Sufi Network Services, Inc. v. United States

In the United States Court of Federal Claims

No. 11-453C

(Filed: October 16, 2013)

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SUFI NETWORK SERVICES, INC., *

*

Plaintiff, * Recovery of Attorneys’ Fees,

* Expenses, and Interest; Lodestar

v. * Method; Attorneys’ Reasonable

* Rates and Hours Expended;

THE UNITED STATES, * Overhead and Profit.

*

Defendant. *

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Frederick W. Claybrook, Jr., with whom was Brian T. McLaughlin, Crowell & Moring

LLP, Washington, D.C., for Plaintiff.

Douglas T. Hoffman, with whom were Stuart F. Delery, Acting Assistant Attorney

General, Jeanne E. Davidson, Director, Steven J. Gillingham, Assistant Director, and

Jessica R. Toplin, Commercial Litigation Branch, Civil Division, United States

Department of Justice, Washington, D.C., for Defendant.

OPINION AND ORDER

WHEELER, Judge.

In this breach of contract case, the Court must now determine the proper amount

owed to Plaintiff, SUFI Network Services, Inc. (“SUFI”), for attorneys’ fees, expenses,

and interest. The origins of this case lie in an April 26, 1996 contract between SUFI and

the U.S. Air Force Nonappropriated Funds Purchasing Office (“AFNAFPO,” or “Air

Force”) to provide telephone services on Air Force bases in Germany. SUFI Network

Servs., Inc. v. United States, 102 Fed. Cl. 656, 658 (2012) (“SUFI CFC I”). 1 SUFI first

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The previous opinions in this case, No. 11-453C, and its related case, No. 11–804C, are referred to, in

chronological order, as “SUFI CFC I” through “SUFI CFC III.” Likewise, the eleven reported decisions

of the ASBCA are referred to as “SUFI ASBCA I” through “SUFI ASBCA XI.” See SUFI Network

Servs., Inc. v. United States, 105 Fed. Cl. 184, 188 n.1 (2012) (“SUFI CFC II”).

litigated its underlying contract claims before the Armed Services Board of Contract

Appeals (“ASBCA”), which found that the AFNAFPO had materially breached the

contract. SUFI CFC I, 102 Fed. Cl. at 656. SUFI then filed a claim for attorneys’ fees

and expenses, but the contracting officer failed to issue a final decision within a

reasonable time, and SUFI brought suit directly in this Court. Id. at 659-60.

In a prior opinion, the Court granted summary judgment in SUFI’s favor as to the

Government’s liability for attorneys’ fees and expenses, leaving only the issue of

damages to be resolved. SUFI CFC II, 105 Fed. Cl. 184, 195 (2012). The Court

conducted a trial on damages on April 24-26, 2013 in Washington, D.C. The parties

subsequently filed post-trial briefs and response briefs, and the Court heard closing

arguments on August 28, 2013. For the reasons explained below, the Court awards SUFI

all of its claimed attorneys’ fees and expenses, plus interest, but denies the claim for

overhead and profit.

Background

This case is one of many proceedings arising from a troubled contract to provide

telecommunications services during “the dramatically changing telecommunications

environment that existed” in the mid-1990s. SUFI CFC III, 108 Fed. Cl. 287, 294-96

(2012). On April 26, 1996, SUFI and the U.S. Air Force entered into a task order

contract for the installation and operation of telephone systems for lodging facilities at

Air Force bases in Germany. SUFI CFC I, 102 Fed. Cl. at 658. On August 17, 2004,

after a series of disputes, the ASBCA entered a judgment declaring that the Air Force had

breached the contract, and, consequently, entitling SUFI to stop performance and cancel

the contract. See SUFI ASBCA II, ASBCA No. 54503, 04-2 BCA ¶ 32714 (Aug. 17,

2004). The period beginning immediately after that judgment is the period most relevant

to this opinion. During that time, SUFI retained the law firm of Crowell & Moring to

perform the work that generated the fees and expenses currently at issue.

