[00:00:04] Speaker 00:
The next case for argument is 155074, Northrop Grumman, computing versus United States.

[00:01:00] Speaker 00:
Mr. Eisenberg, you're ready.

[00:01:02] Speaker 00:
Let's make sure the other side is.

[00:01:08] Speaker ?:
OK.

[00:01:08] Speaker 03:
Thank you.

[00:01:09] Speaker 03:
May it please the court, David Eisenberg, on behalf of the appellant, Northrop Grumman, in this appeal.

[00:01:14] Speaker 03:
The issue on this appeal is whether there's any basis in contract law to relieve the government of its obligations under the delivery order.

[00:01:21] Speaker 03:
Because we believe there is not, we would respectfully ask this court to reverse the decision below.

[00:01:26] Speaker 04:
Mr. Eisenberg, Northrop argues

[00:01:29] Speaker 04:
that because it's bringing the claim on its own behalf that we should ignore the pre-financing agreement with ESC.

[00:01:37] Speaker 04:
Is that how you refer to it?

[00:01:38] Speaker 04:
ESC.gov?

[00:01:39] Speaker 04:
Yes.

[00:01:40] Speaker 04:
Okay.

[00:01:40] Speaker 04:
And only look to whether the government is satisfied its performance under the contract with Northrop.

[00:01:47] Speaker 04:
Am I correct?

[00:01:48] Speaker 04:
That's correct.

[00:01:49] Speaker 04:
Okay.

[00:01:49] Speaker 04:
But as to whether Northrop has suffered any injury,

[00:01:52] Speaker 04:
as a result of the government's failure to satisfy its end of the bargain, Northrop asserts that the court should look to the pre-financing agreement that we were supposed to ignore.

[00:02:03] Speaker 04:
Isn't that contradictory?

[00:02:06] Speaker 03:
Well, Northrop's not asking the court to look to the pre-financing agreement.

[00:02:10] Speaker 03:
We believe that the government is asking the court to look to the pre-financing agreement.

[00:02:14] Speaker 03:
In fact, it's our position, Northrop Grumman's position, that based on this court's opinion in the earlier appeal

[00:02:20] Speaker 03:
There are several reasons why you should not look at the refinancing agreement in connection with Northrop Grumman's expectation damages.

[00:02:27] Speaker 03:
There were several findings in the opinion below.

[00:02:30] Speaker 03:
One was that the contract was void as to the government.

[00:02:33] Speaker 04:
Northrop says in its break, Northrop has not been released and continues to have obligations to cooperate with the finance companies to pursue any good claim and good faith.

[00:02:50] Speaker 04:
core of your argument, isn't it?

[00:02:52] Speaker 03:
Well, Northrop does have, there's two contracts here.

[00:02:55] Speaker 03:
One is the contract between Northrop and the government.

[00:02:57] Speaker 03:
The other is the contract between Northrop and the finance company.

[00:03:00] Speaker 03:
There's two separate expectations.

[00:03:02] Speaker 03:
There's two separate considerations.

[00:03:04] Speaker 03:
In connection with the contract with the finance company, the finance company provided Northrop money and Northrop has obligations to the finance company.

[00:03:13] Speaker 03:
with respect to the government contract.

[00:03:15] Speaker 00:
What are those obligations?

[00:03:16] Speaker 00:
You're not paying them back.

[00:03:17] Speaker 00:
You're not suffering any loss as a result of the breach, right?

[00:03:21] Speaker 00:
It's all absorbed by the finance company under the agreement you have, right?

[00:03:26] Speaker 03:
Well, Your Honor, in that case, I would look to the decisions that this Court has cited in the earlier... Well, why don't you... Can you answer my question first and then you can go on to explain it?

[00:03:34] Speaker 03:
Northrop does have a loss.

[00:03:35] Speaker 03:
Northrop has a loss because Northrop provided, under the government contract, Northrop provided performance to the government

[00:03:42] Speaker 03:
In exchange for that performance, the government had performance and payment obligations to Northrop Grumman.

[00:03:48] Speaker 03:
That was Northrop Grumman's expectation when it entered into that contract.

[00:03:51] Speaker 00:
Okay, and you've gotten that money.

[00:03:55] Speaker 03:
Northrop Grumman has never received that money from the government.

[00:03:59] Speaker 03:
Wait a minute.

[00:04:00] Speaker 03:
Has it received the money?

[00:04:02] Speaker 04:
Money is plungeable, isn't it?

[00:04:03] Speaker 03:
Northrop hasn't received the money.

[00:04:05] Speaker 03:
The money that Northrop received was money from the finance company.

[00:04:08] Speaker 03:
That's separate money under a separate contract, under a contract that's void as to the government.

[00:04:13] Speaker 03:
So if it's void as to the government, the government shouldn't be able to use the benefit of that contract.

[00:04:18] Speaker 04:
Okay, let me ask you this.

[00:04:21] Speaker 04:
If the government pays that money, does Northrop report it twice on its income tax returns?

[00:04:27] Speaker 03:
If the government pays that money to Northrop, Northrop does.

[00:04:30] Speaker 03:
is Northwood remits the money to the finance company.

[00:04:33] Speaker 03:
It's no different than under Beaconware and Colonial Navigation.

