# Appendix — Inslaw, Inc. v. United States, 112 S. Ct. 913 (1992) (No. 91-591) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_2844%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1992 ## Text Suoreme Court, U.S G1- 59] FILED The limits of the turnover provisions in the bankruptcy code underscore the improbability that Congress intended In adding the “exercise control” language to § 362(a)(3) in the 1984 Bankruptcy Amendments, see 98 Stat. at 371, Congress gave no explanation. One court has traced this language to the description of § 362(a)(3) found in the committee reports on the 1978 Bankruptcy Act, which refer to property of the estate as “property over which the estate has control or possession”. See In re 48th Street Steakhouse, Inc., 61 B.R. 182, 187 & n.10 (Bankr S.D.N.Y. 1986), aff'd, 77 B.R. 409 (S.D.N.Y.), aff'd, 835 F.24 427 (2d Cir 1987); House Report at 341; Senate Report at 50. Nn 8] § 362(a) to have the sweeping scope that Inslaw would assign it. It is common ground that these cannot be used against property held by another under a claim of legal right. See cases cited at p. 9 above. As Inslaw’s view would turn every act of the possessor that implicitly asserts his title over disputed property into a violation of § 362(a), it would give the bankruptcy court jurisdiction over all such disputes, creating a kind of universal end-run around the limits on turnover. Our understanding of § 362(a) does not expose bankrupts to any troubling hazard. Here, for example, Inslaw retains whatever intangible property rights it had in enhanced PROMIS at the time of filing. If the Department has violated the contract or Modification 12, Inslaw as debtor-in-possession has all the access to court enjoyed by any victim of a contract breach by the United States government. If Modification 12 was induced by fraud, as the bankruptcy court found, then Inslaw has its contract remedies or perhaps a suit for conversion. Assuming that its privately-funded enhancements to PROMIS qualify as proprietary trade secrets, as the bankruptcy court found, it may be able to sue the government under the Trade Secrets Act or even under the Administrative Procedure Act for improper disclosures of its trade secrets by government officials. See Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C. Cir. 1982). Extending the expansive mood expressed in its decision on use of enhanced PROMIS, the bankruptcy court found two violations arising from the Department’s failure to cure alleged pre-petition misconduct. First, having found fraud in the induce- ment of Modification 12, it found a violation in the Department’s failure to cure the fraud. 83 B.R. at 169. Second. it held that the Department’s “failures to act to remedy past acts of bias, impartiality [sic] and harassment against INSLAW also constitute actionable violations of the automatic stay provisions.” /d. One of the remedies given by the court for these violations was an order enjoining the Department from allowing 162 three named officials to participate in any further decisions, negotiations or proceedings (including the contract appeals board case) involving Inslaw. Here the bankruptcy court appears to have left the words of the statute in the dust. The automatic stay, as its name Suggests, Serves as a restraint only on acts to gain possession or control over property of the estate. Nowhere in its language is there a hint that it creates an affirmative duty to remedy past acts of fraud or bias or harassment as soon as a debtor files a bankruptcy petition. The statutory language makes clear that the Stay applies only to acts taken after the petition is filed. See 11 U.S.C. § 362(a); In re Stucka, 77 B.R. 777, 782 (Bankr. C.D. Cal. 1987) (“The automatic stay is effective as of the moment of filing of the bankruptcy petition.”); Jn re Mewes, 58 B.R. 124. 127 (Bankr. D.S.D. 1986) (same). Like the defendant in Northern Pipeline, the Department has been hauled in front of the bankruptcy court simply because Inslaw filed for bankruptcy, and Inslaw has succeeded in con- vincing the bankruptcy court to adjudicate its contract, tort (conversion), trade secret, and administrative law (impartiality) disputes with the Department, although the court had no basis under the Bankruptcy Code to do so. Because the Department has taken no actions since the filing of the bankruptcy petition that violate the automatic stay, the bankruptcy court must, as both a statutory and constitutional matter, defer to adjudication of these matters by other forums. B In a separate order, the bankruptcy court held that the Department violated the automatic stay by contacting the Direc- tor of the Executive Office of the United States Trustees in an effort to have Inslaw’s Chapter 11 reorganization converted into a liquidation under Chapter 7. Mem. Op. at 9-11; 83 B.R. at 149-50. Here, the literal words of § 362(a) might actually cover a request by the U.S. Trustee to liquidate Inslaw’s assets under 17a Chapter 7, since such a request could be characterized as an act to liquidate “property of the estate”. For obvious reasons, how- ever, Courts have recognized that § 362(a) cannot stay actions specitically authorized elsewhere in the bankruptcy code, such as motions to convert reorganizations to liquidation proceed- ings, see 11 U.S.C. § 1112(b) (1988). Thus, even if the Depart- ment had managed to instigate the filing of a motion to convert (which it did not), as a matter of law there would be no violation of § 362(a). See /n re Hodges, 83 B.R. 25, 26 (Bankr. N.D. Cal. 1988). Once again, there was no basis for finding a violation of the automatic Stay. x * The bankruptcy and district courts here both concluded that the Department “fraudulently obtained and then converted en- hanced PROMIS to its own use”. Mem. Op. at 39. Such conduct, if it occurred, is inexcusable. Offensive as lawless conduct by one branch of government may be, however, see Olmstead v. United States, 277 U.S. 438, 485 (1928) (Brandeis, J., dissent- ing), quoted in In re Inslaw, Inc., 83 B.R. at 172, it does not justify another's lawlessness. As the bankruptcy court had no jurisdiction to hear the claims asserted under § 362(a), we reverse the district court and remand the case with directions to vacate all orders concerning the Department’s alleged violations of the automatic stay and to dismiss Inslaw’s complaint against the Department. So ordered. la No. 90-5052 United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1990 D.C. Civil Action Nos. 88-0698, 88-0697, 88-0696, 88-0528 United States of America, et al., - Inslaw, Inc. And Consclidated Case Nos. 90-5053, 90-5054, and 90-5055 APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Before: BUCKLEY, WILLIAMS, and RANDOLPH, Circuit Judges JUDGMENT These causes came on to be heard on the record on appeal from the United States District Court for the District of Colum- bia and were argued by counsel. On consideration thereof, it is ORDERED and ADJUDGED, by the Court, that the judg- ments of the District Court appealed from in these causes are hereby reversed, and the cases are remanded with instructions, in accord- ance with the Opinion for the Court filed herein this date. PER CURIAM FOR THE COURT: Constance L. Dupre, Clerk Date: May 7, 1991 Opinion for the Court filed by Circuit Judge Williams 19a UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Civil Action Nos. 88-J528-WBB 88-0696-WBB 88-0697-WBB_ 88-0698-WBB UNITED STATES OF AMERICA and the UNITED STATES DEPARTMENT OF JUSTICE, Appellants, v. INSLAW, INC., Appellee. Case No. 85-0070 (Chapter 11) IN RE: INSLAW, INC., Debtor. Adversary Proceeding No. 86-0069 INSLAW, INC., Plainuff, Ws UNITED STATES OF AMERICA, and THE UNITED STATES DEPARTMENT OF JUSTICE, Defendants. VIEMORANDUM This matter, before the court pursuant to 28 U.S.C. § 158(a), amounts to a consolidated appeal of the final judgments entered by the United States Bankruptcy Court against the United States of America and the Department of Justice (“DOS”) in favor of INSLAW, Inc. 20a BACKGROUND The relationship between the parties dates far prior to INSLAW, Inc. becoming a bankrupt, and certain uncon- troverted aspects of that relationship are set forth as briefly as possible as necessary background for understanding how the case develops to its present posture. In 1973, William Hamilton and Dean Merill formed the Institute for Law and Social Research, a non-profit corporation organized to develop computer software designed to automate the record-keeping and case monitoring activities of law enfor- cement offices. Under contract to the Law Enforcement Assis- tance Administration (LEAA), INSLAW developed the Prosecutor's Management Information System (“PROMIS’”). The parties do not dispute that this software which the bankruptcy court refers to as “old PROMIS” was developed with public grant money and was in the public domain. In 1980, the Institute learned that LEAA funding which was the Institute’s primary and almost sole source of income would dry up. The Institute then took steps to form a for-profit corporation, INSLAW, Inc., which would continue to market and enhance PROMIS as well as develop new proprietary computer software products. When the Institute on Law and Social Policy transformed itself into INSLAW, the Justice Department had several outstanding contracts with Inslaw. The first contract had beer. entered into in 1979 by the LEAA. This contract called for a three-year effort to maintain and upgrade PROMIS. However, by 1981, the LEAA ceased to exist and the justice Department transferred the contract to its Bureau of Justice Statistics (BJS). But, BJS lacked the funding necessary to carry out the third and fina! year of the contract. Consequent- ly, the Executive Office of the United States Attorneys (EOQUSA) allocated approximately $500,000 to pay for the last year of the contract. In return for this funding, INSLAW agreed 2la to make five specific enhancements to PROMIS. These enhan- cements later became known as the “BJS enhancements’. The Institute also entered into a second contract with the Justice Department in 1979. In this contract, the EOUSA paid fora pilot/feasibility study to determine whether PROMIS could be successfully installed in two large U.S. Attorneys’ Offices in California and New Jersey. In addition, the contract directed the Institute to develop a word processing version of PROMIS which would then be introduced into two smaller offices in Vermont and West Virginia. In late 1981, DOJ decided to go forward and implement the software used in the pilot project in the U.S. Attorneys: offices. and on November 2, 1981 issued a Request for Proposals (“RFP”) seeking bids on a contract to “develop and implement” a litigation management system in 89 U.S. Attorneys’ Offices in the continental U.S. and U.S. Territories. More specifically, the contract sought proposals for (1) implementing the com- puterized “pilot version” of PROMIS as supplemented by the BJS enhancements in 20 “large” U.S. Attorneys’ Offices; (2) creating and implementing a non-computerized version of that software for word processors in the remaining U.S. Attorneys’ Offices; and (3) providing necessary training, maintenance and support for three years. The RFP included a lengthy Statement of Work containing 60 paragraphs, one of which (3.2.4.2) stated: All systems enhancements, modifications, and development performed pursuant to this contract shall be incorporated within the systems which have al- ready been installed in the U.S. Attorneys’ Offices, including systems installed pursuant to other contracts in the District of Columbia, the District of New Jersey. the District of Vermont, the Southern District of California, and the Southern District of West Virginia. hae 2ia INSLAW responded to the RFP on December 2, 1981, and in reference to the “enhancements” mentioned in the above paragraph it stated: During the life of this project — but not as a part of this project — INSLAW plans new enhancements and modifications to the basic PROMIS software and to the original version of PROMIS for U.S. Attorneys. The parties negotiated for over two months, and finally entered into a contract on March 16, 1982. Prior to the execution of the contract, and for a time thereafter, there were extensive discussions about what INSLAW claimed were privately funded enhancements which were featured in PROMIS. In other words, INSLAW claimed that at the time of entering into the contract their version of PROMIS was considerably more advanced than it was at the time of the pilot project, and that it claimed proprietary rights to those features which were developed with other than government funding [In late May of 1982 James Rogers, an attorney representing Inslaw during a part of the negotiations, wrote to Stanley Morris, an Associate Deputy Attorney General, as follows: [Yjou expressed concern about the software itself, PROMIS 82, which Inslaw proposes to license to users for a fee commencing in June cf 1982. We are prepared to make the following representations, which I think should alleviate the Department’s con- cerns: PROMIS 82 is the sum of only three parts: (i) the “Original PROMIS,” that is, the public domain software as of May 15, 1981 as memorialized in tapes delivered to the Bureau of Justice Statistics; (2) enhancemeiits undertaken by Inslaw at private expense after the cessation of LEAA funding; and a , as —~ ~~ 4 4 Al J , y, -+ 24a grossly unfair treatment. DOJ made no meaningful response to these complaints, and INSLAW’s fortunes did not change. On November 19, 1982, DOJ’s technical representative formally requested a copy of the PROMIS software that was then in use by the U.S. Attorneys’ Offices. According to the Justice Department the request was motivated by concern over the financial viability of INSLAW. It is without dispute that because the government had not obtained the minicomputer hardware for each office, INSLAW arranged for the largest U.S. Attorneys’ Offices to use PROMIS on a time-sharing basis. In other words, because INSLAW could not install its software in the individual offices due to the government’s failure to procure computer equipment, the U.S. Attorneys’ Offices were nonethe- less allowed to connect-up through telephone lines to INS- LAW’s computer center and use the enhanced version of PRO- MIS that INSLAW had been providing to its other non-Justice Department customers. INSLAW took the position that the Justice Department had no right to the enhanced software that the U.S. Attorneys’ Offices had been using since this software had been provided to the Justice Department as a courtesy. DOJ countered that the contract obligated INSLAW to use public domain software for its implementation and that if proprietary enhancements had been added, it was up to INSLAW to prove it. In an effort to respond to the Justice Department's alleged concern over its financial viability, INSLAW first offered to provide the Justice Department with enhanced PROMIS if the government would agree to limit its distribution to the 94 U.S. Attorneys’ Offices and the EOUSA. The government, however, insisted that under its contract, INSLAW must provide software without restriction on distribution. INSLAW then offered to put copies of the disputed software in escrow, so that if INSL .W went bankrupt, then the government would receive the enhanced software and its interest would still be protected. DOJ rejected INSLAW’s escrow proposal. 