Two of Crowell & Moring’s tasks began immediately after the ASBCA’s August

17, 2004 decision. First, SUFI began preparing monetary claims for submission to, and

negotiation with, the contracting officer. Claybrook, Tr. 112. Frederick W. Claybrook,

Jr., a partner at Crowell & Moring specializing in government contracts claims, took the

lead and was assisted by other Crowell & Moring personnel, including his associate,

Richard Zimmer, and various legal assistants. PX 1 (Attach. A ¶¶ 4-5, 10); Claybrook,

Tr. 126-28, 168. Because of the complexity of the claims, Mr. Claybrook suggested that

SUFI retain an accounting consultant for assistance in calculating damages. Claybrook,

Tr. 143. Mr. Claybrook estimated that the cost of retaining a damages expert would be

approximately $1,000,000. Claybrook, Tr. 144. SUFI decided that it could not afford

such an expense. Myers, Tr. 42-43. As a result, Crowell & Moring, led by Mr.

Claybrook, prepared all of the damages claims. Id. In addition, because SUFI had lost its

revenue stream from the contract, it could no longer afford to retain Crowell & Moring

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on a regular fee basis, and instead negotiated a contingency fee arrangement. Myers, Tr.

42-43. Despite these obstacles, Crowell & Moring’s efforts bore first fruit on July 1,

2005, when SUFI submitted 28 individual claims to the contracting officer. Id.; see also

PX 62 (SUFI’s claims narrative).

The second task involved the process of canceling the contract. On August 25,

2004, one week after the ASBCA’s decision, SUFI transmitted a letter to the Air Force

canceling the contract. PX 59 at 1. However, understanding that an immediate cessation

of services would inconvenience the guests at the lodging facilities, SUFI stated that it

would continue performance while negotiating a transition period to the Air Force’s

operation of the telephone systems. Id.; PX 60. Once again, Mr. Claybrook led this

effort, which culminated in an April 1, 2005 Partial Settlement Agreement (“PSA”)

between SUFI and the Air Force. PX 61. Under the PSA, SUFI agreed to sell its

network to the Air Force for $1,200,000 and to receive $1,075,000 for its good will. Id.

at 1. In return, SUFI continued to operate the network until May 31, 2005. SUFI CFC

III, 108 Fed. Cl. at 295. On June 1, 2005, the Air Force took ownership and began

operation of the telephone system at each base. Id. Crowell & Moring also negotiated

consulting agreements for SUFI employees to continue working on the systems at the Air

Force bases. Claybrook, Tr. 286.

In September 2005, two months after SUFI submitted its claims to the contracting

officer, the Defense Contract Audit Agency (“DCAA”) began to audit the claims. See

PX 63. In response, Mr. Claybrook and Stephen Myers, Jr., the Managing Director of

SUFI, first met with two DCAA auditors in late September 2005. PX 63. The audit

continued until April 2006, and during that time, Mr. Claybrook and Crowell & Moring

engaged in extensive discussions with the DCAA. PX 64; Claybrook, Tr. 134-36.

Finally, from October 12, 2006, through January 5, 2007, the parties attempted to

settle the underlying claims. Pl.’s Post-Trial Br. (July 15, 2013), at 22 (“Pl.’s Br.”).

Although they reached a tentative agreement on ten claims, that agreement ultimately

failed to produce a binding document signed by the contracting officer. SUFI CFC III,

108 Fed. Cl. at 301-03.

Eventually, in a series of decisions issued between November 21, 2008, and April

5, 2010, the ASBCA ruled in SUFI’s favor on 22 of its 28 monetary claims. SUFI CFC I,

102 Fed. Cl. at 659. Then, on December 29, 2010, SUFI filed a claim with the

contracting officer for its attorneys’ fees and expenses. Id. at 659. More than six months

passed without a response from the contracting officer. Id. Instead, on July 7, 2011, Air

Force counsel emailed SUFI that “it could consider the claim deemed denied in its

entirety.” Id. at 659-60. On July 8, 2011, SUFI filed the present action.

The Court has already granted summary judgment in SUFI’s favor on the issue of

liability for attorneys’ fees and expenses. SUFI CFC II, 105 Fed. Cl. at 195. Thus, the

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only remaining question is the amount of those damages. SUFI argues that it should

recover $904,188.70, exclusive of interest. In contrast, the Government argues that

portions of SUFI’s claim for attorney fees, and its entire claim for interest, should be

dismissed outright. However, even if they are not dismissed, the Government submits

that SUFI should recover no more than $256,543.74, exclusive of interest. For the

reasons below, the Court agrees largely with SUFI’s position, except that SUFI cannot

recover overhead and profit.