[00:04:36] Speaker 03:
In both of those cases cited by this court in the earlier appeal, in Beaconware, neither contractor who had the claim, and as this court said with respect to Beaconware, the court said that, but an attempted assignment of a claim against the United States does not forfeit the claim.

[00:04:58] Speaker 04:
Well, maybe I misunderstood the question.

[00:04:59] Speaker 04:
OK, let me ask you again.

[00:05:01] Speaker 04:
Is Northrop going to report that income as twice on its returns?

[00:05:06] Speaker 04:
Is it going to book it as two separate incomes?

[00:05:10] Speaker 03:
I actually don't know the answer to that.

[00:05:11] Speaker 03:
I don't know how Northrop reports the money that it receives from the government, but it has not received.

[00:05:19] Speaker 00:
But of course, you're not going to keep that money.

[00:05:21] Speaker 00:
That money will go directly to the financiers, right, under the financing agreement.

[00:05:25] Speaker 03:
Well, Northrop will have the money for a period of time, and then Northrop will remit the money.

[00:05:30] Speaker 03:
The money goes directly to Northrop, and then Northrop remits the money.

[00:05:33] Speaker 03:
The money doesn't go directly to the finance company.

[00:05:36] Speaker 00:
I know, but it's a practical matter whether it goes to you first as a pass-through or anything more than a pass-through with respect to any payment that might be received from the government in this case.

[00:05:47] Speaker 03:
No, we're not.

[00:05:50] Speaker 03:
But I don't think that that solves the issue here based on the established law.

[00:05:56] Speaker 00:
So what is the harm?

[00:05:57] Speaker 00:
If you win this case, you get a pass-through of the money, and you don't get to keep the money.

[00:06:04] Speaker 00:
So you're in the exact same position you would have been whether you won or lost this case, right?

[00:06:09] Speaker 03:
Well, Your Honor, I agree.

[00:06:11] Speaker 03:
But that's no different than Beaconware and Colonial Navigation.

[00:06:14] Speaker 04:
If you lose this case,

[00:06:17] Speaker 04:
Other than perhaps seeking a writ of certiorari, are you under, or are we hearing a bank, are you under any further obligation to esc.gov?

[00:06:28] Speaker 03:
No.

[00:06:29] Speaker 03:
But that is no different than any of the severance type cases, where severance is not applicable here.

[00:06:35] Speaker 03:
And I would suggest that the law should not be different if this were a pass-through claim.

[00:06:39] Speaker 03:
The result is less harsh if it's a pass-through claim than if it's a direct claim.

[00:06:46] Speaker 03:
In this case,

[00:06:48] Speaker 03:
Northrop Grumman is the party that performed all of the obligations under the contract.

[00:06:52] Speaker 03:
In Beaconware, as this court knows, Beaconware didn't perform any obligations under that contract.

[00:06:56] Speaker 03:
So under the government's analysis, under the opinion below, Beaconware never had any expectation for any money because it didn't do any of the performance.

[00:07:04] Speaker 03:
All of the performance was done by the subcontractor, yet the claim remained with Beaconware.

[00:07:09] Speaker 01:
The issue in this case, though, is in performance.

[00:07:11] Speaker 01:
It damages.

[00:07:13] Speaker 01:
And the court of claims

[00:07:16] Speaker 01:
found on summary judgment that you did not raise a genuine issue of fact with respect to damages because you haven't been harmed in any way.

[00:07:25] Speaker 01:
Well, the damages... What's the harm then?

[00:07:27] Speaker 01:
Where do you have a loss of income under this contract?

[00:07:36] Speaker 03:
The claim for damages, again, I would suggest it's no different than beaconware.

[00:07:40] Speaker 01:
It's no different than colonial navigation.

[00:07:42] Speaker 01:
In this case, forget about beaconware, in this case,

[00:07:45] Speaker 01:
Where's your loss of income?

[00:07:47] Speaker 01:
Where's the damages?

[00:07:49] Speaker 03:
Well, I think the expectation damages.

[00:07:51] Speaker 03:
The contract that's at issue is the contract between Northrop and the government.

[00:07:56] Speaker 03:
The contract between Northrop and the finance company as this court has held.

[00:08:00] Speaker 01:
No, forget about the finance company.

[00:08:02] Speaker 01:
If the purpose of the lawsuit is to put you back in hold if the government had not breached on its payments, I mean, right?

[00:08:10] Speaker 01:
I mean, you're seeking to be put back in hold.

[00:08:15] Speaker 01:
But yet you are in whole already.

[00:08:18] Speaker 03:
We're not whole with respect to the contract between Northrop Grumman and the government.

[00:08:22] Speaker 03:
We're not whole with respect to that contract because there's only two parties to the contract.

[00:08:27] Speaker 03:
The expectations of Northrop Grumman when it entered into that contract was that the government would make that payment.

[00:08:33] Speaker 03:
Further, with respect to that contract, the government states in its brief that if the options were exercised,

[00:08:42] Speaker 03:
the government would have to pay the additional $2.7 million.

[00:08:46] Speaker 03:
But under the government's argument and under the argument of the court below, if the government exercised that option, any of the three options, and didn't make the payment, nobody would be able to sue for that payment.

