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UNITED STATES DISTRICT COURTEASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
NOVA DATACOM, LLC )))
VS. ) 1:11-CV-1210 TSE)) ALEXANDRIA, VIRGINIA) NOVEMBER 17, 2011)
EYAK TECHNOLOGY, LLC )_______________________________)
_______________________________________________________________
TRANSCRIPT OF MOTIONS HEARINGBEFORE THE HONORABLE T. S. ELLIS, III
UNITED STATES DISTRICT JUDGE_______________________________________________________________
Proceedings reported by stenotype, transcript produced by
Julie A. Goodwin.
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A P P E A R A N C E S
FOR THE PLAINTIFF:DICKSTEIN SHAPIRO LLP (DC)By: MS. BARBARA VAN GELDER
-AND-MR. JUSTIN ANSELM CHIARODO1825 Eye Street NWWashington, DC [email protected]@dicksteinshapiro.com
FOR THE DEFENDANT:WILEY REIN LLP (DC)By: MR. ATTISON LEONARD BARNES, III
-AND-MR. PAUL F. KHOURY1776 K Street, NWWashington, DC [email protected]@wileyrein.com
OFFICIAL U.S. COURT REPORTER:MS. JULIE A. GOODWIN, CSRUnited States District Court401 Courthouse SquareTenth FloorAlexandria, Virginia 22314512.689.7587
ALSO PRESENT:MR. PHILIP LIVINGSTONGeneral Counsel
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(NOVEMBER 17, 2011, 4:30 P.M., OPEN COURT.)
THE COURT: All right. Good afternoon. You may call
the case.
COURTROOM DEPUTY: Case number 11-Civil-1210, Nova
Datacom LLC versus Eyak Technology, LLC.
Will counsel please state your appearance for the
record.
THE COURT: All right. I can -- counsel are present
and prepared to proceed.
Let me take up one matter first. It's not a big
deal, but I want to be unmistakably clear about it. You-all
e-mailed to each other some cases, and you copied my clerks.
That's a no-no. I'm curious, though. How did you get my
clerks' e-mail addresses?
MS. VAN GELDER: Your Honor, I think I'll take
responsibility for that.
THE COURT: I beg your pardon?
MS. VAN GELDER: I think I'll take responsibility. It
was a reply to all that we had I believe from the court
reporter and the transcript.
THE COURT: All right.
MS. VAN GELDER: So -- so --
THE COURT: Oh, you got the e-mails from the court
reporter's transcript?
MS. VAN GELDER: Right. He sent us a transcript this
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morning, and so we sent it back. And I apologize.
THE COURT: Well, no, it's not a big deal, and there's
no reason to be too concerned about it. But my immutable rule
is never, never, never contact any of my law clerks about
anything. Now then you would point out, Well, gee whiz. We
just had an argument yesterday, and there are new cases. And
then we would show up here today and you'd be upset because you
didn't get the cases beforehand.
Well, there are two answers to that. One is, you
should have found them in the first place and thought about it.
But that's a bit harsh. I've done what you-all are doing, and
I didn't always find everything. The second answer is you copy
them for me, put them in an envelope, tell your opposing
counsel, and bring them -- and have someone deliver it.
But I am old-fashioned. I don't use e-mail. I
don't have e-mail. I don't permit contact by e-mail. So I
would ask that in order to -- to cleanse yourself -- selves of
this very, very minor sin, erase their e-mail addresses and
don't use them again.
MS. VAN GELDER: I will, Your Honor. And I think my
past practice with this Court is to give it to the security
guard who would then deliver it to chambers.
THE COURT: Yes. Or you can leave it in the clerk's
office. They get it right up here.
MS. VAN GELDER: I don't --
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THE COURT: But I don't want to make it -- it isn't a
big deal. And I did have a chance as a result to look at the
cases, but I would have had that chance if you had put them in
your original briefs or if you had sent them up here earlier.
In any event, not a big deal.
Here's how I want to proceed today. Mr. Rodriguez
did produce a transcript. I've glanced at it. I haven't
studied it, but I have clearly in mind some of the things that
were said. And I think the best way to proceed today is this:
I need to give Mr. Khoury an opportunity to make
something like a complete argument so that he can respond.
Then I need to give Ms. Van Gelder, since her client has the
burden, the final word on this. And I need to let you-all do
it in a fairly unfettered way so that you can get said what you
want to say. And then I'm going to resolve it after I think
about it a bit.
All right. Mr. Khoury.
MR. KHOURY: Thank you, Your Honor.
Your Honor, I --
THE COURT: And I don't need to leave by 6:30,
although the court reporter wants me to leave before then.
MR. KHOURY: I'll try to do this as sufficiently as I
can, Your Honor.
I would like to start with some facts before I get
into the argument --
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THE COURT: All right.
MR. KHOURY: -- because there were a number of facts
that were discussed yesterday. And can I provide an exhibit?
THE COURT: Well, give it to Ms. Van Gelder first.
MR. KHOURY: She -- she has it. It's really just the
last three pages of Exhibit 1 of their complaint as well as
Exhibit 1 of their affidavit.
THE COURT: All right.
MR. KHOURY: And Your Honor, what I'm showing you are
the two task orders that Ms. Van Gelder said are the only two
task orders that are before this Court. The first one is if
you look at the -- the top of it, right under where it says the
purchase order, it says P0005205. That's...
THE COURT: Go ahead.
MR. KHOURY: That's the first purchase order that Ms.
Van Gelder was -- was talking about yesterday. And one of the
things that I want to point out by going through this exercise
is to show you that the employees that she's concerned about
have already been paid for the work under these two task
orders. I also want to show you that --
THE COURT: How does this show that?
MR. KHOURY: Well, I'm about to show you. But I -- I
want to tell you what I'm --
THE COURT: All right. Go ahead.
MR. KHOURY: -- what the point of this is before I --
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and I also want to show you that this -- this is going to
show it doesn't matter when the bribes actually happened. The
over-inflation of invoices happened prior to that and impacted
each and every one of -- of the invoices going forward. So
those are the --
THE COURT: In other words, to be sure that I
understand what you're saying, I'm going to state it more
generally. If someone paid a bribe or a kickback of 10,000
initially upfront, then there was a series of invoice, that
$10,000 infects all of those invoices.
MR. KHOURY: No --
THE COURT: Not what you're saying?
MR. KHOURY: No. I've said it poorly, Your Honor.
Let me try -- let me try it this way, by just walking through
and -- what I'm try -- I'm going to try to show you is that Ms.
Van Gelder's statement that we're only talking about 40,000 in
bribes in the relevant time period is completely wrong.
So, the first task order that we're talking about,
5205, is a -- one, is a task order, or a purchase order, for
one year's worth of effort. And you can see that. It says PO
period -- P, period of performance. It's from September 28,
2010, to September 27, 2011, work that has been done.
By the way, the employees have been paid for that
work because NDC has indicated, they've made payroll up until
now.
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Now, the way the scheme worked, according to the
indictment, was that Nova Datacom would provide inflated quotes
that would make up for the pricing of this invoice -- of this
purchase order. So the pricing in this purchase order -- and
if you look at the bottom line figure total is $9.2 million.
That pricing was inflated.
THE COURT: Say the first sentence again that you
said.
MR. KHOURY: The pricing for this purchase order --
THE COURT: That's the 9 million?
MR. KHOURY: Is the 9 million.
THE COURT: Right.
MR. KHOURY: That 9 million is -- is based on quotes
that were inflated by Alex Cho at the direction and with the
consent of Kerry Khan.
The pricing for this purchase order for 12 months'
worth of work was established prior to September 28, 2010, well
before any cooperation by Ms. Cho.
Ms. Cho.
The invoices that we're talking about that were
submitted to EyakTek based on this inflated pricing were simply
monthly invoices taking 1/12th of that 9.2 million and
invoicing that 1/12th amount. So each and every invoice was
inflated, and each invoice was simply billing for 1/12th of an
amount that overall was inflated.
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All of the services that alleged -- and products
that allegedly were to be provided -- and if you look at the
descriptions they're very generic, vague. These are the
contract line item numbers: Field force engineering, capacity
development. If you look further down, COOP portal
application. COOP is continued operations. And it has to do
with keeping operations in an IT environment functioning even
in -- in certain instances where there may be --
THE COURT: Just to be sure I understand it, your two
points are: One, the employees have already been paid.
MR. KHOURY: Right.
THE COURT: And two, the amounts of the two invoices
are 1/12th each, 1/12th each of the 9 million. And the
9 million was established prior to the period of performance,
and that included the inflated amounts attributable to
the -- to the bad actions.
MR. KHOURY: Right. Exactly, Your Honor. So
therefore, when the bribery --
THE COURT: But, let me ask this, because I'm sure Ms.
Van Gelder will point this out if it's true, and you will let
me know if you don't think it is. But this -- this 9 million
was established, you're telling me, prior to 9-28-2010.
MR. KHOURY: Exactly, Your Honor. As a part of the
conspiracy.
THE COURT: Now, was -- as a part of the conspiracy,
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as you say. But was -- not that it may be ultimately material;
I don't know whether it is yet. Was the cooperation by Cho
underway at that time?