25a Ultimately the parties sought to resolve their dispute by entering into a modification of the contract. Modification 12, as it became known, entered into on April 11, 1983, contained the following provisions: INSLAW would deliver to the government all PROMIS programs and supporting documentation developed for or relating to the contract. The government shall restrict the distribution of the software to the Executive Office for the U.S. Attor- neys and the ninety-four U.S. Attorneys’ offices pend- ing resolution of the dispute. DOJ agreed to continue to make advance payments to INSLAW. INSLAW agreed to abide by the contractual provisions relating to advance payments. The parties reaffirmed their understanding that their initial contract governs the rights to the disputed software. Shortly after the parties agreed to Modification 12, the government terminated the component of the contract that would have automated 74 offices using word processors. The parties disputed whether Modification 12 continued to apply to all 94 U.S. Attorneys’ Offices originally in the contract or instead to only the remaining 20 large offices. Although INSLAW and the Justice Department negotiated over the enhancements that INSLAW indicated that it had included in the proprietary version of PROMIS, the parties could not agree that the enhancements had been paid for with non- government funds. While INSLAW made several efforts to demonstrate the private financing of the enhancements, the government did not accept its methodology for allocating tund- ing. When asked to provide an alternative methodology that would be acceptable, the government declined. 26a Between August 29, 1983 and February 18, 1985, IN- SLAW installed PROMIS in all 20 U.S. Attorneys’ Offices as provided for under the contract. INSLAW implemented the enhanced version of the software. On February 7, 1985, shortly before completing the con- tract with the Justice Department, INSLAW filed for reorganiza- tion under Chapter 11 of the bankruptcy code. From the outset of the proceedings in the bankruptcy court, DOJ represented itself as a major creditor of INSLAW. Prior to bankruptcy, DOJ had developed a plan to imple- ment PROMIS beyond the 20 offices called for under the contract. In September 1985, upon learning of these plans, INSLAW protested to DOJ that the government’s efforts to copy and use PROMIS were unauthorized. Nonetheless, DOS proceeded to automate 23 additional offices using PROMIS. INSLAW subsequently filed a claim against DOJ for $2.9 million, the value of the standard licensing fees for the number of offices which were then to receive the allegedly unauthorized copies of the software. INSLAW instituted an adversary proceeding against DOJ in which it sought declaratory relief, an order enforcing the automatic stay, and damages for willful violation of the auto- matic stay. Inslaw, Inc. v. United States, Adv. Proc. No. 86-0069 (Bankr.D.D.C. June 10, 1986). DOJ responded to the complaint by filing a motion for withdrawal of the reference to the bankruptcy court and for dismissal of the complaint. Both of these motions were denied by the chief judge of the district court. Inslaw, Inc. v. United States, Adv. Proc. No. 86-0069 (D.D.C. January 1, 1987 and Mar~‘h 24, 1987). The bankruptcy court then bifurcated the case into two phases, liability (counts I-III) and damages (count IV) and set trial for July 20, 1987. Inslaw, Inc. v. United States, Adv. Proc. No. 86-69 (Bankr.D.D.C. July 20, 1987). 27a The first major turning point in the litigation occurred in late May and June, 1987. At that time, the bankruptcy court held an evidentiary hearing on INSLAW’ s allegations that the Justice Department had violated the automatic stay by attempting to convert INSLAW’s bankruptcy from a reorganization under Chapter 11 to a liquidation under Chapter 7.! After six days of testimony, on June 12, 1987, the court ruled that the Department of Justice violated 28 U.S.C. § 362(a), the automatic stay provision of the bankruptcy code, and found the government liable under 28 U.S.C. § 362(h) for compensatory damages, costs and attorneys’ fees. The court also held that if § 362(h) did not allow recovery against the government, then in the alterna- tive, the government was in contempt of court for its actions. From the bench, the court assessed compensatory damages of $1,000 as well as attorneys’ fees and costs but reserved for later decision the question of whether punitive damages could be awarded against the government. In addition, the court granted INSLAW’s request for an injunction against the Justice Depart- ment and the Executive Office of the U.S. Trustees (‘EOUST”) from having contact with the U.S. Trustee handling the IN- SLAW bankruptcy case but refused to bar the Justice Depart- ment from filing a proof of claim against INSLAW. The Aithough the normal method for challenging a party who has violated the automatic stay is to bring an adversary proceeding, that did not occur in this instance. Instead, the court allowed INSLA W to present its charges under a pending motion INSLAW had filed to “obtain independent handling” of the case by the Department of Justice. Motion to Stay Effect of February 17, 1987 Order Retaining Nixon, Hargrave, Devans and Doyle for 30 Days and for Court Assistance to Obtain Independent Handling of the Case by the Department of Justice, In re Inslaw, Inc., Ch. 11, 85-0070 (February 25, 1987). In issuing its ruling, the bankruptcy court recognized that the matter should have been handled as an adversary proceeding. App. at 132, Tran- script of Hearing on Independent Handling Motion at 1007, /n re Inslaw, Inc., Ch. 11, 85-0070 (June 12. 1987). However, after the investment of six davs of hearings, the court was reluctant to “exalt ... form over substance.” /d. 28a bankruptcy court order incorporating the bench ruling was issued on July 26, 1987. After listening to 23 witnesses and reviewing over 280 exhibits during the adversary proceeding hearings (July 20 to August 5, 1987), in a bench ruling on September 28, 1987 the bankruptcy court announced its decision in favor of INSLAW and set forth the basic grounds for its ruling. In doing so, the court extensively discussed the testimonial evidence as well as key documents. In addition, the court made numerous credibility findings and described the motivations that different witnesses may have had and how their testimony might have been in- fiuenced. Basically the bankruptcy court found that Brewer had developed intense dislike for Hamilton and INSLAW and that when he obtained the job as project manager of the contract between INSLAW and DOJ he sei out to harm INSLAW,, and that ultimately through him and others who acted with htm and/or implicitly condoned his efforts, the DOJ converted INSLAW’s enhanced PROMIS by trickery and deceit and was using and intended to continue to use INSLAW’s enhanced PROMIS in a fashion not contemplated by the contract and in such manner as to damage INSLAW’s estate. At the time of the bench ruling the court indicated that: Now, with respect to the adversary proceeding of Inslaw against the Department of Justice, | will make a generalized statement at this time and will request counsel for Inslaw to prepare a final judgment in accordance with this statement and will follow this statement with detailed written findings of fact and conclusions of law — Tr. of Adversary Proceeding, Jn re Inslaw, Inc., Adv. No. 86-0070 (Bankr.D.D.C. September 28, 1987) (Supp. App. at 43). The bankruptcy court rendered the following relief: 29a (1) A declaratory judgment in favor of INSLAW that it is the sole owner of the proprietary enhancements to PROMIS. (2) Adeclaratory judgment that the Justice Department wrong- fully exercised dominion and control over INSLAW’s software, and, as a result, violated the automatic Stay. (3) An injunction directing the Justice Department to be bound by the terms of INSLAW’s standard license agreement and requiring the Justice Department to compensate INSLAW under the terms of the license agreement from the date when INSLAW filed for bankruptcy. The court cited Lykes-Youngstown Corp., 504 F.2d 518 (Sth Cir.), reh’g denied, 505 F.2d 1304 (Sth Cir. 1974). The court left for a later hearing the precise amount due INSLAW. (4) A prohibition against the Justice Department from electing to use only the older version of FROMIS without first compensating INSLAW for the cost of removing the en- hancements. (5) An injunction preventing several Justice Department offi- cials who were involved in administering the INSLAW contract from further participation in the litigation, or in any decision involving the use of PROMIS at the Justice Department. (6) An award of attorneys’ fees and expenses to INSLAW. Id. at 84-88. The detailed written findings of fact and con- clusions of law in support of its decision were entered on January 25, 1988. After subsequent hearings on count 4 of the complaint (damages) the court awarded $6.79 million to INSLAW. Also costs and attorneys’ fees were awarded. These adverse rulings are the subject of this appeal. INSLAW also sought legal remedies against the Justice Department before the Department of Transportation Board of | 30a Contract Appeals (“DOTBCA”). INSLAW filed notices of ap- peals with DOTBCA in February 1985, and May and November 1986. Subsequent to these notices, the first complaint before DOTBCA was filed on June 23, 1986, approximately two weeks after INSLAW instituted its adversary proceeding in bankruptcy court against the Justice Department for allegedly breaching the automatic stay provision. Additional claims were filed on Sep- tember 19, 1986 and August 24, 1987. INSLAW’s claims before DOTBCA fall into six categories: (1) computer time-sharing charges associated with the computer center operated by IN- SLAW and used by several U.S. Attorneys’ Offices; (2) contract target fees and voucher payments withheld by the Justice Department and additional fees due INSLAW as a consequence of changes in the scope of work ordered by the Justice Depart- ment; (3) indirect costs, including overhead; (4) direct costs; (5) costs, including legal fees, allegedly incurred by Inslaw because of the termination for convenience by the Justice Department of the word processing portion of the contract; and, (6) costs incurred because the Justice Department withheld payments. In four cases, the government counterclaimed for an amount in excess of the original claim. The table below summarizes the parties’ claims against each other before DOTBCA. Claim INSLAW DOJ against against DOJ INSLAW 1. Computer Center Cost: $ 409,694 $ 670,735 2. Fees 331,447 35,534 3. Indirect Costs, including overhead 569,751 466,868 4. Direct Costs 92,844 43,615 5. Costs, including legal 76,049 6. Consequences of withheld payments 109,777 ae Total $ 1,589,562 $1,216,752 3la On February 8, 1987, the bankruptcy court enjoined the DOTBCA proceedings. The Justice Department appealed and this court vacated the order of the bankruptcy court. In March 1989, this court also denied a motion by INSLAW to enjoin the DOTBCA proceedings. United States v. Inslaw, Inc., C.A. No. 89-352 (D.D.C. March 29, 1989). The matter of whether to allow the DOTBCA to proceed is not now before the district court. DISCUSSION DOJ makes numerous arguments in support of its appeal: (1) DOJ contends that under the doctrine of sovereign immunity, the bankruptcy court was without jurisdiction to decide the case. Even if the bankruptcy court had jurisdiction to decide the issues, it should have deferred to an agency board of contract appeals. (2) DOJ argues that the facts do not support a conclusion that the automatic stay provision of the bankruptcy code had been violated. (3) DOJ claims entitlement to de novo review. DOJ cites several reasons to support its notion of the standard of review, arguing that under 28 U.S.C. § 157(d), withdrawal of the proceeding to the district court was required, or alternatively, the bankruptcy court’s findings should be treated as contempt of court. Lastly, in support of this claim, the Justice Department makes the serious charge that the bankruptcy judge was not impartial and should have removed himself. During the course of this litigation, the Court of Appeals for the District of Colum- bia chose not to reappoint the bankruptcy judge for a new fourteen year term. The Justice Department contends that the decision by the D.C. Circuit not to reappoint the bankruptcy judge and subsequent events may have biased or prejudiced the judge’s behavior or,- at least, given the appearance of im- propriety. ee Teneo ee 32a (4) DOJ claims that the bankruptcy court was clearly erroneous in its findings of fact regarding both the adversary proceeding and the proceeding in which the court determined that the Justice Department had illegally attempted to convert INSLAW’s reorganization to a liquidation. (5) DOJ contends that as a matter of law, its actions, even if true, did not constitute a violation of law. (6) DOJ believes that the bankruptcy court exceeded its authority when it granted relief. (7) DOJ urges that no attorneys’ fees or costs should have been awarded. It is well settled law that absent waiver, the United States is immune from suit. United States v. Mitchell, 445 U.S. 535; reh’g denied, 446 U.S. 992 (1980); United States v. King, 395 U.S. 1 (1969). Only Congress can waive sovereign immunity; and, such waivers are to be strictly construed. Rose v. Rose, 481 U.S. 619, 635 (1987); In re Donovan, 872 F.2d 982, 994 (D.C. Cir. 1981). In enacting the bankruptcy code, Congress waived sovereign immunity in three instances.” First, once the govern- ment asserts a claim, immunity is waived for any counterclaim Section 106 of the bankruptcy code, 11 U.S.C. § 106 (1988) provides (a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose. (b) There shall be offset against an allowed claim or interest of a governmental unit any claim against such governmental unit that is property of the estate. (c) Except as provided in subsections (a) and (b) of this section and notwithstanding any assertion of sovereign immunity - 33a arising out of the same transaction or occurrence. 