1019-00005 · Whitmore Aerospace LLC · Stay Motion

declaration-anand-motion-to-stay.docx DOCUMENT Litigation

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

DECLARATION OF PRIYA ANAND IN SUPPORT OF PLAINTIFF'S MOTION TO STAY PROCEEDINGS

I, Priya Anand, hereby declare as follows:

1. I am a partner at the law firm of Calderwood & Harkness LLP, with offices at 600 Lexington Avenue, 28th Floor, New York, New York 10022. I am duly admitted to practice law in the State of New York and before this Court. I am counsel of record for Plaintiff Whitmore Aerospace LLC ("WAL") in the above-captioned action. I make this declaration under penalty of perjury pursuant to 28 U.S.C. § 1746.

2. This declaration is submitted in support of Plaintiff WAL's Motion to Stay Proceedings Pending Conclusion of Administrative Review by the Defense Contract Management Agency ("DCMA"). Unless otherwise indicated, the matters set forth herein are within my personal knowledge or are based upon information obtained in my capacity as the responsible partner on this matter at Calderwood & Harkness LLP. If called as a witness, I could and would competently testify to the matters set forth herein.

I. BACKGROUND ON THE DECLARANT AND THE ENGAGEMENT

3. I am a partner in the Litigation Department of Calderwood & Harkness LLP, resident in the firm's New York office. I have practiced law for approximately eighteen (18) years, during which time I have concentrated my practice on complex commercial litigation and government-contracts disputes. Over the course of my career, I have represented defense contractors, aerospace manufacturers, and technology companies in a broad range of disputes arising under teaming agreements, subcontracts, joint ventures, and prime contract arrangements, including disputes involving the Contract Disputes Act, 41 U.S.C. §§ 7101–7109, and the regulations of the Defense Contract Audit Agency ("DCAA") and the Defense Contract Management Agency ("DCMA").

4. Calderwood & Harkness LLP was retained by WAL, a Virginia limited liability company with its principal place of business at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151, pursuant to an engagement letter dated November 1, 2022. WAL retained Calderwood & Harkness LLP in connection with the indemnity dispute with Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS"), a Delaware corporation with its principal place of business at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817.

5. The dispute between WAL and HDDS arises under Section 11.4 of a Teaming Agreement dated June 12, 2019, by and between WAL and HDDS (the "Teaming Agreement"). The Teaming Agreement is governed by New York law, as specified in Section 18.1 thereof, and designates the United States District Court for the Southern District of New York as the exclusive forum for the resolution of disputes, as specified in Section 18.2 thereof. A true and correct copy of the Teaming Agreement is attached hereto as Exhibit A.

II. PROCEDURAL HISTORY OF THIS ACTION

A. Pre-Litigation Events

6. On August 1, 2022, DCMA issued a Contracting Officer's Preliminary Determination ("COPD") identifying a total of $14,726,583 in cost overruns on the Advanced Tactical Airframe Program ("ATAP") under Prime Contract No. FA8620-19-C-0337. The COPD was issued by Administrative Contracting Officer Lieutenant Colonel Sandra M. Vickers, United States Air Force, at DCMA Northern Virginia. A true and correct copy of the COPD is attached hereto as Exhibit B.

7. The COPD attributed $12,817,441 — approximately 87.03% — of the total cost overruns to Work Package 4 ("WP-4"), which encompasses the titanium structural assembly work performed by WAL in its capacity as subcontractor and teaming partner to HDDS under the Teaming Agreement. The remaining $1,909,142 in cost overruns was attributed to other work packages not performed by WAL.

8. On September 9, 2022, HDDS sent WAL a formal indemnification demand letter (the "Demand Letter") asserting that WAL is contractually obligated under Section 11.4 of the Teaming Agreement to indemnify HDDS for the full amount of $14,726,583 in cost overruns identified in the COPD — including, notably, the $1,909,142 in overruns attributed to work packages other than WP-4. A true and correct copy of the Demand Letter is attached hereto as Exhibit C.

9. In an effort to resolve the dispute without litigation, and in accordance with the dispute resolution provisions of Section 18.3 of the Teaming Agreement, WAL's Chief Executive Officer, Marcus J. Whitmore, and HDDS's Senior Vice President of Contracts & Procurement, William Fong, participated in senior executive negotiations on September 30, 2022, and again on October 14, 2022. Despite the good-faith efforts of both parties during those meetings, no resolution was reached, and the positions of the parties remained materially divergent.

10. On October 21, 2022, WAL proposed that the parties engage in non-binding mediation, as contemplated by Section 18.3 of the Teaming Agreement, which provides that the parties "may submit the dispute to non-binding mediation before a mutually agreed mediator" following the failure of executive-level negotiations. On October 28, 2022, HDDS declined WAL's mediation proposal, taking the position that the mediation clause contained in Section 18.3 was permissive rather than mandatory, and that HDDS was therefore not required to participate in mediation as a condition precedent to the commencement of litigation or arbitration.

