[00:00:00] Speaker 01:
The case for argument this morning is 161628 of Caravallo v. United States.

[00:00:05] Speaker 01:
Mr. Charnes, whenever you're ready.

[00:00:12] Speaker 04:
Good morning and may it please the Court.

[00:00:14] Speaker 04:
My name is Adam Charnes and I represent the class plaintiffs in this appeal.

[00:00:18] Speaker 04:
I would like to reserve five minutes for rebuttal.

[00:00:21] Speaker 04:
This case is a class action alleging that the government breached a settlement agreement

[00:00:26] Speaker 04:
with the class related to the payment of cost of living adjustments, or COLA.

[00:00:30] Speaker 00:
Let me just nail one thing down.

[00:00:34] Speaker 00:
It appears the Court of Federal Claims factual summary pretty much relied on your complaint.

[00:00:41] Speaker 00:
Do you dispute any of the facts articulated in the memorandum of opinion in final order?

[00:00:47] Speaker 04:
I think the answer is no.

[00:00:49] Speaker 04:
I think you're right that the court basically tracked the allegations in the complaint

[00:00:54] Speaker 04:
I think some of the implications the court drew from the settlement agreement we would disagree with.

[00:00:59] Speaker 00:
Sure.

[00:01:00] Speaker 00:
But I just wanted to nail that down for purposes of our drafting.

[00:01:04] Speaker 00:
That's right.

[00:01:06] Speaker 00:
I think that's right.

[00:01:09] Speaker 04:
So in the settlement agreement, the government agreed to a number of procedures related to the calculation of COLA payments to workers in so-called non-foreign areas of the United States, and specifically agreed to follow

[00:01:22] Speaker 04:
what the agreement termed of conforming methodology, unless the government provided appropriate notice that it was not paying the conforming methodology.

[00:01:30] Speaker 04:
After the settlement agreement was signed, however, the government pulled a classic bait and switch when Congress adopted a statute eliminating or phasing out the COLA program altogether.

[00:01:41] Speaker 04:
And we allege that this breached the express and implied duty of good faith and fair dealing in the settlement agreement.

[00:01:48] Speaker 02:
Is it your position that

[00:01:50] Speaker 02:
It wouldn't matter how long a period that the COLA was in existence, that Congress was bound to keep it in existence for all time in order to avoid a breach of their contractual obligations.

[00:02:07] Speaker 02:
Or could they, let's say in 2020, after 20 years after the settlement agreement, decide to go to a locality pay or some other provision?

[00:02:15] Speaker 04:
Well, the settlement agreement does not contain any sort of sunset provision.

[00:02:19] Speaker 04:
Of course, the government could have negotiated for it.

[00:02:21] Speaker 02:
Right.

[00:02:21] Speaker 02:
So what I'm trying to see is, are you saying that they're stuck with COLA's for the rest of time?

[00:02:30] Speaker 04:
I think the short answer is that would be somewhat of an extreme position, but I think yes.

[00:02:34] Speaker 04:
Under the settlement agreement, they can change the methodology if they provide notice, but they agreed to provide COLA payments.

[00:02:41] Speaker 04:
Of course, COLA

[00:02:42] Speaker 04:
has been provided at that time for more than 50 years.

[00:02:45] Speaker 04:
So it's not like this was a recent innovation.

[00:02:47] Speaker 04:
It was a well-established part of the federal compensation or compensation for federal employees in the non-foreign areas that was formalized in 1948.

[00:02:57] Speaker 02:
But presumably it wouldn't matter what the calculation method used to derive the COLAs would be, right?

[00:03:05] Speaker 02:
And they could modify that pursuant to the contract.

[00:03:09] Speaker 04:
They could modify that if they provided notice.

[00:03:11] Speaker 04:
Our position would be, of course, it'd have to be in substance a cost of living adjustment.

[00:03:16] Speaker 02:
Well, that was going to be my next question, of course.

[00:03:18] Speaker 02:
I mean, what does that entail?

[00:03:22] Speaker 02:
I mean, could they say, well, we recognize that the costs of living are different in different localities.

[00:03:28] Speaker 02:
And therefore, we think the best way to get at, fairly, the cost of living

[00:03:34] Speaker 02:
problem is to do it through a system that essentially is what locality pay is.

[00:03:40] Speaker 02:
But we'll call it a COLA.

[00:03:42] Speaker 02:
Well, I think that's essentially their argument.