11 U.S.C. § 106(a). There is no limit on the amount of the counterclaim. Second, the government cannot claim immunity from any offset of an allowed claim of the government. The offset need not arise out of the same transaction or occurrence but, recovery is limited to the amount of the government’s claim. 11 U.S.C. § 106(b) (1988). Finally, § 106(c) provides an additional waiver of sovereign immunity for those provisions of the bankruptcy code that contain “trigger” words regardless of whether or not the government asserts a claim. The bankruptcy court reasoned that DOJ had waived im- munity under §§ 106(a) and (b), and also interpreted § 106(a) as sufficiently broad to bestow jurisdiction. DOJ urges that inasmuch as it had not filed a proof of claim against INSLAW, it had not waived its immunity under §§ 106(a) or (b). It also argues that the bankruptcy court’s interpretation of § 106(c) was invalid. In Hoffman v. Connecticut Income Maintenance Dept., 109 S.Ct. 2818 (1989), the Supreme Court examined whether the eleventh amendment barred monetary recovery against a state under § 106(c).? Justice White construed § 106(c) narrowly, holding that because congressional intent to abrogate the eleventh amendment was not unmistakably clear on the face of the statute, no waiver could be found. Nonetheless, even under a narrow reading of § 106(c), Justice White observed that § 106(c)(2) “is more indicative of declaratory and injunctive relief.” 109 S.Ct. at 2823. Indeed, the government concedes that (1) a provision of this title that contains “creditor”, “en- tity”, or “governmental unit” applies to governmental units; and (2) a determination by the court of an issue arising under such a provision binds governmental units. This case was stayed pending the decision in Hoffman inasmuch as it appeared that it would have a direct bearing on a critical aspect of this case. ee ee >A Ia its “sovereign immunity is waived with respect to declaratory and injunctive relief entered pursuant to the automatic stay, section 362.” Appeliant’s Brief at 51, n.36. Thus, ata minimum, under § 106(c) the bankruptcy court had jurisdiction to assess the liability of the Justice Department for violating the automatic stay and for issuing declaratory and injunctive relief pursuant to the finding of liability. For the bankruptcy court to award compensatory damages, attorneys’ fees and costs, jurisdiction must be found in § 106(a). ne bankruptcy court concluded that the filing of a formal proof of claim Is not a prerequisite to a finding of a waiver of sovereign immunity under § 106(a). Atascadero State Hospital v. Scanlon, 473 U.S. 234, 242, reh’g denied, 473 U.S. 926 (1985), mandates that Congressional intent be “unmistakably clear in the language of the statute.” See also Hoffman, 109 S.Ct. ai 2822. The language of § 106(a) makes no mention of the requirement of a proof of claim. Therefore, no requirement of a proof of claim should be assumed from the statute. Even if the court were to look beyond the face of the statute (contrary to the Supreme Court’s teaching in Atascadero), the legislative history provides even more compelling evidence that no proof of claim need be filed. [he original version of § 106 would have predicated a waiver Of immunity on the filing of a proof of claim by the government. Both the House and Senate bills contained the ] la¢ oan > tollowing language (a) A governmental unit thai files a proof of claim under section 501 of this title is deemed to have waived sovereign immunity with respect to any claim igainst such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit’s claim arose 3Sa H.R. 8200, 95th Cong., Ist Sess., 324 (1977) and S. 2266, 95th Cong., 2d Sess., 313 (1978) (emphasis added). As enacted by Congress, §§ 106(a) and (b) make no mention of the proof of claim requirement; the reference to the filing of a proof of claim was dropped when the bill became law. The government con- tends that this was merely a stylistic change. The court is not persuaded by this agrument. “What Congress rejected should not be injected.” Jn re Davis, 20 Bankr. 519, 521 (Bankr.M.D.Ga. 1982). Thus, the allowability of a counterclaim against the government does not require the filing of a formal proof of claim. See also Kennedy, “Automatic Stays Under the New Bankruptcy Code,” U. Mich. J. L. Ref. 1, 30 n.120 (1978). Moreover, § 101(4) defines “claim” very broadly.4 The definition is a substantial departure from the prior law in which a Claim was tied to the concept of provability in an effort to limit the kinds of debts that could be paid in a bankruptcy proceeding. See 2 Collier on Bankruptcy, § 101.4 (15th ed., 1989). Under the present law, many more types of rights are considered claims and are subject to the bankruptcy code. The notion of the filing of a formal proof of claim seems inconsistent with this section of the bankruptcy code as well as § 106(a). The government’s actions throughout the course of the litigation suggest a calculated decision to assert its claims Section 101(4) reads: Claim means — (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legai. equi- table, secured or unsecured; or (B) right to equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, un- disputed, secured, or unsecured ———————— 36a against Inslaw until such time that it appeared that the govern- ment had more to lose than to gain. The government should not be allowed to hide behind its shield of sovereign immunity once itenters the fray and manifests a clear intent to put the debtor at risk for its monetary claims. The existence of the government’s claims can be derived from its conduct. Specifically, according to testimony before the bankruptcy court, the government attended the meeting of un- secured creditors. In at least one meeting in March 1985, counsel for the Justice Department asserted the government’s status as a creditor. In a motion made to the bankruptcy court contesting the application of INSLAW’s attorneys for interim compensa- tion, the government stated that its standing to object rested upon the fact that the United States was “a creditor of debtor Inslaw. Inc.” Objection by the United States to the Application for Interim Compensation, /n re Inslaw, Inc., Ch. 11, 85-0070 (Bankr.D.D.C. Aprii 17, 1985). In June 1985, the government represented itself to the bankruptcy court as “probably the largest unsecured creditor” of INSLAW. This representation was repeated to the bankruptcy court during a July 2, 1985 hearing of INSLAW’s motion for a confidentiality order. Response by the United States to Debtor’s Application for Confidentiality of Certain Information, /n re Inslaw, Inc.. Ch. 11, 85-0070 (Bankr.D.D.C. June 14, 1985). On the basis of this representation, the bankruptcy court recognized the United States as “one of the largest unsecured creditors in this proceed- ing.” Opinion Concerning Application by Debtor to Hold Cer- tain Information in Camera, In re Inslaw, Inc., 85-0070 (Bankr.D.D.C. July 15, 1985) (App. at 103). When the United States appealed the bankruptcy court's decision regarding the confidentiality order, it again repeatedly represented itself as a major unsecured creditor. Memorandum of the United States in opposition to INSLAW’s Motion to Dismiss at 1-3, (Supp. App. at 4-6). In the same filing, govern- 38a recovery from the estate and when this intent is made known before the bar date, then an informal proof of claim has been properly filed. /n re Int'l Horizons, Inc., 751 F.2d 1213, 1217 (11th Civ. 1985). In reaching its decision that the government had filed an informal proof of claim, and thus had waived sovereign im- munity under § 106(a), the bankruptcy court relied upon /n re Davis, 20 Bankr. 519 (Bankr.M.D.Ga. 1982). It concluded that: The government should not be permitted to defeat Inslaw’s claim against it on the ground that it has not filed a formal proof of claim and hence has not waived sovereign immunity, and then later be able to obtain a distribution from Inslaw’s assets by perfecting its already -asserted informal proof of claim. Sucha result would offend equity and conscience. “Fairness re- quires that a governmental unit cannot make an infor- mal or incomplete claim to protect its right to share in subsequent distribution and also assert sovereign im- munity.” 76 Bankr. 224, 230 (quoting /n re Davis, 20 Bankr. 519, 523 (Bankr.M.D. Ga. i1982)). The government counters that Davis is the only case where an informal claim has been sufficient to waive sovereign im- munity under § 106(4). However, Davis and the bankruptcy court have made the logical extension from numerous courts that have concluded that a proof of claim can be found once a creditor indicates the nature and amount of his claim and indicates his intentto file aclaim. See In re Anderson-Walker Industries, Inc.. 798 F.2d 1285, 1287-88 (9th Cir. 1986); In re Sambo’'s Res- taurants, Inc., 754 F.2d o11, 815 (9th Cir. 1985); In re Int'l Horizons, Inc., 751 F.2d 1213, 1217 (11th Cir. 1985). These decisions are wholly consistent with the bankruptcy code. 39a The government points out that inasmuch as it has stated for the record (after the issue was raised) that it does not intend to perfect its claim by filing a forrnal proof of claim, there is no possibility of the government participating unfairly in any dis- tribution of INSLAW'’s estate. However, in effect this renuncia- tion is more damaging to the government’s position than it is helpful. Obviously it realizes that but for its expressed renuncia- tion of its intent to perfect its claim, it has already sufficiently asserted a claim so as to be able to perfect :i — even beyond the bar date for filing. In other words, the government attempts to kill a live claim by renouncing its intention to follow through on it. Under its theory the United States is privileged to raise and lower its protective canopy of sovereign immunity at will — depending upon the relative advantages of So doing at any particular time. Conceivably, if we were to accept this proposi- tion the government could assert a claim as it has here, and then delay amending it by the “formal proof” until after the statute of limitations had run on some conduct which clearly would have been the basis of a valid counterclaim. There is no indica- tion that the statute contemplates such mischief. In sum, this court is convinced that under the statutory scheme enacted by Congress, the bankruptcy court correctly exercised its jurisdiction over the United States Justice Depart- ment. First, under § 106(c), the bankruptcy court had jurisdiction to hear claims seeking injunctive and declaratory relief. Second, by its actions in portraying itself as a creditor and asserting claims against Inslaw the government waived its immunity under § 106(a) to Inslaw’s counterclaims for monetary damages. Thus, the government's sovereign immunity had been effective- ly waived. Moreover, because § 106(a) forms the basis of the waiver, itis complete; the entire bankruptcy code applies includ- ing those provisions such as § 362(h) which provide for monetary damages. 40a The goveri ment next argues that even if the bankruptcy court properly had jurisdiction over the parties, it should have deferred to a specialized agency appeals board. According to the government, where issues of government procurement are in- volved, deferral is mandatory. The government’s argument assumes that, in essence. {NSLAW’s claims against the government are rooted in govern- ment contract law. If that were so then the proper forum for relief would be the Department of Transportation Board of Contract Appeals with a right of appeal to the claims court. See Jn re Gary Aircraft Corp., 698 F.2d 775, 780-84 (Sth Cir.), cert. denied, 464 U.S. 820 (1983) (because government contracting law tends to be “technical and esoteric” and there exist specialized fora to resolve such disputes, the liquidation of claims arising out of a contract dispute should be deferred to an agency board of contract appeals). But the issues in the instant case do not involve the liqui- dation of a contract claim. Indeed, INSLAW’s case is Squarely grounded in bankruptcy law. It seeks relief for alleged violations of the automatic stay provision of the bankruptcy code. It is hard to think of a provision more central to bankruptcy policy than the automatic stay provision. In a case that appears factually quite close to the present dispute, the D.C. Circuit has held that deferral was not only not required but was inappropriate. Megapulse, Inc. y. Lewis, 672 F.2d 959 (D.C. Cir. 1982). In Megapulse, a government con- tractor sought to enjoin in district court, the dissemination of proprietary trade secrets by the Coast Guard. The government claimed under the contract it had lawfully gained a right to the contractor’s trade secrets. Since the dispute involved contract law, the appropriate adjudicatory mechanism was through agen- cy review and ultimately to the claims court. The district court agreed, but the D.C. Circuit did not. 4la The Circuit held that the mere existence of a contract is not dispositive of which forum is mest appropriate. “The mere fact that a court may have to rule on a contract issue does not, by triggering some mystical metamorphosis, automatically trans- form an action based on trespass Or conversion into one on the contract...” 672 F.2d at 968. Like the Justice Department in the instant case, [i]t is actually the government, and not Megapulse, which is relying on the contract, attempting to show that the Coast Guard lawfully came into possession of the property and is empowered by the contract to put the entrusted information out for commercial use... [W]e do not accept the government’s argument that the mere existence of such contract-related issues must convert this action to one based on the contract. This court retains the power to make rational distinc- tions between actions sounding genuinely in contract and those based on truly independent legal grounds. 