[00:09:01] Speaker 03:
That makes no sense, that the government would then sign this contract, exercise the three options, and not have to make any of the payments.

[00:09:08] Speaker 03:
And the reason it wouldn't have to make any of the payments

[00:09:10] Speaker 03:
is because the only party that has a claim in this case is Northrop Grumman.

[00:09:14] Speaker 03:
And if Northrop Grumman can't sue for those payments, then the government doesn't have to make them.

[00:09:20] Speaker 03:
Under that analysis, the government, once it signed this contract and once the finance agreement was entered into, the government had no further payment obligations because Northrop Grumman's already been made whole.

[00:09:30] Speaker 03:
But they haven't been made whole under the government contract because they expected certain things from the government.

[00:09:36] Speaker 03:
And those expectancy damages have not been paid.

[00:09:38] Speaker 03:
Nobody satisfied those.

[00:09:40] Speaker 03:
They agree that no determination has been made that the government satisfied its obligations under the government contract.

[00:09:48] Speaker 00:
Can I ask you, this is outside of the record, so if you're in a position to answer, is this a routine contract, the contract that you entered into with respect to the financiers, that they pay you and irrespective of whether or not you ever collect from the government on the contract, you're home free?

[00:10:04] Speaker 00:
Is this a normal way of doing business?

[00:10:07] Speaker 03:
It is a normal way that the finance companies have done business in the context of financing government.

[00:10:11] Speaker 01:
Also, the normal way of doing business is that you notify the government that you've entered into this financing agreement, correct?

[00:10:19] Speaker 01:
I mean, that's typically how this is done.

[00:10:21] Speaker 03:
Oftentimes that is, and that's why there's the exception to the Anti-Assignment Act, that you do notify the government and the government accepts that.

[00:10:29] Speaker 03:
The problem in this case is that you didn't give that notification.

[00:10:32] Speaker 03:
But the, that's correct, but the issue here is one of contract damages and the recovery of contract damages should not be dependent upon compliance with the anti-assignment.

[00:10:41] Speaker 01:
I said that because that is the issue here, contract damages.

[00:10:45] Speaker 01:
And it seems to me that when you entered into the agreement with ESCO and you look at the payment that was made and that payment contemplated the optional maintenance years,

[00:10:59] Speaker 01:
that you were whole from the beginning.

[00:11:01] Speaker 01:
You were made whole from the beginning.

[00:11:04] Speaker 01:
You haven't been out any money from the very outset of this whole episode.

[00:11:11] Speaker 01:
And when the government decided that we're not going to exercise the options for the maintenance years, and that's what you're suing on, you're still made whole.

[00:11:22] Speaker 01:
And I asked you, where have you been damaged?

[00:11:24] Speaker 01:
Show the injury here.

[00:11:27] Speaker 01:
I want to say show me the money, but that's not the right... Just show me the injury.

[00:11:34] Speaker 03:
The injury here is with respect to the contract with the government.

[00:11:38] Speaker 03:
The contract with the finance company is void as to the government.

[00:11:42] Speaker 03:
And as this court said with respect to Beaconware, it leaves the claim where it was before the purported assignment.

[00:11:49] Speaker 01:
But the money you're suing for, you've already been paid.

[00:11:52] Speaker 03:
Right, but if it leaves the claim where it was before the purported assignment,

[00:11:57] Speaker 03:
And the assignment is void as to the government.

[00:12:01] Speaker 03:
The government should not be able to enforce that contract to the extent that payment was made and then not accept the other portions of this contract, which was that if Northrop Grumman receives money, it needs to remit that money to the finance company.

[00:12:16] Speaker 03:
Either the contract is relevant or it's not relevant.

[00:12:19] Speaker 03:
If it's not relevant because it's void under the Anti-Assignment Act or it's not relevant because it's not necessary to assert a claim

[00:12:26] Speaker 03:
for monies as a matter of right, which is what this court held in the prior opinion at Northrop in its claim letter, without disclosing the finance documents had submitted a valid claim for money as a matter of right, damages as a matter of right, and the finance documents were not necessary to assert that claim, then they shouldn't be able to be used to defeat the claim.

[00:12:48] Speaker 03:
The contract for the assignment just isn't

[00:12:54] Speaker 03:
shouldn't be relevant to the claim in this particular case.

[00:12:58] Speaker 01:
It's a contract that's outside the claim.

[00:13:00] Speaker 01:
In the initial case, we based that decision, and we limited that to whether this court had jurisdiction or not.

[00:13:08] Speaker 01:
And we said we're not addressing the merits at that point.

[00:13:14] Speaker 01:
Correct.

[00:13:14] Speaker 01:
So now you've come back on the merits.

[00:13:18] Speaker 01:
And you're almost making the same jurisdictional arguments you made before.

[00:13:23] Speaker 01:
making them all the merits, but I think you lose sight of the fact that we're talking about injury.

[00:13:30] Speaker 01:
If this was a tort case, you'd have a damaged leg.

[00:13:32] Speaker 01:
It's not a tort case, it's a contract case.

[00:13:36] Speaker 01:
Where is the injury?

[00:13:38] Speaker 01:
You have been paid.