[00:03:45] Speaker 04:
The difference, however, is COLA is based on, for 50 years, was based on a comparison between the cost of goods and services in the non-foreign areas compared with those in Washington, DC.

[00:03:57] Speaker 04:
So it was a price-based, cost-based, how much does it cost to live in, for example, Puerto Rico compared to Washington, DC.

[00:04:03] Speaker 04:
locality pay is entirely different.

[00:04:06] Speaker 04:
It compares the cost of labor.

[00:04:07] Speaker 04:
How much does a federal employee make?

[00:04:09] Speaker 02:
Right, but there's got to be some fair correlation, some reasonable correlation between those two.

[00:04:16] Speaker 02:
Otherwise people are going broke in the high cost of living areas.

[00:04:23] Speaker 04:
Well, I think you put your finger on it.

[00:04:26] Speaker 04:
I think that's exactly the problem here is that a lot of these areas are high cost because it's expensive to get goods and services

[00:04:33] Speaker 04:
to Guam, for example, but they're low wage.

[00:04:35] Speaker 04:
So that's why the shift from COLA, which was based on cost disparity, to locality pays significantly disadvantaged the class members because it moved from a system that compensated them for the higher costs of goods and services and shifted to a system that basically punished them because wages were so low.

[00:04:52] Speaker 02:
Guam may be a special case.

[00:04:54] Speaker 02:
I don't know.

[00:04:54] Speaker 02:
But for example, in Alaska, where goods are expensive, wages are high.

[00:05:01] Speaker 02:
And there's a reason.

[00:05:03] Speaker 04:
Well, but the allegations of the complaint is that overall a shift from COLA to locality-paid disadvantaged class members.

[00:05:09] Speaker 04:
So I think at some point, Your Honor, good faith doesn't prevent assuming the notice is provided for departing from the conforming methodology.

[00:05:19] Speaker 04:
The government has certainly some discretion to modify the COLA regime and how it calculates COLA.

[00:05:25] Speaker 04:
But what the complaint alleges is that this was a radical departure from a system based on cost comparisons

[00:05:31] Speaker 04:
to one based on wage comparisons that substantially disadvantaged the members of the class.

[00:05:35] Speaker 00:
Was the coal elimination a breach of contract, or simply confined to the duty of good faith and fair will?

[00:05:46] Speaker 04:
Sorry, we argued it was both.

[00:05:47] Speaker 00:
Where did you argue that it was a breach of contract?

[00:05:51] Speaker 00:
I didn't see it in the blue brief.

[00:05:53] Speaker 04:
Well, we argued it was because we argued they failed to provide adequate notice, and that that constituted a breach of contract.

[00:06:01] Speaker 04:
In other words, there's no question they can depart from the conforming methodology under the settlement agreement if they provide notice.

[00:06:07] Speaker 04:
So we argue that the CFC erred in finding that sufficient notice under the settlement agreement was provided.

[00:06:14] Speaker 04:
And that was the prerequisite for the breach of contract that was alleged in the complaint.

[00:06:23] Speaker 04:
So we think on the good faith claim, this court's sent text decision is directly on point.

[00:06:30] Speaker 04:
In syntax, the government signed a contract in which to sell fail savings alone, Congress had established significant tax benefits.

[00:06:41] Speaker 04:
In the tax code for purchasers of savings and loans, the government used that to essentially market the fail savings.

[00:06:47] Speaker 01:
But in that case, the obligation was that the citizens would continue to have their tax deductions even if there was a change in law, right?

[00:06:55] Speaker 01:
Wasn't that what was going on in syntax?

[00:06:57] Speaker 04:
Well, no, the contract was silent.

[00:06:59] Speaker 04:
The contract between the government and the purchaser did not provide the tax.

[00:07:04] Speaker 04:
The taxes were a pre-existing law.

[00:07:06] Speaker 04:
And after the parties purchased the settings alone, Congress eliminated the tax benefit.

[00:07:11] Speaker 04:
And then the purchaser sued, and this court found that it was a breach of the duty of good faith.

[00:07:18] Speaker 04:
Congress certainly has the sovereign right to pass any statute it wants to, and you can challenge that.

[00:07:23] Speaker 04:
But that is a breach of the duty of good faith.

[00:07:26] Speaker 04:
for Congress to eliminate a benefit that one party to a contract reasonably anticipated receiving.

[00:07:34] Speaker 01:
Yes, that's the distinction.

[00:07:36] Speaker 01:
Well, the question is, in this case, what are you claiming that the members of the class reasonably anticipated receiving?