672 F.2d at 969-70. The record shows that the bankruptcy judge properly used his discretion to decide a question of law regarding the owner- ship of the enhanced PROMIS software that was ancillary to his determination of whether there had been a violation of the automatic stay. Because the matter before the bankruptcy court sounded in bankruptcy law, no deferral was necessary. The government urges the court to review the bankruptcy Court’s finding de novo. First, the government contends that because issues presented in the instant case involved considera- tion of both the bankruptcy code and other laws affecting interstate commerce, the chief judge of this court incorrectly refused to withdraw the reference of the ease to the bankruptcy court. Second, DOJ argues that the bankruptcy court’s findings of fact and determination of liability were made under that court's general civil contempt power and thus must be reviewed 42a de novo. Alternatively, the government claims that because the bankruptcy court purportedly violated its pretrial order, the government is entitled to a new trial. Finally, the Justice Depart- ment makes the serious charge that the bankruptcy judge ex- hibited the appearance of bias and therefore, should have recused himself. This is the second time the government has made this charge. The government filed a petition for writ of mandamus with the district court Seeking an order requiring the bankruptcy judge to disqualify himself. The chief judge of this court denied that writ. Jn re United States, Misc. No. 88-0032 (D.D.C. January 25, 1988). The government now asks this court to declare that recusal was in order and grant a new trial. For the following reasons, the clearly erroneous standard of review will be applied to the bankruptcy court’s findings of fact and no new trial will be granted. The standard of review for a core proceeding as defined by 28 U.S.C. § 157 is set forth in Bankruptcy Rule 8013: Disposition of Appeal; Weight Accorded Bankruptcy Judge’s Findings of Fact On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy court’s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless Clearly erroneous, and due regard shall be given to the oppor- tunity of the bankruptcy court to judge the credibility of the witnesses. The Advisory Committee Note to Rule 8013 indicates that the appropriate standard of review of the findings of a bankruptcy court should be the same as the review standard accorded a district court under Rule 52 of the Federal Rules of Civil Procedure. See also Briden v. Foley, 776 F.2d 379, 38] (1st Cir. 1985) (Rules 7052 and 8013, which require the applica- tion of the clearly erroneous standard to a bankruptcy court’s findings of fact, are ‘utional as applied to core proceed- ings); 1 Collier on Bankruptcy, § 3.]3[7] (15th ed. 1989). Of course, issues of law ate reviewed de novo. In re Contractors Eguipment Supply ¢ SOME 2d 241, 243 (9th Cir. 1988). There is litte doubt that an adversary proceeding represents a core proceeding. The bankruptcy code so provides. Core proceedings under 28 U.S.C. § 157(b)(2)(A) (Supp. II 1983) include “matters concerning the administration of the estate.” The allegation by INSLAW that the government exercised unlawful dominion and control of its PROMIS software Surely would satisfy this provision. In addition, further support can be found in subsection § 157(b)(2)(C) which makes “counterclaims by the estate against persons filing claims against the estate” core proceedings. By inference, § 157(b)(2)(G) which defines “proceedings to terminate, annul, or modify the automatic stay” as core proceedings lend additional justification. In analyzing this question, the Fourth Circuit has taken the well-reasoned view that proceedings to prosecute the automatic stay are core proceedings under the bankruptcy code. See Budget Service Co. v. Better Homes of Virginia, Inc., 804 F.2d 289 (4th Cir. 1986). Consequently, because prosecution of a violation of the auto- matic stay is a core proceeding and Congress has accorded bankruptcy judges the power to make factual findings in such proceedings, the standard of review as set forth in Bankruptcy Rule 8013 is that of clear error. For the same reasons, the government’s contention that the bankruptcy court’s findings of fact were made under the court’s general contempt power also appears to be mi placed. INSLAW’s allegation that the government illegally attempted to convert its Chapter 11 reorganization into a Chapter 7 liqui- dation unquestionably falls within § 157(b}(2)(A). As such, it is a core proceeding. Similarly, INSLAW’s charge that DOJ il- legally appropriated its property and sought to distribute it without regard to INSLAW’s claimed proprietary interest, at a 44a minimum, threatened the estate under § 157(b)(2)(A) and was a counterclaim under § 157(b)(2)(C). Both the alleged illegal conversion and the misappropriation of property could properly he contested in an adversary proceeding which as demonstrated supra is a core proceeding. Therefore, the Powers vested to the bankruptcy court under the automatic stay provision, 11 U.S.C. § 362, do not violate the Constitution as the government claims. See Budget Service Co. y. Better Homes of Virginia, 804 F.2d at 292-93, (“bankruptcy courts acting through bankruptcy judges may enforce the Sanctions of § 362(h} without reference to a finding of civil contempt”). Furthermore, under § 362(h), a debtor may recover actual damages, including costs and attorneys’ fees. Thus, the standard of review in this case is not the standard applicable for civil contempt, but rather is the clearly erroneous standard relevant for core proceedings. The government next Suggests that the chief judge of this court erred when he did not agree to withdraw to the district court the referral of the bankruptcy case. Section 157(d), in pertinent part, states: The district court shall. on timely motion of a party, SO withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting inter- State commerce. 28 U.S.C. § 157(d) (Supp. II 1983). The relevant test of whether a bankruptcy matter should be withdrawn to the district court is whether the district court judge can make “an affirmative determination that resolution of the claims will require substantial and material consideration of those non-[bankruptcy] code statutes.” /n re White Motor Corp., 42 Bankr. 693, 705 (N.D. Ohio 1984). It is Only those cases which require a Significant interpretation of federal laws that must be withdrawn. See Jn re Johns-Manville Corp., 63 Bankr. 45a 600, 602 (S.D.N_Y. 1986) (favorably applying In re White Motor). In the instant case, the allegation of the illegal conversion of INSLAW’s bankruptcy case implicates no federal law other than the bankruptcy code. The adversary proceeding which involved an issue over the Ownership and control of the PROMIS software appears to this court to require first, an analysis of the scope of work and then, an interpretation of a contract. In interpreting the contract, a bankruptcy court may have to apply federal procurement regulations, but it is not apparent that there need be any substantial interpretation of federal laws by the bankruptcy court. Therefore, the court concurs in the decision of the chief judge not to withdraw the case from the bankruptcy court. The government also contends that the bankruptcy court violated its pretrial order limiting the scope of the adversary proceeding. As a result, the government did not put on its case with regard to certain matters and now claims that the result was fundamentally unfair and prejudicial. On July 20, 1987, the bankruptcy court entered an order which sought to restrict phase 1 of the adversary proceeding to whether INSLAW maintained a proprietary right to the PROMIS software and whether C. Madison Brewer was biased and lacked impartiality towards INSLAW. Order Limiting Issues to be Tried at This Time, /n re Inslaw, Inc., Adv. Proc. No. 86-0069 (Bankr.D.D.C. July 20, 1987). The bankruptcy court sought to reserve until a later date the litigation over several contract-specific questions such as the allocation of computer time-sharing costs, termination of the word processing portion of the contract, overhead rates, DOJ’s alleged withholding of fees and INSLAW’s proposal to sub- Stitute computers for word Processors. In addition, the court also sought to delay the presentation of whether DOJ negotiated in good faith and the determination of DOJ’s counterclaims Se ee ee 46a and/or offsets against INSLAW,, as well as the post-petition acts of Dean Cooper. /d. What is clear from the bankruptcy court’s conclusions of law is that the court held to its mission as described in its pretrial order. The court’s six principal conclusions of law are that: (1) INSLAW’s proprietary enhancements are entitled to protection as trade secrets; (2) DOJ unlawfully used those enhancements in violation of the automatic stay; (3) the failure of DOJ to cure the fraud by which it induced INSLAW to enter into Modifica- tion 12 represents a further violation of the automatic stay; (4) the failure of DOJ to correct bias against INSLAW also repre- sents a violation of the automatic stay; (5) INSLAW is entitled tO permanent injunctive relief; and (6) INSLAW is entitled to costs and attorneys’ fees. A comparison of the conclusions of law and the pretrial order show a close correlation. While there may have been some overlapping factual questions among the issues tried in phase I and those reserved for a later determina- tion, the court cannot agree that the bankruptcy court violated its pretrial order Moreover, the bankruptcy court may amend its pretrial yrder to conform to the evidence. Bankruptcy Rule 7016 which would control the issuance of pretrial orders applies Fed. R. Civ P. 16. Under the federal rules, district court judges have broad liscretion to depart from their pretrial orders. See Patterson v. Woolworth Co., 786 F.2d 874, 879 (8th Cir. 1986) (“flexible ipplication of pretrial orders” is reserved to the sound discretion f the district court); Robert v. Conti Carriers & Terminals, Inc., 2 F.2d 22, 24 (Sth Cir. 1982) (trial judges have discretion to nit evidence not included in pretrial order). Absent a clear ise of discretion, the trial court’s decision should Popich Bros. Water Transport, Inc., 660 Cir. 1981). The court is satisfied that the iny ‘undue prejudice when the 47a bankruptcy court made its findings of fact. No new trial on those issues 1s indicated. Lastly, in arguing for a new trial on the issues the govern- ment contends that Judge Bason should have recused himself and that the appearance of impropriety tainted his decision. The faciual setting involves the decision on January 11, 1988 by the United States Court of Appeals for the District of Columbia Circuit not to reappoint Judge Bason to a fourteen-year term. Subsequent to that decision, Judge Bason wrote a lengthy letter to Chief Judge Wald of the D.C. Circuit. In this letter, Judge Bason described his credentials, questioned the validity of the reasons given for why he was not reappointed, and raised the possibility that other unstated reasons may have led the court of appeals not to reappoint him. Within one week, two newspapers carried accounts of Judge Bason’s letter. Washington Post, January 18, 1988; Legal Times, January 18, 1988. The govern- ment claims that the decision not to reappoint Judge Bason tainted his judgment in the case and that his letter to Chief Judge Wald and the press reports gave the appearance of impropriety. On January 19, 1988, the government first filed a motion before Judge Bason requcsting that he recuse himself. After a hearing on January 22, the bankruptcy court denied the government’s motion in a memorandum and order filed January 25, 1988. On the same day, the government argued a motion before the chief judge of the district court for a writ of mandamus directing Judge Bason to recuse himself. The chief judge denied the government’s writ in a bench ruling. /n re United States and the United States Department of Justice, Misc. Case No. 88-032 (D.D.C. January 25, 1988). In its motions before Judge Bason and Chief Judge Robin- son, the government cites two recusal statutes, 28 U.S.C. § 144 and 28 U.S.C. § 455. While there is no disagreement over the applicability of 28 U.S.C. § 455, INSLAW argues and Judge Bason agrees that 28 U.S.C. § 144 does not apply to bankruptcy 49a tion or bias in this case. This court, like the courts before it, can find no basis in fact to support a motion for recusal. The events leading up to the government’s motion for recusal occurred long after Judge Bason made his extensive bench rulings on liability which constitute the basis of his later memorandum opinion and order. Judge Bason made his oral ruling on the unlawful attempt to convert INSLAW’s bankruptcy on June 12, 1987 and followed with a memorandum opinion on July 20, 1987. A bench ruling on DOJ’s liability in the main adversary proceeding was announced on September 28, 1987, more than three and one-half months before the judge learned that he would not be reappointed. Although no written findings had been filed by the time Judge Bason learned that he would not be reappointed, the die had been cast. Government liability had already been assessed in no uncertain terms. The only untried part of the case that remained involved damages. The government accuses the bankruptcy court of looking beyond the bankruptcy proceeding to find culpability by the government. What is strikingly apparent from the testimony and depositions of key witnesses and many documents is that IN- SLAW performed its contract in a hostile environment that extended from the higher echelons of the Justice Department to the officials who had the day-to-day responsibility for supervis- ing its work. While the focus of the review must be on the actions taken by the Justice Department once INSLAW filed its petition for bankruptcy, the context of those actions cannot be fully appreciated without a thorough understanding of the underlying events and facts leading up to the bankruptcy. The transcripts reveal that the bankruptcy judge kept close track of the evidence as it developed. This is reflected in frequent references to his notes, and his occasional questions to witnesses about what appeared to be critical evidence; and his attention to detail in both his oral and written rulings demonstrate a mastery 8S S0a of the evidence. This is apparent from the vast majority of the record citations in support of the various findings. It is not necessary to duplicate the bankruptcy court’s exhaustive findings of fact here. It is sufficient to state that after careful review of all of the volumes of transcripts of the hearings before the bankruptcy court, the more than 1,200 pages of briefs and supporting appendices and all other relevant documents in the record, there is convincing, perhaps compelling support for the findings set forth by the bankruptcy court. In accordance with the principles set out in Anderson v. Bessimer City, 470 U.S. 564, 571-75 (1985), the court has examined the bankruptcy judge’s findings of fact in the light of the entire record, and finds that his account of the evidence is eminently plausible; and this court is not left with any notion that a “mistake has been committed.” Jd. at 574. This con- clusion is reached without regard to the deference to be accorded to the judge’s opportunity to assess credibility. The cold record adequately supports his findings under any standard of review. Accordingly the findings will not be disturbed. With regard to the conclusions of law, the court believes that the facts support the multiple violations of the automatic stay that the bankruptcy court found. 