B. HDDS's Request for a Contracting Officer's Final Decision

11. On October 15, 2022 — prior to the conclusion of the parties' executive-level negotiations and prior to WAL's proposal for mediation — HDDS filed a formal response to the COPD with DCMA and simultaneously requested that Administrative Contracting Officer Lt. Col. Vickers issue a Contracting Officer's Final Decision ("COFD") pursuant to the Contract Disputes Act, 41 U.S.C. § 7103. A true and correct copy of HDDS's formal response and COFD request (or, alternatively, the cover page and relevant excerpts thereof) is attached hereto as Exhibit D. As of the date of this declaration, the COFD request remains pending before ACO Lt. Col. Vickers at DCMA Northern Virginia, and no COFD has been issued.

C. Filing of the Complaint

12. On November 28, 2022, WAL filed its Verified Complaint for Declaratory Judgment (Dkt. 1) in this Court, thereby initiating the above-captioned action pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202. The Complaint seeks declarations from the Court that: (1) Section 11.4 of the Teaming Agreement does not obligate WAL to indemnify HDDS for the cost overruns identified in the COPD; (2) to the extent that WAL has any indemnification obligation under Section 11.4, such obligation extends only to cost overruns "caused by" WAL's acts or omissions in connection with the performance of WP-4, and not to cost overruns attributable to other work packages or to causes beyond WAL's control; and (3) HDDS's indemnification demand is overbroad and unsupported because it includes the $1,909,142 in non-WP-4 cost overruns for which WAL bears no contractual responsibility.

13. Upon filing, this case was assigned to the Honorable Richard M. Brannigan, United States District Judge, and to the Honorable Allison P. Kurtz, United States Magistrate Judge, for all pretrial matters.

D. HDDS's Answer and Counterclaim

14. On January 13, 2023, HDDS, through its counsel of record, Leonard Trager and Megan Forsythe of the law firm Voss, Trager & Kendall LLP, 900 17th Street NW, Suite 800, Washington, D.C. 20006, filed its Answer and Counterclaim (Dkt. 12). In its Answer, HDDS denied the material allegations of the Complaint and asserted numerous affirmative defenses. In its Counterclaim, HDDS seeks judgment against WAL in the amount of $14,726,583, representing the full amount of the COPD-identified cost overruns, together with attorneys' fees and expenses allegedly recoverable under Section 11.6 of the Teaming Agreement, which provides for the recovery of reasonable attorneys' fees and costs by the prevailing party in any action to enforce the indemnification provisions of Article 11.

E. WAL's Reply to Counterclaim

15. On February 3, 2023, WAL filed its Reply to HDDS's Counterclaim (Dkt. 16), denying the material allegations set forth therein and asserting affirmative defenses, including, inter alia, that HDDS's indemnification demand exceeds the scope of Section 11.4 of the Teaming Agreement, that certain of the claimed cost overruns were caused by factors beyond WAL's control, and that HDDS failed to mitigate its damages.

III. THE PENDING DCMA ADMINISTRATIVE REVIEW

16. Prime Contract No. FA8620-19-C-0337 is a cost-plus-incentive-fee ("CPIF") contract between HDDS, as prime contractor, and the United States Air Force, Air Force Life Cycle Management Center ("AFLCMC"), Wright-Patterson Air Force Base, Ohio, for the design, development, and production of advanced tactical airframe systems under the ATAP program. The material financial terms of the Prime Contract, as relevant to this proceeding, are as follows:

(a) Target Cost: $412,000,000;

(b) Target Fee: 8% of target cost ($32,960,000);

(d) Share Ratio for Cost Overruns: 70% Government / 30% Contractor;

(e) Share Ratio for Cost Underruns: 60% Government / 40% Contractor; and

(f) Period of Performance: September 1, 2019 through August 31, 2024 (five base years), with two one-year option periods exercisable at the Government's discretion.

17. Under the Teaming Agreement, WAL's scope of work encompasses the fabrication of titanium structural assemblies designated as WP-4, including the wing-box substructure, center fuselage longerons, and bulkhead fittings for the ATAP airframe. WP-4 represents approximately 18% of the Prime Contract's target cost, or approximately $74,160,000.

18. The COPD issued by ACO Lt. Col. Vickers on August 1, 2022 identified the following principal root causes for the WP-4 cost overruns:

(a) Titanium raw-material cost escalation: approximately $4,200,000, arising from market-driven increases in the price of aerospace-grade titanium alloy (Ti-6Al-4V) during the 2021–2022 period;

(b) Rework due to non-conforming machining tolerances: approximately $5,100,000, attributable to machining processes that produced parts outside of the allowable tolerance bands specified in the engineering drawings;

(c) Schedule delays causing idle-labor charges: approximately $2,300,000, resulting from delays in the delivery of Government-furnished information and Government-furnished equipment, as well as integration scheduling conflicts with other work packages; and

(d) Engineering change proposal ("ECP") implementation costs: approximately $1,200,000, attributable to the implementation of engineering changes directed by the Government during the performance period.

19. The DCMA administrative review currently pending before ACO Lt. Col. Vickers is being conducted pursuant to the Contract Disputes Act, 41 U.S.C. §§ 7101–7109, and the applicable provisions of the Federal Acquisition Regulation. As of the date of this declaration, ACO Lt. Col. Vickers has not yet issued a Contracting Officer's Final Decision.

