mere formality; it is a substantive limitation that the parties specifically negotiated during the formation of the Teaming Agreement. As alleged more fully below, the cost overruns at issue in this action were not caused by WAL's acts or omissions, but rather by HDDS's own conduct and by force-majeure events beyond WAL's control. The express causation language in Section 11.4(b) therefore precludes HDDS's indemnification demand.
26. In addition to the causation limitation in Section 11.4(b), the Teaming Agreement contains a separate aggregate liability cap in Section 11.5, which provides that "Team Member's aggregate liability under this Section 11 shall not exceed one hundred twenty percent (120%) of the value of Team Member's Work Package." Applying this formula, WAL's maximum aggregate indemnification liability under Section 11, if any obligation were triggered (which WAL denies), would be $88,992,000 (calculated as $74,160,000 multiplied by 1.20). While HDDS's current demand of $14,726,583 falls below this aggregate cap, WAL notes the cap's existence as further evidence that the parties intended to limit and allocate indemnification risk under the Teaming Agreement, rather than impose unlimited pass-through liability on the subcontractor.
D. The DCMA Contracting Officer's Preliminary Determination
27. On August 1, 2022, ACO Lt. Col. Sandra M. Vickers issued a Contracting Officer's Preliminary Determination ("COPD") with respect to cost overruns identified on the ATAP program. The COPD, designated DCMA Document No. COPD-FA8620-22-001, identifies total cost overruns of $14,726,583 across multiple work packages under the Prime Contract. The COPD was issued to HDDS as the prime contractor and was provided to WAL by HDDS on or about August 10, 2022.
28. The COPD attributed $12,817,441 (approximately 87.03%) of the total cost overruns to WP-4, the titanium structural assembly work package performed by WAL, and $1,909,142 (approximately 12.97%) of the total cost overruns to other work packages unrelated to WAL's scope of work. The non-WP-4 overruns were attributed to Work Package 2 (avionics integration, performed by HDDS internally) and Work Package 5 (composite panel fabrication, performed by Meridian Composites, Inc., another HDDS subcontractor). WAL performed no work under WP-2 or WP-5 and has no contractual obligations with respect to those work packages.
29. According to the narrative analysis contained in the COPD, the WP-4 cost overruns were caused by four principal factors, each of which the COPD identifies and quantifies:
(i) Titanium raw-material cost escalation: approximately $4,200,000 in cost growth attributable to the significant increase in the market price of aerospace-grade titanium alloys (Ti-6Al-4V and Ti-5Al-5V-5Mo-3Cr) during the 2020–2022 period, driven by global supply-chain disruptions, pandemic-related production curtailments at titanium sponge producers, and geopolitical factors including trade restrictions and sanctions affecting major titanium-producing nations;
(ii) Rework necessitated by non-conforming machining tolerances: approximately $5,100,000 in costs associated with the rework and re-machining of titanium structural assemblies that did not conform to specified dimensional tolerances, requiring disassembly, additional machining operations, re-inspection, and in some cases, the scrapping and re-fabrication of non-salvageable components;
(iii) Schedule delays resulting in idle-labor charges: approximately $2,300,000 in idle-labor costs incurred by WAL as a result of production stoppages and schedule delays that prevented WAL's manufacturing workforce from performing productive work during periods when necessary inputs and equipment were unavailable;
(iv) Engineering change proposal ("ECP") implementation costs: approximately $1,200,000 in costs associated with the implementation of engineering change proposals directed by the U.S. Air Force through HDDS, which required modifications to WAL's manufacturing processes, tooling, and quality assurance procedures.
30. The COPD issued by Lt. Col. Vickers is expressly designated as a preliminary determination only. The COPD states on its face that it "does not constitute a final decision of the Contracting Officer" and that HDDS has the right to submit a written response before any Contracting Officer's Final Decision ("COFD") is issued. As of the date of this filing, DCMA has not issued a COFD under the Contract Disputes Act, 41 U.S.C. § 7103, and no costs have been formally disallowed or determined to be unallowable with finality.
31. On October 15, 2022, HDDS filed a formal written response to the COPD and a request for the issuance of a COFD with DCMA, in which HDDS contested certain aspects of the COPD's analysis and requested adjustments to the preliminary cost-overrun figures. The administrative review process at DCMA is ongoing, and the ultimate amount of any cost overruns, if any, that may be formally determined to exist remains uncertain and subject to change. WAL, as a subcontractor, does not have independent privity of contract with the U.S. Government and does not have standing to participate directly in the COFD process; WAL's interests in that process are represented, if at all, by HDDS as the prime contractor.