[00:07:44] Speaker 01:
COLA payments forever?

[00:07:46] Speaker 04:
They reasonably anticipate receiving COLA payments.

[00:07:48] Speaker 04:
That's right.

[00:07:49] Speaker 02:
But if you're wrong about your construction of the contract, and particularly the word regulations that's used,

[00:07:56] Speaker 02:
allows the government to modify by regulation the COLA system.

[00:08:04] Speaker 02:
If you're wrong about that, then you've acknowledged in the contract itself that the government is free to make modifications that include getting rid of the COLA.

[00:08:14] Speaker 02:
In that case, the whole syntax problem goes away, I would assume.

[00:08:18] Speaker 04:
I think you're right.

[00:08:19] Speaker 02:
If the class... So all this really turns on... I mean, syntax strikes me

[00:08:24] Speaker 02:
both as an extreme case, I'm familiar with it, and also as pretty much irrelevant, because if you're right about your contract interpretation issue, you don't need syntax.

[00:08:37] Speaker 02:
If you're wrong about it, syntax is of no use to you.

[00:08:41] Speaker 04:
Well, the government's point, I think, is that they argue that the contract never requires the payment of COLA.

[00:08:50] Speaker 04:
And so I think if you accept their interpretation of the contract,

[00:08:54] Speaker 04:
then I think that the syntax helps.

[00:08:58] Speaker 04:
Certainly, we think that that's... It never requires the payment of COLA.

[00:09:01] Speaker 01:
You mean... That the government have the authority simply to... To change.

[00:09:03] Speaker 01:
To change.

[00:09:04] Speaker 01:
That's right.

[00:09:05] Speaker 01:
That's right.

[00:09:05] Speaker 01:
Okay.

[00:09:05] Speaker 01:
If the government changed, then they would not be required.

[00:09:08] Speaker 01:
That's right.

[00:09:09] Speaker 04:
Now, but the government, I think in their brief, concedes that their... I don't think they argue that there's an express right through the provision that you're referring to to eliminate the COLA program.

[00:09:20] Speaker 04:
They argue in their brief

[00:09:22] Speaker 04:
that the right to eliminate COLA was implicit or implied at page 42 of their brief.

[00:09:27] Speaker 04:
They say it was only an applied right to eliminate COLA.

[00:09:30] Speaker 04:
And part of our point is that there's an express duty of good faith in this contract, and that an applied right to eliminate the COLA program can't trump the express duty of good faith.

[00:09:39] Speaker 00:
But let's turn that around a little bit.

[00:09:43] Speaker 00:
You don't identify any provision in the settlement agreement that implies perpetuity on payment

[00:09:51] Speaker 00:
COLA payments.

[00:09:53] Speaker 04:
Well, there's no provision that expressly requires the government to provide COLA.

[00:09:57] Speaker 04:
That's true of every good faith claim.

[00:10:00] Speaker 04:
If you have an express provision, you don't need to file it.

[00:10:03] Speaker 00:
But why would that perpetuity not expand the original bargain between Mr. Carballo and the government?

[00:10:14] Speaker 00:
Because the duty of good faith is limited by the original bargain.

[00:10:19] Speaker 04:
That's right.

[00:10:20] Speaker 04:
But the presumption underlying the agreement, from the class's perspective, and we would suggest that that's reasonable, and that's, I think, the standard from Sentex and other cases, is whether the expectation is reasonable, is that the government would continue a 50-year-old program of paying coal repayments.

[00:10:35] Speaker 04:
And in fact, if you look at the provisions that deal with, that allow the government to change the system of coal, to depart from the so-called conforming methodology,

[00:10:44] Speaker 04:
They talk in terms of changing the methodology for determining COLA.

[00:10:48] Speaker 04:
In paragraph 10.4.3, I think it's the primary one, the settlement agreement says that if OPM provides notice, it may then revise its regulations or set COLA rates in a manner that is not consistent with the conforming methodology.

[00:11:04] Speaker 04:
So I think the most natural reading of the language in the agreement is if the government has discretion to depart from the specified methodology if it provides notice, but in that case,

[00:11:14] Speaker 04:
What it's going to do is follow a different methodology for determining COLA.

[00:11:17] Speaker 04:
There's no suggestion anywhere or hint anywhere in the agreement that the government can eliminate the program altogether.

[00:11:23] Speaker 01:
I mean, I'm reading that paragraph right now.

