You are on page 1of 69

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 1 of 69 PageID# 387 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION ) ) ) VS. ) 1:11-CV-1210 TSE ) ) ALEXANDRIA, VIRGINIA ) NOVEMBER 17, 2011 ) EYAK TECHNOLOGY, LLC ) _______________________________) NOVA DATACOM, LLC

_______________________________________________________________ TRANSCRIPT OF MOTIONS HEARING BEFORE THE HONORABLE T. S. ELLIS, III UNITED STATES DISTRICT JUDGE _______________________________________________________________

Proceedings reported by stenotype, transcript produced by Julie A. Goodwin.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 2 of 69 PageID# 388 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A P P E A R A N C E S

FOR THE PLAINTIFF: DICKSTEIN SHAPIRO LLP (DC) By: MS. BARBARA VAN GELDER -ANDMR. JUSTIN ANSELM CHIARODO 1825 Eye Street NW Washington, DC 20006 202.420.2200 vangelderb@dicksteinshapiro.com chiarodoj@dicksteinshapiro.com

FOR THE DEFENDANT: WILEY REIN LLP (DC) By: MR. ATTISON LEONARD BARNES, III -ANDMR. PAUL F. KHOURY 1776 K Street, NW Washington, DC 20006 202.719.7000 abarnes@wileyrein.com pkhoury@wileyrein.com

OFFICIAL U.S. COURT REPORTER: MS. JULIE A. GOODWIN, CSR United States District Court 401 Courthouse Square Tenth Floor Alexandria, Virginia 22314 512.689.7587

ALSO PRESENT: MR. PHILIP LIVINGSTON General Counsel

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 3 of 69 PageID# 389 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

(NOVEMBER 17, 2011, 4:30 P.M., OPEN COURT.) THE COURT: the case. COURTROOM DEPUTY: Case number 11-Civil-1210, Nova All right. Good afternoon. You may call

Datacom LLC versus Eyak Technology, LLC. Will counsel please state your appearance for the record. THE COURT: All right. I can -- counsel are present

and prepared to proceed. Let me take up one matter first. It's not a big You-all

deal, but I want to be unmistakably clear about it.

e-mailed to each other some cases, and you copied my clerks. That's a no-no. I'm curious, though. How did you get my

clerks' e-mail addresses? MS. VAN GELDER: responsibility for that. THE COURT: I beg your pardon? I think I'll take responsibility. It Your Honor, I think I'll take

MS. VAN GELDER:

was a reply to all that we had I believe from the court reporter and the transcript. THE COURT: All right. So -- so --

MS. VAN GELDER: THE COURT:

Oh, you got the e-mails from the court

reporter's transcript? MS. VAN GELDER: Right. He sent us a transcript this

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 4 of 69 PageID# 390 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

morning, and so we sent it back. THE COURT:

And I apologize.

Well, no, it's not a big deal, and there's But my immutable rule

no reason to be too concerned about it.

is never, never, never contact any of my law clerks about anything. Now then you would point out, Well, gee whiz. We And

just had an argument yesterday, and there are new cases.

then we would show up here today and you'd be upset because you didn't get the cases beforehand. Well, there are two answers to that. One is, you

should have found them in the first place and thought about it. But that's a bit harsh. I've done what you-all are doing, and The second answer is you copy

I didn't always find everything.

them for me, put them in an envelope, tell your opposing counsel, and bring them -- and have someone deliver it. But I am old-fashioned. don't have e-mail. I don't use e-mail. I

I don't permit contact by e-mail.

So I

would ask that in order to -- to cleanse yourself -- selves of this very, very minor sin, erase their e-mail addresses and don't use them again. MS. VAN GELDER: I will, Your Honor. And I think my

past practice with this Court is to give it to the security guard who would then deliver it to chambers. THE COURT: office. Yes. Or you can leave it in the clerk's

They get it right up here. MS. VAN GELDER: I don't --

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 5 of 69 PageID# 391 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: big deal.

