UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
JOINT STIPULATION AND [PROPOSED] ORDER TO STAY PROCEEDINGS PENDING CONCLUSION OF ADMINISTRATIVE REVIEW BY THE DEFENSE CONTRACT MANAGEMENT AGENCY
Filed: February 24, 2023
PART I
JOINT STIPULATION OF THE PARTIES
I. INTRODUCTION AND PARTIES TO THE STIPULATION
Plaintiff Whitmore Aerospace LLC ("WAL"), a Virginia limited liability company with its principal place of business and headquarters located at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151, by and through its attorneys of record, Calderwood & Harkness LLP, 600 Lexington Avenue, 28th Floor, New York, New York 10022, and Defendant Hargrove-Dalton Defense Systems, Inc. ("HDDS"), a Delaware corporation with its principal place of business and headquarters located at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817, by and through its attorneys of record, Voss, Trager & Kendall LLP, 900 17th Street NW, Suite 800, Washington, D.C. 20006 (WAL and HDDS collectively referred to herein as the "Parties"), hereby jointly stipulate and agree, subject to the approval of this Court, to a stay of all proceedings in the above-captioned action pending the conclusion of the administrative review described more fully herein.
The Parties respectfully submit this Joint Stipulation and [Proposed] Order in accordance with Rule 7.1 of the Local Civil Rules of the United States District Court for the Southern District of New York and Federal Rule of Civil Procedure 29, and further in connection with Plaintiff's Motion to Stay Proceedings filed on February 10, 2023 (ECF No. 24), to which Defendant does not object. The Parties respectfully request that the Court enter the accompanying [Proposed] Order Granting Stay of Proceedings in the form attached hereto as Part II.
II. BACKGROUND AND PROCEDURAL HISTORY
1. On November 28, 2022, Plaintiff Whitmore Aerospace LLC filed a Verified Complaint for Declaratory Judgment (ECF No. 1) pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202, seeking a declaration from this Court regarding the Parties' respective rights and obligations under Section 11.4 of that certain Teaming Agreement dated June 12, 2019 (the "Teaming Agreement"), entered into between WAL and HDDS in connection with cost-overrun claims totaling Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583). These cost-overrun claims were identified in a Contracting Officer's Preliminary Determination ("COPD") issued on August 1, 2022, by Administrative Contracting Officer Lieutenant Colonel Sandra M. Vickers, United States Air Force, of the Defense Contract Management Agency ("DCMA"), Northern Virginia Regional Office, under Prime Contract No. FA8620-19-C-0337.
2. The COPD relates to the Advanced Tactical Airframe Program ("ATAP"), a United States Air Force acquisition program administered by the Air Force Life Cycle Management Center ("AFLCMC") at Wright-Patterson Air Force Base, Ohio. Under Prime Contract No. FA8620-19-C-0337, HDDS serves as the prime contractor for the ATAP program, and WAL serves as a subcontractor and teaming partner pursuant to the Teaming Agreement. Specifically, WAL is responsible for the design, manufacture, integration, testing, and delivery of titanium structural assemblies designated as Work Package 4 ("WP-4") under the subcontract arrangement established by the Teaming Agreement and the associated Subcontract Agreement No. HDDS-SC-2019-0842, dated September 3, 2019.
3. The ATAP program is a developmental acquisition program for a next-generation tactical airframe platform, with an estimated total contract value in excess of $1.2 billion over a multi-year period of performance. WP-4 encompasses the fabrication of advanced titanium structural components, including load-bearing fuselage frames, wing-root fittings, and bulkhead assemblies, and represents a critical path element of the overall program schedule.
4. On January 13, 2023, Defendant HDDS filed its Answer and Counterclaim (ECF No. 14), in which HDDS asserted a counterclaim against WAL for Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583) in contractual indemnification pursuant to Section 11.4 of the Teaming Agreement, together with attorneys' fees and costs of litigation pursuant to Section 11.6 of the Teaming Agreement. HDDS's Counterclaim alleges that, under the indemnification provisions of the Teaming Agreement, WAL is obligated to hold HDDS harmless for cost overruns attributable to WP-4, and that the cost overruns identified in the COPD are directly and proximately attributable to WAL's performance deficiencies under WP-4.