20. Based on my communications with Harold Reeves, Senior Partner, and Natalie Cheng, Associate, at the law firm of Ashford & Reeves LLP, located at 2001 Pennsylvania Avenue NW, Suite 700, Washington, D.C. 20006 — which serves as WAL's government contracts regulatory counsel — the DCMA administrative review is expected to involve a comprehensive field audit and cost analysis of the WP-4 expenditures and related cost elements. Mr. Reeves and Ms. Cheng have informed me that, based on their experience with DCMA administrative proceedings of comparable scope and complexity, the review is likely to require several additional months to complete. Specifically, the field audit is expected to encompass a detailed examination of WAL's cost accounting records, incurred cost submissions, subcontractor invoices, timekeeping records, and the allowability, allocability, and reasonableness of each category of cost overrun identified in the COPD.

21. The COFD, once issued, will constitute an authoritative administrative determination of the allocation of cost overruns between WP-4 and non-WP-4 work packages, the allowability of the costs at issue under the applicable cost principles (FAR Part 31), and the reasonableness of those costs in light of the contract terms and performance conditions. These are the very factual predicates and cost-accounting determinations that underlie the indemnity dispute before this Court. The COFD will, in all material respects, define the universe of costs for which WAL could, at most, bear indemnification responsibility, if any, under Section 11.4 of the Teaming Agreement.

IV. HDDS DOES NOT OPPOSE THE STAY

22. I have communicated directly with Leonard Trager of Voss, Trager & Kendall LLP, counsel of record for Defendant HDDS, regarding the appropriateness of a stay of the proceedings in this action pending the conclusion of the DCMA administrative review. Mr. Trager has confirmed to me, both in writing and telephonically, that HDDS does not oppose the entry of a stay on the terms described herein. A true and correct copy of the correspondence reflecting HDDS's non-opposition to the stay — specifically, an email from Leonard Trager dated February 6, 2023 — is attached hereto as Exhibit E.

23. The parties have agreed upon the terms of a Joint Stipulation Regarding Stay of Proceedings, which is being filed concurrently herewith, or, if not filed concurrently, will be filed with the Court on or before February 24, 2023 (the "Joint Stipulation"). The Joint Stipulation provides for the stay of all proceedings in this action — including discovery, depositions, dispositive motions, and all other pretrial activity — pending the conclusion of the DCMA administrative review, specifically, the issuance of a COFD by ACO Lt. Col. Vickers or such other event as terminates the administrative proceeding.

24. The Joint Stipulation further provides that the parties will file joint status reports with the Court every one hundred and twenty (120) days from the date of the Court's order granting the stay, for the purpose of keeping the Court apprised of the progress of the DCMA administrative review. The status reports will include, to the extent known to the parties, an update on the anticipated timeline for the issuance of the COFD and any material developments in the administrative proceeding.

25. I respectfully represent to the Court that the agreement reflected in the Joint Stipulation was reached through arm's-length discussions between Calderwood & Harkness LLP, on behalf of WAL, and Voss, Trager & Kendall LLP, on behalf of HDDS. The parties' mutual agreement to the stay reflects a shared recognition that the DCMA administrative review will materially inform, and may substantially narrow, the factual and legal issues presented in this action.

V. THE STAY WILL SERVE JUDICIAL ECONOMY AND THE INTERESTS OF THE PARTIES

26. The DCMA's administrative determination will directly bear upon the factual issues underlying the indemnity dispute in this action. In particular, the COFD is expected to address: (a) the allocation of cost overruns between WP-4 and non-WP-4 work packages; (b) the identification and categorization of the root causes of the cost overruns; (c) the determination of whether any of the costs claimed by HDDS are formally disallowed by the Government as unallowable, unallocable, or unreasonable under the applicable cost principles; and (d) the extent to which engineering changes directed by the Government, Government-furnished information delays, or other Government-caused factors contributed to the overruns. Each of these determinations goes to the heart of the indemnification dispute between WAL and HDDS under Section 11.4 of the Teaming Agreement.

27. A stay of proceedings will conserve the resources of this Court and of the parties by avoiding potentially duplicative and costly discovery and motion practice on factual issues that may be resolved, or substantially narrowed, by the DCMA administrative proceeding. Absent a stay, the parties would be required to engage in extensive document discovery, third-party subpoenas, expert discovery, and potentially depositions of Government personnel — all directed at the very same cost-accounting and cost-allocation issues that the DCMA is presently examining in the exercise of its specialized expertise. Such duplicative proceedings would impose unnecessary burdens on the Court's docket and on the parties' litigation budgets, with no corresponding benefit if the COFD resolves key factual disputes.

28. Moreover, the doctrine of primary jurisdiction supports deference to the DCMA's specialized expertise in government contract cost accounting and administration. The DCMA possesses technical competence, institutional knowledge, and access to Government cost data that are not readily available through the ordinary course of civil discovery. Allowing the DCMA to complete its review before this Court adjudicates the indemnity dispute will promote uniformity and consistency in the interpretation and application of the Federal Acquisition Regulation's cost principles and will avoid the risk of inconsistent determinations between this Court and the administrative agency.

29. Neither party will suffer undue prejudice from the entry of a stay. This case is in its very early stages. No discovery has been conducted. No depositions have been taken. No expert reports have been exchanged. No dispositive motions have been filed. The Court has not yet entered a scheduling order or set any pretrial deadlines. The underlying indemnity obligation, if any exists, will not become fully ripe or quantifiable until the DCMA completes its review and issues a COFD determining the final allocation, allowability, and reasonableness of the costs at issue. WAL's position on the merits is fully preserved by the filing of this action, and WAL's rights under the Teaming Agreement will not be impaired or diminished by the passage of time during the administrative review.