But I don't want to make it -- it isn't a

And I did have a chance as a result to look at the

cases, but I would have had that chance if you had put them in your original briefs or if you had sent them up here earlier. In any event, not a big deal. Here's how I want to proceed today. did produce a transcript. I've glanced at it. Mr. Rodriguez I haven't

studied it, but I have clearly in mind some of the things that were said. And I think the best way to proceed today is this: I need to give Mr. Khoury an opportunity to make something like a complete argument so that he can respond. Then I need to give Ms. Van Gelder, since her client has the burden, the final word on this. And I need to let you-all do

it in a fairly unfettered way so that you can get said what you want to say. And then I'm going to resolve it after I think

about it a bit. All right. MR. KHOURY: Mr. Khoury.

Thank you, Your Honor.

Your Honor, I -THE COURT: And I don't need to leave by 6:30,

although the court reporter wants me to leave before then. MR. KHOURY: can, Your Honor. I would like to start with some facts before I get into the argument -I'll try to do this as sufficiently as I

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 6 of 69 PageID# 392 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: MR. KHOURY:

All right. -- because there were a number of facts And can I provide an exhibit?

that were discussed yesterday. THE COURT: MR. KHOURY:

Well, give it to Ms. Van Gelder first. She -- she has it. It's really just the

last three pages of Exhibit 1 of their complaint as well as Exhibit 1 of their affidavit. THE COURT: MR. KHOURY: All right. And Your Honor, what I'm showing you are

the two task orders that Ms. Van Gelder said are the only two task orders that are before this Court. The first one is if

you look at the -- the top of it, right under where it says the purchase order, it says P0005205. THE COURT: MR. KHOURY: Go ahead. That's the first purchase order that Ms. And one of the That's...

Van Gelder was -- was talking about yesterday.

things that I want to point out by going through this exercise is to show you that the employees that she's concerned about have already been paid for the work under these two task orders. I also want to show you that -THE COURT: MR. KHOURY: How does this show that? Well, I'm about to show you. But I -- I

want to tell you what I'm -THE COURT: MR. KHOURY: All right. Go ahead.

-- what the point of this is before I --

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 7 of 69 PageID# 393 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

and I also want to show you that this -- this is going to show it doesn't matter when the bribes actually happened. The

over-inflation of invoices happened prior to that and impacted each and every one of -- of the invoices going forward. those are the -THE COURT: In other words, to be sure that I So

understand what you're saying, I'm going to state it more generally. If someone paid a bribe or a kickback of 10,000

initially upfront, then there was a series of invoice, that $10,000 infects all of those invoices. MR. KHOURY: THE COURT: MR. KHOURY: No -Not what you're saying? No. I've said it poorly, Your Honor.

Let me try -- let me try it this way, by just walking through and -- what I'm try -- I'm going to try to show you is that Ms. Van Gelder's statement that we're only talking about 40,000 in bribes in the relevant time period is completely wrong. So, the first task order that we're talking about, 5205, is a -- one, is a task order, or a purchase order, for one year's worth of effort. And you can see that. It says PO

period -- P, period of performance.

It's from September 28,

2010, to September 27, 2011, work that has been done. By the way, the employees have been paid for that work because NDC has indicated, they've made payroll up until now.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 8 of 69 PageID# 394 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Now, the way the scheme worked, according to the indictment, was that Nova Datacom would provide inflated quotes that would make up for the pricing of this invoice -- of this purchase order. So the pricing in this purchase order -- and

if you look at the bottom line figure total is $9.2 million. That pricing was inflated. THE COURT: said. MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: The pricing for this purchase order -That's the 9 million? Is the 9 million. Right. That 9 million is -- is based on quotes Say the first sentence again that you

that were inflated by Alex Cho at the direction and with the consent of Kerry Khan. The pricing for this purchase order for 12 months' worth of work was established prior to September 28, 2010, well before any cooperation by Ms. Cho. Ms. Cho. The invoices that we're talking about that were submitted to EyakTek based on this inflated pricing were simply monthly invoices taking 1/12th of that 9.2 million and invoicing that 1/12th amount. So each and every invoice was

inflated, and each invoice was simply billing for 1/12th of an amount that overall was inflated.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 9 of 69 PageID# 395 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

All of the services that alleged -- and products that allegedly were to be provided -- and if you look at the descriptions they're very generic, vague. contract line item numbers: development. application. These are the

Field force engineering, capacity

If you look further down, COOP portal COOP is continued operations. And it has to do

with keeping operations in an IT environment functioning even in -- in certain instances where there may be -THE COURT: points are: Just to be sure I understand it, your two

One, the employees have already been paid. Right. And two, the amounts of the two invoices And the

MR. KHOURY: THE COURT:

are 1/12th each, 1/12th each of the 9 million.