5. On February 3, 2023, WAL filed its Reply to Counterclaim (ECF No. 19), denying the material allegations of HDDS's Counterclaim and asserting affirmative defenses, including, inter alia, that the cost-overrun allocations contained in the COPD are preliminary and subject to revision, that a significant portion of the overruns attributed to WP-4 are the result of Government-directed engineering change proposals and supply-chain disruptions beyond WAL's control, and that HDDS's interpretation of Section 11.4 of the Teaming Agreement is inconsistent with the plain language and structure of the contract.
6. On February 10, 2023, WAL filed a Motion to Stay Proceedings (ECF No. 24), supported by the Declaration of Catherine Soo-Hyun Park, Vice President of Government Contracts for WAL (ECF No. 25), and the Declaration of Priya Anand, counsel for WAL (ECF No. 26), as well as a Memorandum of Law in Support of the Motion to Stay (ECF No. 27). In its Memorandum of Law, WAL argued that the primary-jurisdiction doctrine and principles of judicial economy strongly favor a stay of this action pending the conclusion of the DCMA's administrative review of the cost-overrun claims under Prime Contract No. FA8620-19-C-0337. WAL further argued that the DCMA possesses specialized expertise in government contract cost accounting, cost allocation, and administration that this Court does not possess, and that proceeding with parallel litigation while the DCMA administrative review is ongoing would risk duplicative proceedings and potentially inconsistent determinations on the same factual issues.
7. On February 17, 2023, counsel for the Parties conferred in good faith regarding WAL's Motion to Stay and reached agreement that a stay of all proceedings is appropriate under the circumstances described herein. HDDS does not oppose WAL's Motion to Stay.
III. THE PENDING DCMA ADMINISTRATIVE REVIEW
8. On August 1, 2022, Administrative Contracting Officer Lieutenant Colonel Sandra M. Vickers, USAF, issued the COPD under Prime Contract No. FA8620-19-C-0337. The COPD identified aggregate cost overruns totaling Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583) across the ATAP program and provided a preliminary allocation of those overruns among the various work packages comprising the program.
9. Specifically, the COPD attributed Twelve Million Eight Hundred Seventeen Thousand Four Hundred Forty-One Dollars ($12,817,441), representing approximately 87.03% of the total overruns, to Work Package 4, for which WAL is the responsible subcontractor and teaming partner. The remaining One Million Nine Hundred Nine Thousand One Hundred Forty-Two Dollars ($1,909,142), representing approximately 12.97% of the total overruns, was attributed to other work packages under the Prime Contract.
10. With respect to WP-4, the COPD identified the following approximate root-cause categories for the cost overruns:
(a) Titanium raw-material cost escalation, in the approximate amount of $4,200,000, attributed to increases in the market price of aerospace-grade titanium alloy (Ti-6Al-4V) and related supply-chain disruptions during the period of performance;
(b) Rework due to non-conforming machining tolerances, in the approximate amount of $5,100,000, attributed to instances in which titanium structural components manufactured by WAL failed to meet the dimensional tolerance specifications set forth in the applicable engineering drawings and the ATAP program performance specification;
(c) Schedule delays causing idle-labor charges, in the approximate amount of $2,300,000, attributed to delays in the WP-4 production schedule that resulted in idle-labor and facility-holding costs incurred by HDDS and other subcontractors awaiting delivery of WP-4 components; and
(d) Engineering change proposal implementation costs, in the approximate amount of $1,200,000, attributed to the costs of implementing Government-directed engineering change proposals affecting the design and manufacture of WP-4 titanium structural assemblies.