30. For these reasons, the entry of a stay pending the conclusion of the DCMA administrative review is appropriate and will serve the interests of justice, judicial economy, and the orderly resolution of the parties' dispute.

VI. AUTHENTICATION OF EXHIBITS

31. In my capacity as lead counsel for WAL in this matter, and in connection with the preparation of WAL's Motion to Stay Proceedings and this supporting Declaration, I have reviewed and authenticated the following documents, true and correct copies of which are attached hereto:

(a) Exhibit A: Teaming Agreement dated June 12, 2019, by and between Hargrove-Dalton Defense Systems, Inc. and Whitmore Aerospace LLC. This is a true and correct copy of the fully executed agreement maintained in the files of Calderwood & Harkness LLP. The relevant provisions include, but are not limited to: Section 11.4 (Indemnification), Section 11.5 (Limitation of Liability — capping each party's aggregate liability at 120% of its respective work package value, which, for WAL, amounts to $88,992,000), Section 18.1 (Governing Law — New York), Section 18.2 (Forum Selection — United States District Court for the Southern District of New York), and Section 18.3 (Dispute Resolution — senior executive negotiations followed by permissive non-binding mediation).

(b) Exhibit B: Contracting Officer's Preliminary Determination ("COPD") dated August 1, 2022, issued by Administrative Contracting Officer Lt. Col. Sandra M. Vickers, USAF, DCMA Northern Virginia. This is a true and correct copy of the COPD as received by WAL and maintained in the files of Calderwood & Harkness LLP. The COPD identifies $14,726,583 in cost overruns on the ATAP program under Prime Contract No. FA8620-19-C-0337 and attributes $12,817,441 thereof to WP-4.

(c) Exhibit C: Indemnification demand letter from HDDS to WAL dated September 9, 2022, signed by William Fong, SVP Contracts & Procurement, HDDS. This is a true and correct copy of the demand letter as received by WAL and maintained in the files of Calderwood & Harkness LLP. The demand letter asserts WAL's obligation to indemnify HDDS for $14,726,583 in cost overruns.

(d) Exhibit D: HDDS's formal response to the COPD and request for Contracting Officer's Final Decision filed with DCMA on October 15, 2022. Attached hereto is a true and correct copy of the cover page and relevant excerpts of this filing, as maintained in the files of Calderwood & Harkness LLP.

(e) Exhibit E: Correspondence between counsel reflecting HDDS's non-opposition to the requested stay. Specifically, Exhibit E is a true and correct copy of an email from Leonard Trager of Voss, Trager & Kendall LLP to the undersigned, dated February 6, 2023, confirming that HDDS does not oppose the entry of a stay on the terms described herein.

32. Each of the foregoing exhibits is identified, described, and attested to as a true and correct copy of the original document, obtained and maintained in the ordinary course of Calderwood & Harkness LLP's representation of WAL in this matter.

VII. CONCLUSION AND PRAYER

33. I respectfully submit this declaration in support of WAL's Motion to Stay Proceedings Pending Conclusion of the DCMA Administrative Review. For the reasons set forth above, the entry of a stay is appropriate and warranted. The DCMA administrative review will yield an authoritative determination of the allocation, allowability, and reasonableness of the cost overruns at issue — determinations that are central to the resolution of the indemnity dispute between WAL and HDDS. A stay will serve the interests of justice, judicial economy, and the conservation of the parties' resources, and neither party will suffer undue prejudice thereby. HDDS has confirmed its non-opposition to the stay, and the parties have agreed upon the terms of a Joint Stipulation to be filed with the Court.

34. I respectfully request that this Court grant Plaintiff WAL's Motion to Stay Proceedings on the terms set forth in the accompanying Memorandum of Law in Support of Plaintiff's Motion to Stay Proceedings and the Joint Stipulation Regarding Stay of Proceedings filed concurrently herewith.

ATTESTATION

I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.

Executed on February 10, 2023, at New York, New York.

________________________________________

Priya Anand Partner, Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 555-7800 Facsimile: (212) 555-7801

Email: panand@calderwoodharkness.com

Counsel for Plaintiff Whitmore Aerospace LLC

CERTIFICATE OF SERVICE

I, Priya Anand, hereby certify that on February 10, 2023, a true and correct copy of the foregoing Declaration of Priya Anand in Support of Plaintiff's Motion to Stay Proceedings, together with all exhibits attached thereto, was served upon all counsel of record via the Court's Electronic Case Filing ("ECF") system, which will send a notice of electronic filing to all registered participants, including:

Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 555-4400

Email: ltrager@vtklaw.com; mforsythe@vtklaw.com

Counsel for Defendant Hargrove-Dalton Defense Systems, Inc.