9 million was established prior to the period of performance, and that included the inflated amounts attributable to the -- to the bad actions. MR. KHOURY: Right. Exactly, Your Honor. So

therefore, when the bribery -THE COURT: But, let me ask this, because I'm sure Ms.

Van Gelder will point this out if it's true, and you will let me know if you don't think it is. But this -- this 9 million

was established, you're telling me, prior to 9-28-2010. MR. KHOURY: conspiracy. THE COURT: Now, was -- as a part of the conspiracy, Exactly, Your Honor. As a part of the

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 10 of 69 PageID# 396 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

as you say.

But was -- not that it may be ultimately material; Was the cooperation by Cho

I don't know whether it is yet. underway at that time? MR. KHOURY:

No, it was not, Your Honor.

According

to -- according to what Ms. Van Gelder has told us - and all we know is what she's told us - it began in June of 2010. what she was told is business as usual. new -- with respect to these -THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: for correcting me. THE COURT: listen. Go ahead. MR. KHOURY: So, whether or not there were bribes I just did it to demonstrate that I do Oh, June --- two purchase orders. -- 2010 would be -I mean 2011. All right. 2011. My fault, Your Honor. Thank you I'm sorry. And

There -- there were no

before or after, the point is the inflation was in those invoices from the beginning. Now, I wanted to just show you the second -- so the second and the third relate to the second purchase order, 5208 C. So the second page you'll see there purchase order

5208 C, and you'll see a total of --

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 11 of 69 PageID# 397 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: twelfth of this. MR. KHOURY:

So wait just a moment. Yes.

This first one --

-- purchase order 5205 -Right. -- what we're really here on today is a

Well, what we're here on -- and it's a We're here on -- there -- there

little more complicated. are -- there is -THE COURT: MR. KHOURY:

Issue monthly state -One invoice. One invoice. One invoice

that's 1/12th of this is -- is part of the 900,000 that Ms. Van Gelder is seeking in her lawsuit. The 1/12th of the other

purchase order, which -- which EyakTek has been paid for but has not provided to Nova Datacom is -- if you add those two up, you get to the -- to the 900,000. That's -- that's what

we're -- that's what we're here talking about. THE COURT: tell me now about -MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: time, so -MR. KHOURY: I apologize. Okay. -- the second invoice -So the second invoice -Wait. She can only get one of us at a All right. And so what were you going to

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 12 of 69 PageID# 398 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT:

So it's arguable that I speak only because You still have to give me

I like the sound of my own voice.

the opportunity to finish and then you can start. It's very difficult for her to get both of us at the same time. This one is number -- looking for the number here -- 5208. MR. KHOURY: THE COURT: one -MR. KHOURY: THE COURT: MR. KHOURY: Now --- show? So 5208 C, I want to show you that this Right. All right. Go on. Now what does this

is also -- the period of performance is the same, 9-28-2010 through 9-27-2011, so the same point that the -- the fraud that we're talking about occurred prior to 9-28-2010. value there is 2.3 million. Now, if you turn the page to the third page, you'll see the same purchase order, 5208 C, now has been modified and has a revised -- it has additional tasks as of 1-1-11 through 9-27-11, and so the total now becomes $2.9 million. But again -THE COURT: MR. KHOURY: THE COURT: Where is the 1-1-11? It's halfway down, Your Honor. Oh, I see, revised. And the total

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 13 of 69 PageID# 399 13

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

All right. MR. KHOURY:

Go on.

And again, 1-1-11 is before any

cooperation by Ms. Cho. So the point is, the way the conspiracy is alleged to have worked, these -- this dollar amount, these total bottom line dollar amounts, were inflated. And according to the

Government, as we were saying yesterday, according to what the AUSA has told us, with respect to these two invoices, the total amount of inflation over the course of these -- of -- of this -- if you add it up it's about $12 million between the two. The total amount of inflation was $4 million. Now another point is, with respect to these two purchase orders. THE COURT: MR. KHOURY: Well, that's what the indictment says? Well, the indictment doesn't say that. But Ms. Van Gelder I

The indictment speaks in broader terms. think mentioned -MS. VAN GELDER:

No, I -- 4 million is for a lot of

other things other than this. MR. KHOURY: Well -But I don't know what the Government

MS. VAN GELDER:

told you, but I -- I'm not saying that 4 million is the over-inflation for these two purchase orders. THE COURT: correct that and -All right. That's important for her to

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 14 of 69 PageID# 400 14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MR. KHOURY: THE COURT:

Okay. I'll wait -- let's wait until you have

your opportunity, but I'm glad you corrected that because I can appreciate Ms. Van Gelder that you want to be very careful about what you concede. MS. VAN GELDER: THE COURT: TRO but other things. that. All right. MR. KHOURY: Go on, Mr. Khoury. Yes.

