UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
FIRST JOINT STATUS REPORT PURSUANT TO THE COURT'S ORDER DATED MARCH 17, 2023
Plaintiff Whitmore Aerospace LLC ("WAL") and Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS") (collectively, the "Parties"), by and through their respective undersigned counsel, Calderwood & Harkness LLP and Voss, Trager & Kendall LLP, respectfully submit this First Joint Status Report (the "Report") to the Court pursuant to the Court's Order dated March 17, 2023 (ECF No. 34), which stayed all proceedings in this action pending the conclusion of the administrative review being conducted by the Defense Contract Management Agency ("DCMA") of cost-overrun claims arising under Prime Contract No. FA8620-19-C-0337 (the Advanced Tactical Airframe Program, or "ATAP"). In accordance with the directives set forth in the Court's March 17, 2023 Order, the Parties provide the following update.
I. INTRODUCTION AND BASIS FOR FILING
The Court's March 17, 2023 Order requires the Parties to file a joint status report every one hundred twenty (120) days advising the Court of the current status of the DCMA administrative review and whether, in the judgment of the Parties, the stay of proceedings should remain in effect. The Order further directs the Parties to include in each status report any developments in the administrative proceedings that may bear upon the continuation or modification of the stay, and to set forth any recommendation the Parties may have concerning whether the Court should take further action with respect to this litigation.
This is the first such report filed pursuant to the Court's directive. The one-hundred-twenty-day period measured from the date of the March 17, 2023 Order falls on approximately July 15, 2023. The Parties have conferred and jointly submit this Report on the date prescribed.
II. BACKGROUND
The Parties provide the following brief recitation of the procedural history of this action for the convenience of the Court.
On November 28, 2022, WAL commenced this action by filing a Verified Complaint for Declaratory Judgment (ECF No. 1). In its Complaint, WAL seeks a judicial declaration that Section 11.4 of the Teaming Agreement dated June 12, 2019, between WAL and HDDS (the "Teaming Agreement") does not obligate WAL to indemnify HDDS for the sum of $14,726,583 in cost overruns identified in the Contracting Officer's Preliminary Determination ("COPD") issued by the DCMA on August 1, 2022, under Prime Contract No. FA8620-19-C-0337. The COPD relates to cost overruns arising from the performance of the ATAP, a United States Air Force program under which HDDS serves as the prime contractor and WAL serves as a major subcontractor responsible for, among other things, the design and manufacture of titanium structural assemblies.
On January 13, 2023, HDDS filed its Answer and Counterclaim (ECF No. 14). In its Counterclaim, HDDS asserts a claim for contractual indemnification in the amount of $14,726,583, together with attorneys' fees and costs, pursuant to Section 11.6 of the Teaming Agreement, which HDDS contends entitles it to recover from WAL the full amount of cost overruns attributable to WAL's performance under Work Package 4 of the ATAP program, as well as all reasonable legal fees incurred in enforcing its indemnification rights.
WAL filed its Reply to HDDS's Counterclaim on February 3, 2023 (ECF No. 18), denying the material allegations of the Counterclaim and asserting various affirmative defenses.
On February 10, 2023, WAL filed a Motion to Stay Proceedings Pending Completion of the DCMA Administrative Review (ECF No. 21). The motion was supported by the Declaration of Catherine Soo-Hyun Park, Vice President of Government Contracts & Compliance at WAL (ECF No. 21-1), who attested to the ongoing nature of the DCMA review process and the potential overlap between the administrative findings and the factual issues in this litigation. The motion was further supported by the Declaration of Priya Anand, a partner at Calderwood & Harkness LLP (ECF No. 21-2), addressing the legal basis for the stay.
Following further discussions between counsel, the Parties filed a Joint Stipulation and Proposed Order to Stay Proceedings on February 24, 2023 (ECF No. 27), reflecting the Parties' mutual agreement that a stay was appropriate in light of the pending DCMA review.
