Solari: Gideon: Legal: Cases: 98-169C Case History

03/09/98 Complaint

On March 9, 1998, Hamilton Securities Advisory Services, Inc. (hereinafter "Hamilton") [Plaintiff] brought a breach of contract action in the United States Court of Federal Claims against the U.S. Department of Housing and Development ("HUD") [Defendant] seeking approximately $1.5 million plus interest for work the company performed under its "crosscutting" financial advisory contract with HUD. The dispute arose when HUD failed to pay Hamilton the last two installment payments due under its financial advisory contract. HUD cancelled the financial advisory contract for the convenience of the government on October 17, 1997. HUD notified Hamilton it was withholding such payment as the result of a breach of the contract on Hamilton’s part. HUD’s claim of a breach allegedly arose as a result of a discrepancy in instructions provided to Lucent/Bell Labs, a subcontractor, concerning the running of a bid optimization program. Hamilton informed the FHA Comptroller and Assistant Secretary/FHA Commissioner about the discrepancy, in writing, in December of 1996.

03/30/98 Defendant’s First Request for Production of Documents

HUD requested that Hamilton produce documents relative to the optimization program, how it was run, and its intended results. HUD further sought documents relating to any discrepancies or errors in past loan sales of which Hamilton was aware.

04/29/98 Plaintiff’s Response to Defendant’s First Request for Production of Documents

Hamilton produced non-privileged documents relevant to HUD’s inquiry.

05/06/98 Defendant’s Unopposed Motion for Enlargement of Time to Respond to Complaint

HUD filed its first unopposed request for additional time to respond to Hamilton’s Complaint. The request was granted on May 7, 1998.

05/06/98 Notice of Appearance

David J. Gottesman, Esq., Trial Attorney, Commercial Litigation Branch, Department of Justice, entered his appearance for the United States.

05/07/98 Order Granting Defendant’s Motion for an Enlargement of Time

06/12/98 Defendant’s Motion to Dismiss for Lack of Subject Matter Jurisdiction

HUD argued that the court lacks jurisdiction due to Hamilton’s premature filing of its claim. In support of the motion, the government states that the 60-day "deemed denial" provision of the Contracts Dispute Act ("CDA") did not take effect. HUD stated that the initial complaint filed [as a Motion for Temporary Restraining Order in the Federal District Court for the District of Columbia] on January 8, 1998, although dismissed, divested the contracting officer of his or her authority at the time of such filing, thereby stopping the 60-day response time required before the filing of a claim. Therefore, HUD argues that the action filed March 9, 1998 to which the current motion refers is also premature. In addition, HUD argues that Hamilton’s failure to wait for the district court to dismiss the original complaint before filing this action precludes Court of Federal Claims jurisdiction.

06/25/98 Plaintiff’s Response to Defendant’s Motion to Dismiss for Lack of Subject Matter Jurisdiction

In response to HUD’s Motion to Dismiss, Hamilton argued that the contracting officer constructively denied its claim and issued a final decision against Hamilton with regard to its claim. Hamilton argued that none of its claims were pending before the district court when the suit at issue was filed. Finally, Hamilton argued the district court action involved conceptually different claims based on statutory and constitutional grounds and not on contract and, therefore, jurisdiction is proper.

07/10/98 Defendant’s Reply In Support of Motion to Dismiss

HUD reiterated the claims in its initial Motion to Dismiss. It specifically states that the contracting officer’s October 17, 1997 demand letter contained language that precluded it from being a final decision. The government reiterated that Hamilton’s premature filing of the suit in district court tolled the running of the sixty-day "deemed denial" period. Finally, it argued that the district court case involved the same claim at issue.

04/27/99 Opinion Denying Motion to Dismiss for Lack of Subject Matter Jurisdiction

The claims court found that the 60-day "deemed denial" period between Hamilton’s December 10, 1997 letter and the filing of suit in the Court of Federal Claims on March 9, 1998 had not lapsed due to the "in litigation bar." The "in litigation bar" divests the contracting officer of his or her obligation and authority to deny or admit contract claims within the 60-day time limit imposed by the Contracts Disputes Act ("CDA") when the claim at issue is in litigation. The court further found that Hamilton’s October 22, 1997 and November 13, 1997 letters did not include a sum certain, nor were they certified as required by statute. Therefore, the letters did not constitute "claims" under the CDA and, for this reason, the contracting officer was not obligated to act. However, the court did conclude that the contracting officer’s October 17, 1997 letter was a final decision on the government’s claim because it clearly determined Hamilton’s liability and damages. The court concluded that it had jurisdiction to hear Hamilton’s appeal of the contracting officer’s final decision on the HUD setoff claim and claim for payment under the contract.

05/10/99 Order Granting Motion to Extend Time to Defendant

05/12/99 Plaintiff’s Motion to Extend Time to File Joint Status Report

05/12/99 Order Granting Motion to Extend Time to File Joint Status Report

05/27/99 Defendant’s Answer to Complaint and Counterclaim

In its Answer, HUD admitted that it refused to pay Hamilton’s certified claim. HUD justified withholding payment of amounts owed to Hamilton because HUD had offset that amount against the government’s damages as the result of Hamilton’s alleged breach of contract. In the counterclaim, HUD claimed that Hamilton’s acts or omissions constituted a breach of its obligations under the contracts and requested damages in the amount of "at least" $3.8 million.

6/15/99 Plaintiff’s Answer to Defendant’s Counterclaim

In its Answer Hamilton denies the allegation that the two contracts in question required Hamilton to identify the group of bids that would produce the maximum sale proceeds to HUD. Hamilton also reiterated that it did not guarantee, and had no obligation to guarantee, that HUD actually received maximum revenues from the West of the Mississippi or North Central loan sales. Hamilton acknowledged that if the floor discrepancy had not existed, and assuming all accepted bids had gone to closing and other variables were construed in HUD’s favor, HUD might have collected additional revenues on the West of Mississippi and North Central sales.