Because what's at issue is not just the So that's all right with me that you did

Nonetheless, Your Honor, on the whole we And

have 20 million dollars' worth of alleged inflation.

again, it's -- the amount here was inflated pursuant to the conspiracy -THE COURT: according to -MR. KHOURY: Total amount for all -- all of the Total amount of inflation is 20 million,

invoices that Nova Datacom inflated, the total amount -THE COURT: MR. KHOURY: million. THE COURT: MR. KHOURY: All right. Now, EyakTek has already paid Nova So it According to the indictment. According to the indictment is 20

Datacom 10 million, with respect to these two invoices.

very well may have already paid more than the value of the

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 15 of 69 PageID# 401 15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

services received. THE COURT: MR. KHOURY: How do I know that? Well, again, assuming that the -- that

the inflation is -- is at the level of -- of what the indictment indicated or -- and again -THE COURT: No. I'm asking, how do I know that

they've already paid 10 million? MR. KHOURY: Well, we -- we've submitted a declaration

that we -- we submitted it with respect to more than just these invoices, because at the time we thought that Ms. Van Gelder was -THE COURT: MR. KHOURY: I understand. And the declaration of Mr. Elmquest that

we submitted indicates that for all of the purchase orders that -- that she was complaining about -- let me find it for Your Honor. It's -- it's at paragraph -- let's see. THE COURT: MR. KHOURY: What does Elmquest say? I'm -- I'm looking for it right now.

He -- he says that EyakTek of the total of 29 million of invoices in connection with all the purchase orders that were submitted by Nova Datacom, EyakTek has paid 27.2 million. So, again, there's about a $2 million difference there between -- between the -- the amounts of the invoices and

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 16 of 69 PageID# 402 16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

the amounts paid. But -- so my point is simply that this notion that, Oh, we're just talking about $40,000 that happened in bribes after a certain point is irrelevant to how much inflation went on. Now, with that sort of factual background -THE COURT: What you're really saying is that it's

unclear how much inflation exists that's attributable to the two invoices in issue. MR. KHOURY: Right.

So with that as background, Your Honor, I would like to quickly state our position with respect to the TRO. And we talked yesterday about our position that Nova Datacom has come forward with unclean hands, so shouldn't be entitled to equitable relief at all. And I believe that the Court

articulated our -- our under -- our positions clearly and doesn't need more assistance from us on that. So I would like to turn, then, to the -- the four elements of the Winter standard. And of course, plaintiff

bears the burden of establishing a clear showing of each of those four under -- under Winter. THE COURT: Well, I -- as I saw the quote in Truth I

About Obama, and I only looked at it briefly a moment ago. think it was page 355 or something.

It's clear that Real Truth

About Obama in quoting from Winter, says that there must be a

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 17 of 69 PageID# 403 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

clear showing of irreparable harm. Does Winter say there has to be a clear showing of all four? I don't have any doubt that there has to be a clear I just want to know whether clear

showing of irreparable harm.

applies to the other -- the other three factors. MR. KHOURY: Honor. THE COURT: MR. KHOURY: All right. Well, let's go on. I -- I can't say with certainty, Your

With respect to likelihood of success on

the merits, our -- our position is that they cannot contractually -- we're not contractually obligated to pay invoices that were fraudulent. THE COURT: cases -MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: Correct --- that seemed to point in that direction. Does the Court have those case? Yes, I've seen them. So what I'd like to do is just quickly And you submitted a couple of Illinois

sort of run through that argument for you, Your Honor. THE COURT: What's there to run through? What those

two cases say in effect is that a fraudulent invoice is a material breach. MR. KHOURY: THE COURT: Right. And then the next case says if there's a

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 18 of 69 PageID# 404 18

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

material breach, you don't have to perform. MR. KHOURY: Correct. That's your position.