11. On October 15, 2022, HDDS, in its capacity as prime contractor under Prime Contract No. FA8620-19-C-0337, filed a formal response to the COPD with the DCMA, disputing the cost-overrun allocations set forth in the COPD and requesting that ACO Lt. Col. Vickers issue a Contracting Officer's Final Decision ("COFD") under the Contract Disputes Act of 1978, as amended, 41 U.S.C. § 7103. In its formal response, HDDS challenged, among other things, the DCMA's preliminary allocation of cost overruns between WP-4 and other work packages, the characterization of certain costs as overruns rather than allowable cost growth, and the treatment of engineering change proposal implementation costs.
12. The DCMA administrative review is currently ongoing, and ACO Lt. Col. Vickers has not yet issued a COFD. Based on representations made by the DCMA to counsel for the Parties, the Parties understand that the DCMA's review involves a comprehensive audit and analysis of the cost data, production records, quality assurance records, and engineering documentation associated with the ATAP program, and that the review is being conducted with the assistance of the Defense Contract Audit Agency ("DCAA"). The Parties further understand that the DCMA has not provided a definitive timeline for the issuance of a COFD, but has indicated that the review is expected to require a period of several additional months.
13. The administrative proceeding will directly address the factual predicate underlying the indemnity dispute in this action. Specifically, the COFD, when issued, will address the allocation of cost overruns between WP-4 and other work packages under the Prime Contract, the root causes of the cost overruns, whether any costs are unallowable, unreasonable, or otherwise subject to formal disallowance under applicable Federal Acquisition Regulation ("FAR") and Defense Federal Acquisition Regulation Supplement ("DFARS") provisions, and the extent to which cost overruns are attributable to contractor performance deficiencies as opposed to Government-directed changes or other causes outside the control of the prime contractor and its subcontractors.
IV. AGREED TERMS OF THE STIPULATION
The Parties hereby stipulate and agree to the following terms, subject to the approval of the Court:
(a) Stay of All Proceedings. All proceedings in the above-captioned action, including but not limited to all discovery (whether written, oral, or electronic), all motion practice, all pretrial conferences, and all other deadlines set by the Court or by agreement of the Parties, shall be stayed pending the earlier of: (i) the issuance of a Contracting Officer's Final Decision ("COFD") by the DCMA Contracting Officer under Prime Contract No. FA8620-19-C-0337 with respect to the cost-overrun claims identified in the Contracting Officer's Preliminary Determination ("COPD") dated August 1, 2022; or (ii) further order of this Court. During the pendency of the stay, neither party shall be required to respond to any discovery requests, file any motions, or take any other action in this case except as expressly provided in this Stipulation or as may be directed by the Court.
(b) Joint Status Reports. The Parties shall file joint status reports with the Court every one hundred and twenty (120) days from the date of the Court's order granting this Stipulation, or at such other intervals as the Court may direct, advising the Court of the status of the DCMA administrative review and any material developments bearing on the duration or appropriateness of the stay. Each joint status report shall include, at a minimum: (i) the current status of the DCMA's administrative review; (ii) any communications received from the DCMA or the ACO regarding the anticipated timeline for the issuance of a COFD; (iii) any material developments in the underlying ATAP program that may affect the scope or nature of the cost-overrun claims at issue; and (iv) the Parties' joint assessment of whether the stay should continue.
(c) Notice of COFD Issuance. Within fourteen (14) calendar days of the issuance of a COFD by the DCMA Contracting Officer with respect to the cost-overrun claims identified in the COPD dated August 1, 2022, the Parties shall file a joint notice with the Court advising of such issuance and attaching a copy of the COFD (or, if the COFD contains Controlled Unclassified Information or other information subject to Government restrictions on disclosure, a summary of the COFD's principal findings and conclusions). The joint notice shall also include a proposed schedule for the resumption of proceedings in this action, including proposed deadlines for the completion of fact and expert discovery, dispositive motions, and trial.