11 U.S.C. § 362(a)(3) provides that “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate” is a violation of the automatic stay. The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. H. Rep. No. 595, 95th Cong., Ist Sess. 340-42 (1977). 5la it is not necessary to consider which party was entitled to the enhanced PROMIS software under INSLAW’s contract with the Justice Department. At a minimum, the Department of Justice knew that INSLAW disputed the government’s claim of ownership of enhanced PROMIS. It also knew that PROMIS represented INSLAW’s principal asset and that without owner- ship of the software, the company’s economic viability was threatened. Instead, of following the orderly procedures estab- lished by the bankruptcy code for resolving its dispute with INSLAW and seeking relief from the automatic stay, DOJ pursued a course of self-help. It claimed enhanced PROMIS to be its property and installed it in at least 45 offices throughout the United States. By these actions, DOJ violated the automatic Stay. See First Nat’i Bank of Portsmouth, New Hampshire v. Cope, 385 F.2d 404 (1st Cir. 1967). In that case a bank creditor held a secured interest in the debtor’s automobile. For the purpose of deciding the case, the court assumed that the bank was legally entitled to repossess the car. Nonetheless, when the bank acted unilaterally and did repossess the car, the First Circuit held that its actions were unlawful. Although not addressing the automatic stay provision specifically, the First Circuit’s insight appears to have application to this case. It should require but little imagination to envisage the serious Consequences to orderly and, indeed, effec- tive, bankruptcy administration that would ensue from the recognition of the principle advocated by the bank. Every creditor who believed, albeit mistakenly that he had a right to property in the possession of the court, and perhaps some who did not believe it, but were willing to take the risk to improve their position, would seize that property. The trustee, instead of administering the estate, would be busy policing or endeavoring to regain possession of it. Particularly in 52a a Chapter XIII proceeding, the whole purpose of which is to rehabilitate the debtor, the taking of assets vital to the conduct of his affairs might foreclose success. The requirement that even those who are correct in their belief that they are entitled to the return of property should have to go through orderly proceedings, /n re Pappas, S.D. Ohio, 1962, 216 F. Supp. 819, and suffer consequences if they do not, is small price to pay. 385 F.2d at 406. See also in re Motley, 10 Bankr. 141 (Bankr.M.D.Ga. 1981) (creditor cannot exercise self-help; it must follow orderly procedures). The court concurs with the bankruptcy court’s conclusion that DOJ fraudulently obtained and then converted enhanced PROMIS to its own use. Prior to entering into Modification 12, INSLAW first proposed that DOJ be given the enhanced PROMIS for its use at no additional charge. After this proposal was rejected, INSLAW next proposed that a copy of the existing software be put in escrow which would become available to DOJ if INSLAW went out of business. Again, DOJ rejected INSLAW’s proposal. It was not until INSLAW agreed to tum over its version of enhanced PROMIS that DOJ entered into Modification 12 and withdrew its threat of stopping the advance payments to INSLAW thereby averting a cash flow crisis that would have thrown the company into bankruptcy. These efforts to obtain a copy of the proprietary software were taken even though the government had yet to acquire the computer hardware on which the software could run. These facts are not in dispute. Thus, the court is drawn to the same conclusion reached by the bankruptcy court; the government acted willfully and fraudulently to obtain property that it was not entitled to under the contract. Once the software was in the possession of DOJ, there is no evidence that the government ever negotiated in good faith 53a over the existence of the proprietary enhancements claimed by INSLAW. The DOJ put the entire onus of proof on INSLAW, yet never indicated what methodology or proof would be accept- able. The contract entered into by the parties entitled the govern- ment to the version of PROMIS then in the public domain. The expert witnesses demonstrate that INSLAW did enhance the software with private funds. The contract did not entitle DOJ to these enhancements. By failing to acknowledge or accept INSLAW’s claims, the government continued its fraudulent behavior toward INSLAW. This behavior persisted long after INSLAW filed for reorganization. DOJ’s actions constitute a violation of the automatic stay by exercising control over property that rightfully belonged to the estate. With regard to the government’s abortive attempt to con- vert Inslaw’s reorganization into a liquidation, the court can think of no greater violation of the automatic stay than to cause the demise of the corporate entity. The next issue raised by the government is whether the award of damages by the bankruptcy court was proper and within the court’s authority. The bankruptcy court awarded monetary damages of $6.79 million for violations of the auto- matic stay regarding the unlawful conversion of PROMIS. In addition, monetary damages of one thousand dollars were as- sessed against the Justice Department for attempting to convert INSLAW’s reorganization to a liquidation. The court declared that INSLAW was the sole owner of enhanced PROMIS and had the exclusive right to sell or lease the software; enjoined DOJ from further installing PROMIS in any more offices or from disseminating PROMIS to any person outside of DOJ; further enjoined three Justice Department officials from any future involvement with INSLAW or PROMIS; and, awarded attorneys’ fees and costs. Considering first the monetary damages and attorneys’ fees issues, § 362(h) directs that “an individual injured by any willful S4a violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees.” The bankruptcy court estimated INSLAW’s damages to be calculated in accord- ance with the perpetual license fees for the PROMIS software. The government contends that the calculation of license fees that INSLAW would have collected was not a proper measure of damages. DOJ claims that the effect of the court’s order amounted to forcing the government to enter into a contract. Furthermore, the government argues that the license fees fail to measure the actual damage to INSLAW. According to DOJ, even if the bankruptcy judge was correct in using license fees to calculate actual damages, the fees overstate the value of INSLAW‘s actual harm. Contrary to what the government contends, the bankruptcy court did not impose a contract upon the parties. Instead, the trial court discharged its responsibility to assess damages based on the evidence adduced at trial. The bankruptcy court’s conclusion is supportable based on the evidence in the record and as a matter of law. INSLAW proved to the satisfaction of the bankruptcy court the fair market value of its software by putting on experts versed in the valuation of software. Furthermore, other courts have held that license fees are an acceptable measure of damages in a variety of contexts. Where the misappropriation of intellectual property has been the product of tortious conversion, license fees have been used to measure damages. See e.g. Compumarketing Serv. Corp. v. Business Envelope Mfgs., Inc., 342 F. Supp. 776, 778 (N.D.IIl. 1972) (usage fee for a mailing list converted by defendant is the measure of damages). Similarly, in cases involving patent infr- ingement comparative royalties are accepted as a proxy. Clark v. Wooster, 119 U.S. 322, 326 (1886) (with regard to patent infringement, established license fees are the most reliable measure of damages); Leesona Corp. v. United States, 599 F.2d 958, 973 (Ct. Cl.), cert. denied, 444 U.S. 991 (1979). Where 5Sa trade secrets have been misappropriated, license fees have again been used as the proper measure of damages. University Com- puting Co. v. Lykes-Youngstown Corp., 564 F.2d 518, 535-45: reh’g denied, SOS F.2d 1304 (Sth Cir. 1974): Vitro Corp. of America v. Hall Chem. Co., 292 F.2d 678, 683 (6th Cir. 1961 ). Thus, under a variety of legal settings, license fees have been used to calculate damages. While the government makes several arguments to support its notion that the license fees overstate the value of the software to the government, only one merits further discussion. Twelve percent (12%) of INSLAW’s standard license fees pay for the first year’s maintenance charge of the software. Since the bankruptcy court did not force the parties to enter into a contract and there is no dispute that INSLAW never provided this service, the compensatory damage award should be reduced accordingly. By the court’s calculation, twelve percent of the license fees amounts to $655,200. It is by that amount that the compensatory damages award should be reduced. Finally, the government asserts that INSLAW is not en- titled to attorneys’ fees. Section 362(h) is clear in its mandate that any individual injured by a willful violation of the automatic Stay “shall recover actual damages, including costs and attor- neys fees.” 11 U.S.C. § 362(h). The bankruptcy court made an award under the statutory authority of both § 362(h) and the “bad faith” exception to the American Rule pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(b). See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975) (under the American Rule, each party must pay its own fees). DOJ counters that § 362(h) does not apply for corporations and that its conduct does not meet the bad faith test. As discussed previously, a corporation can collect actual damages for the violation of the automatic stay. Budger Service Co. v. Better Homes of Virginia, Inc., 804 F.2d at 292-93) (“bankruptcy courts acting through bankruptcy judges may enforce the sanc- 56a tions of § 362(h) without reference to a finding of civil con- tempt”). Consequently, the bankruptcy court was correct in awarding attorneys’ fees to INSLAW. There is no need to reach the question of whether the award was justified under the bad faith exception of 28 U.S.C. § 2412(b). CONCLUSION In conclusion, the court has determined that the bankruptcy court’s orders of July 20, 1987 and January 25, 1988 regarding liability and damages against the United States for unlawfully violating the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362, by attempting to convert appellee’s pending bankruptcy from a Chapter 11 reorganization to a Chapter 7 liquidation is AFFIRMED. The bankruptcy court’s order of January 25, 1988 regarding liability of the United States for unlawfully violating the automatic stay provision of the bankruptcy code in phase I of the adversary proceeding (counts I, I] and III) by exercising control over and proliferating the implementation of PROMIS is AFFIRMED. The bankruptcy court’s order of February 2, 1988 regarding compensatory damages in phase I of the adversary proceeding (counts I, II and II1) is MODIFI£D in accordance with this memorandum so as to reduce the award by $655,200. Finally, the bankruptcy court’s order regarding attorneys’ fees in adversary proceeding No. 86-0069 is also AFFIRMED. / /S/ WILLIAM B. BRYANT SENIOR UNITED STATES DISTRICT JUDGE Date: November 22, 1989 57a UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Civil Action Nos. &8-0528-WBB 88-0696-WBB 88-0697-WBB 88-0698-WBB UNITED STATES OF AMERICA and the UNITED STATES DEPARTMENT OF JUSTICE, Appellants, V. INSLAW, INC.. Appellee. Case No. 85-0070 (Chapter 11) IN RE: INSLAW, INC., Debtor. Adversary Proceeding No. 86-0069 INSLAW, INC., Plaintiff, v. UNITED STATES OF AMERICA, and THE UNITED STATES DEPARTMENT OF JUSTICE, Defendants. ORDER In accordance with the memorandum filed this date, the court has determined that the bankruptcy court’s orders of July 20, 1987 and January 25, 1988 regarding liability and damages against the United States for unlawfully violating the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362, by 58a attempting to convert appellee’s pending bankruptcy from a Chapter 11 reorganization to a Chapter 7 liquidation is hereby AFFIRMED); it is further ORDERED that the bankruptcy court’s order of January 25, 1988 regarding liability of the United States for unlawfully violating the automatic stay provision of the bankruptcy code in phase I of the adversary proceeding (counts I, II and III) by exercising control over and proliferating the implementation of PROMIS is AFFIRMED; it is further ORDERED that the bankruptcy court’s order of February 2, 1988 regarding compensatory damages in phase I of the adversary proceeding (counts I, II and III) is MODIFIED in accordance with this memorandum so as to reduce the award by $655,200; and it is further ORDERED that the bankruptcy court’s order regarding attorneys’ fees in adversary proceeding No. 86-0069 is also AFFIRMED. /s/ WILLIAM B. BRYANT SENIOR UNITED STATES DISTRICT JUDGE Date: November 22, 1989 59a UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA Case No. 85-00070 (Chapter 11) In re INSLAW, INC., Debtor. Adversary Proceeding No. 86-0069 INSLAW, INC., Plaintiff, we UNITED STATES OF AMERICA AND THE UNITED STATES DEPARTMENT OF JUSTICE, Defendants. FINDINGS OF FACT AND CONCLUSIONS OF LAW (Counts I, II and III of the Complaint) 60a TABLE OF CONTENTS co rr ty, BR PRG PW UUE 6 ks es 4 ok ae aes II. THE NATURE OF INSLAW’S BUSI- NESS AND ITS DEVELOPMENT OF ge or ene ere A. ORIGINS OFINSLAW ......... B. FORMATION OF INSLAW AS A “FOR-PROFIT” CORPORATION AND THE DEVELOPMENT OF ITS PRO- PRIETARY ENHANCEMENTS .... C. THE NATURE OF THE PROPRIETARY ENMANCEMENES 5.5552 ee ees 1. Data Base Adjustment ........ &. WA ee ee 3. The 32-Bit Architecture VAX Version Of PROMIS ........ 