Analysis

A. Affirmative Defenses

In its post-trial brief, the Government raises two new arguments against SUFI’s

recovery. First, the Government moves to dismiss a “significant portion of SUFI’s

claimed fees” because SUFI failed to exhaust its administrative remedies as required by

the PSA. Def.’s Post Trial Br. (July 15, 2013), at 54 (“Def.’s Br.”). Second, the

Government argues that under the terms of the PSA, SUFI released its claim for fees

regarding the transition and shutdown work. Id. at 56-58. As will be shown, both of

these arguments are untimely and therefore cannot succeed.

Each argument constitutes an affirmative defense. See Jones v. Bock, 549 U.S.

199, 212 (2007) (stating that exhaustion is generally regarded as an affirmative defense);

RCFC 8(c)(1) (listing release as an affirmative defense). Ordinarily, these defenses are

waived if not raised by motion or answer. Kontrick v. Ryan, 540 U.S. 443, 459 (2004).

The rationale behind such waiver is strengthened where, as here, the defenses are raised

for the first time after trial, as this delay “prejudice[s] both the plaintiffs and the

adjudicatory process.” Nager Elec. Co. v. U. S., 396 F.2d 977, 982 (Ct. Cl. 1968)

(concluding that a defendant, by its conduct, can waive its rights under a contractual

disputes clause).

Furthermore, even if timely, both arguments would fail on the merits. The Court

has already considered and rejected the exhaustion defense, noting that SUFI’s

administrative exhaustion requirements were excused by the contracting officer’s failure

“to issue a final decision within a reasonable timeframe.” SUFI CFC I, 102 Fed. Cl. at

661. The release defense also is meritless. Although the PSA provides that SUFI may

not seek further payments from the Air Force “with respect to the sale of the SUFI

system,” it also states that SUFI “does not waive any rights it may have to collect all

damages otherwise available” for breach of contract. PX 61 at 3 (¶ 5). Consequently,

both affirmative defenses must fail.

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B. Attorneys’ Fees

Previously, the Court held that SUFI is entitled to its attorneys’ fees and expenses

as the direct and foreseeable result “of the Government’s ‘breach of its contractual

undertakings.’” SUFI CFC II, 105 Fed. Cl. at 195 (quoting Mass. Bay Transp. Auth. v.

United States, 129 F.3d 1226, 1232 (Fed. Cir. 1997)). The Court further explained that

the proper measure of attorneys’ fees is the “lodestar” method, which multiplies the

number of reasonable hours by a reasonable hourly rate. Id. at 191. Thus, the issue at

trial was the proper number of hours and the appropriate rate.

1. The Hours Worked are Reasonable.

A party seeking attorneys’ fees must document and submit evidence of the number

of hours worked. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). Counsel are “not

required to record in great detail how each minute of his time was expended,” but should

at least “identify the general subject matter of [the] time expenditures.” Id. at 437 n.12.

A basic principle guiding the determination of reasonableness is that “[h]ours that are not

properly billed to one’s client also are not properly billed to one’s adversary.” Id. at 434

(emphases in original). Accordingly, the party seeking an award of fees is not entitled to

recover fees for “hours that are excessive, redundant, or otherwise unnecessary.” Id.

SUFI divides the claimed hours, from August 27, 2004 through July 1, 2005, into

three categories: (1) claim preparation and transition activities; (2) responding to

inquiries from the contracting officer and the DCAA; and (3) settlement efforts. Pl.’s Br.

at 21-22. The Government does not dispute the number of hours assigned to the third

category. Def.’s Br. at 70. However, the Government does object to the claim as it

relates to the first two categories on the grounds that it “is vague, fails to allocate time

between different tasks, contains unreasonably large minimum time increments, lacks

billing judgment, and does not demonstrate proper allocation of work among staff.” Id.

at 58. Therefore, the Government argues, the Court should apply, “at a minimum, a 20

percent proportionate redistribution of Mr. Claybrook’s hours and a 30 percent across-

the-board reduction.” Id. None of these objections is persuasive.