(d) Right to Seek Relief. Notwithstanding the foregoing, either party may, at any time during the pendency of the stay, move to lift or modify the stay upon a showing of good cause. Good cause for lifting or modifying the stay shall include, but shall not be limited to: (i) unreasonable delay in the issuance of the COFD by the DCMA Contracting Officer; (ii) a material change in circumstances affecting the interests of either party or the Court; (iii) prejudice to either party arising from the continuation of the stay; or (iv) a determination by either party that the DCMA administrative review will not resolve or substantially narrow the issues in dispute in this action.
(e) Preservation of Rights. The stay of proceedings contemplated by this Stipulation shall not constitute a waiver, release, or abandonment of any claims, defenses, counterclaims, affirmative defenses, or rights of either party, whether arising under the Teaming Agreement, the Subcontract Agreement, the Prime Contract, applicable law, or otherwise. All such claims, defenses, counterclaims, affirmative defenses, and rights are expressly preserved in their entirety. Nothing in this Stipulation shall be construed as an admission by either party of any fact, liability, or legal position, nor shall any provision of this Stipulation be admissible in evidence in this or any other proceeding for the purpose of establishing any such admission.
(f) Tolling of Deadlines. All applicable deadlines, including without limitation any statutes of limitations, statutes of repose, or contractual limitation periods that may apply to any claims, counterclaims, or defenses asserted or assertable in this action, shall be tolled during the pendency of the stay to the fullest extent permitted by applicable law. The Parties agree that neither party shall assert, during or after the pendency of the stay, that any claim, counterclaim, or defense has become time-barred as a result of the passage of time during the stay. This tolling provision is intended to be self-executing and shall take effect upon the entry of the Court's order granting this Stipulation, without the need for any further action by the Parties or the Court.
V. BASIS FOR THE STIPULATION
The Parties agree that a stay of proceedings is appropriate in this action for the following reasons:
14. Resolution or Narrowing of Disputed Issues. The DCMA administrative review under the Contract Disputes Act of 1978, as amended, 41 U.S.C. §§ 7101–7109, is expected to resolve or substantially narrow the factual and legal issues underlying this action. In particular, the COFD, when issued, will address the proper allocation of cost overruns among the work packages under Prime Contract No. FA8620-19-C-0337, the root causes of cost growth, and whether specific costs are allowable, reasonable, and allocable under the applicable FAR and DFARS provisions. These determinations constitute the factual predicate for the indemnity dispute between the Parties under Section 11.4 of the Teaming Agreement. Resolution of these issues by the DCMA will likely simplify or eliminate the need for extended litigation in this Court and will provide the Parties and the Court with the benefit of the DCMA's informed analysis of complex government contract cost-accounting issues.
15. Primary-Jurisdiction Doctrine. The primary-jurisdiction doctrine counsels deference to the DCMA's specialized expertise in government contract cost accounting, cost allocation, and contract administration. The DCMA and the DCAA possess technical capabilities, institutional knowledge, and access to program cost data and production records that are uniquely suited to the resolution of the cost-overrun allocation issues at the heart of this dispute. See, e.g., Reiter v. Cooper, 507 U.S. 258, 268–69 (1993) (recognizing that the primary-jurisdiction doctrine applies where a claim "requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body"); Ellis v. Tribune Television Co., 443 F.3d 71, 81 (2d Cir. 2006) (noting that the doctrine is "designed to promote proper relationships between the courts and administrative agencies charged with particular regulatory duties"). The cost-accounting and cost-allocation determinations that the DCMA will make in the course of its administrative review are the types of technical, fact-intensive determinations that fall squarely within the DCMA's specialized competence and that are best resolved, in the first instance, by the administrative agency charged with responsibility for contract administration under the FAR.
16. Judicial Economy. Judicial economy will be served by staying this action pending the conclusion of the DCMA administrative review. If the Court were to permit this action to proceed in parallel with the administrative review, the Parties would be required to conduct discovery and brief motions on the same factual issues that the DCMA is currently investigating, resulting in duplicative proceedings, unnecessary expenditure of judicial and party resources, and the possibility of inconsistent determinations regarding the allocation of cost overruns and the root causes of cost growth. A stay will conserve the resources of the Court and the Parties and will enable the Parties, upon resumption of proceedings, to focus their efforts on any issues that remain in dispute following the issuance of the COFD.