[00:13:40] Speaker 04:
We haven't been paid under the contract.

[00:13:42] Speaker 04:
Let me ask you this, counsel.

[00:13:45] Speaker 04:
If you have no actual damages, do you have a claim for nominal damages?

[00:13:52] Speaker 03:
I think we have a claim for actual damages.

[00:13:56] Speaker 03:
So you're not going to answer this question either for me?

[00:13:59] Speaker 03:
I don't think our claim is for nominal damages.

[00:14:02] Speaker 04:
So if you have no actual damages, you have no nominal damages claim?

[00:14:11] Speaker 03:
I don't know how to answer that, Your Honor, other than the way I have.

[00:14:15] Speaker 03:
We have a claim for actual damages under the contract.

[00:14:19] Speaker 03:
We performed under the contract.

[00:14:21] Speaker 03:
There still remains a claim for breach that has never been tried in this case.

[00:14:27] Speaker 03:
As I said, if the government exercises the option, based on the analysis of the court below and the government, nobody would ever have to make those option payments.

[00:14:37] Speaker 03:
Those $2.7 million would never have to be paid because nobody could sue to collect that $2.7 million.

[00:14:44] Speaker 04:
So I'm not going to ask your opposing counsel then

[00:14:50] Speaker 04:
whether the government has a position on whether you could still seek cost under a nominal damages claim because you're not interested in it.

[00:15:02] Speaker 04:
So I'll abandon that question when your public counsel comes out.

[00:15:06] Speaker 03:
Well, my response to that, Your Honor, would be if the court found that we had nominal damages because there was some value to this contract, we certainly wouldn't turn down the nominal damages and the opportunity to pursue this claim.

[00:15:20] Speaker 03:
It remains our position that the claim is for the entire amount that's outstanding because the government didn't meet its performance obligations.

[00:15:27] Speaker 03:
And it's also our position that the contract with the assignment company is not a matter that should be before this court because it's not necessary to assert a claim and the contract is void.

[00:15:39] Speaker 03:
And the cases of Beaconware and Colonial Navigation are very similar.

[00:15:43] Speaker 03:
And Beaconware, as I said, Beaconware had no damages itself.

[00:15:48] Speaker 03:
Beaconware didn't perform anything under that contract.

[00:15:51] Speaker 03:
All the contract was performed by the subcontractor.

[00:15:54] Speaker 03:
The assignment with the subcontractor was void as to the government.

[00:15:57] Speaker 03:
And therefore, the only thing the court looked at was the contract between Beaconware and the government.

[00:16:03] Speaker 03:
And it was the same thing with Colonial Navigation.

[00:16:05] Speaker 03:
Colonial Navigation was the contract.

[00:16:08] Speaker 03:
It was not entitled to keep any of the monies.

[00:16:10] Speaker 03:
All of the monies were just passed through from Beaconware to Spiotta, and in the other case, from Colonial Navigation to Dunbar.

[00:16:19] Speaker 03:
This case is no different than those.

[00:16:22] Speaker 00:
We're past your time.

[00:16:23] Speaker 00:
Why don't we restore two minutes of rebuttal and let's hear from the government.

[00:16:26] Speaker 00:
Thank you.

[00:16:33] Speaker 02:
Thank you, Your Honor.

[00:16:34] Speaker 02:
Is it all right if I sign this in fact on the holidays?

[00:16:38] Speaker 02:
So I would ask the court's indulgence if I have any further issues or need to take a sip of water.

[00:16:44] Speaker 00:
Could you start off by just telling us, because I wasn't there was a lack

[00:16:48] Speaker 00:
clarity, in my view, at least, in your brief attempt to distinguish Beaconware and Colonial.

[00:16:55] Speaker 00:
A bunch of paragraphs in there.

[00:16:58] Speaker 00:
One to start there, if you would.

[00:17:00] Speaker 02:
Sure, Your Honor.

[00:17:02] Speaker 02:
Colonial and Beaconware are absolutely distinguishable from the facts of this case.

[00:17:06] Speaker 02:
Obviously, those were the two cases cited by this Court in the previous opinion on the jurisdictional issue.

[00:17:11] Speaker 02:
And the reason those two cases are distinguishable from this case is that both of those cases were explicitly brought as pass-through claims.

[00:17:18] Speaker 02:
In Beaconware, I believe Beaconware specifically stated, I don't know if I have the language in front of me, that Beaconware is suing for the benefit of the bank.

[00:17:26] Speaker 02:
And so it put everyone on notice from the outset that it was not suing on its own behalf.

[00:17:31] Speaker 02:
It was suing for the benefit of the bank.

[00:17:33] Speaker 00:
Similarly, Colonial... So if they had come in here at the get-go and said, we are suing for the benefit of ESC Gov, this would have been a different case?

[00:17:44] Speaker 02:
Yes, Your Honor, because then it would have been a pass-through claim.

[00:17:46] Speaker 02:
But it's not a pass-through claim here, and it's not a pass-through claim for two reasons.

[00:17:50] Speaker 02:
One is that it's the law of this case at this point that it's not a pass-through claim, because in this court's prior jurisdictional decision, this court specifically stated it's not a pass-through claim.