The Government’s arguments, as well as the authorities cited in support of them,

can be reduced to the simple proposition that a court must make a determination of what

is reasonable. See, e.g., Heller v. D.C., 832 F. Supp. 2d 32, 49 (D.D.C. 2011) (stating

that a fee application must have sufficient detail to show the reasonableness of the

claimed hours). While the cases cited in the Government’s brief resulted in reductions to

the claimed fees, they did so only because the original requests were, for a variety of

reasons, deemed unreasonable. However, the specific circumstances of those cases do

not exist here. See, e.g., Eureka Inv. Corp. v. Chi. Title Ins. Co., 743 F.2d 932, 941 (D.C.

Cir. 1984) (“Time recordkeeping must be relatively detailed in [actions involving fee-

shifting statutes] for several reasons not applicable to private damages actions.”

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(emphasis added)). On the contrary, if anything, the hours requested in this case

represent a conservative figure.

At trial, SUFI presented evidence that Crowell & Moring, consistent with its usual

billing practice, tracked the number of hours worked on a daily basis and consolidated

those entries in an electronic billing system. Rynberk, Tr. 84, 86; Claybrook, Tr. 165-66;

see also PX 8 (copies of timesheets). According to the assigned charge number, these

hours were all associated with the SUFI matter and, more specifically, with the Air

Force’s material breach. Claybrook, Tr. 165-67, 171-72; PX 8. Additionally, in March

2006, Mr. Claybrook prepared a chart that allocated non-litigation, claim preparation

hours to specific claims, excluding hours allocated to the claims denied by the ASBCA.

Claybrook, Tr. 167, 171, 176; PX 1 (Attach. A ¶ 6); PX 2; PX 64.

SUFI has met its burden by providing evidence of its claimed hours, and there is

nothing in the record to persuade the Court that these hours are “excessive, redundant, or

otherwise unnecessary.” The claims presented by SUFI were large and complex, totaling

over $130,000,000, and involved complicated methods of calculating damages. See

generally SUFI CFC III, 108 Fed. Cl. at 295. Moreover, in a case such as this, where the

law firm is working on a contingency basis and has no guarantee that it will recover its

costs, there is ample motivation for the firm to maximize both its efficiency and the

likelihood of success. Given these circumstances, it is not unusual that Mr. Claybrook,

an experienced attorney in the field of government contracts, elected to perform much of

the work himself. Accordingly, the Court is satisfied that the contemporaneous time

sheets prepared by Crowell & Moring accurately reflect the work done, and the

contingency nature of the hours worked provided sufficient incentive for Crowell &

Moring to exercise proper billing judgment.

2. The Rates Charged are Reasonable.

The other multiplier in the lodestar equation is the reasonable hourly rate. The fee

applicant bears the burden of producing satisfactory evidence that its requested rates are

reasonable. Blum v. Stenson, 465 U.S. 886, 896 n.11 (1984). As long as the requested

rates are “in line with those prevailing in the community,” they are presumptively

reasonable. Id. The prevailing market rate is “defined as the rate ‘prevailing in the

community for similar services by lawyers of reasonably comparable skill, experience,

and reputation.’” Avera v. Sec’y of Health & Human Servs., 515 F.3d 1343, 1348 (Fed.

Cir. 2008) (quoting Blum, 465 U.S. at 896 n.11).

First, SUFI presented testimony as to the rates typically charged and collected by

Crowell & Moring during the relevant time period. Claybrook, Tr. 142-43. SUFI then

presented substantial evidence supporting the reasonableness of those rates. For

example, SUFI offered an expert report by Mr. Peter Garvin, an experienced practitioner

in government contracts and partner in the Washington, D.C. office of Jones Day. After