________________________________________

Priya Anand Partner, Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022

Counsel for Plaintiff Whitmore Aerospace LLC

WHITMORE AEROSPACE LLC,

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

U.S. District Judge

HARGROVE-DALTON DEFENSE SYSTEMS, INC.,

Hon. Allison P. Kurtz

Defendant.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
DECLARATION OF PRIYA ANAND IN SUPPORT OF PLAINTIFF'S MOTION TO STAY PROCEEDINGS
I, Priya Anand, hereby declare as follows:
1. I am a partner at the law firm of Calderwood & Harkness LLP, with offices at 600 Lexington Avenue, 28th Floor, New York, New York 10022. I am duly admitted to practice law in the State of New York and before this Court. I am counsel of record for Plaintiff Whitmore Aerospace LLC ("WAL") in the above-captioned action. I make this declaration under penalty of perjury pursuant to 28 U.S.C. § 1746.
2. This declaration is submitted in support of Plaintiff WAL's Motion to Stay Proceedings Pending Conclusion of Administrative Review by the Defense Contract Management Agency ("DCMA"). Unless otherwise indicated, the matters set forth herein are within my personal knowledge or are based upon information obtained in my capacity as the responsible partner on this matter at Calderwood & Harkness LLP. If called as a witness, I could and would competently testify to the matters set forth herein.
I. BACKGROUND ON THE DECLARANT AND THE ENGAGEMENT
3. I am a partner in the Litigation Department of Calderwood & Harkness LLP, resident in the firm's New York office. I have practiced law for approximately eighteen (18) years, during which time I have concentrated my practice on complex commercial litigation and government-contracts disputes. Over the course of my career, I have represented defense contractors, aerospace manufacturers, and technology companies in a broad range of disputes arising under teaming agreements, subcontracts, joint ventures, and prime contract arrangements, including disputes involving the Contract Disputes Act, 41 U.S.C. §§ 7101–7109, and the regulations of the Defense Contract Audit Agency ("DCAA") and the Defense Contract Management Agency ("DCMA").
4. Calderwood & Harkness LLP was retained by WAL, a Virginia limited liability company with its principal place of business at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151, pursuant to an engagement letter dated November 1, 2022. WAL retained Calderwood & Harkness LLP in connection with the indemnity dispute with Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS"), a Delaware corporation with its principal place of business at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817.
5. The dispute between WAL and HDDS arises under Section 11.4 of a Teaming Agreement dated June 12, 2019, by and between WAL and HDDS (the "Teaming Agreement"). The Teaming Agreement is governed by New York law, as specified in Section 18.1 thereof, and designates the United States District Court for the Southern District of New York as the exclusive forum for the resolution of disputes, as specified in Section 18.2 thereof. A true and correct copy of the Teaming Agreement is attached hereto as Exhibit A.
II. PROCEDURAL HISTORY OF THIS ACTION
A. Pre-Litigation Events
6. On August 1, 2022, DCMA issued a Contracting Officer's Preliminary Determination ("COPD") identifying a total of $14,726,583 in cost overruns on the Advanced Tactical Airframe Program ("ATAP") under Prime Contract No. FA8620-19-C-0337. The COPD was issued by Administrative Contracting Officer Lieutenant Colonel Sandra M. Vickers, United States Air Force, at DCMA Northern Virginia. A true and correct copy of the COPD is attached hereto as Exhibit B.
7. The COPD attributed $12,817,441 — approximately 87.03% — of the total cost overruns to Work Package 4 ("WP-4"), which encompasses the titanium structural assembly work performed by WAL in its capacity as subcontractor and teaming partner to HDDS under the Teaming Agreement. The remaining $1,909,142 in cost overruns was attributed to other work packages not performed by WAL.
8. On September 9, 2022, HDDS sent WAL a formal indemnification demand letter (the "Demand Letter") asserting that WAL is contractually obligated under Section 11.4 of the Teaming Agreement to indemnify HDDS for the full amount of $14,726,583 in cost overruns identified in the COPD — including, notably, the $1,909,142 in overruns attributed to work packages other than WP-4. A true and correct copy of the Demand Letter is attached hereto as Exhibit C.
9. In an effort to resolve the dispute without litigation, and in accordance with the dispute resolution provisions of Section 18.3 of the Teaming Agreement, WAL's Chief Executive Officer, Marcus J. Whitmore, and HDDS's Senior Vice President of Contracts & Procurement, William Fong, participated in senior executive negotiations on September 30, 2022, and again on October 14, 2022. Despite the good-faith efforts of both parties during those meetings, no resolution was reached, and the positions of the parties remained materially divergent.
10. On October 21, 2022, WAL proposed that the parties engage in non-binding mediation, as contemplated by Section 18.3 of the Teaming Agreement, which provides that the parties "may submit the dispute to non-binding mediation before a mutually agreed mediator" following the failure of executive-level negotiations. On October 28, 2022, HDDS declined WAL's mediation proposal, taking the position that the mediation clause contained in Section 18.3 was permissive rather than mandatory, and that HDDS was therefore not required to participate in mediation as a condition precedent to the commencement of litigation or arbitration.
B. HDDS's Request for a Contracting Officer's Final Decision