E. The Causes of the WP-4 Cost Overruns Were Not WAL's Acts or Omissions
32. WAL alleges, upon personal knowledge of its officers, employees, and agents who participated in the performance of WP-4, and upon information and belief as to matters based on HDDS's actions and communications, that the WP-4 cost overruns identified in the COPD were not caused by WAL's acts or omissions within the meaning of Section 11.4(b) of the Teaming Agreement, but rather were caused by circumstances attributable to HDDS's own conduct and/or force-majeure events beyond WAL's control. Specifically:
33. Titanium raw-material cost escalation (approximately $4,200,000): The dramatic escalation in the global price of aerospace-grade titanium during the 2020–2022 period was driven by extraordinary supply-chain disruptions and geopolitical factors that constituted force-majeure events under any reasonable interpretation of that term. These factors include the COVID-19 pandemic, which caused prolonged shutdowns at major titanium sponge production facilities in Russia, Kazakhstan, and China; the imposition of trade restrictions and sanctions affecting Russian titanium exports following geopolitical developments in 2022; and the resulting acute shortage of aerospace-grade titanium alloys in the global market. WAL had no contractual obligation under the Teaming Agreement to absorb commodity-price risk, and the Teaming Agreement contains no provision allocating raw-material price risk to WAL. Moreover, the CPIF structure of the Prime Contract was specifically designed to share cost risks — including material cost growth — between the U.S. Government and the contractor through the 70/30 share ratio for cost overruns above target cost. The titanium cost escalation is not the result of any act or omission by WAL but is instead a macroeconomic and geopolitical phenomenon that affected the entire aerospace industry.
34. Rework due to non-conforming machining tolerances (approximately $5,100,000): The extensive rework that gave rise to this category of cost overruns was necessitated not by deficiencies in WAL's manufacturing processes, but by deficiencies in the engineering specifications and technical data packages provided by HDDS to WAL. WAL manufactured the titanium structural assemblies — including wing-box substructure components, center fuselage longerons, and bulkhead fittings — in strict conformance with the engineering drawings, specifications, and technical data packages furnished by HDDS pursuant to Section 5.2 of the Teaming Agreement. When the completed assemblies were found to exhibit dimensional non-conformances during subsequent fit-check and integration activities at HDDS's facility, HDDS's own root-cause investigation (documented in HDDS Corrective Action Report No. CAR-2021-0417, dated November 12, 2021) determined that the non-conformances resulted from errors in the engineering model data provided by HDDS's design engineering team, not from WAL's manufacturing execution. HDDS subsequently directed WAL to perform rework on the affected assemblies, which WAL performed at cost in accordance with HDDS's rework instructions. The root cause of the rework was HDDS's engineering errors, not WAL's manufacturing processes, and accordingly the rework costs are not attributable to WAL's acts or omissions.
35. Schedule delays and idle-labor charges (approximately $2,300,000): The schedule delays that gave rise to approximately $2,300,000 in idle-labor charges were caused by HDDS's late delivery of government-furnished equipment ("GFE") that WAL required to commence and continue production operations under WP-4. Specifically, HDDS was responsible under the Teaming Agreement (Section 5.4) for the timely provision of certain GFE items, including specialized tooling fixtures (Type II Assembly Fixtures, Government Property Tag Nos. GP-441 through GP-448) and calibrated inspection gauges, that WAL needed to perform machining, assembly, and inspection operations. HDDS failed to deliver these GFE items on the dates specified in the Integrated Master Schedule, causing production stoppages at WAL's Chantilly facility on multiple occasions between March 2021 and January 2022. WAL repeatedly notified HDDS of the GFE delivery delays and their impact on WAL's production schedule, including through formal written notices dated April 2, 2021; June 18, 2021; September 7, 2021; and November 22, 2021, each of which identified the specific GFE items that were delinquent and the resulting schedule impact. The idle-labor charges were a direct and foreseeable consequence of HDDS's failure to deliver GFE in a timely manner and are not attributable to WAL's acts or omissions.
36. Engineering change proposal implementation costs (approximately $1,200,000): The engineering change proposals that gave rise to approximately $1,200,000 in implementation costs were directed by the U.S. Air Force through HDDS pursuant to the Changes clause incorporated into the Prime Contract (FAR 52.243-1). Specifically, Engineering Change Proposals ECP-ATAP-031, ECP-ATAP-042, and ECP-ATAP-056 were initiated by the Air Force Program Office and flowed down to WAL through HDDS. WAL implemented the ECPs as directed by HDDS, in accordance with WAL's obligations under Section 7.1 of the Teaming Agreement. The costs associated with ECP implementation are allowable costs under the Prime Contract, are properly allocable to the ATAP program, and represent government-directed changes to the work — not the product of any act or omission by WAL. The ECP implementation costs should be recovered by HDDS through the equitable adjustment process under the Changes clause of the Prime Contract.