MR. KHOURY: No, it was not, Your Honor. According
to -- according to what Ms. Van Gelder has told us - and all we
know is what she's told us - it began in June of 2010. And
what she was told is business as usual. There -- there were no
new -- with respect to these --
THE COURT: Oh, June --
MR. KHOURY: -- two purchase orders.
THE COURT: -- 2010 would be --
MR. KHOURY: I mean 2011. I'm sorry.
THE COURT: All right.
MR. KHOURY: 2011. My fault, Your Honor. Thank you
for correcting me.
THE COURT: I just did it to demonstrate that I do
listen.
Go ahead.
MR. KHOURY: So, whether or not there were bribes
before or after, the point is the inflation was in those
invoices from the beginning.
Now, I wanted to just show you the second -- so the
second and the third relate to the second purchase order,
5208 C. So the second page you'll see there purchase order
5208 C, and you'll see a total of --
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THE COURT: So wait just a moment. This first one --
MR. KHOURY: Yes.
THE COURT: -- purchase order 5205 --
MR. KHOURY: Right.
THE COURT: -- what we're really here on today is a
twelfth of this.
MR. KHOURY: Well, what we're here on -- and it's a
little more complicated. We're here on -- there -- there
are -- there is --
THE COURT: Issue monthly state --
MR. KHOURY: One invoice. One invoice. One invoice
that's 1/12th of this is -- is part of the 900,000 that Ms. Van
Gelder is seeking in her lawsuit. The 1/12th of the other
purchase order, which -- which EyakTek has been paid for but
has not provided to Nova Datacom is -- if you add those two up,
you get to the -- to the 900,000. That's -- that's what
we're -- that's what we're here talking about.
THE COURT: All right. And so what were you going to
tell me now about --
MR. KHOURY: Okay.
THE COURT: -- the second invoice --
MR. KHOURY: So the second invoice --
THE COURT: Wait. She can only get one of us at a
time, so --
MR. KHOURY: I apologize.
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THE COURT: So it's arguable that I speak only because
I like the sound of my own voice. You still have to give me
the opportunity to finish and then you can start.
It's very difficult for her to get both of us at
the same time.
This one is number -- looking for the number
here -- 5208.
MR. KHOURY: Right.
THE COURT: All right. Go on. Now what does this
one --
MR. KHOURY: Now --
THE COURT: -- show?
MR. KHOURY: So 5208 C, I want to show you that this
is also -- the period of performance is the same, 9-28-2010
through 9-27-2011, so the same point that the -- the fraud that
we're talking about occurred prior to 9-28-2010. And the total
value there is 2.3 million.
Now, if you turn the page to the third page, you'll
see the same purchase order, 5208 C, now has been modified and
has a revised -- it has additional tasks as of 1-1-11 through
9-27-11, and so the total now becomes $2.9 million.
But again --
THE COURT: Where is the 1-1-11?
MR. KHOURY: It's halfway down, Your Honor.
THE COURT: Oh, I see, revised.
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All right. Go on.
MR. KHOURY: And again, 1-1-11 is before any
cooperation by Ms. Cho.
So the point is, the way the conspiracy is alleged
to have worked, these -- this dollar amount, these total bottom
line dollar amounts, were inflated. And according to the
Government, as we were saying yesterday, according to what the
AUSA has told us, with respect to these two invoices, the total
amount of inflation over the course of these -- of -- of
this -- if you add it up it's about $12 million between the
two. The total amount of inflation was $4 million.
Now another point is, with respect to these two
purchase orders.
THE COURT: Well, that's what the indictment says?
MR. KHOURY: Well, the indictment doesn't say that.
The indictment speaks in broader terms. But Ms. Van Gelder I
think mentioned --
MS. VAN GELDER: No, I -- 4 million is for a lot of
other things other than this.
MR. KHOURY: Well --
MS. VAN GELDER: But I don't know what the Government
told you, but I -- I'm not saying that 4 million is the
over-inflation for these two purchase orders.
THE COURT: All right. That's important for her to
correct that and --
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MR. KHOURY: Okay.
THE COURT: I'll wait -- let's wait until you have
your opportunity, but I'm glad you corrected that because I can
appreciate Ms. Van Gelder that you want to be very careful
about what you concede.
MS. VAN GELDER: Yes.
THE COURT: Because what's at issue is not just the
TRO but other things. So that's all right with me that you did
that.
All right. Go on, Mr. Khoury.
MR. KHOURY: Nonetheless, Your Honor, on the whole we
have 20 million dollars' worth of alleged inflation. And
again, it's -- the amount here was inflated pursuant to
the conspiracy --
THE COURT: Total amount of inflation is 20 million,
according to --
MR. KHOURY: Total amount for all -- all of the
invoices that Nova Datacom inflated, the total amount --
THE COURT: According to the indictment.
MR. KHOURY: According to the indictment is 20
million.
THE COURT: All right.
MR. KHOURY: Now, EyakTek has already paid Nova
Datacom 10 million, with respect to these two invoices. So it
very well may have already paid more than the value of the
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services received.
THE COURT: How do I know that?
MR. KHOURY: Well, again, assuming that the -- that
the inflation is -- is at the level of -- of what the
indictment indicated or -- and again --
THE COURT: No. I'm asking, how do I know that
they've already paid 10 million?
MR. KHOURY: Well, we -- we've submitted a declaration
that we -- we submitted it with respect to more than just these
invoices, because at the time we thought that Ms. Van Gelder
was --
THE COURT: I understand.
MR. KHOURY: And the declaration of Mr. Elmquest that
we submitted indicates that for all of the purchase orders
that -- that she was complaining about -- let me find it for
Your Honor.
It's -- it's at paragraph -- let's see.
THE COURT: What does Elmquest say?
MR. KHOURY: I'm -- I'm looking for it right now.
He -- he says that EyakTek of the total of 29
million of invoices in connection with all the purchase orders
that were submitted by Nova Datacom, EyakTek has paid 27.2
million.
So, again, there's about a $2 million difference
there between -- between the -- the amounts of the invoices and
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the amounts paid.
But -- so my point is simply that this notion that,
Oh, we're just talking about $40,000 that happened in bribes
after a certain point is irrelevant to how much inflation went
on.
Now, with that sort of factual background --
THE COURT: What you're really saying is that it's
unclear how much inflation exists that's attributable to the
two invoices in issue.
MR. KHOURY: Right.
So with that as background, Your Honor, I would
like to quickly state our position with respect to the TRO.
And we talked yesterday about our position that Nova Datacom
has come forward with unclean hands, so shouldn't be entitled
to equitable relief at all. And I believe that the Court
articulated our -- our under -- our positions clearly and
doesn't need more assistance from us on that.
So I would like to turn, then, to the -- the four
elements of the Winter standard. And of course, plaintiff
bears the burden of establishing a clear showing of each of
those four under -- under Winter.
THE COURT: Well, I -- as I saw the quote in Truth
About Obama, and I only looked at it briefly a moment ago. I
think it was page 355 or something. It's clear that Real Truth
About Obama in quoting from Winter, says that there must be a
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clear showing of irreparable harm.
Does Winter say there has to be a clear showing of
all four? I don't have any doubt that there has to be a clear
showing of irreparable harm. I just want to know whether clear
applies to the other -- the other three factors.
MR. KHOURY: I -- I can't say with certainty, Your
Honor.
THE COURT: All right. Well, let's go on.
MR. KHOURY: With respect to likelihood of success on
the merits, our -- our position is that they cannot
contractually -- we're not contractually obligated to pay
invoices that were fraudulent.
THE COURT: And you submitted a couple of Illinois
cases --
MR. KHOURY: Correct --
THE COURT: -- that seemed to point in that direction.
MR. KHOURY: Does the Court have those case?
THE COURT: Yes, I've seen them.
MR. KHOURY: So what I'd like to do is just quickly
sort of run through that argument for you, Your Honor.
THE COURT: What's there to run through? What those
two cases say in effect is that a fraudulent invoice is a
material breach.
MR. KHOURY: Right.
THE COURT: And then the next case says if there's a
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material breach, you don't have to perform.
MR. KHOURY: Correct.
THE DEFENDANT: That's your position.
MR. KHOURY: That is my position, Your Honor.
THE COURT: The -- the one thing that we haven't
focused on is -- I would assume these invoices would be
governed by Virginia law or what law?
MR. KHOURY: They would be governed by Virginia -- I
believe they would be governed by Virginia law. But the
reason --
THE COURT: So --
MR. KHOURY: -- Your Honor --
THE COURT: -- we have to guess about Virginia law on
this because these two Illinois cases are not Virginia law.
MR. KHOURY: Well, we have provided a Virginia case to
Horton v. Horton, Your Honor.
THE COURT: Yes.
MR. KHOURY: And that's -- that's for the
straightforward proposition that once a breach has occurred
there's no further obligation under the contract.
THE COURT: Yes.
MR. KHOURY: But the reason --
THE COURT: But that's not a fraudulent invoice case.
MR. KHOURY: No, that's true, Your Honor.
But the reason that it was so difficult to find a
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case, I believe, is this is -- usually, first of all, you have
a contract that says, We need a valid invoice. But second of
all, this is sort of standard contract law.