11. On October 15, 2022 — prior to the conclusion of the parties' executive-level negotiations and prior to WAL's proposal for mediation — HDDS filed a formal response to the COPD with DCMA and simultaneously requested that Administrative Contracting Officer Lt. Col. Vickers issue a Contracting Officer's Final Decision ("COFD") pursuant to the Contract Disputes Act, 41 U.S.C. § 7103. A true and correct copy of HDDS's formal response and COFD request (or, alternatively, the cover page and relevant excerpts thereof) is attached hereto as Exhibit D. As of the date of this declaration, the COFD request remains pending before ACO Lt. Col. Vickers at DCMA Northern Virginia, and no COFD has been issued.
C. Filing of the Complaint
12. On November 28, 2022, WAL filed its Verified Complaint for Declaratory Judgment (Dkt. 1) in this Court, thereby initiating the above-captioned action pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202. The Complaint seeks declarations from the Court that: (1) Section 11.4 of the Teaming Agreement does not obligate WAL to indemnify HDDS for the cost overruns identified in the COPD; (2) to the extent that WAL has any indemnification obligation under Section 11.4, such obligation extends only to cost overruns "caused by" WAL's acts or omissions in connection with the performance of WP-4, and not to cost overruns attributable to other work packages or to causes beyond WAL's control; and (3) HDDS's indemnification demand is overbroad and unsupported because it includes the $1,909,142 in non-WP-4 cost overruns for which WAL bears no contractual responsibility.
13. Upon filing, this case was assigned to the Honorable Richard M. Brannigan, United States District Judge, and to the Honorable Allison P. Kurtz, United States Magistrate Judge, for all pretrial matters.
D. HDDS's Answer and Counterclaim
14. On January 13, 2023, HDDS, through its counsel of record, Leonard Trager and Megan Forsythe of the law firm Voss, Trager & Kendall LLP, 900 17th Street NW, Suite 800, Washington, D.C. 20006, filed its Answer and Counterclaim (Dkt. 12). In its Answer, HDDS denied the material allegations of the Complaint and asserted numerous affirmative defenses. In its Counterclaim, HDDS seeks judgment against WAL in the amount of $14,726,583, representing the full amount of the COPD-identified cost overruns, together with attorneys' fees and expenses allegedly recoverable under Section 11.6 of the Teaming Agreement, which provides for the recovery of reasonable attorneys' fees and costs by the prevailing party in any action to enforce the indemnification provisions of Article 11.
E. WAL's Reply to Counterclaim
15. On February 3, 2023, WAL filed its Reply to HDDS's Counterclaim (Dkt. 16), denying the material allegations set forth therein and asserting affirmative defenses, including, inter alia, that HDDS's indemnification demand exceeds the scope of Section 11.4 of the Teaming Agreement, that certain of the claimed cost overruns were caused by factors beyond WAL's control, and that HDDS failed to mitigate its damages.
III. THE PENDING DCMA ADMINISTRATIVE REVIEW
16. Prime Contract No. FA8620-19-C-0337 is a cost-plus-incentive-fee ("CPIF") contract between HDDS, as prime contractor, and the United States Air Force, Air Force Life Cycle Management Center ("AFLCMC"), Wright-Patterson Air Force Base, Ohio, for the design, development, and production of advanced tactical airframe systems under the ATAP program. The material financial terms of the Prime Contract, as relevant to this proceeding, are as follows:
(a) Target Cost: $412,000,000;
(b) Target Fee: 8% of target cost ($32,960,000);
(c) Ceiling Price: $470,000,000;
(d) Share Ratio for Cost Overruns: 70% Government / 30% Contractor;
(e) Share Ratio for Cost Underruns: 60% Government / 40% Contractor; and
(f) Period of Performance: September 1, 2019 through August 31, 2024 (five base years), with two one-year option periods exercisable at the Government's discretion.
17. Under the Teaming Agreement, WAL's scope of work encompasses the fabrication of titanium structural assemblies designated as WP-4, including the wing-box substructure, center fuselage longerons, and bulkhead fittings for the ATAP airframe. WP-4 represents approximately 18% of the Prime Contract's target cost, or approximately $74,160,000.
18. The COPD issued by ACO Lt. Col. Vickers on August 1, 2022 identified the following principal root causes for the WP-4 cost overruns:
(a) Titanium raw-material cost escalation: approximately $4,200,000, arising from market-driven increases in the price of aerospace-grade titanium alloy (Ti-6Al-4V) during the 2021–2022 period;
(b) Rework due to non-conforming machining tolerances: approximately $5,100,000, attributable to machining processes that produced parts outside of the allowable tolerance bands specified in the engineering drawings;
(c) Schedule delays causing idle-labor charges: approximately $2,300,000, resulting from delays in the delivery of Government-furnished information and Government-furnished equipment, as well as integration scheduling conflicts with other work packages; and
(d) Engineering change proposal ("ECP") implementation costs: approximately $1,200,000, attributable to the implementation of engineering changes directed by the Government during the performance period.
19. The DCMA administrative review currently pending before ACO Lt. Col. Vickers is being conducted pursuant to the Contract Disputes Act, 41 U.S.C. §§ 7101–7109, and the applicable provisions of the Federal Acquisition Regulation. As of the date of this declaration, ACO Lt. Col. Vickers has not yet issued a Contracting Officer's Final Decision.
20. Based on my communications with Harold Reeves, Senior Partner, and Natalie Cheng, Associate, at the law firm of Ashford & Reeves LLP, located at 2001 Pennsylvania Avenue NW, Suite 700, Washington, D.C. 20006 — which serves as WAL's government contracts regulatory counsel — the DCMA administrative review is expected to involve a comprehensive field audit and cost analysis of the WP-4 expenditures and related cost elements. Mr. Reeves and Ms. Cheng have informed me that, based on their experience with DCMA administrative proceedings of comparable scope and complexity, the review is likely to require several additional months to complete. Specifically, the field audit is expected to encompass a detailed examination of WAL's cost accounting records, incurred cost submissions, subcontractor invoices, timekeeping records, and the allowability, allocability, and reasonableness of each category of cost overrun identified in the COPD.