[00:11:25] Speaker 01:
If it does so, OPM will not incur any liability to class members either in damages, blah, blah, blah.

[00:11:31] Speaker 01:
If, however, solely on the basis that any regulation or COLA rate at issue is not reasonably consistent with the conforming methodology.

[00:11:43] Speaker 01:
So why wouldn't any regulation that OPM revises, the earlier sentence says, may then revise its regulations or set COLA rates?

[00:11:53] Speaker 01:
So why isn't that a very broad give to the government to revise regulations that would include this locality pay stuff as well?

[00:12:00] Speaker 04:
Well, because I think that COLA is established in two ways.

[00:12:03] Speaker 04:
There's a set of regulations in the CFR that provides how government is going to provide COLA.

[00:12:11] Speaker 04:
Starting in section 591.201,

[00:12:13] Speaker 04:
of a five CFR.

[00:12:16] Speaker 04:
And that sets the methodology by which coal is determined.

[00:12:20] Speaker 04:
And then the government actually publishes specific coal arrays on its, in the past seven or eight years on its website, which is cited, I think, in both of our briefs.

[00:12:28] Speaker 04:
The last point I'll make, I think, is that this case comes to you, unlike send packs, as a motion to dismiss.

[00:12:34] Speaker 04:
So all we need to do, I think, is to allege a plausible claim for breach of the duty of good faith.

[00:12:40] Speaker 04:
You know, it may be that summary judgment

[00:12:43] Speaker 04:
or a trial, that claim ultimately gets rejected.

[00:12:46] Speaker 04:
But the question is not, at this point, whether this court believes that we've established such a claim, but simply whether that claim is plausible.

[00:12:52] Speaker 04:
And that's different than syntax.

[00:12:53] Speaker 04:
In syntax, this court relied heavily, for example, in the negotiation history of the contract in question.

[00:13:01] Speaker 04:
It relied on material that was outside the actual language of the contract to establish a good-faith claim.

[00:13:07] Speaker 01:
We're into your battle once, too, when we give you a government, and we'll save the rest.

[00:13:20] Speaker 03:
May it please the Court.

[00:13:22] Speaker 03:
With the execution of the settlement agreement, plaintiffs received $232 million for their past cost of living allowances.

[00:13:29] Speaker 03:
The plaintiffs also received future increased COLA payments going forward from October of 2000, which in fact they received.

[00:13:37] Speaker 03:
But these increased COLA payments did not affect the pension annuities for federal workers because COLA payments are not considered in calculating retirement annuities.

[00:13:47] Speaker 03:
to increase the retirement annuities for federal workers in the non-foreign areas, Congress passed an area which phased out COLA, but which instituted a locality pay regime whose effect was to increase the retirement annuities for these federal workers.

[00:14:00] Speaker 02:
Well, yes, but they're unhappy because they think that when you balance out the benefits and the detriment of the change, that they were seriously prejudiced.

[00:14:13] Speaker 02:
And so I think we pretty much have to take that as a given.

[00:14:17] Speaker 02:
We can't proceed on the idea that unbeknownst to them, they really are better off now than they were before.

[00:14:23] Speaker 02:
So let me ask you a question.

[00:14:26] Speaker 02:
Moving from the merits to the jurisdictional issue that you raised in your brief, you say that this case should not have been brought in the court of federal claims.

[00:14:36] Speaker 02:
Where should they have gone to enforce their contract rights?

[00:14:40] Speaker 02:
under the agreement.

[00:14:41] Speaker 02:
Your honor, they did bring a claim at a district court.

[00:14:44] Speaker 02:
They did, but where should they have been?

[00:14:46] Speaker 02:
They should have been in the district court.

[00:14:48] Speaker 02:
But wait, you told the district court.

[00:14:51] Speaker 02:
that they shouldn't be in the District Court.

[00:14:53] Speaker 02:
And now you're telling them they shouldn't be in the Court of Federal Claims.

[00:14:57] Speaker 02:
Where should they have gone?

[00:14:58] Speaker 03:
Your Honor, it depends on if they meet the $10,000 threshold.

[00:15:02] Speaker 02:
Well, let's assume that they're above the $10,000.

[00:15:07] Speaker 02:
Where should they be?

[00:15:08] Speaker 03:
If they were above the $10,000 threshold, at the time in 2012 when they brought the claim in the District Court, they should have been in the Court of Federal Claims, Your Honor.

[00:15:17] Speaker 02:
Now that they're in the court of federal claims, you say they're not in the right court.