If you -- if I were just to read the city of --
actually, I'd prefer to read the Aetna case.
THE REPORTER: Aetna?
MR. KHOURY: Aetna, A-E-T-N-A.
A claimant in making a fraudulent claim in that
case -- and this is at page 32 of the -- of the case that I --
that I provided to you, Your Honor.
THE COURT: Yes.
MR. KHOURY: -- (Continuing) was committing a material
breach, indeed a most fundamental breach of the contract. A
breach as fundamental as this is a bar to the assertion of any
further rights under the contract by the party guilty of the
breach. This is a basic rule of contract law citing
Farnsworth. It is so basic that you cannot --
THE COURT: What page are you on?
MR. KHOURY: On page 32 of the Aetna case.
THE COURT: All right. Go on.
MR. KHOURY: And so, Your Honor, our position is
that --
THE COURT: What page number?
MR. KHOURY: Page -- well, it's page 32 at the top.
It's...
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THE COURT: I don't have those page numbers.
MR. KHOURY: Well, 43 F.3d at 1569.
THE COURT: All right.
MR. KHOURY: And so our point is it was difficult to
find a case on this because it's -- it's a basic fundamental
principle of law that if you -- if you submit a fraudulent
claim or a fraudulent invoice, that is a breach.
THE COURT: And what was the breach in Aetna?
MR. KHOURY: The breach in Aetna, Aetna involved a
Rico case where auto body shops were submitting fraudulent
claims to claim adjustors -- well, fraudulent claims. And the
defendants argued on appeal that they needed a jury trial to
show their damages because they had in fact incurred damages.
It's -- it's just they had exaggerated those damages. And the
answer in response was once this was a breach.
And now we have something very similar from Nova
Datacom here where they're saying, Well, we clearly did do some
work, so we're entitled to you paying the invoices.
THE COURT: Well, this principle wouldn't bar the
quantum meruit, would it?
MR. KHOURY: Well, I think it would, Your Honor, based
on the cases that we cited indicating that if there is a valid
contract you don't get to quantum meruit.
THE COURT: But it's an invalid contract, isn't it?
MR. KHOURY: Well, it's -- I'm not -- we're not -- I'm
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not sure that the contract is invalid.
THE COURT: Well, but you see this principle you're
citing in Aetna -- and I realize I'm violating my unfettered
opportunity here, but.
This case that you're citing, I think you say
correctly stands for the proposition that if you submit a
fraudulent claim, that's a breach. And it's a breach as
fundamental as that, as they say, is -- let's see. A breach as
fundamental as this is a bar to the assertion of any further
rights under the contract. Well, then there isn't a contract.
MR. KHOURY: Right. Then, Your Honor --
THE COURT: Then you're on to quantum meruit.
MR. KHOURY: Which is an equitable remedy for which
there are unclean hands.
THE COURT: Well, I think that's a possible answer,
but I think your more prudent answer would be, you can't
determine in a TRO what amount should be paid if it's quantum
meruit --
MR. KHOURY: That is --
THE COURT: -- on this record.
MR. KHOURY: Yes, Your Honor, you're right. I
apologize.
THE COURT: I used to do this.
MR. KHOURY: So, our position is they cannot show
likelihood of success on the merits.
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On irreparable harm -- and I'll pull up some of
their cases as well.
We pointed out to the Court before, and we think
that the standard being that they have to -- they have to
show -- well, first of all, let me start, as the Court
recognized, it's a very rare case that an injunction can issue
in a breach of contract situation where the damages are
available. And they're seeking a mandatory injunction here.
One of the things they have to do, as we indicated
in -- in the Microsoft case is show that the damage was -- the
harm is created by the defendant. Here, they indicated they
have plenty of assets. That the harm that they were referring
to, Oh, well, we're not going to be able to pay these
employees.
They've already paid them for the work that was --
that is the subject before the -- before the Court. And to the
extent that they are indicating that they're likely to go out
of business, that was not caused by the nonpayment of this
$900,000.
THE COURT: What is going to cause that?
MR. KHOURY: Well, probably the debarment is going to
cause that. And by the way, one of the cases that they cite,
Turnage were -- there was a finding of irreparable harm,
although ultimately the -- the request for equitable relief was
denied, involved a situation where the plaintiff was
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disqualified from participating in the federal food stamp
program.
And it was found, Well, yeah, given -- given that
retailer's function, that -- that might be -- that's
irreparable harm.
THE COURT: Well, that's what they cited it for.
MR. KHOURY: Beg your pardon?
THE COURT: That's what they cited it for.
MR. KHOURY: Well --
THE COURT: That's what the plaintiff cited it for, is
the proposition that going out of business could in some
circumstances amount to irreparable harm.
MR. KHOURY: But in that -- in that circumstance --
and I apologize, Your Honor, if I cut you off.
In that circumstance, Your Honor, the -- the
cause --
THE COURT: But didn't that case founder on failure to
show likelihood of --
MR. KHOURY: Yes, it --
THE COURT: -- on the merits?
MR. KHOURY: It did, Your Honor.
THE COURT: All right. So all they're citing it for
is -- is the fact that -- well, they're citing it for the
proposition on 232, I think, that -- it contemplates -- well,
they've got 7 U.S.C. 2033 which is not pertinent here. But
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they do say that in the case it barred, it's clear that the
loss of the food stamp business to B and J Mart may result in
its closure. Such result clearly can be classified as
irreparable harm. That's what they cited it for.
Now, whether that's persuasive to me or not is
another matter. But that's what they cite it for.
I'm aware of the fact that they denied the
preliminary injunction on failure to show a likelihood of
success.
MR. KHOURY: But my point, Your Honor, is that there
was a tie, a direct tie, between the action that was the
subject of the injunction and the harm. Here, there is not.
There is no direct tie between our nonpayment and the fact that
this company, because its -- its chief technology officer has
been indicted and --
MS. VAN GELDER: No.
MR. KHOURY: Well -- I'm sorry. Has been included as
a cooperating co -- a CC1 in an indictment, and they have
acknowledged that they are required to repay the Government
inflated amounts that that individual was involved in. It's
because their executive vice president of operations has pled
guilty to a conspiracy to defraud the Government, and as a
result they have received a notice of debarment. And they are
suspended from doing business with the Government, which is
very similar to what happened in Turnage.
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And those -- those are reasons that they are having
cash flow problems. Not the nonpayment of this 900,000, which
again, has not prevented those employees for being paid for the
work under these two purchase orders that are at issue.
And then finally, Your Honor, on the public
interest, we don't believe the public interest is served by
having a court consummate the -- this conspiracy to inflate
purchase orders and invoices.
THE COURT: This part of it -- well, I see. This part
you say took place before the cooperation commenced in June.
MR. KHOURY: All of the pricing that we are talking
about, all of that took place before the cooperation in June.
And so what happened in June where they say, Keep
doing business as usual, well, they kept sending me invoices
with respect to these purchase orders. There were no new
purchase orders. There was nothing new with respect -- there
were no new pricing afterwards.
The pricing had been inflated prior to this. And
1/12th, 1/12th, 1/12th all along. And the Government has
alleged, you know, significant inflation with respect to those
invoices.
THE COURT: You made some remark earlier about the
financial situation of the plaintiff, either its assets or
something else. What did you have in mind there?
MR. KHOURY: Well, I just -- I was recalling from the
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transcript yesterday that Ms. Van Gelder indicated that there
were substantial assets of the company.
THE COURT: Found in this record?
MR. KHOURY: In this record, yeah. I think she
mentioned 23 million, or I...
And so all I was --
THE COURT: But you've looked at this record. What
does it say about the assets?
MR. KHOURY: I'm trying -- Court's indulgence.
THE COURT: All right, yes.
I'm focused not on Ms. Van Gelder's remark, but on
yours.
MR. KHOURY: I'm sorry. It's at page 10, Your Honor,
of the transcript. And I apologize I miss -- I misremembered.
This is ten months prior to October 31st, and it's
31 mil -- 13,150,000 in assets.
THE COURT: Speaking, who's speaking?
MR. KHOURY: That was Ms. Van Gelder speaking.
THE COURT: And before October of when?
MR. KHOURY: 31st.
I assume of 2011?
MS. VAN GELDER: Yes.
MR. KHOURY: Okay.
THE COURT: All right.
MR. KHOURY: So for those reasons, Your Honor, we --
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we would urge the Court to -- to deny the TR -- this equitable
relief that we don't believe NDC has come to the Court with
clean hands to seek.
THE COURT: All right. Ms. Van Gelder.
MS. VAN GELDER: Thank you, Your Honor.
MR. KHOURY: Oh, Your Honor, can -- I apologize.
THE COURT: Yes.
MR. KHOURY: One other thing.
THE COURT: Go ahead.
MR. KHOURY: On the -- on the clear showing issue, I'm
looking at Real Truth About Obama.
THE COURT: Yes.
MR. KHOURY: There is a requirement for clear showing,
that among other things -- and this is at 345 and 346. It is
likely to succeed on the merits at trial. And then also,
again, Winter rejected a standard, the prior standard. And let
me just...
And it reiterated that it was inconsistent with the
Court's characterization of injunctive relief as extraordinary
remedy that may only be awarded upon a clear showing that
plaintiff is entitled to such relief.