21. The COFD, once issued, will constitute an authoritative administrative determination of the allocation of cost overruns between WP-4 and non-WP-4 work packages, the allowability of the costs at issue under the applicable cost principles (FAR Part 31), and the reasonableness of those costs in light of the contract terms and performance conditions. These are the very factual predicates and cost-accounting determinations that underlie the indemnity dispute before this Court. The COFD will, in all material respects, define the universe of costs for which WAL could, at most, bear indemnification responsibility, if any, under Section 11.4 of the Teaming Agreement.
IV. HDDS DOES NOT OPPOSE THE STAY
22. I have communicated directly with Leonard Trager of Voss, Trager & Kendall LLP, counsel of record for Defendant HDDS, regarding the appropriateness of a stay of the proceedings in this action pending the conclusion of the DCMA administrative review. Mr. Trager has confirmed to me, both in writing and telephonically, that HDDS does not oppose the entry of a stay on the terms described herein. A true and correct copy of the correspondence reflecting HDDS's non-opposition to the stay — specifically, an email from Leonard Trager dated February 6, 2023 — is attached hereto as Exhibit E.
23. The parties have agreed upon the terms of a Joint Stipulation Regarding Stay of Proceedings, which is being filed concurrently herewith, or, if not filed concurrently, will be filed with the Court on or before February 24, 2023 (the "Joint Stipulation"). The Joint Stipulation provides for the stay of all proceedings in this action — including discovery, depositions, dispositive motions, and all other pretrial activity — pending the conclusion of the DCMA administrative review, specifically, the issuance of a COFD by ACO Lt. Col. Vickers or such other event as terminates the administrative proceeding.
24. The Joint Stipulation further provides that the parties will file joint status reports with the Court every one hundred and twenty (120) days from the date of the Court's order granting the stay, for the purpose of keeping the Court apprised of the progress of the DCMA administrative review. The status reports will include, to the extent known to the parties, an update on the anticipated timeline for the issuance of the COFD and any material developments in the administrative proceeding.
25. I respectfully represent to the Court that the agreement reflected in the Joint Stipulation was reached through arm's-length discussions between Calderwood & Harkness LLP, on behalf of WAL, and Voss, Trager & Kendall LLP, on behalf of HDDS. The parties' mutual agreement to the stay reflects a shared recognition that the DCMA administrative review will materially inform, and may substantially narrow, the factual and legal issues presented in this action.
V. THE STAY WILL SERVE JUDICIAL ECONOMY AND THE INTERESTS OF THE PARTIES
26. The DCMA's administrative determination will directly bear upon the factual issues underlying the indemnity dispute in this action. In particular, the COFD is expected to address: (a) the allocation of cost overruns between WP-4 and non-WP-4 work packages; (b) the identification and categorization of the root causes of the cost overruns; (c) the determination of whether any of the costs claimed by HDDS are formally disallowed by the Government as unallowable, unallocable, or unreasonable under the applicable cost principles; and (d) the extent to which engineering changes directed by the Government, Government-furnished information delays, or other Government-caused factors contributed to the overruns. Each of these determinations goes to the heart of the indemnification dispute between WAL and HDDS under Section 11.4 of the Teaming Agreement.
27. A stay of proceedings will conserve the resources of this Court and of the parties by avoiding potentially duplicative and costly discovery and motion practice on factual issues that may be resolved, or substantially narrowed, by the DCMA administrative proceeding. Absent a stay, the parties would be required to engage in extensive document discovery, third-party subpoenas, expert discovery, and potentially depositions of Government personnel — all directed at the very same cost-accounting and cost-allocation issues that the DCMA is presently examining in the exercise of its specialized expertise. Such duplicative proceedings would impose unnecessary burdens on the Court's docket and on the parties' litigation budgets, with no corresponding benefit if the COFD resolves key factual disputes.
28. Moreover, the doctrine of primary jurisdiction supports deference to the DCMA's specialized expertise in government contract cost accounting and administration. The DCMA possesses technical competence, institutional knowledge, and access to Government cost data that are not readily available through the ordinary course of civil discovery. Allowing the DCMA to complete its review before this Court adjudicates the indemnity dispute will promote uniformity and consistency in the interpretation and application of the Federal Acquisition Regulation's cost principles and will avoid the risk of inconsistent determinations between this Court and the administrative agency.