4. Additional Discrete PROMIS a INSLAW HAS CREATED USING PRI- VATE FUNDS AN ENHANCED VER- SION OF PROMIS THAT IS PROPRIE- TARY TORNAW wee eee eee A. INSLAW’S ACCOUNTING SYSTEM DEMONSTRATES THAT INSLAW’S CLAIMED CHANGES AND ENHANCE- MENTS WERE CREATED USING PRIVATE POD 6 we ee he 8la 84a 84a III. IV. B. c. 61la INSLAW HAS DEMONSTRATED THAT THE THREE MAJOR ENHANCEMENTS, THE DATA BASE ADJUSTMENT SUBSYSTEM, THE BATCH UPDATE SUBSYSTEM AND THE 32-BIT ARCHI- TECTURE VAX VERSION OF PROMIS, WERE CREATED USING PRIVATE FUNDS AND ARE PROPRIETARY Pare 0 ee eee ee es INSLAW HAS DEMONSTRATED THE CREATION OF NUMEROUS INDIVI- DUAL PROPRIETARY CHANGES AND ENHANCEMENTS TO PROMIS USING PRIVATE POMMEND oe 6 oe oe Cees MADISON BREWER’S RELATIONSHIP TO INSLAW AND THE ORIGINS OF HIS BIAS AND LACK OF IMPARTIALITY FOP ER ts A. BREWER’S FIRING BY PEE se oS ee ee ke DOJ’S DECISION TO AUTOMATE USS. ATTORNEY’S OFFICES WITH PROMIS AND TO HIRE BREWER AS PROMIS PROJECT MANAGER ........... A. B. NATURE OF DOJ’S CASE-TRACKING FU OS a es ee ey eee INSLAW’S RECOMMENDATION TO USE MICRO-COMPUTERS RATHER THAN WORD PROCESSORS IN THE EXECUTIVE OFFICERFP ...... DOJ’S HIRING OF BREWER AS PROMIS PROJECT MANAGER ... . 9la 95a 102a 102a 108a 108a 110a 112a 62a D. BREWER’S ORGANIZATION OF DOJ’S PROMIS PROJECT TEAM ... 115a V. INSLAW GIVES DOJ NOTICE OF ITS OWNERSHIP OF AND PROPRIETARY RIGHTS TO ENHANCED PROMIS .... = 118a A. INSLAW GIVES NOTICE OF ITS PROPRIETARY CLAIMS ....... 118a B. DOJ’S CONFUSION OVER DATA _s Eged BE a ae 120a C. NATURE AND TERMS OF THE PROMIS CONTRACT ......... 124a VI. BREWER’S STRATEGY FOR THE RUINATION OFINSLAW ......... 127a A. BREWER INFORMS HIS EOUSA/ PROMIS PROJECT TEAM ABOUT HIS OPINIONS OF HAMILTON... _—_'127a B. INSLAW’S INITIAL PROBLEMS Do ee ea ee 129a 1. INSLAW’s Decision To Market Enhanced PROMIS And Brewer’s Response To These Plans ...... 129a 2. Morris’ Recusal Of Brewer On The Proprietary Enhancements Issue .. 134a 3. Brewer’s Continued Involvement In DOJ’s Consideration Of The Proprie- tary Enhancement Issue ....... 137a 4. Brewer’s Strategy For The Ruination oF es ee eer a 139a 63a C. BREWER’S RENEWAL OF THE PRO- PRIETARY ENHANCEMENTS ISSUE AND TERMINATION OF ADVANCE co | a 144a Vil. BREWER’S USE OF MODIFICATION 12 “TO GET INSLAW’S GOODS” ...... iS0a A. NEGOTIATION OF MODIFICA- WE ae a a ee ee ee 150a B. BREWER, RUGH AND VIDENIEKS STY MIE INSLAW’S EFFORTS TO SUBSTANTIATE PROPRIETARY ENHANCEMENTS ......+.-.. 157a Vill. DOJ]Ss COMMITMENT TO CONSIDER REPLACING WORD PROCESSING MACHINES WITH MICROCOMPUTERS; DOJ’S DECISION INSTEAD TO ATTEMPT TO TERMINATE THE WORD PROCESSING PORTION FOR DEFAULT AND ITS ULTI- MATE DECISION TO TERMINATE “FOR CAPE se ek ee eee 163a IX. THE EFFORTS OF ELLIOT RICHARDSON AND OTHERS TO OBTAIN AN INDEPEN- DENT AND IMPARTIAL PROCESS FOR CONSIDERATION OF INSLAW’S eo re en ee ee 167a A. RICHARDSON MEETS WITH ASSIS- TANT ATTORNEYS GENERAL FOR ADMINISTRATION LIOTTA AND WALLACE IN AN ATTEMPT TO RE- CEIVE UNBIASED CONSIDERATION OF INSLAW’S COMPLAINTS .... 167a _ 64a B. AT JENSEN’S SUGGESTION, RICHARDSON AND OTHERS ATTEMPT TO RESOLVE THE DOJ BIAS WITH ASSOCIATE DEPUTY ATTORNEY GENERAL JAY Eo ee ee C. INSLAW’S “LAST DITCH EFFORT” TO OBTAIN FROM JENSEN AN INDEPEN- DENT CONSIDERATION AND INVES- TIGATION OF DOJ’S BIAS AGAINST 169a Se Cs Were race SEAS Pati 172a JENSEN’S BIASED ATTITUDE AGAINST INSLAW AND HIS INDIFFERENCE TO INSLAW’S REPEATED COMPLAINTS OF MISCONDUCT BY OTHER DOJ CPO ik ke lee oe ee a ee 174a A. DEPUTY ATTORNEY GENERAL D. LOWELL JENSEN HAD A PREVIOUSLY DEVELOPED NEGATIVE ATTITUDE ABOUT PROMIS AND INSLAW .. . 174a B. JENSEN’S CLOSE INVOLVEMENT IN THE PROMIS CONTRACT AS RANKING DOJ OFFICIAL ON THE PROMIS OVER- SIGHT COMMITTEE AND IMMEDIATE ORGANIZATIONAL SUPERIOR OF THE EXECUTIVE OFFICE DURING THE PER- [OD OF BREWER’S MISCONDUCT AGAINST INSLAW .......... 175a C. DURING THE PERIOD OF THE AUTO- MATIC STAY, JENSEN WAS REPEATED- LY MADE AWARE OF INSLAW’S COM- PLAINTS ABOUT BREWER BUT TOOK NO CORRECTIVE ACTION ...... 178a XI. XII. XIII. XIV. 65a DOJ’S FAILURE TO INVESTIGATE AND REMEDY INSLAW’S CLAIMS OF BIAS PRIOR TO THE BANKRUPTCY ..... DOJS’S UNLAWFUL AND IMPROPER CONDUCT CONTINUES UNABATED THROUGHOUT THE PERIOD OF a 8g | i re DO!’S BAD FAITH NEGOTIATIONS AND OTHER IMPROPER CONDUCT DURING THE PERIOD OF BANKRUPTCY A. DOJ’S CONTINUED IMPROPER IM - PLEMENTATION AND USE OF PROMIS SOFTWARE ..... 2.35. B. THE EFFECTS OF BIAS ON THE 1985 POLI E EP POI cs od ees DOJ*S CONTINUED FAILURE TO INVES- TIGATE CLAIMS OF BIAS DURING THE PERIOD OF BANKRUPTCY ....... CLRNCLAISM Ir EPR eee es I. IT. HT. INSLAW’S PROPRIETARY ENHANCE- MENTS ARE ENTITLED TO PROTEC- +70 AS TRADE SECRETS oo ote... DOJ UNLAWFULLY USED INSLAW’S PROPRIETARY TRADE SECRET EN- HANCEMENTS IN VIOLATION OF THE AUTOMATIC STAY .........+.:. DOJS’S FRAUD IN INDUCING INSLAW TO ENTER MODIFICATION 12, THE EFFECTS OF WHICH HAVE NOT BEEN CURED BY DOJ, CONSTITUTES A FURTHER VIOLA- TION OF THE AUTOMATIC STAY 180a 186a 190a 190a 193a 196a 205Sa 205a 206a 209a 22fa IV. VI. 66a DOJ’s FAILURE TO CURE THE CONTIN- UING EFFECTS OF BIAS AGAINST INSLAW FURTHER VIOLATES THE AUTGRAR ET EPAE wv ee ha ewe INSLAW IS ENTITLED TO PERMANENT SOSRIETG REVEL MINE + 54-5 48 SES INSLAW IS FURTHER ENTITLED TO ITS COSTS AND ATTORNEYS’ FEES 67a INTRODUCTION Those claims for relief as set forth in Counts I, I] and III of the Complaint herein, as modified by this Court’s Order dated July 20, 1987, having come before this Court for trial during the period July 20 through August 5, 1987; the parties hereto having submitted extensive evidence, legal briefs, argument and proposed findings of fact and conclusions of law; and this Court having very carefully taken into consideration all of these sub- missions and having also thoroughly weighed all of the evidence, and having determined that the relevant legal prin- ciples involving non-bankruptcy law are clear, simple, basically undisputed and not requiring the expertise of any specialized agency, makes the following findings of fact and conclusions of law. These findings of fact are based upon a very careful analysis and weighing of all the evidence presented, and after consideration and review of the proposed findings, and replies thereto, submitted by each party. In making these findings, the Court heavily relies upon its very close observation of the witnesses who testified in this matter, and the credibility of those witnesses based upon the Court’s close observation of their demeanor, expressions and the inherent probability or im- probability of their testimony in light of the documentary evidence and other known facts. The Court also finds that al! the facts hereinafter found have been established by at least clear and convincing evidence. In some instances the evidence is overwhelming or even irrefutable. Further reference is made to the statements made from the bench in open court on Septem- ber 28, 1987, which are incorporated herein. 68a FINDINGS OF FACT I. THE NATURE OF INSLAW’S BUSINESS AND ITS DEVELOPMENT OF PROMIS A. ORIGINS OF INSLAW 1. Plaintiff INSLAW, Inc. (““INSLAW?”), a debtor-in- possession currently undergoing reorganization under Chapter 11 of the Bankruptcy Code, is a corporation organized and operated under the laws of the State of Delaware, with its principal place of business in the District of Columbia. It is in the business of designing, manufacturing, marketing and main- taining software systems for use on computers. (Answer 911)! 2. In 1973, William Hamilton and Dean Merrill founded the Institute for Law and Social Research (“Institute”) as a not-for-profit corporation. (Hamilton, T. 85; Merrill, T. 747- 748) Thereafter, the Institute focused on the development of computer software case management programs for the automat- ion of law enforcement offices, including a primitive version of the computer software which eventually was made available to DOJ and is at issue in this proceeding. (Answer 910) During the 1970s, the Institute obtained a number of cost-plus grants and cost-plus contracts largely from the Law Enforcement As- sistance Administration (“LEAA”) of DOJ, for the development and implementation of such software automation programs.? (Hamilton, T. 86; Merrill, T. 752) Citation to the record will be indicated as follows: Answer __ ; Plaintiff's Exhibit(“PX”) __; Defendants’ Exhibit (“DX”); trial testimony (e.g., Hamilton, T.___); and deposition testimony (e.g., PX ___ [Name] at a. - > The Institute’s grants and contracts with LEAA were often competi- tively awarded, and the grants were administered by LEAA in the same fashion as were the contracts. (Hamilton, T. 86) This method of contracting was largely indistinguishable from the Executive Office contract which INSLAW and DOJ entered into in March 1982. (Hamilton, T. 89) Many of the same DOJ and LEAA Audit staff personnel who worked on the grants aE 69a 3. In the 1970s, the Institute developed a version of a software product, known as the Prosecutor’s Management In- formation System (“old PROMIS”), for automating certain law enforcement record keeping and case-monitoring activities (Answer 910). With the exception of the Superior Court Division of the U.S. Attorney’s Office for the District of Colum- bia, this software system was focused on assisting state and local prosecutors. (Hamilton, T. 113; Merrill, T. 752) Accordingly, the contract between the Executive Office of U.S. Attorneys (““EOQUSA”) and Inslaw in March 1982, which is the subject of this litigation, was the first national effort to implement PROMIS in U.S. Attorney’s offices. (Hamilton, T. 113) How- ever in 1979, the Institute conducted an EOUSA sponsored feasibility study to determine the best approach for improving the case management and information systems used by the United States Attorneys. The study identified a need for more information about the United States Attorneys’ activities. (DX 8, Appendix A, p. 3; Hamilton, T. 244) That feasibility study and a “pilot project” (see F.F. § 8, below) had demonstrated the workability of the nationwide effort. 4. Originally, old PROMIS was a limited function software package that permitted rudimentary case tracking func- tions using computer hardware. (Merrill, T. 759; PX 9, 21) It was a “batch” sofiware system, i.e., limited in hardware applica- tions and user accessibility, which was redesigned and reprogrammed in 1976 to become an “on-line real time” system, a change that permitted greatly expanded usage of minicom- puters as well as instantaneous updating and retrieval of case and contracts for the Institute also played the same role on the Executive Office contract with INSLAW and there was very little, if any, difference in the auditing procedures used. (Hamilton, T. 89-90; Schacht, T. 2450) Not- withstanding the testimony of Robert Whitely for DOJ, the record is over- whelmingly consistent with INSLAW’s assertion that no differences existed in the contract/grant administration for INSLAW as compared to the con- tract/grant administration for the Institute. (Schacht, T. 2480-2481) 70a files. (PX 21) PROMIS developed and was improved over the entire decade of the 1970s. The software relevant to this adver- Sary proceeding are the Executive Office of U.S. Attorneys (“EOQUSA”) pilot version (which was in the public demain in 1982; see F.F. 1 8 below) and the enhancements financed by INSLAW’s contract with DOJ’s Bureau of Justice Statistics (“BJS”); see F.F. 111 below. 5. Old PROMIS, as it existed in or about 1982, was designed to provide the user with a basic system of storing, managing and retrieving certain standard types of information which would be applicable to every user. (PX 8; PX 21) How- ever, and unlike most other information management software packages, Old PROMIS further permitted each individual user to tailor the software to store additional types of data to serve the user's unique needs. (PX 21) Moreover, Old PROMIS permitted each user to design the look and the contents of the video display screens used to enter and retrieve data, and the look and contents of hard copy paper reports. (PX 21) Old PROMIS was therefore designed to offer great flexibility to a wide variety of users by permitting the software system to adapt to the recordkeeping needs of each user rather than vice versa. (PX 21) 6. Old PROMIS was created using the computer Com- mon Business Oriented Language, or (“COBOL”), in a version written by the American Nationa! Standards Institute. (PX 21) The purpose of writing PROMIS in such a standard language was to permit the PROMIS software to be easily converted or “ported” to run on numerous brands of computers which are otherwise incompatible. (PX 21) 7. Because the Institute designed Old PROMIS to be inherently versatile, adaptable and portable, Old PROMIS met with great user acceptance and success in those jurisdictions and offices that had installed PROMIS. (Hamilton, T. 106) More particularly, LEAA designated PROMIS as an exemplary ———"-rrsté‘é’”~S™”CO Tia project and encouraged state and local governments to consider implementing PROMIS. (Hamilton, T. 106; Gizzarelli, T. 468) 8. The EOUSA decided to test the concepts proposed in the feasibility study by implementing a “pilot project” beginning in October of 1979. (Hamiiton, T. 86) In essence, this pilot program involved the extension of the state/local criminal ver- sion of cid PROMIS to encompass civil litigation and legal process debt collection functions and the installation cf the extended system on government-furnished minicomputers in two U.S. Attorney offices: the District of New Jersey and the District of Southern California (San Diego). (PX 9) Due to the Government’s delay in procuring mini-computers, both of these sites initially “time-shared” the Institute’s computers using remote data entry terminals and printers. (PX 9) In the summer of 1981, after a year or more of time-sharing, PROMIS was installed on each District’s “Prime” brand of mini-computer. (PX 9) 9. An adjunct of the Institute’s pilot program was the development of PROMIS-like case control functions on Lanier word processing equipment in two smallez U.S. Attorneys of- fices in 1981 - the Southern District of West Virginia and the District of Vermont. (DX 8, Appendix A, pp. 3-4; Hamilton, T. 245; PX 9) 10. The pilot project was evaluated by an independent contractor and determined to be the most cost effective opera- tional alternative. Thus, DOJ made the decision to install the system, as envisioned by the pilot project, on a nationwide basis in the remaining 89 offices. (PX 8 [Bates Stamp 022708]; DX 8, Appendix A, p. 5) 11. In 1979, LEAA awarded a three-year-cost-plus con- tract to the Institute for PROMIS upkeep and upgrade services. a J Of the 94 active United States Attomeys’ offices, four were serviced as part of the pilot project and one (the District of Columbia) was handled as a separate project. (DX 8, Appendix A, p. 5) 72a (PX 21) In 198i, when LEAA was liquidated, the three year PROMIS support contract was assigned to DOJ’s newly created Bureau of Justice Statistics (“BJS”) which lacked funds for the final year of the contract. (PX 21; Hamilton, T. 256-258) EOUSA, through an interagency transfer of funds, allocated over $500,000 to this contract in order to finance the develop- ment of certain enhancements requested by EOQUSA. (PX 21) The enhancements funded by the EOUSA through the BJS contract were added to the public domain software for use in the 1982 implementation contract. 