[00:17:59] Speaker 02:
And the other reason is that Northrop Grumman has, ever since the jurisdictional issue was raised, has repeatedly represented that this is not a pass-through claim, and that it's not suing for the benefit of ESCGov or Citizens or any other third party

[00:18:12] Speaker 02:
that it is strictly bringing this claim and this case on its own behalf for expectancy damages on its own behalf, seeking to recover for harm that has been done to it.

[00:18:20] Speaker 02:
And so certainly we would argue it's judicially stopped from changing that now, not that Mr. Eisenberg has attempted to do so that I've seen.

[00:18:29] Speaker 02:
So those were cases that were explicitly passed through claims.

[00:18:34] Speaker 02:
I would also distinguish Colonial on the grounds that there was no doubt that Colonial was injured.

[00:18:39] Speaker 02:
As a result, the facts of that case are somewhat complicated.

[00:18:41] Speaker 02:
I won't belabor them unless the court wants me to.

[00:18:44] Speaker 02:
But that $16,600 at issue in that case, the loss of that was felt by Colonial and not Keystone, which was the third party in that case.

[00:18:53] Speaker 02:
So that's a distinguishing factor as well.

[00:18:55] Speaker 02:
So, Your Honor, I'd like to respond to your question to Mr. Eisenberg earlier, because I think it gets to the heart of our argument here, which is that this

[00:19:06] Speaker 02:
This, as near as we can tell, this is a very unique case factually.

[00:19:10] Speaker 02:
There's a lot of somewhat similar cases out there, but the key facts of this case as we see it are fourfold.

[00:19:17] Speaker 02:
One is that they did not comply with the Anti-Simon Act, and so that does not apply, that does not give any of these third parties rights that they would have had if they had complied with that.

[00:19:30] Speaker 02:
The second is that this arrangement between

[00:19:36] Speaker 02:
Northrop Grumman and ESCgov is somewhat unique in that it provides for an exoneration and it provides for a full payment of all expected profits of Northrop Grumman.

[00:19:46] Speaker 02:
They fully concede this on page 8 of their brief, that that payment of $191,000 represented the full amount of profits they accepted to receive.

[00:19:53] Speaker 01:
Did that include the profits that were expected to receive under the optional maintenance years?

[00:19:59] Speaker 02:
Yes, Your Honor.

[00:20:00] Speaker 02:
That is the amount of profit they would have received had all three option years been exercised.

[00:20:06] Speaker 02:
and all payments been made by the government.

[00:20:09] Speaker 02:
And then finally, the most distinguishing factor, I think, was the one I just mentioned, is that unlike a lot of the pass-through claims and the severing claims in Beaconware and Colonial, this is a case where they've stood before this court before, they've stood before the Court of Federal Claims and said, this is not a pass-through claim.

[00:20:26] Speaker 02:
We are not attempting to recover money on behalf of ESGov or citizens.

[00:20:31] Speaker 02:
This is our claim.

[00:20:32] Speaker 02:
We're bringing this on our own behalf, and we're seeking expectancy damages on our own behalf.

[00:20:36] Speaker 04:
I'm out of sync here.

[00:20:38] Speaker 04:
I think you said four, and I only counted three.

[00:20:42] Speaker 02:
Well, I have it written down as two A and B, Your Honor.

[00:20:45] Speaker 02:
I had meant the full payment of profits and the exoneration as two separate factors.

[00:20:51] Speaker 02:
I apologize if that was unclear.

[00:20:53] Speaker 02:
And so as near as I can tell, this is a case of first impression where all four of those factors are present.

[00:21:00] Speaker 02:
As the court can no doubt tell and read in the cases below, Judge Allegra explicitly pointed this out, the government is focusing on the damages, they're focusing on the government obligations.

[00:21:14] Speaker 02:
They're looking at this from two different sides.

[00:21:16] Speaker 02:
But the fact of the matter is this is a case about expectancy damages.

[00:21:20] Speaker 02:
And expectancy damages are necessarily focused on the harm that's experienced.

[00:21:25] Speaker 04:
Can I answer your question?

[00:21:26] Speaker 04:
After closing counsel, look, he sort of blew it off.

[00:21:30] Speaker 04:
Assuming that we find that there are no actual damages, is there a claim for nominal damages?

[00:21:37] Speaker 02:
Well, Your Honor, at the risk of doing the same thing, it's not something I had thought of before I walked into this courtroom.

[00:21:44] Speaker 02:
I would just point out they have never sought nominal damages.

[00:21:46] Speaker 02:
They have never sought anything other than actual expectancy damages.

[00:21:49] Speaker 04:
So it's not in the complaint in any fashion?

[00:21:53] Speaker 02:
No, Your Honor, not that I'm aware of.

[00:21:57] Speaker 02:
But those factors make this a unique case.

[00:22:00] Speaker 02:
If we focus on the expectancy damages, as Judge Allegra did below, and we focus on the actual harm that's experienced by Northrop Grumman and not any third party, under the restatement, under this Court's explanation of expectancy damages in Fifth Third Bank and other cases, there's simply no doubt that Northrop Grumman is in as good of a position as it would have been had all three option years been exercised.