17. Absence of Prejudice. Neither party will be prejudiced by the stay. Both Parties' claims and defenses will be expressly preserved, and all applicable limitation periods will be tolled during the pendency of the stay. The cost-overrun claims at issue in this action have been identified but have not yet been finally determined by the DCMA, and no final financial obligation has been imposed on either party with respect to these claims. Accordingly, there is no immediate financial harm or other prejudice that would result from the temporary suspension of proceedings in this Court.
18. Consent of Both Parties. Both Parties consent to the entry of the stay on the terms set forth in this Stipulation. The Parties have negotiated the terms of this Stipulation in good faith and at arm's length, and both Parties believe that a stay is in the best interests of the Parties and the efficient administration of justice.
WHEREFORE, the Parties respectfully request that the Court enter the [Proposed] Order Granting Stay of Proceedings attached hereto as Part II.
SIGNATURE PAGE TO JOINT STIPULATION
Dated: February 24, 2023
For Plaintiff Whitmore Aerospace LLC:
CALDERWOOD & HARKNESS LLP
/s/ Priya Anand
________________________________________
Priya Anand (N.Y. Bar No. 5214783) Douglas Carmichael (N.Y. Bar No. 4817926) Patrick Gallagher (N.Y. Bar No. 5392104) Simone Laroche (N.Y. Bar No. 5510267)
Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-4001
Email: panand@calderwoodharkness.com
Attorneys for Plaintiff Whitmore Aerospace LLC
For Defendant Hargrove-Dalton Defense Systems, Inc.:
VOSS, TRAGER & KENDALL LLP
/s/ Leonard Trager
________________________________________
Leonard Trager (N.Y. Bar No. 2703591; D.C. Bar No. 481920) Megan Forsythe (N.Y. Bar No. 5487312; D.C. Bar No. 1042876)
Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 429-3000 Facsimile: (202) 429-3001
Email: ltrager@vtklegal.com
Attorneys for Defendant Hargrove-Dalton Defense Systems, Inc.
PART II
[PROPOSED] ORDER GRANTING STAY OF PROCEEDINGS
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
ORDER GRANTING STAY OF PROCEEDINGS
The Court, having reviewed Plaintiff Whitmore Aerospace LLC's Motion to Stay Proceedings filed on February 10, 2023 (ECF No. 24), the Memorandum of Law in Support thereof (ECF No. 27), the Declaration of Catherine Soo-Hyun Park (ECF No. 25), the Declaration of Priya Anand (ECF No. 26), and the Joint Stipulation of the Parties filed on February 24, 2023 (ECF No. 30);
The Court having considered: (a) that the Defense Contract Management Agency ("DCMA") administrative proceeding under the Contract Disputes Act of 1978, as amended, 41 U.S.C. §§ 7101–7109, will likely resolve or substantially narrow the factual predicate for the indemnity dispute between the Parties concerning Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583) in cost overruns identified under Prime Contract No. FA8620-19-C-0337; (b) that the primary-jurisdiction doctrine counsels deference to the DCMA's specialized expertise in government contract cost accounting and contract administration; and (c) that neither party opposes the stay and both Parties have consented to the terms set forth in the Joint Stipulation;
Good cause having been shown, it is hereby:
ORDERED as follows:
1. IT IS HEREBY ORDERED that all proceedings in this action, including but not limited to all discovery (whether written, oral, or electronic), all motion practice, all pretrial conferences, and all other deadlines previously set or that may hereafter arise, are STAYED pending the earlier of: (i) the issuance of a Contracting Officer's Final Decision ("COFD") by the DCMA Contracting Officer with respect to the cost-overrun claims identified in the Contracting Officer's Preliminary Determination ("COPD") dated August 1, 2022, under Prime Contract No. FA8620-19-C-0337; or (ii) further order of this Court.