29. Neither party will suffer undue prejudice from the entry of a stay. This case is in its very early stages. No discovery has been conducted. No depositions have been taken. No expert reports have been exchanged. No dispositive motions have been filed. The Court has not yet entered a scheduling order or set any pretrial deadlines. The underlying indemnity obligation, if any exists, will not become fully ripe or quantifiable until the DCMA completes its review and issues a COFD determining the final allocation, allowability, and reasonableness of the costs at issue. WAL's position on the merits is fully preserved by the filing of this action, and WAL's rights under the Teaming Agreement will not be impaired or diminished by the passage of time during the administrative review.
30. For these reasons, the entry of a stay pending the conclusion of the DCMA administrative review is appropriate and will serve the interests of justice, judicial economy, and the orderly resolution of the parties' dispute.
VI. AUTHENTICATION OF EXHIBITS
31. In my capacity as lead counsel for WAL in this matter, and in connection with the preparation of WAL's Motion to Stay Proceedings and this supporting Declaration, I have reviewed and authenticated the following documents, true and correct copies of which are attached hereto:
(a) Exhibit A: Teaming Agreement dated June 12, 2019, by and between Hargrove-Dalton Defense Systems, Inc. and Whitmore Aerospace LLC. This is a true and correct copy of the fully executed agreement maintained in the files of Calderwood & Harkness LLP. The relevant provisions include, but are not limited to: Section 11.4 (Indemnification), Section 11.5 (Limitation of Liability — capping each party's aggregate liability at 120% of its respective work package value, which, for WAL, amounts to $88,992,000), Section 18.1 (Governing Law — New York), Section 18.2 (Forum Selection — United States District Court for the Southern District of New York), and Section 18.3 (Dispute Resolution — senior executive negotiations followed by permissive non-binding mediation).
(b) Exhibit B: Contracting Officer's Preliminary Determination ("COPD") dated August 1, 2022, issued by Administrative Contracting Officer Lt. Col. Sandra M. Vickers, USAF, DCMA Northern Virginia. This is a true and correct copy of the COPD as received by WAL and maintained in the files of Calderwood & Harkness LLP. The COPD identifies $14,726,583 in cost overruns on the ATAP program under Prime Contract No. FA8620-19-C-0337 and attributes $12,817,441 thereof to WP-4.
(c) Exhibit C: Indemnification demand letter from HDDS to WAL dated September 9, 2022, signed by William Fong, SVP Contracts & Procurement, HDDS. This is a true and correct copy of the demand letter as received by WAL and maintained in the files of Calderwood & Harkness LLP. The demand letter asserts WAL's obligation to indemnify HDDS for $14,726,583 in cost overruns.
(d) Exhibit D: HDDS's formal response to the COPD and request for Contracting Officer's Final Decision filed with DCMA on October 15, 2022. Attached hereto is a true and correct copy of the cover page and relevant excerpts of this filing, as maintained in the files of Calderwood & Harkness LLP.
(e) Exhibit E: Correspondence between counsel reflecting HDDS's non-opposition to the requested stay. Specifically, Exhibit E is a true and correct copy of an email from Leonard Trager of Voss, Trager & Kendall LLP to the undersigned, dated February 6, 2023, confirming that HDDS does not oppose the entry of a stay on the terms described herein.
32. Each of the foregoing exhibits is identified, described, and attested to as a true and correct copy of the original document, obtained and maintained in the ordinary course of Calderwood & Harkness LLP's representation of WAL in this matter.
VII. CONCLUSION AND PRAYER
33. I respectfully submit this declaration in support of WAL's Motion to Stay Proceedings Pending Conclusion of the DCMA Administrative Review. For the reasons set forth above, the entry of a stay is appropriate and warranted. The DCMA administrative review will yield an authoritative determination of the allocation, allowability, and reasonableness of the cost overruns at issue — determinations that are central to the resolution of the indemnity dispute between WAL and HDDS. A stay will serve the interests of justice, judicial economy, and the conservation of the parties' resources, and neither party will suffer undue prejudice thereby. HDDS has confirmed its non-opposition to the stay, and the parties have agreed upon the terms of a Joint Stipulation to be filed with the Court.
34. I respectfully request that this Court grant Plaintiff WAL's Motion to Stay Proceedings on the terms set forth in the accompanying Memorandum of Law in Support of Plaintiff's Motion to Stay Proceedings and the Joint Stipulation Regarding Stay of Proceedings filed concurrently herewith.
ATTESTATION
I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.
Executed on February 10, 2023, at New York, New York.
________________________________________
Priya Anand Partner, Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 555-7800 Facsimile: (212) 555-7801
Email: panand@calderwoodharkness.com
Counsel for Plaintiff Whitmore Aerospace LLC
CERTIFICATE OF SERVICE
I, Priya Anand, hereby certify that on February 10, 2023, a true and correct copy of the foregoing Declaration of Priya Anand in Support of Plaintiff's Motion to Stay Proceedings, together with all exhibits attached thereto, was served upon all counsel of record via the Court's Electronic Case Filing ("ECF") system, which will send a notice of electronic filing to all registered participants, including:
Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 555-4400
Email: ltrager@vtklaw.com; mforsythe@vtklaw.com
Counsel for Defendant Hargrove-Dalton Defense Systems, Inc.
________________________________________
Priya Anand Partner, Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022
Counsel for Plaintiff Whitmore Aerospace LLC
WHITMORE AEROSPACE LLC,
Plaintiff, | Case No. 1:22-cv-10147-RMB
v. | Hon. Richard M. Brannigan
U.S. District Judge
HARGROVE-DALTON DEFENSE SYSTEMS, INC.,
Hon. Allison P. Kurtz
Defendant. | U.S. Magistrate Judge