[00:22:24] Speaker 02:
Where's the complaint in the record?

[00:22:30] Speaker 02:
Your Honor, I will have to take a look at that.

[00:22:32] Speaker 02:
I know we have the... I'm not sure that we have that in the Joint Appendix, Your Honor.

[00:22:42] Speaker 04:
That's a problem.

[00:22:48] Speaker 00:
What about a circumstance in which somebody takes out an insurance policy, and it doesn't cost very much, and they say if the government feels to pay,

[00:22:57] Speaker 00:
you pay us the insurance.

[00:22:59] Speaker 00:
So they're in the same position as these people are here, which is they're not suffering whether they win or lose on their claim against the government because they're going to be compensated either way.

[00:23:11] Speaker 02:
Yes, Your Honor.

[00:23:12] Speaker 02:
That's entirely distinguishable from this case.

[00:23:14] Speaker 02:
First of all, we'd say that to the extent there's a collateral source rule issue, that only applies in tort claims, not breach of contract claims.

[00:23:21] Speaker 02:
We would also note there's no allegation of double recovery here.

[00:23:25] Speaker 02:
We're not alleging that if

[00:23:27] Speaker 02:
if the government has to make these payments that ESCGov will be, excuse me, not ESCGov, Northrop Grumman will somehow receive a double payment or be enriched.

[00:23:35] Speaker 02:
Because I don't think there's any doubt between the parties that those payments will go directly onto citizens.

[00:23:42] Speaker 00:
But... No, the reverse is being sort of the other side of the game here, which is that the government, assuming that it allegedly breached the contract, the government is getting recovery.

[00:23:54] Speaker 00:
and is getting something for nothing here under these circumstances, right?

[00:23:58] Speaker 02:
Your Honor, if I may finish my thoughts on the insurance thing, I would like to address that point.

[00:24:03] Speaker 02:
But the final distinguishing factor, which I also think is very important, is that this is not a situation in which the alleged breach takes place and then there's something that's triggered that results in a payment that makes them whole.

[00:24:14] Speaker 02:
This was part of the design of their contract and their performance under the contract.

[00:24:19] Speaker 02:
They received that payment virtually immediately after entering into the contract in exchange for the assignment

[00:24:24] Speaker 02:
And in fact, they've talked about being a financing agreement.

[00:24:29] Speaker 02:
It certainly doesn't look like a traditional financing agreement insofar as they received a loan and then paid.

[00:24:34] Speaker 02:
The payment was made directly from ESCgov.

[00:24:36] Speaker 02:
Well, it doesn't look traditional in a lot of ways, since it's sort of an in-house kind of deal.

[00:24:42] Speaker 02:
We agree, Your Honor.

[00:24:43] Speaker 02:
And there's some information that we noted in our brief to that extent.

[00:24:47] Speaker 02:
To get back to the court's windfall question,

[00:24:53] Speaker 02:
There simply wasn't a windfall here, and the facts that are in the record make that abundantly clear.

[00:24:58] Speaker 02:
The facts of this case are that this was a base year and three option years.

[00:25:04] Speaker 02:
The government paid Northrop Grumman in full for the base year.

[00:25:08] Speaker 02:
It received the software.

[00:25:10] Speaker 02:
It looked at the software and started exploring the capabilities of the software for that base year.

[00:25:14] Speaker 02:
Then when it didn't have funding to exercise the base year, it stopped using the software.

[00:25:18] Speaker 02:
And in fact, the record,

[00:25:20] Speaker 02:
shows that it was actually never used in an actual investigation or intercept.

[00:25:23] Speaker 02:
And so it only used the software for that base year, which was the year it had paid for.

[00:25:29] Speaker 02:
So there's no allegation and no doubt based on the record that the government retained the software and kept using the software somehow after the option years were not recognized.

[00:25:38] Speaker 02:
And so certainly we would argue that it got the benefit of that one-year bargain, but certainly did not get a further benefit for the option years that were not exercised.

[00:25:48] Speaker 02:
Your honor, I see I'm starting to run a little low on time.

[00:25:50] Speaker 02:
I'd like to turn to the second issue if the court doesn't have any further questions on the first issue.

[00:25:53] Speaker 01:
What about the argument of Mr. Eisenberg that on the one hand, the government is saying we reject the financing agreement because it's null and void, and yet it relies on it in order to establish that Northrop Grumman has been made whole?

[00:26:10] Speaker 02:
Well, it's two different inquiries, your honor.

[00:26:13] Speaker 02:
The one inquiry, the Anti-Assignment Act inquiry, is whether or not it creates an enforceable claim on behalf

[00:26:18] Speaker 02:
for some other party against the government.

[00:26:20] Speaker 02:
There's no doubt that those procedures that were set forth in these statutes, 3727, were not followed.

[00:26:26] Speaker 02:
So there's no enforceable right of action, cause of action, by any other party.

[00:26:30] Speaker 01:
It's been on that basis that you've encouraged this court not to look at or consider the financing agreement.

[00:26:37] Speaker 01:
And now in this situation, with respect to damages, you're doing the same thing.

[00:26:43] Speaker 02:
Well, Your Honor,

[00:26:44] Speaker 01:
Excuse me, other than the fact that now you're asking us to look at the financing agreement in order to determine that Northrop Grumman is already made whole.