So, in two places they talk about a clear showing
beyond just the -- the irreparable harm, Your Honor.
THE COURT: All right. Ms. Van Gelder.
MS. VAN GELDER: Thank you, Your Honor.
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Your Honor, I'll try to do this as orderly as
possible and address, first, Mr. Khoury's remarks.
The -- our position is that Nova Datacom should
have a right to wind down its affairs in an orderly fashion to
protect its employees, to protect its customers. And it
shouldn't be forced to close its doors prematurely because of
the cash flow problems created by EyakTek's failure to pay on
their contract.
With respect to the document that Mr. Khoury showed
you, I would like to just address a few issues with that.
First of all, the document clearly states that
payment will be 30 days after the invoice. That is the
agreement at issue. Each time a purchase order is sent in,
that's the agreement. We will pay you within 30 days.
THE COURT: That's each of the 1/12th things.
MS. VAN GELDER: Right.
THE COURT: That's not this purchase order. It's just
a part of the purchase order.
MS. VAN GELDER: Each purchase order has the same
statement on it.
THE COURT: All right.
MS. VAN GELDER: And the purchase order, what the
overarching number that he showed you is what I would call --
and I could stand to be corrected by Mr. Khoury who really is a
Government contracts expert. I would call it as a blanket
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purchase agreement.
You have a license. The Corps of Engineers has
allocated a certain amount of money. You can go up to that
amount of money, but each allocation is a task order. And in
this case each purchase order has to be submitted. And once
EyakTek gets the purchase order, they have to pay within 30
days.
There is no master agreement. There is nothing
else that controls this. When -- they have agreed when they
receive this, they pay it.
The second issue -- and I want to go to this
quickly. The fact of the matter is, is that separately and
distinctly from the allegations that are in the indictment of
Mr. Babb and Mr. Alexander and Mr. Khan is a separate plea
agreement by Mr. Hallas. And I have already provided this
to -- to the defendant, but I will provide this again to the
Court --
THE COURT: All right.
MS. VAN GELDER: -- and to the defendant.
We were the ones -- actually, my predecessor, Mr.
Brownlee, who was the former U.S. Attorney here -- were the
ones who disclosed Mr. Hallas' --
THE COURT: Who was this? Who was former U.S.
Attorney?
MS. VAN GELDER: Mr. Brownlee, John Brownlee who is
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now with Holland & Knight.
THE REPORTER: What firm?
THE COURT: Former U.S. --
MS. VAN GELDER: The west -- he was in the Western
District of Virginia.
THE COURT: All right.
MS. VAN GELDER: Not the eastern.
That matter that Mr. Hallas pled guilty to was
disclosed to the GSA in January of 2010. The fact that the SBA
gave us a notice of debarment, to me -- and we will respond to
that notice of debarment, and we said that in our affidavit --
is an example of one part of the Government not knowing that we
are working with another part of the Government.
The fact is, though we will have to fight that
suspension and debarment, we also know that Mr. Cho's actions
are going to cause yet another notice of suspension. So I --
this suspension and debarment is something that we believe that
we can address, but it also comes to the fact that Nova
Datacom's president realizes that it has to wind down. That
the -- and I'm going to get to just the crush of what we know,
the onslaught of litigation and administrative sanctions and
what -- what will ever happen to Mr. Cho.
The other correction I want to make to you, Your
Honor, is I don't believe -- and I am the worst at math. But
looking at the documents that Mr. Khoury gave you, they are not
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a 1/12th value of the POs.
PO 5205 has a $9.2 million overall value. And the
invoice, 117-93, was only for $547,410. If it was exactly
1/12, according to my brain's Mr. Chiarodo's math, it would
have been 736,000.
Similarly, in the other PO, which is a $2.9 million
value, if it was 1/12th, it would have been $232,000. And the
invoice 11794 was for 359,000. So they're not exact 1/12ths,
from my math.
THE COURT: But does that change his basic point?
MS. VAN GELDER: I think it does because I --
THE COURT: How?
MS. VAN GELDER: Because I think that the fact that
there were different invoices with different amounts means that
this is not just a 1/12th, we're not doing anything. That
there were things going on with each purchase order that would
cause different amounts to go.
THE COURT: All right.
MS. VAN GELDER: Your Honor, with respect to -- and
this goes to -- I'm going -- I started to do this yesterday,
and I'll do it again. I'm passing to Mr. Khoury, one for the
Court -- this is the balance sheet for the ten months prior
to -- to October 31st.
THE COURT: Is this the one that goes to the $13
million?
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MS. VAN GELDER: Exactly, Your Honor.
THE COURT: All right.
MS. VAN GELDER: And I think as a fair reading of
the -- of the transcript would say was that I started talking
about this and then I took myself down a --
THE COURT: All right.
MS. VAN GELDER: -- detour.
Your Honor, let me first of all explain. And I do
not understand Mr. Khoury's argument that they have -- the
employees have already been paid. I didn't follow that. But I
do know this.
THE COURT: Well, what he's saying is that the
employees have already been paid for the work that was -- that
they did. I'm not saying Nova Datacom has been paid, but the
employees during that period of time have already been paid.
There's nothing in this record saying that employees were not
paid for the period of time that they did the work.
So in other words, all he's doing is countering
something that probably isn't material anyway, but it certainly
tugged at my heart strings that people had already done work
for which they, individually, had not been paid.
And what I think Mr. Khoury was arguing is, Yeah,
they've been paid for that time period. Nova Datacom may not
have been paid for that particular invoice, but those people
have been paid for that work that they did during that time
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period.
Do I have it right, Mr. Khoury?
MR. KHOURY: That's it, Your Honor.
MS. VAN GELDER: Your Honor, for the time period of
the two purchase orders that are at issue, Nova Datacom has
paid its employees. To do that, it has -- had to forego other
payments, vendors or other things. So if I can go through our
balance statement --
THE COURT: Yes.
MS. VAN GELDER: -- this will --
THE COURT: Go ahead.
MS. VAN GELDER: -- this may help.
Your Honor, if you look -- and of course, Nova
Datacom is a small 8A business. But if you look at the balance
sheet, the accounts receivable line and under the assets is
$7.8 million. Out of that $7.8 million, approximately 3.6 of
that are pending invoices for Eyak services. So, the account
receivables that we will be -- coming in from our other
contracts is approximately $4.3 million.
When you look at the accounts payable, you have to
add first the 2.6, which is the first line, and then going to
the second page, you'll see the notes payable for GE Capital
and Microsoft.
GE Capital finances the products that we buy for
the USACE contract. So, we buy them on financing. When we get
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paid, we pay GE.
When you add the accounts payable on top of the GE
Capital, you get approximately $4.27 million.
I should tell you that our payroll to our employees
is not included on this balance sheet.
But when you take the accounts payable of 4.27 with
the account receivables but minus EyakTek of 4.3, we have a
$30,000 difference that we're operating on.
The payroll for Nova Datacom on a monthly figure is
approximately $450,000?
MR. KHOURY: Half a month.
MS. VAN GELDER: Half a month.
So, by continuing to pay people because they're on
the job, we have to go into the hole. So continuing the USACE
contract without payment, draws all the resources from the
other payments. So without the payment, we're going into
deeper and deeper financial distress, which is already
affecting money that we have to pay for GE and for other
issues.
With respect to the two purchase orders at issue,
we have paid, and I'm talking just straight out payments, not
profit, not inflation, not even general overhead, we have paid
for the two purchase orders at issue $451,000 in payroll,
700 -- God bless you.
THE COURT: Excuse me. Go ahead. I'm sorry.
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MS. VAN GELDER: -- (Continuing) $730,000 in product.
And approximately 40- or $50,000 for travel for these people to
get to their remote locations.
So, they're holding 900,000, and we can show
payments out of 1.12 for this time period, that we're not
getting paid for. Yes, we are trying to pay our employees, and
that's why we're here because we will not be able to pay for
them for the next payroll. We just are -- we have no cash to
pay them.
So, the other thing I want to make clear -- and I
think the indictment makes this very clear -- Nova Datacom
didn't retain the inflations that were in the prior POs. The
indictment is very clear, and I will direct the Court's --
THE COURT: Well, they weren't the beneficiaries. It
was EyakTek or somebody else who got the inflation out of it.
MS. VAN GELDER: Your Honor, EyakTek got a 12,000 -- a
12 percent on every PO.
THE COURT: Routine was that EyakTek would subcontract
with Nova Datacom if Nova Datacom would give them a kickback.
MS. VAN GELDER: Yes.
THE COURT: Isn't that --
MS. VAN GELDER: Yes.
THE COURT: So Nova Datacom isn't getting anything
other than the contract as a whole.
MS. VAN GELDER: Correct.
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THE COURT: The subcontract.
MS. VAN GELDER: Your Honor, if the -- I direct --
THE COURT: And that's a lot.
MS. VAN GELDER: I direct the Court to the -- to the
indictment, particularly pages 11, 12, and 13. The $20 million
inflation, which I believe is noted on page 11, and that would
be 11 paragraph C, is followed on page 12 that 18 million of
that 20 million went to Kerry Khan.
THE COURT: EyakTek.