[00:15:21] Speaker 03:
Well, we're saying they're not in the right court for two reasons.

[00:15:23] Speaker 03:
One is the res judicata argument, which... Well, let's set that aside for a moment.

[00:15:26] Speaker 02:
Okay.

[00:15:26] Speaker 03:
Then secondly, we're saying that there's no monetary claim here.

[00:15:29] Speaker 02:
Well, then that would have been true if they were above the $10,000 line.

[00:15:35] Speaker 02:
If you're right about the argument that the court of federal claims doesn't have jurisdiction because this isn't a monetary claim,

[00:15:44] Speaker 02:
then the Court of Federal Claims would not have jurisdiction.

[00:15:47] Speaker 02:
You've already told us that the district court didn't have jurisdiction.

[00:15:50] Speaker 02:
I'm asking you what court does have jurisdiction to enforce this agreement.

[00:15:54] Speaker 02:
Okay.

[00:15:55] Speaker 03:
So the issue then would be under 10.4.2, if there is a disagreement with the conforming methodology, they can bring claim seeking a declaratory judgment.

[00:16:05] Speaker 03:
You can't do that in the Court of Federal Claims.

[00:16:09] Speaker 02:
It would be at the District Court or a District Court.

[00:16:12] Speaker 02:
But you've told us that the District Court didn't have jurisdiction.

[00:16:17] Speaker 02:
Is there another court where they could get this enforced other than the two you've already said don't

[00:16:23] Speaker 02:
aren't available to them.

[00:16:24] Speaker 02:
Well, I would say a district court, then, Your Honor.

[00:16:26] Speaker 02:
So the District of South Carolina would have to... Well, Your Honor, South Carolina is... I don't think there's non-foreign... Well, why is the District Court for the Virgin Islands disabled from handling this case?

[00:16:39] Speaker 03:
Your Honor, it wouldn't be if they had brought a declaratory judgment action in the Virgin Islands.

[00:16:45] Speaker 03:
What they brought was a money claim, and at the time that they brought the money claim, the evidence suggests that they were not

[00:16:51] Speaker 03:
above the $10,000 threshold.

[00:16:54] Speaker 02:
So you're saying a declaratory judgment declaring that they're entitled to a certain amount of money as damages for their contract breach?

[00:17:02] Speaker 02:
No.

[00:17:02] Speaker 03:
That doesn't... No, they're not entitled to this.

[00:17:04] Speaker 03:
The point, Your Honor, is they're not entitled to damages.

[00:17:07] Speaker 02:
Well, that's your position on the merits.

[00:17:09] Speaker 02:
But are you saying that even if you're wrong on the merits and they are entitled to damages for breach,

[00:17:15] Speaker 02:
they still should have proceeded by way of a declaratory judgment action for breach of a contract, which would ultimately lead to the award of damages?

[00:17:24] Speaker 02:
No, Your Honor.

[00:17:25] Speaker 02:
That doesn't make sense to me.

[00:17:26] Speaker 03:
Well, right.

[00:17:27] Speaker 03:
And so I think we have to look at it in the boxes.

[00:17:30] Speaker 03:
One is, if you interpret the contract in the manner which we believe is appropriate, that there's no monetary damages available for plaintiffs in this context for what they're alleging here.

[00:17:41] Speaker 03:
But there would be, if they believed that in a different context,

[00:17:45] Speaker 03:
that there was a non-conformance with the conforming methodology.

[00:17:49] Speaker 03:
Then they had under 10.4.2 the right to seek a cleritary judgment in front of a district court, at which point in time the government had two options.

[00:17:58] Speaker 03:
One was to change the regulation to conform with the conforming methodology or to publish notice that it no longer intended to conform with that methodology, at which point in time there would be no monetary damages.

[00:18:14] Speaker 03:
Continuing with the notion that the trial court erred in the first instance by finding that it had jurisdiction, the trial court presented two justifications for its holding that the monetary relief remained available to plaintiffs despite the terms of the contract.

[00:18:32] Speaker 03:
And first, the court said there's a presumption of monetary relief in a breach of contract claim.

[00:18:40] Speaker 03:
unless the contract expressly disavows monetary damages.

[00:18:43] Speaker 03:
But that's exactly the situation here.

[00:18:46] Speaker 03:
Under sections 3, 10.4.2, 10.4.3, and 11, the contract disavows money damages for the claims that they're bringing here.

[00:18:55] Speaker 01:
Why, these are breach of settlement claims.