F. HDDS's Indemnification Demand
37. On September 9, 2022, HDDS, acting through its Vice President and Associate General Counsel, Katherine M. Stanton, sent WAL a formal indemnification demand letter (the "Demand Letter") demanding that WAL indemnify HDDS for the full $14,726,583 in cost overruns identified in the COPD, pursuant to Section 11.4 of the Teaming Agreement. The Demand Letter stated that HDDS "hereby demands that [WAL] indemnify, defend, and hold harmless [HDDS] for any and all Losses arising from the cost overruns identified in the COPD" and demanded that WAL "confirm its acceptance of this indemnification obligation within thirty (30) days." The Demand Letter did not distinguish between WP-4 cost overruns and non-WP-4 cost overruns, and did not identify any specific act or omission by WAL that purportedly caused the cost overruns.
38. HDDS's indemnification demand is improper and overbroad for at least three independent reasons:
(a) The Demand Letter seeks indemnification for the full $14,726,583 identified in the COPD, which includes $1,909,142 in cost overruns attributable to Work Package 2 (avionics integration) and Work Package 5 (composite panel fabrication) — work packages that are entirely outside WAL's scope of responsibility under the Teaming Agreement. WAL performed no work under WP-2 or WP-5, has no contractual relationship with the performers of those work packages, and has no conceivable indemnification obligation with respect to cost overruns arising from work that WAL did not perform. HDDS's inclusion of non-WP-4 cost overruns in its demand to WAL is facially improper and unsupported by any provision of the Teaming Agreement.
(b) Section 11.4(b) of the Teaming Agreement imposes an indemnification obligation only "to the extent such claim is caused by Team Member's acts or omissions." As set forth in detail in Paragraphs 32 through 36 above, the WP-4 cost overruns identified in the COPD were not caused by WAL's acts or omissions, but were instead caused by HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events affecting global titanium supply and pricing, and U.S. Air Force-directed engineering change proposals. Because the causation requirement of Section 11.4(b) is not satisfied, WAL's indemnification obligation has not been triggered.
(c) The COPD on which HDDS's demand is based is a preliminary determination that does not constitute a final decision of the Contracting Officer. No costs have been formally disallowed. The COFD process remains pending, and the ultimate amount and characterization of any cost overruns remain subject to change. HDDS's demand for indemnification based on a preliminary determination is premature.
G. Pre-Litigation Dispute Resolution Efforts
39. Consistent with the dispute-resolution procedures set forth in Section 18.3 of the Teaming Agreement, which requires that the parties engage in good-faith senior executive negotiations before resorting to litigation, WAL engaged in such negotiations with HDDS. Specifically, WAL's Chief Executive Officer and Managing Member, Marcus J. Whitmore, and HDDS's Senior Vice President, Contracts and Procurement, William Fong, met in person on September 30, 2022, in Washington, D.C., and again on October 14, 2022, in New York, New York. During these meetings, WAL presented its position that the indemnification demand was unsupported by the terms of Section 11.4 and the factual record, and proposed a mutual standstill pending resolution of the DCMA administrative review process. HDDS rejected WAL's position and maintained its demand for full indemnification. These senior executive negotiations thus failed to resolve the dispute.
40. On October 21, 2022, WAL, through its counsel at Calderwood & Harkness LLP, sent a written proposal to HDDS's counsel offering to participate in non-binding mediation to resolve the indemnification dispute, as contemplated by Section 18.3 of the Teaming Agreement, which provides that if senior executive negotiations fail to resolve a dispute, "the parties may submit the dispute to non-binding mediation before a neutral mediator mutually agreed upon by the parties."
41. On October 28, 2022, HDDS, through its counsel, declined WAL's mediation proposal. HDDS took the position that the mediation clause in Section 18.3 is permissive, noting that it uses the word "may" rather than "shall," and asserted that HDDS was not obligated to participate in mediation. HDDS further stated that it would "reserve all rights and remedies" under the Teaming Agreement and applicable law, including the right to file a counterclaim or separate action against WAL for breach of the indemnification obligation.
42. Having exhausted the contractual dispute-resolution steps that HDDS was willing to undertake, and having been unable to resolve the indemnification dispute through negotiation or alternative dispute resolution, WAL now seeks judicial resolution of the parties' dispute through this action for declaratory judgment.