MS. VAN GELDER: No. Kerry Khan is the Corps of
Engineers.
THE COURT: Oh, Corps of Engineers. Oh, yes. Okay.
MS. VAN GELDER: So Mr. Khan got 18 million.
THE COURT: All right.
MS. VAN GELDER: Mr. Alexander got 1 million, and
Mr. Khan -- Mr. Babb of EyakTek got $700,000.
THE COURT: And what you-all got was the contract.
MS. VAN GELDER: Correct. So it's not that we have
this extra money hanging around --
THE COURT: Worth a lot of money.
MS. VAN GELDER: Your Honor, I have no doubt that this
was worth a lot of money. I -- I will stipulate to that. But
I will also stipulate that -- that even when this happened and
when these POs were -- were put in, we were working. We were
servicing the United States Corps of Engineers. And the real
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problem that I believe that EyakTek has is not only has the
Corps of Engineers claimed back any money -- and as I briefly
stated yesterday, they're holding $2.5 million which would
cover any inflation that they have. But they haven't directed
him to pay or not to pay, and they haven't kicked us off the
job. They haven't renegotiated us. They haven't terminated us
for cause. They have a plethora of procedures that they could
punish us if we were really the bad actors. There were bad
actors in this contract on both sides. But for the quantum
meruit claims, for the unjust enrichment, without any claim by
the Government we can show that we have $1.12 million in hard
payments to personnel and to vendors and to travel, and that
900,000 is less than what we would even show for that.
So we're not even claiming right now for the TRO
for the contract. We're saying even under quantum meruit, they
don't have enough in the bank to even cover that.
So, yes, our people were being paid for the time
period, but that has caused the -- the cash flow. And we do
have contracts with other Government agencies that will be
ongoing, despite as you know the suspension and debarment
because we can complete those.
We would like to be able to complete them, but
we -- we're going to have to start winding down. We're going
to have to start selling off. We would like to do that in an
orderly fashion. We want our people to get jobs. We want to
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renegotiate contracts so those employees will migrate or novate
over to them.
But the fact of the matter is, with this balance
sheet, with the 30,000 difference, and most of the money in our
accounts receivable being held either by the Government or
EyakTek, then we will not be able to stay in business. And
that we believe -- and I don't have to repeat the cases that
we've unfortunately given you in the wrong way -- but that
would be irreparable harm.
With respect to the Microsoft case, I read the
Microsoft case differently. The harm that we are saying is
being caused in this action is because of the retention of the
money by the defendant. The harm is being caused by the
defendant. And it is clear that in this case both of us have
unclean hands. And that's -- maybe that's why there's a
deafening silence from the Government. But --
THE COURT: Well, the Government has unclean hands
too. The Corps of Engineers.
MS. VAN GELDER: Clearly. But the Government will do
what the Government will do. And well, it may be at first
blush admirable that EyakTek is trying to protect the
Government's interest, but the Government isn't asking them to
do it. And in the absence of their requested direction, then
the money should go to who it is owed. And by the contract, it
was owed to us months ago.
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And that is really simply the case. And there is
no doubt our -- our affidavit sets forth -- now, we included
the October amount which was taken out for the PO, but
Mr. Livingston's affidavit plus this balance sheet clearly show
that we are in no position to continue paying for USACE
contractors if we aren't being paid. Which goes back to also
the e-mail that I showed you yesterday, Your Honor, in which
EyakTek even after the indictment, the date of that e-mail was
after the indictment.
And they are telling USACE, We're going to make
sure EyakTek's people are there. You know, they're going to
replace that PM. They're -- our job is to keep the mission in
mind.
So, Government's getting the benefit. EyakTek's
getting the benefit. I do not know and I don't mean to be
smarmy by saying this, I don't know if they put their 12
percent in escrow. But they're getting paid. They will
continue to be getting paid. They have the benefit of their 12
percent, and they don't have the right to retain ours. And
that is about as simply as I can say it, Your Honor.
THE COURT: All right. Mr. Khoury, let me ask you.
Has EyakTek been debarred?
MR. KHOURY: No, it has not, Your Honor.
THE COURT: Why not?
MR. KHOURY: Because --
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THE COURT: I think the right answer is you don't
know.
MR. KHOURY: Well, unfortunately, I do know, Your
Honor.
THE COURT: Oh.
MR. KHOURY: Or I -- in fact today, we met with the
suspension and debarment official to discuss after we had
submitted a -- a substantial pleading to him in essence
demonstrating what the company has -- has done to assure its
present responsibility, providing information about all that's
gone on here from -- from what the company knows. And the
suspension and debarment official told us that he was -- he was
at this point not going to suspend the company, but that it was
subject to obviously what may or may not happen in the
investigation.
THE COURT: So what happens if -- if Nova Datacom has
to shut down and leave the work it's doing under the
subcontract?
MR. KHOURY: Well, then, EyakTek will have to find
somebody else to do that. And in fact, Your Honor, we have
learned today that they've walked off the job at the Corps.
And so EyakTek is -- is --
THE COURT: What do you mean walked off the job?
MR. KHOURY: The employees -- there were eight
employees who were -- and this has nothing to do with the two
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task orders that -- or the two purchase orders that are before
the Court. But the employ -- there were eight employees who
were currently working under a different EyakTek purchase
order, and we have been told at USACE headquarters that they
have walked off the job. Which gets to the point here, Ms. Van
Gelder has made it quite clear. They're going out of business
anyway. Asking for an injunction --
THE COURT: Well, I -- I just asked you a question.
You've answered it. I don't need any further argument.
MR. KHOURY: All right. Sorry. Sorry.
THE COURT: All right. I'm going to recess and
consider.
Did you want to say anything more, Ms. Van Gelder,
based on what he's just said? I don't --
MS. VAN GELDER: No, Your Honor.
THE COURT: -- think it calls for anything, but I
didn't want to deprive you of that opportunity.
MS. VAN GELDER: No, Your Honor.
THE COURT: All right. We'll recess. It will be
about 15 minutes.
The Court stands in recess for 15 minutes.
THE LAW CLERK: All rise.
(5:26 P.M. TO 5:45 P.M. RECESS TAKEN ~ OFF THE RECORD.)
THE LAW CLERK: All rise.
THE COURT: All right. I want to begin with the
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non-merits matter. I want to begin by complimenting counsel
because your briefs and arguments have been helpful, and I
appreciate that.
The matter is before the Court on a request for
temporary restraining order pursuant to rule 65. The standard
to be applied in examining this request changed recently with
the Winter case in the Supreme Court followed by Real Truth
About Obama in the Fourth Circuit.
The parties are not in dispute about -- about that
standard. In essence, Winter swept aside Blackwelder or
actually Real Truth in Obama issued the final coup de grâce,
and it's no longer the sliding scale. It's now very simply
that there must be a clear showing of irreparable harm, a clear
showing of likelihood of success on the merits, issuance of an
injunction should be in the public interest, and the
fourth -- the fourth factor --
What is the --
MR. KHOURY: Balance of hardships, Your Honor.
THE COURT: Balance of hardships is still in there,
but it's -- the balance of hardships. For a moment there all I
could think of was, my heavens, another Herman Cain moment.
Not Herman Cain. Who's the guy.
MS. VAN GELDER: Rick Perry.
THE COURT: Oh, Perry. Perry, yes.
In any event, as it turns out, balance of hardships
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is not a significant factor in this -- in this calculus.
The facts are spread out in a fairly extensive
record, and it's -- the compliment I paid counsel is that they
in the end explained that fairly clearly.
The dispute is over two invoices that are for work
that has already been done by Nova Datacom, Nova Datacom, on a
subcontract with Eyak Technology for work for the Army Corps of
Engineers.
The work's already been done. These two invoices
have not been paid. They have not been paid because this
entire process has been disrupted by the discovery by the
Department of Justice of a conspiracy to commit fraud and
bribery in connection with this contract.
There is an indictment, and a number of persons
have been indicted. The U.S. Corps -- the U.S. Army Corps of
Engineers person has been indicted, and some others. And the
indictment speaks about essentially a conspiracy that resulted
in overpayment of about $20 million, is the allegation. And we
don't know with any great specificity what amount of inflation
in the invoices is attributable to the two invoices in
question.
By inflation, what I mean is that these were
kickbacks. What happened is that -- what happened allegedly is
that Novacom or -- Data -- Nova Datacom, in order to obtain
this subcontractor -- subcontract from Eyak Technology agreed
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to pay money to Eyak Technology, a person, and U.S. Army Corps
of Engineer persons in order to ensure that they got the
contract. So they would inflate the invoice to reflect that.
We don't know what the precise amount of inflation
is attributable to the two invoices in question. We do know
the period of time for which the invoices are involved.
The invoices are -- the two invoices are for the
period -- or one of them, which is 5205, is for the period
9-30 -- I beg your pardon -- 9-28-2010 to 9-27-2011.
The period for the second one, which is 5208 C, is
9-28-2010 to 9-27-2011. So it's the same period for both of
the invoices, but the -- the 9 -- the 5208 C had a modification
for the period 1-1-11 to 9-27-11.
Now, the case is complicated in some ways because
a -- I think it's the -- the Government persuaded the owner of
Nova Datacom to cooperate by continuing to participate in the
conspiracy so that the Government could net the co-conspirators
it was seeking to get. This cooperation generally began in
June of 2011.