On March 17, 2023, the Court entered its Order granting the stay of proceedings (ECF No. 34). In its Order, the Court found that: (a) the DCMA administrative proceeding would likely resolve or substantially narrow the factual predicate underlying the Parties' indemnification dispute, including the allocation of cost overruns among the various work packages performed under the ATAP program; (b) the primary-jurisdiction doctrine counseled deference to the ongoing DCMA administrative process, as the DCMA possesses specialized expertise in evaluating cost-overrun determinations under government defense contracts; and (c) neither party opposed the entry of a stay. The Court further directed the Parties to file joint status reports at 120-day intervals and to promptly notify the Court upon the issuance of any final administrative decision or other material development warranting reconsideration of the stay.
III. STATUS OF THE DCMA ADMINISTRATIVE REVIEW
The Parties jointly report to the Court that the DCMA administrative review of cost overruns under Prime Contract No. FA8620-19-C-0337 remains pending and has not yet concluded. The Parties provide the following specific information regarding the current status of the administrative proceedings:
1. The COPD. The Contracting Officer's Preliminary Determination issued by Administrative Contracting Officer Lt. Col. Sandra M. Vickers, USAF, on August 1, 2022, identified aggregate cost overruns of $14,726,583 on the ATAP program. The COPD attributed approximately $12,817,441 of those cost overruns — representing approximately 87.03% of the total — to Work Package 4, which encompasses the titanium structural assemblies designed and manufactured by WAL as subcontractor to HDDS. The remaining approximately $1,909,142 in cost overruns — representing approximately 12.97% of the total — was attributed to other work packages performed by other subcontractors or by HDDS directly.
2. HDDS's Response and Request for Final Decision. On October 15, 2022, HDDS filed a formal response to the COPD and a request for issuance of a Contracting Officer's Final Decision ("COFD") under the Contract Disputes Act of 1978, 41 U.S.C. §§ 7101–7109. In its response, HDDS disputed certain aspects of the cost-overrun allocation set forth in the COPD and requested that the Contracting Officer issue a final determination resolving those disputes.
3. No COFD Has Been Issued. As of the date of this filing, ACO Lt. Col. Vickers has not issued a Contracting Officer's Final Decision. The Parties are not aware of any interim deadline or schedule established by the DCMA for the issuance of the COFD.
4. Ongoing Field Audit. The Parties understand, based on correspondence from the DCMA, that the field audit of costs incurred under the prime contract is ongoing. The DCMA field audit is being conducted by the Defense Contract Audit Agency ("DCAA") in coordination with the DCMA contracting office. Neither WAL nor HDDS has received information from the DCMA or DCAA indicating a specific timeline for completion of the field audit or the subsequent issuance of the COFD. The Parties understand that the field audit encompasses a review of cost accounting records, timekeeping data, material procurement documentation, and subcontractor invoicing records relevant to the cost-overrun determinations.
5. No Interim Determinations. No interim determinations, partial decisions, supplemental findings, or other administrative rulings of any kind have been issued by the DCMA, the DCAA, or any other administrative body since the issuance of the COPD on August 1, 2022.
6. Party Communications with the Government. Both Parties have had routine communications with the DCMA contracting office in connection with ongoing contract performance obligations under Prime Contract No. FA8620-19-C-0337. However, neither Party has received any substantive communication from the Government indicating a change in the scope, methodology, or anticipated timeline of the administrative review process that would bear upon this litigation or the continuation of the stay.
IV. PARTIES' JOINT RECOMMENDATION REGARDING THE STAY
The Parties jointly represent to the Court that the basis for the stay of proceedings, as articulated in the Court's March 17, 2023 Order, remains fully in effect. The DCMA administrative review is continuing, and the Contracting Officer's Final Decision — which is expected to resolve or substantially narrow the factual predicate for the Parties' indemnification dispute in this litigation — has not yet been issued. Neither party is aware of any change in circumstances that would warrant lifting or modifying the stay at this time.
The Parties further represent that maintaining the stay continues to serve the interests of judicial economy and the efficient resolution of this dispute. The COFD, once issued, will establish the Government's final allocation of cost overruns among the work packages under the ATAP program, which allocation forms the central factual basis for the indemnification claims and defenses at issue in this case. Proceeding with discovery or dispositive motions in advance of the COFD would risk duplicative efforts and potentially inconsistent determinations.