[00:26:56] Speaker 02:
That's certainly the case, Your Honor.

[00:26:57] Speaker 02:
We want this Court to look at these agreements.

[00:26:59] Speaker 02:
We've provided them, all of them, in the record, and we do think they establish beyond any doubt that they've been made whole.

[00:27:06] Speaker 02:
I'm not sure

[00:27:08] Speaker 02:
I'm trying to think of when we may have represented that the court should not look at those financing agreements.

[00:27:13] Speaker 01:
So what does it matter to the government then?

[00:27:15] Speaker 01:
If you've said we're not going to recognize a financing agreement, what does it matter to you what's going on between Northrop Grumman and the finance company?

[00:27:25] Speaker 02:
It matters for a couple reasons, Your Honor.

[00:27:27] Speaker 02:
One is a simple, principal issue of transparency that the government has some right to know with the party with whom it's doing business.

[00:27:35] Speaker 02:
And that's particularly acute here.

[00:27:37] Speaker 02:
where we're talking about a software package that has national security implications, that has law enforcement implications, and that the government has a right to know with whom it's doing business.

[00:27:47] Speaker 02:
But the broader point, I think, is a simple fundamental principle of contract law, that the party bringing the suit and recovering expectancy damages needs to be the party that was harmed.

[00:27:59] Speaker 02:
And this gets very convoluted in cases like this under Mr. Eisenberg and Northrop's interpretation of the law, where

[00:28:07] Speaker 02:
A party can bring a claim, even though it hasn't been heard for some third party that the government may or may not have known about, despite the fact that it itself, again, based on the record here, has not suffered any harm whatsoever, and is, in fact, in as good a position as it would have been had the alleged breach not occurred.

[00:28:25] Speaker 01:
But you say that only because now you're, on the one hand, you're saying we're not going to recognize, and we cannot recognize, a financing agreement

[00:28:34] Speaker 01:
On the other hand, you're waving the financing agreement in this court saying they've been made whole under this financing agreement.

[00:28:41] Speaker 01:
I mean, you can't have it both ways, can you?

[00:28:44] Speaker 02:
Yes, Your Honor, because again, it's two different.

[00:28:47] Speaker 02:
One, we're talking about expectancy damages law.

[00:28:50] Speaker 02:
And the other, we're talking about a very specific statutory scheme, the Assignment of Claims Act, that Congress has set forth that these are the requirements that must be met in order for an assignee to bring a claim directly against the government.

[00:29:04] Speaker 02:
And so the law governing those two things, the two circumstances under which and to what extent this court can look to those financing agreements are very different.

[00:29:16] Speaker 02:
And just finally, Your Honor, if I may, on the other point, other than this broader damages point, Judge Allegra did also hold that Norfolk government could not recover any amounts that were specifically itemized under its bid and the contract with the government for software and server maintenance.

[00:29:33] Speaker 02:
That was part of Northrop Grumman's bid for this contract.

[00:29:36] Speaker 02:
That was part of the express terms of the contract between the government and Northrop Grumman.

[00:29:41] Speaker 02:
Maintenance is a term that has plain meaning, which is ongoing care and upkeep.

[00:29:49] Speaker 02:
And in this case, because the government did not exercise any of the option years, and as I just previously stated, did not use that software beyond not exercising those option years,

[00:30:00] Speaker 02:
The undisputed fact is the government never needed any maintenance or upkeep or care to these software packages.

[00:30:05] Speaker 02:
And that work was never needed or performed.

[00:30:08] Speaker 02:
And under the H.B.

[00:30:10] Speaker 02:
Nelson case and other law, it's very clear that a contractor cannot recover for work not performed.

[00:30:16] Speaker 02:
So at the very least, we would ask this court to affirm Judge Leger's partial grant of summary judgment as to those amounts.

[00:30:23] Speaker 02:
Thank you.

[00:30:23] Speaker 02:
Thank you.

[00:30:33] Speaker 03:
Alright, I'd like to just start with the Anti-Assignment Act issue.

[00:30:36] Speaker 03:
Basically this is an issue of contract law and if there were compliance with the Anti-Assignment Act, what the government's saying is they wouldn't be raising this issue that there were no contract damages.

[00:30:46] Speaker 03:
The availability of contract damages cannot be dependent upon the Anti-Assignment Act.

[00:30:50] Speaker 03:
Contract damages either arise under the contract or they don't.

[00:30:54] Speaker 03:
If there were compliance with the Anti-Assignment Act, all of the proceeds would have been assigned to the finance company because the contractor had been paid in full

[00:31:01] Speaker 03:
and the claim remains with the contractor.

[00:31:04] Speaker 03:
The contractor brings the claim that the contractor is successful on the claim.

[00:31:07] Speaker 03:
The payment's made to the finance company under the Anti-Assignment Act.

[00:31:13] Speaker 03:
The finance company has no separate claim.

[00:31:15] Speaker 03:
The facts in this case are no different other than the fact that there wasn't compliance with the Anti-Assignment Act.

[00:31:20] Speaker 01:
That's not the course of action that was followed in this case.