What the Government didn't do and what Nova Datacom
didn't do is to ask, Well, if we continue and we keep doing
this work, how are we going to get paid? I think to put it
bluntly, the Government didn't care about that. This is
different from the usual Government cooperation where all the
money that's involved or all the drugs that are involved come
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from the Government. And the Government doesn't lose anything.
They get the drugs back and they get the money back.
But here, what the Government was asking is for
Nova Datacom to go ahead and continue in the conspiracy so that
they could net other people. And it doesn't appear on this
record, and I'm not sure it's material even so whether anybody
gave any consideration to how Nova Datacom was going to get
paid. But Nova Datacom went ahead and did cooperate.
Now, the argument for a -- an injunction, for a
temporary restraining order to issue at this time, the precise
temporary restraining order that is sought is a requirement
that Eyak Technology pay these two invoices, totalling I think
about 900 and some thousand dollars. And the argument is that
if Eyak Technology does not pay these invoices, then the
continued existence -- not so much the continued existence of
Nova Datacom, but the way in which it ceases to exist will be
severely impacted.
Ms. Van Gelder, as she always does, was very can --
very straightforward and lucid and candid. And she said that
what's at stake is not whether Nova Datacom ceases to do
business, but rather how they cease to do business. Whether
they cease to do it in an orderly fashion and pay their
employees, have their employees have time to get other jobs and
the like. That's an important point.
Nova Datacom has been debarred. Of course, Nova
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Datacom will -- will I'm sure resist that and try to get it
turned around. Perhaps they will succeed. But at the present
time, according to this record, I think it is clear that Nova
Datacom will go out of business. And the question is, will
they do it in an orderly fashion or will they have to close up
the doors more quickly.
Now, those are some facts. There were some other
facts brought out today, one by Mr. Khoury in which he pointed
out that the employees have already been paid for this work.
Well, there was some suggestion yesterday that they
might not have been paid for this work, but I think the real
suggestion that Ms. Van Gelder was making is not that. She
wasn't suggesting that.
What she was really suggesting is that they won't
be paid in the future. And I think I injected the fact that
it's Thanksgiving and Christmas, and it tugged at my heart
strings, as I'm sure it would tug at anyone's heart strings.
But in the end it's not really material because irreparable
harm is not based on whether certain employees will receive
compensation at Thanksgiving and Christmas. The real issue I
think is -- is whether this injunction should issue in order to
allow Nova Datacom to wind down its business in an orderly
fashion. But in any event, I think it is clear that for these
two invoices, they've -- the employees who did that work
already received their salaries for that period of time.
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But the more important point that Mr. Khoury made
is that there is no way to tell on this record whether there is
any inflation or how much inflation is attributable to these
two invoices. I think he'd be prepared to say there's
certainly some inflation, because what EyakTek has done is to
escrow the amounts owed under these two purchase orders and
seek guidance from the Army as to whether -- and how much they
should pay. The Army's silence on this has been deafening. Of
course, the Army's not a clean hand situation either because
their person is the person who solicited the bribes, I expect.
That's I think what's suggested in the indictment. And he
certainly received the lion's share of the profits from this
illegal operation.
But in any event, I think it is clear that we
cannot determine on this record with any accuracy or certainty
what amount, if any, of inflation is attributable to these two
purchase orders.
Now, let's look at the legal principles a little
more closely.
Yesterday I expressed the view that in a contract
case for which damages are sought, it is extremely rare for
there to be a basis for an equitable remedy of a TRO because it
is axiomatic that damages are an adequate remedy. The
argument, however, made by the plaintiff, or the petitioner in
this case, is that they're going to go out of business if they
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don't get this. They'll go out of business anyway, but they're
going to go out of business in a very disorderly fashion that
will disrupt the work and everything else.
And I might point out, there's nothing in this
record -- I don't have anything from the Army that says, Oh,
please, don't have these people run away from the job because
this is national security or some other kind of work and we
desperately need them. That's not present here. I don't see
any evidence of that.
But in any event, it is true that a mandatory
injunction, which is what is sought here, requiring action by a
party is appropriate in exigent circumstances where it is
necessary both to protect against irreparable harm in a
deteriorated circumstance created by the defendant and to
preserve the Court's ability to render effective relief on the
merits. That's right out of the Microsoft case.
And in Microsoft, the Court reversed a District
Court's mandatory preliminary injunction requiring Microsoft to
distribute the plaintiff's software with its operating system
and web browser. In other words, it was an injunction
requiring them to distribute that together.
The District Court justified the injunction as
necessary to prevent Microsoft from obtaining a future
advantage in the marketplace based on past wrongs. The Fourth
Circuit held that future harm in the marketplace was not
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sufficient irreparable harm. Any present harm identified was
defined to generally in the injunction did not aid or protect
the Court's ability to enter final relief.
Of course, on the facts that case is not apposite
at all, but the principle is.
A mandatory preliminary injunction in any
circumstance is disfavored and warranted only in the most
extraordinary circumstances. Taylor against Freeman at 34 F.3d
266 makes that point. And it is true that the authority of any
District Court to issue such a preliminary injunction should be
sparingly exercised. Mandatory preliminary injunctions do not
preserve the status quo, and normally should be granted only in
circumstances when the exigencies of the situation demand such
a relief. And here the argument is that they do. Without this
relief the result will be that there will be a disorderly
winding down of business.
Now, the parties argued about whether the relief
here would alter the status quo or would not alter the status
quo. There are some cases that I think are illustrative in
that regard, but in the end that's not what really is decisive
in this case. I think what's decisive in this case is the
harm. What harm counts for irreparable harm.
In my view, the source of the irreparable harm in
these cases is not the absence of an immediate damages remedy,
that is it's not the failure to pay these invoices. It's the
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debarment. That's the problem. Because there would be other
revenues coming in if they could continue to do that, and the
matter would shake out after that. And in Blackwelder and
Statesville against -- not Blackwelder. Blackwelder and the
Federal Leasing cases, those were cited by the plaintiff. I
looked at those. And there, the preliminary injunction -- in
fact, if I look at the facts again, they do stand -- one, the
Federal Leasing case does say that the possibility that
adequate compensatory or other corrective relief will be
available at a later date in the ordinary course of litigation
does weigh against the claim of irreparable harm. But they
also said in that case that going out of destroying a business
would be a possibility.
In Federal Leasing, the plaintiff sought a
preliminary injunction that would require the insurance --
insurer, defendants, to process the plaintiff's claims on a
rolling basis rather than at the expiration of each sales
agreement into which the plaintiff had entered.
In other words, the preliminary injunction that the
District Court ultimately granted in that case required the
acceleration of claims processing, not claims payment. And in
Blackwelder, which of course is now been consigned of the dust
bin of legal history -- that makes me feel old because
Blackwelder was -- has been in existence for a long time. And
actually, I've lasted longer than Blackwelder. That gives me
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some concern.
But in Blackwelder, the plaintiff sought a
preliminary injunction that the defendant, which was a
furniture manufacturer, restore the plaintiff, a furniture
dealer, to its status as authorized dealer of a defendant's
product. So in this respect, the Fourth Circuit held that an
injunction should have been granted. That would require the
plaintiff and the defendant to continue the business
relationship that had existed before defendant terminated it.
So the source of the irreparable harm in those
cases was not the absence of an immediate damages remedy, but
rather interruption of the parties' established prior course of
business, of conduct. And each injunction required resuming
that course of conduct, which in neither case required the
payment of potentially disputable sums of money.
Now, whether the data -- or whether the harm is
irreparable, as I indicated, Blackwelder and Federal Leasing,
careful reading of those cases reveals that the irreparable
harm was the imminent loss of customer goodwill caused by the
plaintiff's inability to honor purchase orders. In other
words, the harm to the plaintiff was primarily derivative of
the harm to its customers. What made the harm irreparable is
that reputation can be easily damaged. And these people would
buy furniture elsewhere and they'd never come back. It's only
with difficulty repair. And that's not the goodwill harm that
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is presented here.
So, in both Blackwelder and Federal Leasing, the
harm that was incalculable and irreparable was the loss of
goodwill attributable to the plaintiff's inability to satisfy
their customer's demands. And that's not the case here, so I
think those cases are not very persuasive here.
The plaintiff in each of these cases identified
specifically how continuation of the status quo would harm its
reputation among customers, and that's not the case here. It's
the absence of customers and preexisting harm to Nova Datacom's
reputation caused by the chief technology officer's
malfeasance, neither of which would be redressed by any
preliminary injunction that continues to harm Nova Datacom.
Well, Datacom -- Nova Datacom contends that Eyak's
withholding of the funds and putting them in escrow is
responsible for its current cash flow problems. Nova Datacom
has not succeeded, though, in my view in demonstrating that
whatever irreparable harm currently befalls Nova Datacom is
attributable to EyakTek's withholding of these sums.
First, the party submissions strongly suggest that
the sum that Nova Datacom seeks is only a fraction of its
operating revenue, but that's not really decisive here. But it
does appear plainly from this record the debarment and the harm
to the company's reputation and financial viability are the
primary sources of Nova Datacom's cash flow problems. Neither
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of these sources is attributable to EyakTek's withholding of
payment with respect to the two invoices in issue.