12. The BJS contract, in essence, contained a laundry, or “wish” list of enhancements DOJ wanted to be made to Old PROMIS. (Hamilton, T. 257-258; Deroy, T. 2460-2462) DOJ chose to determine the priority for the enhancements it desired and INSLAW agreed to go forward to see how much could be done on a cost-plus basis. (Hamilton, T. 258; Deroy, T. 2460- 2462) INSLAW claims that: (1) Because the Executive Office refused to transfer $125,000 to the BJS contract needed to complete the third year of the contract, INSLAW agreed to complete the five enhancements as part of the 1982 Executive Office contract without additional compensation for develop- ment costs. (Hamilton, T. 114) (2) INSLAW completed five enhancements under the BJS contract but never received from DOJ full reimbursement of development costs for these enhan- cements. (Hamilton, T. 257-258) (3) Notwithstanding that DOJ failed to pay INSLAW’s actual full costs for development of the five BJS enhancements, INSLAW does not claim any of them among its privately-financed proprietary enhancements. (Hamilton, T. 114) In response, DOJ contends as follows: (1) The implication that DOJ somehow refused to pay INSLAW money owed to it for development of the BJS enhancements is untrue. (2) As it was required to do so by contract, INSLAW notified DOJ of a 73a potential cost overrun of $125,000 on the BJS contract. (3) DOJ, as government agencies are required to do in cost-type contracts, considered whether it wanted to endure the cost overrun or avoid it by taking some action such as reducing the statement of work. (4) When it refused to agree to approve the additional work, INSLAW agreed to perform the work as part of the 1982 implementation contract at no additional cost to the government (Hamilton, T. 259; Brewer, T. 1640). (5) That agreement recognized that INSLAW believed that implementation costs would be reduced and that no additional funding would be necessary. Modification 6 to the 1982 implementation contract specifies the enhancements to be made and states that the $110,000 required for those enhancements be taken from other contract tasks. (PX 17) It is not necessary for this Court to resolve this $125,000 dispute between the parties at this time. B. FORMATION OF INSLAW AS A “FOR-PROFIT” CORPORATION AND THE DEVELOPMENT OF [TS PROPRIETARY ENHANCEMENTS 13. In 1980, the Institute received notice that funding for Old PROMIS through LEAA would be extinguished beginning in May 1981. (Hamilton, T. 86; Merrill, T. 759) In order to maintain the existing PROMIS user installations, as well as to expand the use of Old PROMIS, the Institute determined to become a for-profit corporation that could market its expertise and software to current and potential PROMIS users. (Hamil- ton, T. 86; Merrill, T. 759) In particular, this market plan focused upon local district attorney's offices which previously had received free service from the Institute at the expense of LEAA. (Hamilton, T. 86) 14. In connection with this market plan, INSLAW retained Roderick Hills, Esquire for advice on how to proceed with implementing the plan. (Hamilton, T. 86) As part of this 74a assignment, Hills and Hamilton apprised Charles B. Renfrew, Deputy Attorney General of DOJ, of INSLAW’s plans to invest private funds for enhancements to PROMIS for creation of proprietary, fee-generating products which would be sold to anyone having an interest in such products. (Hamilton, T. 87- 88, 264-265; Merrill, T. 763-775) In addition, Hills informed Renfrew that INSLAW intended to make enhancements to the Old PROMIS software and to assert a proprietary interest in the enhancements financed through private funds. (Hamilton, T. 100; Merrill, T. 763-764) During this discussion, Hills asked Renfrew if DOJ would have any problem with INSLAW’s plans. (Harnilton, T. 88, 264-265) Renfrew responded that DOJ had no plans to continue to finance the upkeep and upgrade of PROMIS and DOJ welcomed, and had no problems what- soever with, INSLAW’s plans in this regard. (Hamilton, T. 88) 15. In January 1981, INSLAW was organized and pur- chased the assets of the Institute. (Answer 110; Hamilton, T. 84) Since its inception in 1981, William A. Hamilton has been the President and Chairman of the Board of INSLAW. (Hamilton, T. 83) 16. In an effort to obtain the private funding necessary for the survival of INSLAW and PROMIS, in May 1981, INSLAW began selling its software upkeep and upgrade ser- vices to its existing user base pursuant to annual flat fee con- tracts. (Hamilton, T. 99; Merrill, T. 816) These funds were combined with investments of the company’s equity capital and contract monies from private companies in an effort to develop enhancements to Old PROMIS. (Hamilton, T. 100-101, 104) 17. INSLAW had two motives in going forward with privately financed enhancements of PROMIS. (Hamilton, T. 109) First, the founders of INSLAW had invested a number of years in the development of PROMIS and did not want to see that effort wasted. (Hamilton, T. 109) Second, INSLAW 75a wanted to make a profit from its efforts to enhance the PROMIS software. (Hamilton, T. 109) 18. INSLAW also entered into a number of contracts with individual private clients to create new and important functional enhancements to PROMIS. (Hamilton, T. 102-104) These en- hancements were then made available to other PROMIS users on a license basis; input and experience developed from this effort was used by INSLAW to further modify and improve the Old PROMIS system over and above the system created under the LEAA funding. (Merrill, T. 759-761) 19. As INSLAW’s expert testified from his twenty-five years of experience in the software industry, itis common within the software industry for a private corporation (i) to take public domain software created using public funds, (ii) then to enhance the public domain software using private funds and (iii) finally to market the resulting product as a proprietarily enhanced version of the software. (DeLutis, T. 1299-1300; PX 233) 20. INSLAW also marketed enhanced PROMIS success- fully to additional federal government offices outside of the Department of Justice, non-federal government offices, and private non-government clients. (Hamilton, T. 98-99) These additional users permitted INSLAW to further enhance PROMIS through greater revenues, additional user input and private funding for particular changes. (Hamilton, T. 98-99; Merrill, T. 759, 761) 21. Significantly, INSLAW also began to change the structure of PROMIS by extending the basic concept to other uses. (Hamilton, T. 98-99) INSLAW thus created and began to market new PROMIS-based packages such as JAILTRAC for correctional institutions, DOCKETRAC for courts, MODULAW for insurance companies and private law firms, and CJIS for county-wide justice administration. (Holton, T. 1125; Merrill, T. 816-817) While each of these other ap- plications contains some specific coding that relates to the ’ 76a particular user needs, PROMIS and these derivative application packages share much of the same COBOL software code. (Hol- ton, T. 1125) Thus, generic enhancements to any of the pack- ages benefit all of these applications. (Merrill, T. $16-817, 819) 22. Through its experience with PROMIS users, IN- SLAW further modified PROMIS pursuant to the suggestions of the in-house staff of INSLAW. (Merrill, T. 761) A number of enhancements were funded through INSLAW’s profits and research and development costs, which became part of the Enhanced PROMIS — “PROMIS ‘82” — that INSLAW began to market aggressively to new users beginning in the Fall of 1982. (Hamilton, T. 104-105; Merrill, T. 759) C. THE NATURE OF THE PROPRIETARY ENHANCEMENTS 23. In essence, INSLAW made two types of enhance- ments to PROMIS: first, changes “sewn inside” the existing old PROMIS code which permit more efficient, user-friendly and less defect-prone operation of the software; and second, changes “hooked-on” to the PROMIS code which add new functionality. (Hamilton, T. 102) 24. Enhanced PROMIS consists of a number of subsys- tems, i.e., packages that are themselves comprised of a number of programs or modules. (Holton, T. 1122-1124; PX 225b) Two of these subsystems, the Data Base Adjustment subsystem and the Batch Update subsystem, have been demonstrated by INSLAW to have been developed using private funds, are proprietary to INSLAW and were not deliverable under the EOUSA contract. (Hamilton, T. 125, 2571-2575; See F.F. 9 69 & 73 below) The Data Base Adjustment and Batch Update subsystems are “hook-on” systems that are independent of the remainder of PROMIS. (Holton, T. 1123-24) Although they perform additional useful and desirable functions within PROMIS, they are not themselves required to make PROMIS function, and they could have been removed from PROMIS 77a without preventing the operation of the remaining PROMIS software system. (Holton, T. 1123-1124) 1. Data Base Adjustment 25. The Data Base Adjustment subsystem consists of nine programs. (Holton, T. 1126; Hamilton, T. 2589) Data Base Adjustment is used to modify the structure of a PROMIS data base that has already been in use, without causing any loss of data that would ordinarily preclude structural modifications to existing databases. (Holton, T. 1126-27) For example, if the information in a phone book is considered as a record in a data base, the existing structure of that record would include the name, address and telephone number for each listing. (Holton, T. 1126) If one then wished to expand the structure of ihat record by including zip codes, the Data Base Adjustment sub- system would be useful in altering the structure of the existing phone book data base to permit entry of zip codes for both new and old listings. (Holton, T. 1126-27) 26. Restructuring of a database permits the user to ac- commodate needs for additional information, work flow pattern changes, changes in office organizational structure, and a greater user sophistication in use of office automation. (Hamilton, T. 2577-2578) It is INSLAW’s experience that PROMIS users typically will request retailoring perhaps as often as every 12-18 months, which will require the use of the Data Base Adjustment subsystem. (Holton, T. 1120-21; Hamilton, T. 2576-2578) DOJ may be — or may not be — atypical: Mr. Rugh testified that the United States Attorneys have never needed to restructure their PROMIS data bases. (Rugh, T. 2627-28) However, this Court has found Mr. Rugh’s testimony to be unbelievable. (See F.F. 1 398 below). It is entirely possible that individual U.S. Attorneys’ offices have wanted to restructure their PROMIS data bases and have been prevented from doing so by EOUSA. (See F.F. 1 40 below) 78a 27. Although specific-need programs for specific restructuring of particular data bases could be created, the advantage of the PROMIS Data Base Adjustment subsystem is that it is a generic, reuseable package that requires little coding work by the programmer for each new adjustment. (Holton, T. 1126-27) Without Data Base Adjustment, users who desired to improve the structure of their data base would be required for cach specific need to engage in weeks, perhaps months, of hard coding, testing and debugging of a program that would alter only one specific existing data base to one specific new data base structure. (Holton, T. 1127) 28. Although there were two programs that comprised an earlier version of the Data Base Adjustment package, they were not the same as any of the programs that comprise the nine Data Base Adjustment subsystem programs that were provided to the Department of Justice. (Holton, T. 1172-75, 2533, 2563) Un- like the Data Base Adjustment subsystem provided to DOJ by INSLAW in 1985, the two early programs did not generate code and did no comparison of the old and new database designs. (Holton, T. 1173-74) The nine-program Data Base Adjustment subsystem performs numerous additional functions not present in the early version of Data Base Adjustment. (Holton, T. 1173- 74) 29. The two earlier programs are not in or among the nine-program Data Base Adjustment subsystem that INSLAW has claimed as proprietary in this litigation. (Holton, T. 1174- 75; Hamilton, T. 125) 30. The nine programs in the Data Base Adjustment subsystem are in the possession and control of the government. (Gaghiardi, T. 2069; Hamilton, T. 2607-2609, 2589: Holton. T. 2510; DX 212 [Holton] at pp. 210-212; see, however, Hol- ton, T. 2530) 31. Data Base Adjustment is an extremely useful tool for PROMS users, and is a very valuable enhancement to PROMIS. 