[00:31:23] Speaker 01:
It seems to me you're being raised by your own petard here.

[00:31:28] Speaker 01:
You chose not to

[00:31:31] Speaker 01:
not to conform with the Anti-Assignment Act, and you chose a contractual language with the financing company that is odd.

[00:31:41] Speaker 01:
I mean, it paid to Northrop Grumman everything up front, knowing that there's contingencies out there.

[00:31:49] Speaker 01:
These option years could not be exercised.

[00:31:53] Speaker 01:
So you're asking us to look beyond your own device.

[00:31:59] Speaker 03:
Your Honor, I don't know that it's that odd, because as I said, to comply with the Anti-Assignment Act, all the proceeds have to be assigned to the finance company.

[00:32:06] Speaker 03:
That's what the Anti-Assignment Act says.

[00:32:08] Speaker 03:
All the proceeds wouldn't be assigned to the finance company unless the contractor had already been paid, because the government is then going to make the payment directly to the finance company.

[00:32:17] Speaker 04:
Is there anything in the record about the motivation between the finance company and Northrop Grumman?

[00:32:26] Speaker 04:
I did find it odd that

[00:32:29] Speaker 04:
that the finance company is essentially Northrop Grumman people.

[00:32:35] Speaker 03:
There's nothing in the record about that.

[00:32:37] Speaker 03:
And in terms of whether it's a finance company or not a finance company, again, it's no different than in Colonial Navigation, where it was Dunbar who was the party.

[00:32:46] Speaker 03:
They're not a finance company.

[00:32:48] Speaker 03:
And that assignment was void as to the government, yet Colonial Navigation.

[00:32:51] Speaker 03:
And Dunbar was not disclosed to the government.

[00:32:53] Speaker 03:
That arose afterwards as well, yet Colonial Navigation was allowed to proceed with the claim.

[00:32:59] Speaker 03:
The claim remains with the contractor.

[00:33:01] Speaker 03:
And with respect to the pass-through issue, the result, as I said, is less severe if it's a pass-through claim.

[00:33:07] Speaker 03:
If they disclose it as a pass-through claim under seven in that whole line of cases, recovery would be allowed in this case.

[00:33:14] Speaker 03:
Here, the only party performing is Northrop Grumman.

[00:33:16] Speaker 04:
I understand you want to make your argument, but you would do better to try to answer my questions.

[00:33:22] Speaker 03:
I apologize.

[00:33:23] Speaker 04:
At least from my view.

[00:33:27] Speaker 03:
I guess I didn't.

[00:33:28] Speaker 04:
The question was about the relationship between Northrop Grumman and the former Northrop Grumman persons.

[00:33:39] Speaker 03:
And I said that there isn't much in the record about that.

[00:33:42] Speaker 03:
We haven't gotten that far in the case.

[00:33:44] Speaker 03:
And it wasn't part of the summary judgment record.

[00:33:47] Speaker 03:
The government made certain factual disclosures about it with respect to the relationship based on the Jeff Nolan affidavit that we submitted.

[00:33:58] Speaker 03:
In terms of whether that makes a difference, I would suggest that it does not make a difference because the issue is not really whether they're a valid finance company.

[00:34:08] Speaker 03:
That just has to do with whether they actually could have complied with the anti-asonic.

[00:34:12] Speaker 04:
It's just that it strikes me that as Judge Raina said, it's odd.

[00:34:18] Speaker 04:
The terms are odd, the relationship is odd.

[00:34:23] Speaker 03:
The terms are odd, probably because this court doesn't often deal with these financing contracts.

[00:34:29] Speaker 03:
But in terms of these financing contracts, in terms of how they're done, that is a typical way in which they're done, where the finance company pays the contractor upfront.

[00:34:39] Speaker 03:
And then the contractor, when they receive them, the contractor does the performance.

[00:34:43] Speaker 03:
Because the contract with the finance company, the government is not a third-party beneficiary of that contract.

[00:34:48] Speaker 04:
And in the normal course, the finance company has no recourse

[00:34:53] Speaker 04:
other than to rely on the kindness of Northrop?

[00:34:58] Speaker 03:
Well, they have some recourse, because if Northrop doesn't pursue a claim, and it is a claim that the parties believe is valid, then Northrop has to make a payment to the finance companies.

[00:35:08] Speaker 03:
There's a fine damage.

[00:35:10] Speaker 03:
I misspoke.

[00:35:11] Speaker 03:
Other than to rely on the competence of Northrop.

[00:35:14] Speaker 03:
And that's the risk that the finance company takes.

[00:35:17] Speaker 03:
And that's what... Is that the norm?

[00:35:19] Speaker 03:
That is the norm.

[00:35:20] Speaker 03:
And that's what it says in the...

[00:35:24] Speaker 03:
in the produce factors and the continental bank case that the risk remains with the finance company that the contractor will perform and they're basing it on that and in fact in the continental bank case the contractor did not perform and so the bank was out I'm sorry the produce factors case the bank was out because the contractor didn't perform that's the risk that the finance company takes in this case the performance is suing the government

[00:35:55] Speaker 03:
No, the performance was that Northrop Grumman performed under the contract because they delivered the software.

[00:35:59] Speaker 00:
That's why it's odd.