V. ACTUAL CONTROVERSY
43. An actual, justiciable controversy exists between WAL and HDDS regarding WAL's obligations, if any, under Section 11.4 of the Teaming Agreement. The parties are in direct and irreconcilable disagreement regarding the interpretation and application of Section 11.4 to the facts and circumstances of the COPD and the ATAP program cost overruns. HDDS has asserted that WAL is obligated to indemnify HDDS for the full $14,726,583 in cost overruns; WAL contends that it has no such obligation. This disagreement is not hypothetical or speculative; it is real, immediate, and concrete.
44. HDDS has asserted a present, concrete demand for $14,726,583 in indemnification from WAL through the Demand Letter dated September 9, 2022. HDDS's demand is not contingent on future events; it is a present, unconditional assertion of WAL's indemnification obligation. WAL disputes that any indemnification obligation has been triggered under Section 11.4 of the Teaming Agreement and, in the alternative, disputes the scope and amount of any such obligation. The parties' positions are adverse and well-defined, and there is no prospect of the dispute resolving itself without judicial intervention.
45. The controversy is ripe for judicial determination. HDDS's Demand Letter creates an immediate and concrete injury to WAL's legal and financial interests that extends beyond the indemnification dispute itself. Specifically:
(a) WAL is required under Section 6.07(b) of its $75,000,000 senior secured revolving credit facility with Ridgeline National Bank, N.A., to promptly disclose any claims, demands, or threatened litigation that, individually or in the aggregate, could reasonably be expected to result in a material adverse effect on WAL's financial condition or operations. WAL disclosed HDDS's indemnification demand to Ridgeline National Bank on September 16, 2022, and the bank has requested ongoing updates regarding the status of the dispute. The unresolved demand has the potential to affect WAL's borrowing capacity and credit terms.
(b) WAL tendered HDDS's indemnification claim to its professional liability insurer, Meridian Surety & Insurance Group, on September 22, 2022, pursuant to WAL's Commercial General Liability and Professional Liability insurance policies. Meridian has acknowledged receipt of the tender and has reserved its rights pending further investigation. The pendency of the claim affects WAL's insurance relationship and may affect WAL's premiums and coverage terms upon renewal.
(c) WAL's independent auditor, Pinnacle Advisory Partners LLC, has been informed of the indemnification demand and is required to assess the demand as a loss contingency under Accounting Standards Codification Topic 450 (ASC 450, formerly FAS 5) in connection with the audit of WAL's financial statements for the fiscal year ending December 31, 2022. Depending on the outcome of the ASC 450 analysis, WAL may be required to accrue a liability or disclose a contingent liability in its audited financial statements, which could materially affect WAL's reported financial position and its relationships with lenders, sureties, and contracting agencies.
46. A declaratory judgment will serve a useful purpose in resolving this controversy and providing certainty to both parties regarding their rights and obligations under the Teaming Agreement. A declaration from this Court will enable the parties to plan their affairs, resolve their financial reporting obligations, and, if necessary, engage in further proceedings with the benefit of a definitive interpretation of their contractual rights. The exercise of declaratory judgment jurisdiction is appropriate in this case because the controversy is between adverse parties, involves a concrete and well-defined legal question of contract interpretation, and will not entangle the Court in abstract or advisory proceedings.
VI. COUNT I — DECLARATORY JUDGMENT (28 U.S.C. §§ 2201–2202)
47. WAL re-alleges and incorporates by reference the allegations set forth in Paragraphs 1 through 46 of this Verified Complaint as if fully set forth herein.
48. Pursuant to 28 U.S.C. §§ 2201 and 2202, WAL is entitled to a declaration of its rights and legal relations with respect to HDDS's indemnification demand under Section 11.4 of the Teaming Agreement dated June 12, 2019. An actual controversy exists between the parties within the meaning of the Declaratory Judgment Act, and a declaratory judgment will serve a useful purpose in terminating the uncertainty and controversy that has arisen between the parties.