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reviewing the billing rates charged by Crowell & Moring and comparing them with those

charged by Jones Day during the same time period, Mr. Garvin concluded that they were

comparable. PX 57 at 2. He further stated that “Crowell & Moring is one of the best

known law firms in the field of government contracts [and] consistently receives the

highest ratings from peers and rating organizations.” PX 57 at 9 (¶ 3). SUFI also offered

evidence of the substantial experience, education, and credentials of Mr. Claybrook and

his associates. See Claybrook, Tr. 104-07; PX 48-53 (résumés of Mr. Claybrook, his

associates, and paralegals). Finally, SUFI presented evidence of the market conditions in

the Washington, D.C. area, both through Mr. Claybrook’s testimony and through private

media surveys, such as those conducted by The National Law Journal, Chambers USA,

and Of Counsel. See Claybrook, Tr. 197-205; see also PX 26-27, 29-37, PX 41 (charts

summarizing numbers from private media surveys). This evidence, viewed as a whole,

amply demonstrates that the claimed rates are presumptively reasonable.

The Government’s response does not challenge this presumption. Rather, the

Government contends that instead of using Crowell & Moring’s rates, the fee calculation

should be based on the “Laffey Matrix.” See Def.’s Br. at 80-82 (citing Laffey v. Nw.

Airlines, Inc., 746 F.2d 4 (D.C. Cir. 1984), overruled in part by Save Our Cumberland

Mountains, Inc. v. Hodel, 857 F.2d 1516 (D.C. Cir. 1988)). This contention misses the

mark. Ultimately, the issue is not the validity of the Laffey Matrix, but whether the

Government can rebut the presumption of reasonableness that attaches to Crowell &

Moring’s billing rates. Simply put, SUFI has presented evidence that the charged rates

are reasonable, and the Government has failed to present evidence to the contrary.

Therefore, based on the Court’s determination that Crowell & Moring’s rates and

hours worked were reasonable, the Court awards SUFI $697,702.50 in fees.

3. SUFI May Recover All of Its Claimed Expenses.

SUFI claims $25,486.81 in expenses. 2 The Government and SUFI have stipulated

that $15,527.04 of those expenses is recoverable. Pl.’s Br. at 38; Def.’s Br. at 50. The

balance of $9,959.77 remains in dispute.

The Government’s basic contention is that SUFI cannot prove all of the expenses

were reasonably incurred. Specifically, the Government argues that computer library

research costs, long-distance telephone charges, facsimile and postage charges, and some

travel expenses were insufficiently documented. Def.’s Br. at 93. Consequently, the

Government argues, it cannot be determined whether those costs were reasonable, and the

claims for those expenses must be rejected. Id. at 95.

2

SUFI originally claimed $25,648.46, but later acknowledged a calculation error of $161.65 and reduced

its claim by that amount. Pl.’s Br. at 3 n.2.

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However, the testimony at trial was that Crowell & Moring followed its usual

billing practice for these expenses, and clients, including SUFI, regularly accept them as

adequate. Rynberk, Tr. 87-88, 90, 92-95; Myers, Tr. 46; PX 23; PX 24. Regarding the

computer library research, long-distance telephone, and facsimile and postage charges,

Crowell & Moring demonstrated that each event required an attorney to enter the charge

number for the specific client, then to itemize the expense on firm billing records.

Regarding the travel charges, Crowell & Moring provided, among other evidence,

receipts from the same period for the same types of costs. PX 4; Myers, Tr. 49-61;

Claybrook, Tr. 158-62.

“As with attorney’s fees, the court will not second-guess counsel’s decision to

incur expenses it thought necessary to properly present its case.” Florida Rock Indus.,

Inc. v. United States, 9 Cl. Ct. 285, 291 (1985). In this case, the Court is satisfied by the

evidence presented that the claimed expenses were reasonably incurred and properly

valued. Accordingly, the Court awards SUFI $25,486.81 in expenses.

4. Interest is Recoverable Under the PSA from the Date the Work was Performed.

SUFI claims interest on its award under the PSA, which provides in relevant part:

The Air Force agrees to the following concerning any claims

filed by SUFI with the AF concerning the Contract and this

Agreement:

(a) The Air Force will be liable to pay interest on any

amounts paid or recovered by settlement or judgment from

the earlier of (i) the date of receipt of the claim or (ii) the date

damages are actually incurred, until payment.