[00:18:58] Speaker 01:
Where do these claims that disavow monetary relief reach that, reach the breach?

[00:19:03] Speaker 03:
10.4.2.

[00:19:05] Speaker 03:
The context here is they say that the government

[00:19:08] Speaker 03:
failed to provide notice and failed to conform with a conforming methodology.

[00:19:15] Speaker 03:
In 10.4.3, the government is free to no longer conform if it provided notice.

[00:19:20] Speaker 02:
That's your position on the merits.

[00:19:22] Speaker 02:
Yes.

[00:19:22] Speaker 02:
So if you're wrong in your position on the merits, then it seems to me the damages provisions may well come into play.

[00:19:30] Speaker 02:
It seems to me the argument you're making is we're right in our reading of the contract.

[00:19:35] Speaker 02:
And therefore, they're not entitled to damages.

[00:19:37] Speaker 02:
And therefore, the Court of Federal Claims lacks jurisdiction.

[00:19:40] Speaker 02:
But the court has jurisdiction to decide whether you're right on the merits, does it not?

[00:19:46] Speaker 03:
Yes, Your Honor.

[00:19:47] Speaker 02:
Are you assuming your own conclusion and then extrapolating from that to say that there's no jurisdiction because you're right on the merits?

[00:19:54] Speaker 03:
I think that's correct.

[00:19:55] Speaker 03:
Now, I think our argument has been that, and if we're wrong, we're wrong.

[00:19:59] Speaker 03:
But our argument was that under these facts and under this contract,

[00:20:03] Speaker 03:
On the face, there's not a monetary claim that can withstand this contract.

[00:20:16] Speaker 03:
I will turn next, though, to the- Do you want to talk about rescue and cut at all?

[00:20:22] Speaker 03:
No, Your Honor, given the limitation of time, I'd like to move on.

[00:20:26] Speaker 03:
OK.

[00:20:27] Speaker 03:
On the substance of the merit, then, we believe the trial court

[00:20:33] Speaker 03:
correctly decided that the plaintiffs failed to state a claim.

[00:20:37] Speaker 03:
And the plaintiffs, however, argued that the express terms of the contract would breach in two ways.

[00:20:43] Speaker 03:
First, by the failure to consult with the SIC and TAC.

[00:20:46] Speaker 03:
And secondly, failing to provide notice.

[00:20:50] Speaker 03:
With respect to the SIC and the TAC, the trial court correctly held that once OPM provided notice that it no longer intended to be bound by the conforming methodology, OPM no longer needed to consult with the SIC and TAC.

[00:21:03] Speaker 03:
Footnote 10 and page 16.

[00:21:05] Speaker 03:
This holding, although appearing after the Tribal Board's initial discussion of the SIC and TAC consultation issues, is dispositive of the matter, and it's entirely correct.

[00:21:14] Speaker 03:
Consulting with the SIC in connection with the change of COLA rates was a requirement for adhering to a conforming methodology.

[00:21:20] Speaker 03:
But once the government decided to no longer adhere to the conforming methodology and indeed to terminate the COLA regime, there was no need to consult with the SIC and TAC.

[00:21:29] Speaker 03:
And the Selma agreement recognized this dynamic.

[00:21:31] Speaker 03:
At 10.2.1, the Submit recognized opium's discretion to issue or amend any regulations.

[00:21:39] Speaker 03:
And even new color rates didn't have to adhere to the conforming methodology.

[00:21:42] Speaker 03:
10.4.1 similarly recognizes that opium is free to issue new regulations or color rates at any time.

[00:21:49] Speaker 03:
Then at 10.4.3, the Submit agreement stated that with notice, opium could, without facing any liability, revise its regulations or set color rates

[00:21:58] Speaker 03:
a matter that is not consistent with a good forming methodology.

[00:22:01] Speaker 03:
Which paragraph are you reading from there?

[00:22:03] Speaker 03:
10.4.3, which is the key, that is the key paragraph in the settlement agreement you're on.

[00:22:11] Speaker 01:
Well isn't there some ambiguity here?

[00:22:13] Speaker 01:
I mean isn't there some lack of clarity?

[00:22:20] Speaker 01:
That it can revise its regulations or set COLA rates suggesting that it can

[00:22:25] Speaker 01:
deal with COLA rates but not eliminate them entirely and go to locality pay?

[00:22:30] Speaker 03:
We don't think that there's any ambiguity because it says revise its regulations or change COLA rates.