49. WAL respectfully requests that this Court enter a declaratory judgment declaring that:
(a) Section 11.4 of the Teaming Agreement does not obligate WAL to indemnify HDDS for the cost overruns identified in the DCMA Contracting Officer's Preliminary Determination dated August 1, 2022, because: (i) the cost overruns were not "caused by" WAL's acts or omissions within the meaning of Section 11.4(b), as the cost overruns resulted from HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events affecting global titanium supply and pricing, and U.S. Air Force-directed engineering change proposals; (ii) the COPD is a preliminary determination and no costs have been formally disallowed or determined to be unallowable, unreasonable, or subject to disallowance by a Contracting Officer's Final Decision; and (iii) Section 11.4(a) has not been triggered because WAL has not engaged in negligent acts or omissions, willful misconduct, or material breach of the Teaming Agreement in the performance of Work Package 4;
(b) Even if Section 11.4 of the Teaming Agreement is otherwise applicable to the COPD cost overruns, WAL's indemnification obligation extends only to cost overruns "caused by" WAL's acts or omissions, and the factual record — including HDDS's own Corrective Action Report No. CAR-2021-0417, WAL's contemporaneous written notices of GFE delivery delays, the U.S. Air Force-originated engineering change proposals, and the publicly documented global disruption in titanium supply — establishes that the WP-4 cost overruns were caused by HDDS's deficient engineering specifications, HDDS's late delivery of government-furnished equipment, force-majeure events (titanium price escalation), and U.S. Air Force-directed engineering change proposals, none of which constitute acts or omissions by WAL;
(c) HDDS's demand for indemnification in the amount of $14,726,583 is overbroad and unsupported by the Teaming Agreement because it includes $1,909,142 in cost overruns attributable to Work Package 2 (avionics integration) and Work Package 5 (composite panel fabrication), for which WAL performed no work and bears no responsibility under the Teaming Agreement, and for which no provision of Section 11.4 or any other provision of the Teaming Agreement imposes any indemnification obligation on WAL.
VII. PRAYER FOR RELIEF
WHEREFORE, Plaintiff Whitmore Aerospace LLC respectfully requests that this Court:
1. Enter a declaratory judgment in favor of WAL and against HDDS consistent with the declarations sought in Paragraphs 49(a), (b), and (c) of Count I above, declaring that WAL has no obligation to indemnify HDDS under Section 11.4 of the Teaming Agreement for the cost overruns identified in the DCMA Contracting Officer's Preliminary Determination dated August 1, 2022;
2. Award WAL its reasonable attorneys' fees and costs incurred in this action, to the extent permitted by applicable law or by the terms of the Teaming Agreement, including but not limited to Section 18.5 of the Teaming Agreement, which provides that the prevailing party in any action arising under the Agreement shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing party;
3. Grant such other and further relief as this Court deems just and proper in the circumstances of this case.
VIII. DEMAND FOR JURY TRIAL
Plaintiff Whitmore Aerospace LLC hereby demands a trial by jury on all issues so triable in this action, pursuant to the Seventh Amendment to the United States Constitution and Rule 38 of the Federal Rules of Civil Procedure.
VERIFICATION
STATE OF VIRGINIA COUNTY OF FAIRFAX
I, Marcus J. Whitmore, being duly sworn, depose and state as follows:
1. I am the Founder, Chief Executive Officer, and Managing Member of Whitmore Aerospace LLC, the Plaintiff in this action. I am authorized to execute this verification on behalf of Whitmore Aerospace LLC.
2. I have read the foregoing Verified Complaint for Declaratory Judgment and am familiar with the contents thereof. The factual statements set forth in the Verified Complaint are true and correct to the best of my knowledge, information, and belief, formed after reasonable inquiry. Where statements are made upon information and belief, I believe them to be true.
3. I make this verification in accordance with 28 U.S.C. § 1746 and upon my personal knowledge of the facts and circumstances described herein, as well as upon my review of documents and records maintained by Whitmore Aerospace LLC in the ordinary course of its business.
________________________________________
Marcus J. Whitmore Founder, CEO, and Managing Member Whitmore Aerospace LLC
Sworn to and subscribed before me this __ day of November 2022.
________________________________________
Notary Public Commonwealth of Virginia My Commission Expires: _____
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand (NY Bar No. 4587231) Douglas Carmichael (NY Bar No. 3219847) Patrick Gallagher (NY Bar No. 5412063) 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 455-7800 Facsimile: (212) 455-7801
Email: panand@calderwoodharkness.com
Email: dcarmichael@calderwoodharkness.com
Email: pgallagher@calderwoodharkness.com
Simone Laroche (DC Bar No. 1048592) 1900 K Street NW, Suite 1100 Washington, D.C. 20006 Telephone: (202) 661-4400 Facsimile: (202) 661-4401
Email: slaroche@calderwoodharkness.com
Attorneys for Plaintiff Whitmore Aerospace LLC
Dated: November 28, 2022
WHITMORE AEROSPACE LLC,
Plaintiff, | Civil Action No. 1:22-cv-10147-RMB
v. | VERIFIED COMPLAINT FOR
DECLARATORY JUDGMENT
HARGROVE-DALTON DEFENSE SYSTEMS, INC.,
Defendant.