Accordingly, the Parties respectfully request that the Court maintain the stay of this action in its entirety, consistent with the terms of the March 17, 2023 Order.
The Parties will file their next joint status report on or before the date that is one hundred twenty (120) days from the filing of this Report, i.e., on or before approximately November 12, 2023, unless circumstances warrant an earlier filing. In the event that the COFD is issued, or any other material development occurs in the DCMA administrative review, prior to the next scheduled filing date, the Parties will promptly notify the Court and, if appropriate, confer regarding whether to file an interim status report or a motion to lift the stay.
V. RESERVATION OF RIGHTS
Both Parties expressly reserve all rights, claims, defenses, and arguments in this action. Nothing contained in this Joint Status Report, including any factual recitation or characterization of the DCMA administrative proceedings, shall be construed as a waiver, admission, or concession by either Party with respect to any position on the merits of this litigation, any procedural rights, or any claims or defenses that either Party has asserted or may assert in this action or in any related proceeding.
WAL continues to maintain that Section 11.4 of the Teaming Agreement does not obligate WAL to indemnify HDDS for the cost overruns identified in the COPD, that the indemnification clause is limited in scope and does not extend to the categories of cost overruns at issue, and that HDDS's demand for the full sum of $14,726,583 is overbroad and unsupported by the plain language of the Teaming Agreement. WAL further reserves all defenses and affirmative defenses set forth in its Reply to Counterclaim.
HDDS continues to maintain its Counterclaim for contractual indemnification in the amount of $14,726,583, together with attorneys' fees and costs pursuant to Section 11.6 of the Teaming Agreement. HDDS maintains that WAL's obligations under the Teaming Agreement are clear and enforceable and that WAL is contractually required to hold HDDS harmless for cost overruns attributable to WAL's performance under Work Package 4.
VI. CONCLUSION
For the foregoing reasons, the Parties respectfully request that the Court accept this First Joint Status Report and maintain the stay of proceedings in this action pending the conclusion of the DCMA administrative review under Prime Contract No. FA8620-19-C-0337. The Parties further request that the Court continue to require joint status reports at 120-day intervals, with the next report due on or before approximately November 12, 2023.
Respectfully submitted,
Dated: July 15, 2023
For Plaintiff Whitmore Aerospace LLC:
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand (Bar ID: PA-4892) Douglas Carmichael (Bar ID: DC-7231) Patrick Gallagher (Bar ID: PG-6104) 600 Lexington Avenue, 28th Floor New York, NY 10022 Telephone: (212) 554-7800 Facsimile: (212) 554-7801
Email: panand@calderwoodharkness.com
Email: dcarmichael@calderwoodharkness.com
Email: pgallagher@calderwoodharkness.com
Attorneys for Plaintiff Whitmore Aerospace LLC
For Defendant Hargrove-Dalton Defense Systems, Inc.:
VOSS, TRAGER & KENDALL LLP
By: ________
Leonard Trager (Bar ID: LT-3317) Megan Forsythe (Bar ID: MF-5580) 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 661-4400 Facsimile: (202) 661-4401
Email: ltrager@vtklegal.com
Email: mforsythe@vtklegal.com
Attorneys for Defendant Hargrove-Dalton Defense Systems, Inc.
CERTIFICATE OF SERVICE
I, Patrick Gallagher, hereby certify that on July 15, 2023, the foregoing First Joint Status Report Pursuant to the Court's Order Dated March 17, 2023 was filed electronically with the Clerk of the Court via the Court's CM/ECF system. All counsel of record in this action are registered CM/ECF users, and service will be accomplished by the CM/ECF system's electronic notification facilities, including upon the following counsel for Defendant Hargrove-Dalton Defense Systems, Inc.:
Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 ltrager@vtklegal.com mforsythe@vtklegal.com
By: ________
Patrick Gallagher CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 28th Floor New York, NY 10022
WHITMORE AEROSPACE LLC,
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| v. | Case No. 1:22-cv-10147-RMB |
| HARGROVE-DALTON DEFENSE SYSTEMS, INC., | Hon. Richard M. Brannigan |
U.S. District Judge
<!-- indent:2 -->Defendant.<!-- /indent -->
U.S. Magistrate Judge