06/24/99 Order

The Order states that the court received a joint status report. Hamilton informed the court that it intended to file a motion for summary judgment. The parties were told when their submission of joint stipulation of facts and issues of law was due. A status conference was scheduled for August 10, 1999.

06/30/99 Defendant’s Unopposed Motion to Reschedule Status Conference

07/06/99 Order

Court received defendant’s Unopposed Motion to Reschedule status conference. Conference rescheduled for August 17, 1999.

07/28/99 Defendant’s Motion for Leave to File First Amended Counterclaim

HUD requested that it be permitted to add a second count to the counterclaim alleging, additionally or alternatively to count I (breach of contract), that Hamilton was negligent and negligently misrepresented information to HUD, making Hamilton liable for damages.

08/03/99 Joint Motion to Enlarge Time for Filing Stipulations and Joint Status Report

08/06/99 Order

Court granted parties’ motion for enlargement of time and ordered parties to file the three joint documents on or before August 10, 1999.

08/10/99 Defendant’s Statement of Additional Facts that Preclude Summary Judgment for Plaintiff

HUD stated that Hamilton was responsible for determining which bids were winning bids. In addition, HUD alleged that the representations by Hamilton were false. HUD further claimed that if only those bids that met the applicable criteria had been selected as winning bids, such bids would have generated greater revenue for the agency.

08/10/99 Joint Stipulation of Facts

08/10/99 Joint Statement Regarding Issues of Law

08/18/99 Order

The court granted Defendant’s Motion to File Amended Counterclaim and set forth a discovery schedule.

8/31/99 Order directing the clerk’s office to return Plaintiff’s Separate Statement of Facts for reaccomplishment and resubmission.

The judge required that the Separate Statement of Facts be resubmitted in bound form.

09/02/99 Plaintiff’s Separate Statement of Facts as to which there is no Genuine Dispute

Hamilton’s Separate Statement of Facts submitted to the court set out the effects of the optimization instruction discrepancy. [note: Plaintiff and Defendant were unable to agree on the joint statement of facts not in dispute requested by the judge]. Hamilton specifically stated that the National Performing Sale was unaffected by the floor discrepancy and the proceeds to HUD from the West of the Mississippi sale exceeded the approved credit subsidy amount of $277.5 million by $107.8 million.

09/02/99 Defendant’s First Set of Interrogatories

09/03/99 Defendant’s Second Request for Production of Documents

09/03/99 Third Joint Status Report

09/07/99 Plaintiff’s Reply to Defendant’s First Amended Counterclaim

09/13/99 Plaintiff’s Answers to Defendant’s First Set of Interrogatories

09/21/99 Plaintiff’s Response to Defendant’s Second Request for Production of Documents

10/01/99 Defendant’s Memorandum of Law Regarding Application of the Inspection of Services Clause

HUD argued that the Inspection of Services Clause in the contract between Hamilton and HUD does not preclude its counterclaim. It stated that the Clause does not contain language limiting Plaintiff’s liability or preclude claims against it. HUD further argued that the Clause does not apply to the sort of losses (i.e., consequential damages) claimed by HUD. Next, it argued that the Clause does not preclude breach of contract claims seeking other relief. It further stated that the Clause does not apply to completed, paid contracts such as the one HUD’s claim is based upon. Finally, HUD argued that the Clause does not preclude tort claims such as the claims they allege.

10/01/99 Plaintiff’s Brief in Support of Its Motion in Limine

The issues addressed in the motion include (1) whether the Inspection of Services Clause provides a price adjustment for defects in services rendered by Hamilton; (2) whether the Inspection of Services Clause is HUD’s exclusive remedy because it affords complete relief in the form of a price adjustment; and (3) whether HUD’s tort claim is barred by the Economic Loss Rule.

Hamilton stated HUD acknowledged that Hamilton is entitled to the claimed amount, but HUD has withheld payment based solely on an alleged right of setoff premised on a counterclaim in the amount of "at least $3.8 million." Hamilton asserted that HUD has no entitlement to recover under either a breach of contract or tort theory because Hamilton’s contracts contain a remedy granting provision covering the precise contingency presented in the contract. Hamilton also asserted that the Inspection of Services Clause allows an equitable adjustment in price in the event the contractor renders defective services. The adjustment is based on the price of the defective services and not on damage to the government. In addition, Hamilton asserted that HUD’s tort claim is barred by the Economic Loss Rule, which bars litigants from recovering for economic losses suffered as a result of a breach of duties assumed only by contract.

10/15/99 Plaintiff’s Reply to Defendant’s Memorandum of Law Regarding Application of the Inspection of Services Clause

Hamilton asserted that the Inspection of Services Clause in the contract provides an exclusive remedy for contract disputes and that HUD is attempting to seek a different remedy because it is unhappy with the bargain it made. Plaintiff replied to HUD’s argument that it should be allowed to proceed with a breach of contract counterclaim with respect to contract #18161, the West of the Mississippi loan sale, because that contract was completed, thereby making the Inspection of Services Clause inapplicable. Hamilton responded by reasoning that under HUD’s interpretation, the contract is closed, and therefore all rights and obligations under it have been finally and conclusively settled, and neither party may proceed under the contract. Hamilton also responded to HUD’s negligence allegations by arguing that tort claims are barred because any duty on the part of the government contractor arises solely by reason of and as expressly provided for in the contract.

10/15/99 Defendant’s Reply to Plaintiff’s Brief in Support of Its Motion in Limine

11/10/99 Joint Motion by Hamilton Securities, USA for Protective Order

11/17/99 Agreed Protective Order Granting Motion for Protective Order