And as is clear, Nova Datacom is going to go out of
business at some point in time. An injunction here would
merely delay the inevitable and make it more orderly to be
sure, and people would be paid some, which they might not
otherwise get. That's true. They might have to be laid off
sooner.
But although EyakTek's withholding of the funds in
escrow has undoubtedly harmed the financial health of Nova
Datacom, I don't doubt that point at all. Nova Datacom cannot
make a clear showing that the harm it has presented is
irreparable; i.e., that going out of business is attributable
even primarily to EyakTek's withholding. It's attributable to
that person's engaging in this illegal conduct and resulting
disbar -- debarment.
So, this request for a temporary restraining order
founders on the first requirement, that is a clear showing of
irreparable harm. That showing, in my view, cannot be made.
And as I said, the purpose of a mandatory
injunction would be to protect against irreparable harm in
deteriorating circumstances created by the defendant. I'm not
sure it's created by the defendant. In fact, I'm finding to
the contrary on this record. And to preserve the Court's
ability to render effective relief on the merits.
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Well, it's unclear what the courts mean by
effective relief on the merits. But certainly the
injunction -- the failure to issue the injunction isn't going
to affect this Court's ability to hold a trial on the complaint
that's been filed, and if the plaintiff succeeds, to issue a --
an appropriate judgment.
I don't need to address -- I don't need to reach or
address public interest or balance of equities. I will say
briefly on the -- on the likelihood of success on the merits, I
can't say there's a clear showing of a likelihood of success on
the merits. I can say without any lack of confidence that it
is clear - Ms. Van Gelder has made this point emphatically and
clearly - that they -- that Nova Datacom did the work, and that
everyone was satisfied with the work. And that's the work that
is attributable to these two invoices, and that they should be
paid for it.
The problem I'm having with the clear showing of
likelihood of success on the merits is it is unclear whether,
as the defendants argued today -- defendant argued today,
whether the plaintiff can prevail on a breach of contract claim
where the invoice is fraudulent.
Well, the invoice is fraudulent perhaps, but if it
is, it's the -- the defendant was a joint tortfeasor in that
regard, was a co-conspirator in the fraud. And I don't know
under Virginia law and I don't know of any authorities that
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have been cited that address this, whether that impairs the
ability of the plaintiff to recover on a quantum meruit basis.
I suspect in the circumstances it may not. But I don't have a
clear showing of that now, and it seems to be a novel issue.
And as I said, I don't reach the other -- I don't need to reach
and decide the public interest and the balance of the equities.
I should state briefly that the defendant argued
clearly that the plaintiff has unclean hands, and that's the
end of the -- that's the first step, and that's the end of the
inquiry.
The reason I don't think that is, in my view, is
because I don't think the defendant's hands are any cleaner
than the plaintiff's. So if the plaintiff has unclean hands
and the defendant has unclean hands, it's not clear to me that
defendant -- and they did it together, that the plaintiff's
unclean hands would be a bar to it. So I passed over that.
There aren't any authorities that address that issue.
But I think, as I said, the issue of a temporary
restraining order is decided on the basis of the fact that the
harm is not irreparable, doesn't qualify as irreparable harm in
these circumstances, and it isn't a clear showing of that. And
also there's no clear showing of likelihood of success on the
merits, even though I take -- I take Ms. Van Gelder's point
that the work was done. The U.S. Army Corps of Engineers and
EyakTek were happy with the work that was done, and they
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haven't been paid for that work that was done.
So the motion for a temporary restraining order
must be denied. And I don't do that -- I haven't done it
quickly or easily because I took seriously the argument, even
though it was a very novel argument. It's always novel. It's
now been more than -- well, 25 years, and the number of times
that I have granted a mandatory injunction to remedy a breach
of contract is zero. I've never done it before, but what Ms.
Van Gelder did is to make me stop and look at this thing much,
much, much closer. She made a very appealing argument.
But in the end, as I said, I don't think that the
claim that we need the money to help us go out of business in a
more orderly way qualifies as irreparable harm, especially when
the going out of business isn't attributable to the unpaid two
invoices. It's really attributable to the bad acts of the
plaintiff itself, or this -- not the plaintiff -- well, yes,
the person at the plaintiff who engaged in this bad conduct.
And so -- but I am denying the TRO for the reasons stated.
Now, I am willing to consider a somewhat expedited
trial, but I'm not sure it helps at all. And I'll tell you
why, and I'll let you think about it, and you can file
something. I can make time for you, maybe in later January or
sometime in February, and we can do this.
However, let's face it. Some of these witnesses
are going to take the Fifth Amendment, probably. And matters
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are still very volatile, I can tell. And even if I held such a
trial, and even if a judgment were then entered in favor of the
plaintiffs, let's stay on quantum meruit for a substantial
amount of money, let's say for $800,000 or so, that judgment
would I think, because lawyers are lawyers, would be appealed.
I don't think it would be successful. I think my
one lost record is not bad. But it would delay payment of the
money.
And I'm not sure that an expedited trial, Ms. Van
Gelder, would help your client anymore, but I want to give you
that opportunity to think about it and talk about it. I don't
know what effect a trial on breach of contract, quantum meruit,
unjust enrichment -- you know, there would be -- first, there
would be battles about, can you have unjust enrichment when you
have a contract? Can you have quantum meruit when you have a
contract?
Well, the answer is going to be, well, ordinarily
not, but in this case it's pled in the alternative because the
contract may not be valid because of the -- may have been in
some way invalidated by this general principle that fraud was
committed. But there will be some opening skirmishes in that
regard.
So in any event, that's my ruling to date. And
I'll enter an order saying for the reasons stated from the
bench. I'm not going to write on this. But I think my reasons
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have been adequately elucidated here from the bench.
But I want to give the parties an opportunity to
discuss this. Now of course, there's always the opportunity to
resolve this by some other means.
MS. VAN GELDER: May I address that, Your Honor?
THE COURT: Yes.
MS. VAN GELDER: Your Honor, first, I would say that
we have thought about this. We have made a settlement offer
today to the -- to the defendants. I'm not sure this will help
bring them to the table, but we did make it and will continue
to make it, and perhaps we can go to the magistrate and --
THE COURT: Yes, I would be happy to make those
arrangements.
MS. VAN GELDER: So I would like to set a trial. I do
believe that we can make our case without anybody --
THE COURT: Bring me the red book, please.
MS. VAN GELDER: -- anybody taking the fifth, because
it would be the people who are working there. Now Alex Cho was
just -- if we're doing a quantum meruit, we're going to bring
in the people who say, I was there and I did this and -- and so
that's a very simple case for us to bring.
I do believe that we have sort of seen this before,
the Harrison case, SAIC, all of the false claims cases where
there is that fraud ab initio argument --
THE COURT: I see them all the time that's pled in the
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alternative.
MS. VAN GELDER: Right. And the courts have said,
even if this fraud ab initio --
THE COURT: But I'm sure Mr. Khoury will raise the
issue. It will be fully briefed. I'll have to think about it
and I'll read the cases and decide it.
MS. VAN GELDER: Your Honor, I --
THE COURT: Now, the point is that -- and the reason I
say that is that Voltaire said he was ruined twice in life,
once when he lost the litigation and a second time when he won
one. In other words, for the client, litigation is at best a
pyrrhic victory. The only people who profit from litigation
are lawyers. They can educate their kids in private schools
and ivy league universities.
I know. I did that. Not that my kids -- my kids
are now through school. One of them in an ivy league
university, but I can't say he's educated. I can only say I
paid for a lot of money for him to spend time there.
I was just reminiscing. He's a doctor now, but he
named his children Jacob and Sarah, and he hasn't the slightest
idea who Jacob and Sarah were in the Old Testament. And for
that I paid Princeton $100,000. But he's a pediatric
cardiologist, and he doesn't care about knowing about Jacob and
Sarah. So I'm telling his children about Jacob and Sarah
because I don't want them not to know it, although it's going
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to come as a shock to both of them when they get to be that
age.
In any event, the point I'm making is settlement is
the best for both.
MS. VAN GELDER: I totally agree. But I believe
without specter of a trial, that -- that settlement will just
be a delay tactic.
THE COURT: All right. I -- I think your point is a
sound one.
Mr. Khoury.
MR. KHOURY: Yes, Your Honor. Your Honor, we -- we --
if we are going to go to trial we're going to need some
discovery here because all of these facts have been kept --
THE COURT: Well, you're doing all these things in a
hurry.
MR. KHOURY: -- kept from us. And as -- as the Court
has said --
THE COURT: Just think how profitable it will be for
your firm. You'll do all these depositions in a hurry, and
you'll do all this stuff. It will be -- and then you'll go to
the magistrate because you'll argue a bunch of things. I mean,
this is -- you'll just make a lot of money in a short period of
time.
MR. KHOURY: And that's -- that might be wonderful
for --
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THE COURT: And let me ask the question. You filed a
complaint?
MS. VAN GELDER: Yes, Your Honor.
THE COURT: You didn't ask for a jury.
MS. VAN GELDER: No, I didn't, and I would not ask for
one.