THE DEFENDANT: MR. KHOURY: THE COURT:

That is my position, Your Honor. The -- the one thing that we haven't

focused on is -- I would assume these invoices would be governed by Virginia law or what law? MR. KHOURY: They would be governed by Virginia -- I But the

believe they would be governed by Virginia law. reason -THE COURT: MR. KHOURY: THE COURT: So --- Your Honor --

-- we have to guess about Virginia law on

this because these two Illinois cases are not Virginia law. MR. KHOURY: Well, we have provided a Virginia case to

Horton v. Horton, Your Honor. THE COURT: MR. KHOURY: Yes. And that's -- that's for the

straightforward proposition that once a breach has occurred there's no further obligation under the contract. THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: Yes. But the reason -But that's not a fraudulent invoice case. No, that's true, Your Honor.

But the reason that it was so difficult to find a

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 19 of 69 PageID# 405 19

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

case, I believe, is this is -- usually, first of all, you have a contract that says, We need a valid invoice. all, this is sort of standard contract law. If you -- if I were just to read the city of -actually, I'd prefer to read the Aetna case. THE REPORTER: MR. KHOURY: Aetna? But second of

Aetna, A-E-T-N-A.

A claimant in making a fraudulent claim in that case -- and this is at page 32 of the -- of the case that I -that I provided to you, Your Honor. THE COURT: MR. KHOURY: Yes. -- (Continuing) was committing a material A

breach, indeed a most fundamental breach of the contract.

breach as fundamental as this is a bar to the assertion of any further rights under the contract by the party guilty of the breach. This is a basic rule of contract law citing It is so basic that you cannot -What page are you on? On page 32 of the Aetna case. All right. Go on.

Farnsworth.

THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: that -THE COURT: MR. KHOURY: It's...

And so, Your Honor, our position is

What page number? Page -- well, it's page 32 at the top.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 20 of 69 PageID# 406 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: MR. KHOURY: THE COURT: MR. KHOURY:

I don't have those page numbers. Well, 43 F.3d at 1569. All right. And so our point is it was difficult to

find a case on this because it's -- it's a basic fundamental principle of law that if you -- if you submit a fraudulent claim or a fraudulent invoice, that is a breach. THE COURT: MR. KHOURY: And what was the breach in Aetna? The breach in Aetna, Aetna involved a

Rico case where auto body shops were submitting fraudulent claims to claim adjustors -- well, fraudulent claims. And the

defendants argued on appeal that they needed a jury trial to show their damages because they had in fact incurred damages. It's -- it's just they had exaggerated those damages. answer in response was once this was a breach. And now we have something very similar from Nova Datacom here where they're saying, Well, we clearly did do some work, so we're entitled to you paying the invoices. THE COURT: Well, this principle wouldn't bar the And the

quantum meruit, would it? MR. KHOURY: Well, I think it would, Your Honor, based

on the cases that we cited indicating that if there is a valid contract you don't get to quantum meruit. THE COURT: MR. KHOURY: But it's an invalid contract, isn't it? Well, it's -- I'm not -- we're not -- I'm

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 21 of 69 PageID# 407 21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

not sure that the contract is invalid. THE COURT: Well, but you see this principle you're

citing in Aetna -- and I realize I'm violating my unfettered opportunity here, but. This case that you're citing, I think you say correctly stands for the proposition that if you submit a fraudulent claim, that's a breach. And it's a breach as A breach as

fundamental as that, as they say, is -- let's see.

fundamental as this is a bar to the assertion of any further rights under the contract. MR. KHOURY: THE COURT: MR. KHOURY: Well, then there isn't a contract. Then, Your Honor --

Right.