2. IT IS FURTHER ORDERED that the Parties shall file joint status reports with the Court every one hundred and twenty (120) days from the date of this Order, advising the Court of the status of the DCMA administrative review and any material developments bearing on the duration or appropriateness of the stay. Each joint status report shall address, at a minimum, the current status of the DCMA's review, any communications from the DCMA regarding the anticipated timeline for the issuance of a COFD, any material developments in the underlying Advanced Tactical Airframe Program, and the Parties' joint assessment of whether the stay should continue. The first joint status report shall be due on or before July 15, 2023.
3. IT IS FURTHER ORDERED that within fourteen (14) calendar days of the issuance of a COFD by the DCMA Contracting Officer with respect to the cost-overrun claims identified in the COPD dated August 1, 2022, the Parties shall file a joint notice with the Court advising of such issuance, attaching a copy of the COFD (or an appropriate summary thereof if the COFD contains Controlled Unclassified Information or other restricted material), and proposing a schedule for the resumption of proceedings in this action, including proposed deadlines for the completion of fact and expert discovery, dispositive motions, and trial.
4. IT IS FURTHER ORDERED that either party may, at any time during the pendency of the stay, move to lift or modify the stay upon a showing of good cause, including but not limited to unreasonable delay in the issuance of the COFD, material change in circumstances, or prejudice to either party.
5. IT IS FURTHER ORDERED that the stay of proceedings shall not constitute a waiver, release, or abandonment of any claims, defenses, counterclaims, affirmative defenses, or rights of any party, and all such claims, defenses, counterclaims, affirmative defenses, and rights are expressly preserved in their entirety. Nothing in this Order shall be construed as an admission by any party of any fact, liability, or legal position.
6. IT IS FURTHER ORDERED that the Clerk of Court is directed to administratively close this case for statistical purposes only, without prejudice to either party's right to move to reopen the case upon issuance of the COFD or upon other good cause shown. Administrative closure shall not affect the jurisdiction of this Court over this action or the rights of the Parties hereunder.
SO ORDERED.
________________________________________
HON. RICHARD M. BRANNIGAN United States District Judge
Dated: March 17, 2023 New York, New York
CERTIFICATE OF SERVICE
I, Priya Anand, hereby certify that on February 24, 2023, a true and correct copy of the foregoing Joint Stipulation and [Proposed] Order to Stay Proceedings Pending Conclusion of Administrative Review by the Defense Contract Management Agency was filed electronically with the Clerk of the Court using the CM/ECF system, which will send a Notice of Electronic Filing to all counsel of record registered to receive electronic notifications in this case, including the following:
Leonard Trager, Esq. Megan Forsythe, Esq. Voss, Trager & Kendall LLP 900 17th Street NW, Suite 800 Washington, D.C. 20006 Telephone: (202) 429-3000
Email: ltrager@vtklegal.com; mforsythe@vtklegal.com
Counsel for Defendant Hargrove-Dalton Defense Systems, Inc.
/s/ Priya Anand
________________________________________
Priya Anand Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 558-4000
Email: panand@calderwoodharkness.com
Attorneys for Plaintiff Whitmore Aerospace LLC
WHITMORE AEROSPACE LLC,
| <!-- indent:2 -->Plaintiff,<!-- /indent --> | Case No. 1:22-cv-10147-RMB |
| v. | Hon. Richard M. Brannigan, |
United States District Judge
HARGROVE-DALTON DEFENSE SYSTEMS, INC.,
Hon. Allison P. Kurtz,
<!-- indent:2 -->Defendant.<!-- /indent -->
WHITMORE AEROSPACE LLC,
| <!-- indent:2 -->Plaintiff,<!-- /indent --> | Case No. 1:22-cv-10147-RMB |
| v. | Hon. Richard M. Brannigan, |
United States District Judge
HARGROVE-DALTON DEFENSE SYSTEMS, INC.,
<!-- indent:2 -->Defendant.<!-- /indent -->