THE COURT: I couldn't imagine that you would.
And you didn't ask for a jury. Or you won't ask.
You haven't had a chance to ask. You want to --
MR. KHOURY: We have yet --
THE COURT: -- discuss that with --
MR. KHOURY: -- to answer, Your Honor, and I'm not
sure what the answer is to that.
THE COURT: Well, since you participated in the fraud,
I'm not sure you would want that.
MR. KHOURY: Well, be that as it may, Your Honor, the
suggestion that witnesses will not have to take the fifth, we
are looking --
THE COURT: I think you're probably right. Some of
them may take the fifth, but we'll cross that bridge when we
come to it. In the meantime, you can earn some money. Because
I think Ms. Van Gelder is exactly right. Unless I show that
I'm going to try this case -- and you know the Eastern
District, if I set a trial, then absent an asteroid hitting
Alexandria, we're going to have that trial. And that will be
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like the -- remember Sam Johnson, what he said about the man
who was about to be hanged? He said it wonderfully
concentrates his mind.
Well, I want to wonderfully concentrate your
client's mind. That's what Ms. Van Gelder was getting at.
Am I right, Ms. Van Gelder?
MS. VAN GELDER: Yes, Your Honor. And in deference to
the Court's time, I am willing to say we will go to the
magistrate, and then we will come back and ask for the -- for
the Court's time so that he will have an opportunity to talk to
his client --
THE COURT: Well, who is --
MS. VAN GELDER: -- about the --
THE COURT: -- the magistrate judge assigned to this
case?
MS. VAN GELDER: Judge Anderson.
THE COURT: All right. I saw him today. He looked
harried, so -- but I will ask him to see you-all. But I'm
going to pick time now because my docket fills up pretty
quickly.
MS. VAN GELDER: That would be fine.
THE COURT: And what I have in mind is beginning this
case at 10:00 a.m. on the 7th of February.
MS. VAN GELDER: Hampered as I am as a person totally
devoted to a BlackBerry, I believe I'm open, but I don't have
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anything at this moment to -- to know.
MR. KHOURY: Your Honor, just -- at this point, we
would just want to reserve our objection to setting it that
soon because we do believe that trying to -- trying to get the
information that we're going to need to get from the
Government, which actually received a lot of these products
or -- or may have received a lot of these products and the
services, especially given the nature of the conspiracy here
where the Government folks were telling EyakTek --
THE COURT: Well, you know they did some work, and you
know the Government was satisfied with it, and you know that
you set aside a bunch of money.
MR. KHOURY: I don't know that the Government was
satisfied with it. And the reason I don't know that, Your
Honor, is that --
THE COURT: Well, you'll have to find out by February
7th.
MR. KHOURY: Finding that out from the Government
while a criminal investigation is going on is going to be near
impossible, Your Honor, filing the --
THE COURT: Well, were you in the Corps?
MR. KHOURY: I was not, Your Honor.
THE COURT: Ah. Well, you know what they say in the
Corps, the difficult we do immediately. The impossible takes a
little longer. But February 7th is the man about to be hanged.
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And I -- I do that because I really believe this can be done.
In any event, in the normal course of events, Mr.
Khoury, this case would probably be set no later than May or
June anyway. And I don't think there's going to be any fraud
trial and everything mopped up by then, and we don't wait for
criminal matters. And if somebody comes to trial in a civil
case and takes the fifth, that's an inference that can be drawn
in favor or against that whoever offered that -- well, it isn't
against that party. But if somebody comes in here, the Army,
let's say, and says, I take the Fifth Amendment; I'm not going
to testify, I give the jury an instruction that says, You may
draw the inference that the answer to that question would have
been unfavorable to the person calling that witness, or to the
party calling that witness.
Now, I'm not saying I'll definitely do that in this
case, but that's what I've done in the past and I'll hear from
you at the time.
And, of course, there have been asteroids that have
hit the earth in various places. And I'm not saying that
I've -- that there aren't circumstances where I wouldn't set a
later date. I'm just -- I want you to walk out of here, Mr.
Khoury, with very little assurance that that's going to happen
so that you can wonderfully concentrate your client's mind.
Your client knows what services were performed.
Your clients paid lots of -- how many -- you told me yourself.
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Here it is. They paid $10 million on -- with respect to
portions of these -- of this invoice. You didn't pay $10
million because you didn't know what was being done.
MR. KHOURY: Well, Your Honor, we paid $10 million
because we were deceived as to what was being done and what
was --
THE COURT: Well, didn't you go and look?
MR. KHOURY: What was being done was -- we tried to,
Your Honor. We tried to get documentation, and the Government
folks who are involved in this conspiracy immediately pushed
back and said, We have signed DD-250 forms. Those are the
forms that the Government signs when they approve and accept
services and products. They say, We have these signed DD-250s.
You don't need any other documentation. And they -- it's -- it
was Mr. Khan, Mr. Alexander --
THE COURT: Well, you know --
MR. KHOURY: -- and they got the contract --
THE COURT: -- I'm not foreclosing. I take your
point. It's not an invalid point. I understand what you're
saying, but I don't think it's going to be, in the end, an
obstacle.
I don't think there is a dispute about what was
done and whether it was satisfactory. That's not why we're
here. You paid $10 million for other stuff. The fact -- I
mean, maybe it is true that you don't know what they did and
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you just did it on the basis of signed DD-2, whatever they are.
Maybe that's true. But it seems to me your -- well, I don't
know the facts and I won't say more, but I doubt that this
is -- that the fact that they didn't do the work or they didn't
do the work to your satisfaction or to the Army's satisfaction,
I doubt that's going to be a factor. But, I don't foreclose
it.
MR. KHOURY: Well, we respectfully --
THE COURT: You don't know either. Right?
MR. KHOURY: We -- we would need to get discovery
from --
THE COURT: You don't know --
MR. KHOURY: -- the Government --
THE COURT: -- do you?
MR. KHOURY: We don't know at this point.
THE COURT: All right. That's what I said.
And you would want to go into all these things. By
all means, do it. Charge your client a fortune, then ask your
client -- send them bills every week and then ask them whether
it wouldn't make better sense to settle this. You might get a
better deal out of the settlement in the end. I don't know.
We'll see.
But again, I say to you, Mr. Khoury, I think the
points you raise are not invalid. I hear you, but I'm of a
different view right now. Maybe in the future you'll change my
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mind, but in the meantime, you've got a big task ahead of you.
You're going to have to spend a lot of money -- your client's
going to have to spend a lot of money, and that's the message I
want you to take to your client in connection with the
settlement.
Now, do you want me to call and to communicate with
Judge Anderson about a settlement conference? I won't do
that -- I won't do that, Mr. Khoury, unless you and Ms. Van
Gelder assure me that there's some prospect -- I'm not going to
waste Magistrate Judge Anderson's time unless there's some
potential for -- for success.
MR. KHOURY: Your Honor, I would like to talk to my
client before doing that --
THE COURT: That's appropriate. That's appropriate.
So if you will let me know. I don't want you to call. Just --
do a little joint præcipe or something that you can file by
computer saying, The parties are in agreement, or the parties
are not in agreement about whether there are any substantial
prospects for settlement. If I get an affirmative answer, I
will call Judge Anderson and urge him to move on it very
promptly.
MS. VAN GELDER: Thank you, Your Honor.
THE COURT: Anything further this evening on behalf of
the plaintiff, Ms. Van Gelder?
MS. VAN GELDER: No, Your Honor. Thank you for your
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time.
THE COURT: Mr. Khoury?
MR. KHOURY: No, Your Honor. Thank you.
THE COURT: All right. I thank counsel for your
cooperation, and I reiterate that I found your arguments very
helpful.
I really do need to understand things, and it's not
like when I sit by designation on various courts of appeal
where the issue is very sharply defined, thought about for
months in advance and that's all there is. Here, it comes in a
sort of moving target fashion. Lots of new things are
presented, so oral advocacy makes a big difference in the
district court.
I've sat by designation in the Federal Circuit, the
Fourth Circuit, the Third Circuit, the Second Circuit, and I
can't remember the number of times -- I can't remember any
times when the judges who came to hear argument were pretty
clear about the result. Here, that's not the case. What you
do and what you say and what you write is very important.
Thank you.
MS. VAN GELDER: Thank you, Your Honor.
MR. KHOURY: Thank you, Your Honor.
THE LAW CLERK: All rise.
(PROCEEDINGS CONCLUDED AT 6:33 P.M.)
-oOo-
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69
UNITED STATES DISTRICT COURT )
EASTERN DISTRICT OF VIRGINIA )
I, JULIE A. GOODWIN, Official Court Reporter for
the United States District Court, Eastern District of Virginia,
do hereby certify that the foregoing is a correct transcript
from the record of proceedings in the above matter, to the best
of my ability.
I further certify that I am neither counsel for,
related to, nor employed by any of the parties to the action in
which this proceeding was taken, and further that I am not
financially nor otherwise interested in the outcome of the
action.
Certified to by me this 11TH day of DECEMBER, 2011.
__/s/___________________________JULIE A. GOODWIN, RPRCSR #5221Official U.S. Court Reporter401 Courthouse SquareTenth FloorAlexandria, Virginia 22314
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