794 (DeLutis, T. 1281-1282: Holton, T. 1124, 1127; Hamilton, T. 2576-2578) Even Defendant’s expert conceded that Data Base Adjustment is an enhancement to PROMIS, and believed that any commercially viable software program should have the capability of adjusting the data base. (Gaglhiardi, T. 2073-2074) Data Base Adjustment was not required to be delivered under the EOUSA (1982) Contract. (Hamilton, T 125, 2607-2608; Holton, T. 1123) 2. Batch Update 32. The Batch Update subsystem permits 4 user to add computerized information to an existing database structure in batches (1.e., without requiring the tedious input of information one record at a time through keyboards at video terminals), ina cost-effective manner, and without incurring the concomitant increased risk of introducing human data entry errors into the database. (Holton, T. 1128-1] 129; DeLutis, T. 1280-1281- Hamilton, T. 2572-2574) 33. Batch Update is a very significant feature of PROMIS "hat, according to defendant’s expert, must be present in order even to begin to enter the marketplace. (Gagliardi, T. 2644- 2045) Batch Update is a useful tool for PROMIS users and is a valuable enhancement to PROMIS. (DeLutis, T. 1280-81) Batch Update was not required to be delivered under the EOUSA (1982) Contract. (Hamilton, T. 2571-2575: Holton. T. 1123) 3. The 32-Bit Architecture VAX Version Of PROMIS 34. INSLAW also created between June and September of 1981, using private funds, a third major enhancement to PROMIS, which was the redesign and porting of the PROMIS software to run on the 32-bit architecture VAX minicomputer manufactured by Digital Equipment Corporation. (Holton, T 1132) A software “port” is the process of converting an existing software package to enable it to run on different brands and 80a models of computers. (Holton, T. 1132) The earlier versions of PROMIS ran on other Digital Equipment Corporation com- puters, known as PDP 11/70, as well as on computers sold by IBM, Wang, Honeywell and Burroughs. (Holton, T. 1133; DeLutis, T. 1273-1274) 35. In 1981, INSLAW noted that Digital Equipment Cor- poration was replacing its 16-bit architecture PDP line of com- puters with the newer, state-of-the-art VAX line. (Holton, T. 1132) Because the VAX computers offered significant tech- nological advantages over the PDP line, including 32-bit ar- chitecture as opposed to 16-bit architecture, increased work-in-storage space and faster input/output for processing of information — differences as significant as the difference be- tween a propeller-driven airplane and a jet — INSLAW made a Strategic decision to stay abreast of the technology dy porting the entire PROMIS system from the 16-bit PDP to the 32-bit VAX “environment.” (Holton, T. 1131-33; DeLutis, T. 1274- 1280) 36. The development of a version of PROMIS to run on VAX minicomputers was a very valuable enhancement to PROMIS in terms both of INSLAW’s need to stay abreast of the market and of INSLAW’s customers’ need and desire for faster, more capacious products. (DeLutis, T. 1274-1280) 37. The VAX version of PROMIS subsequently was used by INSLAW to provide time-sharing facilities to ten United States Attorneys’ Offices, pending selection and installation by the government of on-site computer equipment. (Holton, T. 1254) 38. Whereas the “base” or “master” version of PROMIS until 1980 ran on 16-bit architecture PDP 11/70 computers, the 32-bit VAX version in about 1981 became the base or master version of PROMIS that was then used to do further develop- ment and maintenance work to PROMIS. (Holton, T. 1133-34) | — - Sla 39. Although the 1982 contract did not prescribe the manner in which the contractor was to create the Prime version of PROMIS to be delivered to the government, and indeed DOJ had not yet chosen the Prime computer hardware until long after the contract had been entered into, INSLAW in fact used the VAX version of PROMIS to create the version of PROMIS that ran on the Prime computers selected by the government. (Hol- ton, T. 1250-51; Hamilton, T. 173) INSLAW used the VAX version rather than the earlier Prime version developed by INSLAW during the Executive Office “pilot project” contract, because the differences between the new COBOL compiler on the Prime computers selected by the government and on the VAX were less significant than the differences between the COBOL compilers in the new and old models of the govern- ment-furnished Prime minicomputers. (Holton, T. 1250) 40. Both the major enhancements as well as the in- dividual changes and enhancements to PROMIS are licensed by INSLAW to its current users. (Merrill, T. 760-761; Hamilton, T. 173) INSLAW has had requests from individual United Siates Attorney ’s Offices to obtain the latest additional PROMIS enhancements, including a request from the United States Attorney's Office for the Southern District of New York which wishes to obtain from INSLAW its most up-to-date enhance- ments to PROMIS created by INSLAW since the end of the Executive Office contract in March 1985. (Merrill, T. 761-762) 4. Additional Discrete PROMIS Enhancements 41. Anumber of the enhancements to PROMIS improved the Old PROMIS systems by making the software more efficient and user-friendly, and adding new functionality. (Hamilton, T. 102-103) Certain enhancements, for example, provided in- formation to the user to assist in operation of PROMIS or diagnosis of errors encountered in entering or retrieving data. (Holton, T. 1175, 1215-1219; DeLutis, T. 1285) Other enhan- 82a cements provided the user with the ability to perform tasks more quickly, either by structuring the on-screen processes to perform additional functions or by streamlining the amount of code so as to allow the program to run faster. (Hamilton, T. 102-103; Holton, T. 1215-1216, 1219; DeLutis, T. 1285) 42. All of these enhancements became part of the en- hanced PROMIS software that INSLAW sought to market to new users and to provide through maintenance updates to exist- ing PROMIS users that had entered into maintenance contracts with INSLAW. (Holton, T. 1126-1134; Hamilton, T. 108-109) 43. These enhancements identified by INSLAW were created from private, non-federal funds expended by INSLAW for software enhancements from May of 1981 through March of 1985. (Ling, T. 1065-1066, 1073-1074, 1080; Gibson, T. 2245-2246, 2251-2252) The total spent by INSLAW during this period for software enhancements of all kinds was more than $8.3 million. This figure has been verified by an audit per- formed by DOJ’s staff auditors. (Gibson, T. 2245-2246, 2251- 2252) Although INSLAW’s accounting system does not permit the identification with specificity of the cost of each particular enhancement, INSLAW had during that same time period ap- proximately $13 million in funds from private sources that were available and could have been used to perform these and other software enhancements. (Ling, T. 1071, 1074) 44. INSLAW took a number of steps to maintain the confidentiality of the software that was created after INSLAW came into being. (Hamilton, T. 105) First, INSLAW required all of its employees to sign confidentiality and non-disclosure agreements. (Hamilton, T. 105) Second, the enhancements to PROMIS were created under maintenance contracts and private contracts that expressly provided that all proprietary rights to all of the enhancements were held exclusively as the property of INSLAW. (Merrill, T. 762-763; Hamilton, T. 104; PX 236- 83a 236a)* Users were further subject to restrictions precluding disclosure or dissemination of these enhancements in the ab- sence of a license from INSLAW. (Merrill, T. 762-763; Hamil- ton, T. 105; PX 236-236a) Finally, INSLAW copyrighted its software and documentation. (Hamilton, T. 105) 45. The PROMIS enhancements were determined by IN- SLAW to be privately financed and proprietary to INSLAW by analyzing the documentation of each enhancement that is con- tained in the source code of the programs themselves, the forms used by INSLAW to report and record software changes, and the timesheets of the employees who performed the program- ming work on each enhancement. (Holton, T. 1175-1177) The method used by INSLAW to track software enhancements and to account for employee time is wholly reasonable within the standards used throughout the industry, and is, in many respects, exceptionally good.° (DeLutis, T. 1287-1288, 1297-1298) On the basis of the foregoing and the record as a whole, this Court finds that the enhancements that INSLAW deveioped either Shortly after starting its privately-financed enhancements of PROMIS in May 1981, INSLAW discovered that the language of certain of its contracts did not adequately protect its proprietary rights. (Hamilton, T. 292- 293} Several months after May 1981, this contract language was changed to offer INSLAW the protection that it desired. (Hamilton, T. 293) Moreover, because these peopie subscribed in the following year under a more restric- tive contract under which all the enhancements had been commingled this problem was resolved. (Hamilton, T. 293) Although this Court did not and need not rely upon the following comparison in reaching this finding, the Court takes notice that, at a hearing on November 3, 1987 concerning the claims of SG Systems, Inc. and SIR Corp. against United Press international, Inc., in Case No. 85-00257, employee timesheets used by those two computer software corporations were introduced into evidence and relied upon by this Court in its holding granting the full relief requested. Mr. Siok (“Si”) H. Go is president of both corpora- tions, has 20 years’ experience in computer software, including 9 years’ employment with Univac, and has implemented software systems for the New York Stock Exchange and Banker Ramo Corp. Comparison of the employee timesheet form used by Mr. Go’s two corporations, for Mr. Go a 84a with private funds, or with a combination of private funds and under government contracts specifically permitting INSLAW to retain private rights, were not in the public domain but were INSLAW'’s private property. Il. INSLAW HAS CREATED USING PRIVATE FUNDS AN ENHANCED VERSION OF PROMIS THAT IS PROPRIETARY TO INSLAW A. INSLAW’S ACCOUNTING SYSTEM DEMONSTRATES THAT INSLAW’S CLAIMED CHANGES AND ENHANCE- MENTS WERE CREATED USING PRIVATE FUNDS 46. INSLAW’s accounting system tracks costs relating to software development according to unique four-character charge codes. (Ling, T. 1054; Gibson, T. 2231) The first two characters of this charge code identify the project for which the work is being performed and to which the time is being charged; the second two characters identify a particular task within that overall project. (Gibson, T. 2231) 47. These charge codes are reflected in INSLAW’s ac- counting system in time sheets used by INSLAW employees, expense reports and journal entries, which are then summarized in monthly project control reports for each charge code, as well as in INSLAW’s general ledger. (Ling, T. 1054-1058; Gibson, 1. 2231) 48. INSLAW has used continuously since its inception aS a private corporation the same form of time sheet for its software programmers. (Ling, T. 1055-56; PX 227) Using this time sheet, INSLAW’s software programmers track on a bi- himself and his associate Mary Ann Huang (copy attached as Appendix A), with the employee timesheet form used by INSLAW (Appendix B) shows that the INSLAW form is an immeasurably superior tracking System in every respect. CSCS Sst‘ ( S;'rti‘ ‘ (!;t;*;™ 85a weekly basis the number of hours spent working on a particular project and task by entering the appropriate four-character charge code. (Ling, T. 1057; PX 227; Holton, T. 1139) 49. INSLAW programmers are informed at the begin- ning of a project of the appropriate four character charge code to be used on time sheets to charge work for that project. (Holton, T. 1139; DX 211 [Ling] at p. 70) At the end of the two-week pay period, the employee totals and checks the time sheet, signs it, and submits it for review to the director of that employee's division. (Ling, T. 1057-58; Holton, T. 1139) The employee's time is reviewed and approved by the division director, who must sign and date the time sheet. (Ling, T. 1057-58; Holton, T. 1139) Time charged to particular projects must also be approved by the project manager, who must initial the time sheet next to the charge code. (Ling, T. 1058) The time sheet is then submitted to the accounting department for review, payroll processing and entry into INSLAW’s general ledger system. (Ling, T. 1058) 50. Any iNSLAW employee who attempted intentional- ly to mischarge time to incorrect accounts would be severely reprimanded and could very easily be terminated. (Holton, T. 1140-41) Although DOJ witness James Mennino testified to the contrary, this Court has found his testimony to be absolutely incredible, totally unsubstantiated and obviously biased, as dis- cussed in F.F. 1 398 below. It appears that Mennino was at- tempting to excuse his own excessive time spent on a project, on which he was in charge of one aspect, by complaining about the time spent by other persons responsible for other aspects of that project, even though he had no knowledge concerning either what those other persons were doing or how long it should reasonably take them to do it. 5i. INSLAW’s time sheets are of the type commonly used in the software industry for recording time spent by com- EE a 86a puter programmers on software development. (DeLutis, T. 1288-1291; Gagliardi, T. 2088) 52. For major enhancements that are assigned individual charge codes, ‘NSLAW can track its labor costs relating directly to those particular enhancements. (Ling, T. 1080-81) For smaller enhancements that are not assigned separate charge codes, INSLAW’s accounting system does not permit tracking the cost of each such enhancement. (Ling, T. 1080-81; DX 211 [Ling] at pp. 84-85) 53. Each programmer also was assigned an individual computer “account,” i.e., a work space within the computer. (Holton 52-54) To “sign on” to the computer account, the programmer would use a code that would enable INSLAW to charge the programmer's computer time to a particular client, or to INSLAW itself. (DX 212 [Holton] at pp. 52-55; DX 211 [Ling] at p. 64) 54. However, tracking of and/or accounting by individual smaller enhancements is not done generally within the industry, and none of the witnesses called by either INSLAW or the government was aware of any software development company that maintained accounting records with that degree of detail. (DeLutis, T. 1291-1292, 1306; Gagliardi, T. 2090-2092; DX 21i [Ling] at pp. 87-89; Ling, T. 1081) The testimony by DOJ witnesses Gagliardi and Rugh, that even so INSLAW should have maintained such records (Gagliardi, T. 2083-85; Rugh, T. 1515-17), was obviously a product of their intense bias against INSLAW, which caused them to testify in whatever way they thought might defeat INSLAW’s claims, without regard to the truth. 55. Aithough the government auditor, Alan Gibson, tes- tified that he did not believe that INSLAW’s records were sufficient to audit each of the changes and enhancements iden- tified by INSLAW as privately funded (Gibson, T. 2114), Gib- son admitted that he has no knowledge of records kept in the ee 87a ordinary course of business by software developers, and has never performed any analysis of funding sources for software enhancements. (Gibson, T. 2229-2230) However good a government auditor Mr. Gibson may be, this is a specialized field in which Mr. Gibson has no expertise or competency. 56. Moreover, an accounting system that tracked software development costs by individual software changes would be unduly burdensome and expensive to set up and maintain, and would require computer memory capacity far exceeding the capabilities of even INSLAW’s computers. (DX 211 [Ling] at pp. 62-63, 87-88) 57. Because INSLAW’s records are within the standards for recordkeeping within the industry, including time records and documentation concerning software maintenance, and in- deed are exceptionally good, the Court considers INSLAW’s records more than sufficient for the purposes of estabiishing the existence of and funding for the enhancements and changes claimed as proprietary by INSLAW. 58. INSLAW has demonstrated that between May 1981 and March 1985, the period from which INSLAW began developing enhancements using private funding through the end of the 1982 EOUSA contract, INSLAW expended $8,328,883, of private, n [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_2844%3A2. Public record. Not legal advice.