Then you're on to quantum meruit. Which is an equitable remedy for which

there are unclean hands. THE COURT: Well, I think that's a possible answer,

but I think your more prudent answer would be, you can't determine in a TRO what amount should be paid if it's quantum meruit -MR. KHOURY: THE COURT: MR. KHOURY: apologize. THE COURT: MR. KHOURY: I used to do this. So, our position is they cannot show That is --on this record. I

Yes, Your Honor, you're right.

likelihood of success on the merits.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 22 of 69 PageID# 408 22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

On irreparable harm -- and I'll pull up some of their cases as well. We pointed out to the Court before, and we think that the standard being that they have to -- they have to show -- well, first of all, let me start, as the Court recognized, it's a very rare case that an injunction can issue in a breach of contract situation where the damages are available. And they're seeking a mandatory injunction here. One of the things they have to do, as we indicated in -- in the Microsoft case is show that the damage was -- the harm is created by the defendant. have plenty of assets. Here, they indicated they

That the harm that they were referring

to, Oh, well, we're not going to be able to pay these employees. They've already paid them for the work that was -that is the subject before the -- before the Court. And to the

extent that they are indicating that they're likely to go out of business, that was not caused by the nonpayment of this $900,000. THE COURT: MR. KHOURY: cause that. What is going to cause that? Well, probably the debarment is going to

And by the way, one of the cases that they cite,

Turnage were -- there was a finding of irreparable harm, although ultimately the -- the request for equitable relief was denied, involved a situation where the plaintiff was

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 23 of 69 PageID# 409 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

disqualified from participating in the federal food stamp program. And it was found, Well, yeah, given -- given that retailer's function, that -- that might be -- that's irreparable harm. THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: Well, that's what they cited it for. Beg your pardon? That's what they cited it for. Well -That's what the plaintiff cited it for, is

the proposition that going out of business could in some circumstances amount to irreparable harm. MR. KHOURY: But in that -- in that circumstance --

and I apologize, Your Honor, if I cut you off. In that circumstance, Your Honor, the -- the cause -THE COURT: show likelihood of -MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: Yes, it --- on the merits? It did, Your Honor. All right. So all they're citing it for But didn't that case founder on failure to

is -- is the fact that -- well, they're citing it for the proposition on 232, I think, that -- it contemplates -- well, they've got 7 U.S.C. 2033 which is not pertinent here. But

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 24 of 69 PageID# 410 24

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

they do say that in the case it barred, it's clear that the loss of the food stamp business to B and J Mart may result in its closure. Such result clearly can be classified as That's what they cited it for.

irreparable harm.

Now, whether that's persuasive to me or not is another matter. But that's what they cite it for.

I'm aware of the fact that they denied the preliminary injunction on failure to show a likelihood of success. MR. KHOURY: But my point, Your Honor, is that there

was a tie, a direct tie, between the action that was the subject of the injunction and the harm. Here, there is not.

There is no direct tie between our nonpayment and the fact that this company, because its -- its chief technology officer has been indicted and -MS. VAN GELDER: MR. KHOURY: No. Has been included as

Well -- I'm sorry.

a cooperating co -- a CC1 in an indictment, and they have acknowledged that they are required to repay the Government inflated amounts that that individual was involved in. It's

because their executive vice president of operations has pled guilty to a conspiracy to defraud the Government, and as a result they have received a notice of debarment. And they are

suspended from doing business with the Government, which is very similar to what happened in Turnage.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 25 of 69 PageID# 411 25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

And those -- those are reasons that they are having cash flow problems. Not the nonpayment of this 900,000, which

again, has not prevented those employees for being paid for the work under these two purchase orders that are at issue. And then finally, Your Honor, on the public interest, we don't believe the public interest is served by having a court consummate the -- this conspiracy to inflate purchase orders and invoices. THE COURT: This part of it -- well, I see. This part

you say took place before the cooperation commenced in June. MR. KHOURY: All of the pricing that we are talking

about, all of that took place before the cooperation in June. And so what happened in June where they say, Keep doing business as usual, well, they kept sending me invoices with respect to these purchase orders. purchase orders. There were no new

There was nothing new with respect -- there

were no new pricing afterwards. The pricing had been inflated prior to this. 1/12th, 1/12th, 1/12th all along. And the Government has And

alleged, you know, significant inflation with respect to those invoices. THE COURT: You made some remark earlier about the

financial situation of the plaintiff, either its assets or something else. What did you have in mind there? Well, I just -- I was recalling from the

MR. KHOURY:

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 26 of 69 PageID# 412 26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

transcript yesterday that Ms. Van Gelder indicated that there were substantial assets of the company. THE COURT: MR. KHOURY: Found in this record? In this record, yeah. I think she

mentioned 23 million, or I... And so all I was -THE COURT: But you've looked at this record. What

does it say about the assets? MR. KHOURY: THE COURT: I'm trying -- Court's indulgence. All right, yes.