[00:22:37] Speaker 03:
Regulations are not set up necessarily relating to COLA.

[00:22:42] Speaker 03:
And in this regard, the actions that the government took were to change its regulations because there wasn't a right perpetuity for the plaintiffs to have a COLA regime in place.

[00:22:55] Speaker 03:
So the circumstance is actually relatively straightforward.

[00:23:01] Speaker 03:
Based on Congress's passage of NARIA, OPM decided it could no longer adhere to the conforming methodology, provided notice to plaintiffs through publication in the Federal Register, and then it set forth regulations implementing the change from a COVA to a locality pay regime.

[00:23:15] Speaker 02:
If I understand, to go back to the question of consulting with the SIC, and I guess the TAC is optional, so it's just the SIC, really.

[00:23:25] Speaker 02:
Your argument is that because you went to a locality pay-based pay system as opposed to a COLA, the SIC is really only there to tell you how to calculate COLAs, and they have nothing really to add on the locality pay part of the equation, right?

[00:23:45] Speaker 02:
That's correct.

[00:23:45] Speaker 02:
OK.

[00:23:46] Speaker 02:
And their answer is, well, at least for a period of time, the COLA would be folded in.

[00:23:52] Speaker 02:
the sick was still relevant.

[00:23:54] Speaker 02:
But I take it your answer to that is, well, you tell me if I'm wrong, but I take it it is that the COLA remained pertinent to the calculation of the actual dollar amounts paid each year on a sliding scale, but only the 2009 COLA, the fixed number that had already been determined.

[00:24:16] Speaker 02:
So it's not as if there was a new determination of a COLA each year as you transport

[00:24:20] Speaker 02:
you transitioned from the old system to the new.

[00:24:24] Speaker 02:
Is that right?

[00:24:25] Speaker 02:
Is that your position?

[00:24:25] Speaker 03:
That is exactly right, Your Honor.

[00:24:26] Speaker 03:
That's at 5 USC 5941 A3, where coal was frozen in 2009.

[00:24:33] Speaker 03:
That rate is now frozen forever.

[00:24:35] Speaker 03:
And for instance, you might have a 14% rate for a given area.

[00:24:39] Speaker 03:
Now that's frozen.

[00:24:40] Speaker 03:
Then you have a mathematical formula going forward, where as the locality pay is phased in, the coal pay is reduced by a percentage.

[00:24:50] Speaker 03:
So there's no further reason to consult with a sick intact, because a sick intact is going to be relevant for setting new coal rates.

[00:24:57] Speaker 03:
What are the sort of locality pay issues that are relevant in terms of cost of utilities and basket of arguments, things of that nature?

[00:25:06] Speaker 01:
All right.

[00:25:07] Speaker 01:
If you had indeed breached the notice requirement, hypothetically, if you had.

[00:25:11] Speaker 01:
Yes.

[00:25:12] Speaker 01:
What would be the relief with respect to that?

[00:25:15] Speaker 03:
Your Honor, I'm not sure.

[00:25:16] Speaker 03:
I am not sure.

[00:25:19] Speaker 03:
Of course, we don't believe that there was any breach of it.

[00:25:22] Speaker 03:
But in terms of what relief is available under this contract, I'm not sure, given the provisions that overwhelmingly set up the situation where there is no monetary damage award available for changing COLA.

[00:25:37] Speaker 03:
But on the theoretical notion of the breach of notice, I'm not sure what the proper remedy would be, Your Honor.

[00:25:48] Speaker 03:
that the SIC requirements tie to issuing new COLA regulations.

[00:25:52] Speaker 03:
And you see that at paragraph 6.

[00:25:55] Speaker 03:
So 6, there is a requirement to consult with the SIC.

[00:25:59] Speaker 03:
But that's only with respect to new regulations, which are defined in paragraph 4 to be the new COLA regulations.

[00:26:07] Speaker 03:
Thus, paragraph 6 sets forth the context of revising COLA rates in a manner that is meant to be consistent with the conforming methodology.

[00:26:15] Speaker 02:
Now, there is at least a

[00:26:17] Speaker 02:
potential issue, I guess, with respect to the use of the term regulations in two different parts of the agreement.

[00:26:25] Speaker 02:
In paragraph four, for example, which you've just cited, the use of the term regulations is clearly a reference to COLA regulations, whereas you say that in 10.43,

[00:26:35] Speaker 02:
the use of the term regulations is not limited to COLA regulations.

[00:26:40] Speaker 02:
It could include locality pay regulations, right?