PX 61 § 4. Neither the validity of this section nor the applicability of the Federal Reserve

Board’s prime rate is at issue. SUFI CFC III, 108 Fed. Cl. at 301 (citing SUFI ASBCA

VIII, ASBCA No. 55306, 09-1 BCA ¶ 34018 (Nov. 21, 2008)). Rather, the parties’

dispute is over which of the two dates specified in the PSA triggered the accrual of

interest.

The Government argues that SUFI’s contingency fee arrangement means that the

charges were not actually incurred at the date the services were performed. Def.’s Br. at

89-90. Thus, the Government posits, the earliest date of accrual would be December 29,

2010, when SUFI submitted its claims for fees and expenses to the contracting officer.

Id. In support of this argument, the Government cites only one authority, see id. at 90

(citing Bluebonnet Savings Bank, F.S.B. v. United States, 339 F.3d 1341, 1344-45 (Fed.

Cir. 2003)), but Bluebonnet stands only for the unremarkable proposition that “the non-

breaching party should not be placed in a better position through the award of damages

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than if there had been no breach,” 339 F.3d at 1345. Though true as a general principle,

that statement offers no assistance in determining which date is correct under these

specific circumstances.

A more helpful rule is that fees are incurred either when they are paid or when

“there is an ‘express or implied agreement that the fee award will be paid over to the

legal representative.’” United Partition Sys., Inc. v. United States, 95 Fed. Cl. 42, 53

(2010) (quoting Phillips v. Gen. Servs. Admin., 924 F.2d 1577, 1583 (Fed. Cir. 1991)

(per curiam)). Following that rule, there can be no dispute that SUFI is entitled to interest

from the date damage was actually incurred.

5. SUFI is Not Entitled to an Overhead and Profit Multiplier.

As a final matter, SUFI seeks a 25 percent “combined overhead and profit rate . . .

to be applied to its attorneys’ fees and expenses.” Pl.’s Br. at 41. SUFI does not,

however, provide adequate justification for this claim.

Although the Federal Acquisition Regulation (“FAR”) does not control in this

instance, it does offer useful guidance. SUFI CFC II, 105 Fed. Cl. at 188 & n.2. Here,

the relevant guidance is that awards of overhead and profit are premised on the

contractor, through its subcontract management functions, providing some benefit to the

Government. See FAR 52.215-23 (stating that the Government shall not pay for indirect

costs or profits on work performed by a subcontractor where the contractor “adds no or

negligible value to a contract”).

In this case, the Court agrees with the Government that Crowell & Moring “was

running the show.” Def.’s Br. at 88. This is understandable, because, unlike SUFI,

whose contract with the Air Force was its first government contract, Myers, Tr. 38, Mr.

Claybrook has been practicing government contracts law for “the dominant part” of his

career, Claybrook, Tr. 107, and is highly regarded in this field, PX 57 at 9 (¶ 3). Indeed,

although Mr. Myers testified that that he “worked closely” with Mr. Claybrook,

communicating with him by email, by telephone, and in person, Myers, Tr. 38-39, there

is nothing in the record indicating that SUFI added anything more than negligible value

to Mr. Claybrook’s work. In fact, just a few days before SUFI filed its claims, Mr.

Claybrook went to SUFI’s corporate office in New Jersey with “all the claims and walked

through them with [Mr. Myers] and Mr. Pearson.” Myers, Tr. 42. Mr. Myers testified

that he thought Crowell & Moring “did a great job . . . organizing [the claims] and putting

them together.” Myers, Tr. 42. The Court agrees with this sentiment, but does not agree

with SUFI that it added any material value to this work. Accordingly, SUFI is not

entitled to overhead or profit.

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Conclusion

For the reasons set forth above, the Court awards SUFI all of its claimed

attorneys’ fees and expenses, with interest calculated at the Federal Reserve Board’s

prime rate. The Court concludes, however, that SUFI has failed to establish its

entitlement to a 25 percent profit and overhead rate.

In sum, the Court awards SUFI damages in the amount of $697,702.50 in

attorneys’ fees and $25,486.81 in expenses, for a total of $723,189.31, plus cumulative

interest at the Federal Reserve Board’s prime rate, see PX 1 Ex. 7, until payment.

IT IS SO ORDERED.

s/ Thomas C. Wheeler

THOMAS C. WHEELER

Judge

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