[00:26:42] Speaker 02:
Well, I think the difference is that in paragraph 4, you'll see the phrase new regulations in capital.

[00:26:48] Speaker 02:
In capital, the term regulations is in capital there.

[00:26:51] Speaker 03:
That's true regulations.

[00:26:53] Speaker 02:
And you say that when it's capitalized, that means the COLA regulations.

[00:26:56] Speaker 02:
When it's lower case, that means any regulations whatsoever.

[00:26:59] Speaker 02:
Right, because it's defined in paragraph 4.

[00:27:00] Speaker 03:
New regulations are defined in paragraph 4.

[00:27:03] Speaker 01:
Because it's new COLA regulations.

[00:27:06] Speaker 01:
Correct.

[00:27:07] Speaker 03:
Correct.

[00:27:09] Speaker 03:
Now, with respect to the notice, the trial court correctly found that there was no breach because, first, there was publication in the Federal Register, and secondly, plaintiffs' counsel actually received the notice.

[00:27:23] Speaker 03:
And they've now argued that the Federal Register publications didn't indicate there were a change in COLA, but if you look

[00:27:31] Speaker 03:
At that, you'll see that the interim regulation, which provided the notice for the final, noted the passage of NARIA and cited to NARIA, which then sets up exactly the dynamic your honor was referring to at 5 USC 5941, which is that mathematical phase out of COLA.

[00:27:50] Speaker 02:
Could you comment at least briefly on the syntax case and its applicability here?

[00:27:55] Speaker 03:
Your honor, I was in total agreement with your reasoning, your honor.

[00:27:58] Speaker 03:
We don't think it applies to you because the contract permitted

[00:28:02] Speaker 03:
the actions that the government took.

[00:28:05] Speaker 02:
Would you see it otherwise if the contract had been completely silent on new regulations, but Congress had just decided to change the system nine years after the fact?

[00:28:18] Speaker 03:
I'm not sure of the hypothetical, Your Honor.

[00:28:20] Speaker 03:
But it goes to the notion, did the contract permit what the government did here?

[00:28:26] Speaker 03:
We believe it did.

[00:28:28] Speaker 03:
Thank you.

[00:28:29] Speaker 03:
Thank you.

[00:28:40] Speaker 04:
With respect to the question of what is meant by regulations, I think it's not only 10.4.3 that uses the word regulations.

[00:28:47] Speaker 04:
If you look at 10.2.2, what it says is it's a waiver provision for all claims arising after the effective date of the first COLA rate and so forth.

[00:29:00] Speaker 04:
It was ought to say, so long as OPM's regulations, small r regulations, and the rates set for COLA there under each area

[00:29:08] Speaker 04:
are reasonably consistent with the conforming methodology.

[00:29:11] Speaker 04:
So that's another instance not to deal with the confine of new regulations.

[00:29:17] Speaker 01:
Well, that's a little different.

[00:29:19] Speaker 01:
In 10.22, it leads by new regulations on the third line.

[00:29:26] Speaker 01:
That's right.

[00:29:26] Speaker 01:
It proceeds to talk about new regulations there.

[00:29:29] Speaker 01:
So it's pretty clear in the context what's going on.

[00:29:32] Speaker 04:
Well, but later on in that paragraph, it is referring to regulations more generally with a small r. And again,

[00:29:38] Speaker 04:
To the extent there's any ambiguity at all on what the word regulations means in 10.4.3, this is a motion dismissed case.

[00:29:46] Speaker 04:
And therefore, the case should be resolved after discovery of summary judgment or trial with respect to the construction of that language in 10.4.3.

[00:29:59] Speaker 04:
Just briefly on the question of notice, the interim regulations do not use the words COLA.

[00:30:07] Speaker 04:
reference conforming methodology, the most that they say is that the statute that was passed authorized locality pay.

[00:30:14] Speaker 04:
But of course, the locality pay regime can exist side by side with COLA, as it has done as COLA has been phased out the past seven or eight years.

[00:30:23] Speaker 04:
So there's nothing in the interim regulations themselves that suggests or hints that the government is eliminating COLA.

[00:30:29] Speaker 04:
And for that reason, we think that that notice was insufficient to alert the class that the government was departing from the conforming methodology.

[00:30:37] Speaker 04:
I'm just about out of time, so if there are... Okay.

[00:30:40] Speaker 04:
Thank you.

[00:30:41] Speaker 04:
We thank both sides the case is submitted.