I'm focused not on Ms. Van Gelder's remark, but on yours. MR. KHOURY: of the transcript. I'm sorry. It's at page 10, Your Honor,

And I apologize I miss -- I misremembered.

This is ten months prior to October 31st, and it's 31 mil -- 13,150,000 in assets. THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: Speaking, who's speaking? That was Ms. Van Gelder speaking. And before October of when? 31st.

I assume of 2011? MS. VAN GELDER: MR. KHOURY: THE COURT: MR. KHOURY: Yes.

Okay. All right. So for those reasons, Your Honor, we --

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 27 of 69 PageID# 413 27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

we would urge the Court to -- to deny the TR -- this equitable relief that we don't believe NDC has come to the Court with clean hands to seek. THE COURT: All right. Ms. Van Gelder.

MS. VAN GELDER: MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: MR. KHOURY:

Thank you, Your Honor.

Oh, Your Honor, can -- I apologize. Yes. One other thing. Go ahead. On the -- on the clear showing issue, I'm

looking at Real Truth About Obama. THE COURT: MR. KHOURY: Yes. There is a requirement for clear showing, It is

that among other things -- and this is at 345 and 346. likely to succeed on the merits at trial.

And then also, And let

again, Winter rejected a standard, the prior standard. me just...

And it reiterated that it was inconsistent with the Court's characterization of injunctive relief as extraordinary remedy that may only be awarded upon a clear showing that plaintiff is entitled to such relief. So, in two places they talk about a clear showing beyond just the -- the irreparable harm, Your Honor. THE COURT: All right. Ms. Van Gelder.

MS. VAN GELDER:

Thank you, Your Honor.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 28 of 69 PageID# 414 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Your Honor, I'll try to do this as orderly as possible and address, first, Mr. Khoury's remarks. The -- our position is that Nova Datacom should have a right to wind down its affairs in an orderly fashion to protect its employees, to protect its customers. And it

shouldn't be forced to close its doors prematurely because of the cash flow problems created by EyakTek's failure to pay on their contract. With respect to the document that Mr. Khoury showed you, I would like to just address a few issues with that. First of all, the document clearly states that payment will be 30 days after the invoice. agreement at issue. That is the

Each time a purchase order is sent in, We will pay you within 30 days. That's each of the 1/12th things. Right. It's just

that's the agreement. THE COURT:

MS. VAN GELDER: THE COURT:

That's not this purchase order.

a part of the purchase order. MS. VAN GELDER: statement on it. THE COURT: All right. And the purchase order, what the Each purchase order has the same

MS. VAN GELDER:

overarching number that he showed you is what I would call -and I could stand to be corrected by Mr. Khoury who really is a Government contracts expert. I would call it as a blanket

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 29 of 69 PageID# 415 29

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

purchase agreement. You have a license. The Corps of Engineers has You can go up to that And in

allocated a certain amount of money.

amount of money, but each allocation is a task order. this case each purchase order has to be submitted.

And once

EyakTek gets the purchase order, they have to pay within 30 days. There is no master agreement. else that controls this. There is nothing

When -- they have agreed when they

receive this, they pay it. The second issue -- and I want to go to this quickly. The fact of the matter is, is that separately and

distinctly from the allegations that are in the indictment of Mr. Babb and Mr. Alexander and Mr. Khan is a separate plea agreement by Mr. Hallas. And I have already provided this

to -- to the defendant, but I will provide this again to the Court -THE COURT: All right. -- and to the defendant.

MS. VAN GELDER:

We were the ones -- actually, my predecessor, Mr. Brownlee, who was the former U.S. Attorney here -- were the ones who disclosed Mr. Hallas' -THE COURT: Attorney? MS. VAN GELDER: Mr. Brownlee, John Brownlee who is Who was this? Who was former U.S.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 30 of 69 PageID# 416 30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

now with Holland & Knight. THE REPORTER: THE COURT: What firm?

Former U.S. -The west -- he was in the Western

MS. VAN GELDER: District of Virginia. THE COURT:

All right. Not the eastern.

MS. VAN GELDER:

That matter that Mr. Hallas pled guilty to was disclosed to the GSA in January of 2010. The fact that the SBA

gave us a notice of debarment, to me -- and we will respond to that notice of debarment, and we said that in our affidavit -is an example of one part of the Government not knowing that we are working with another part of the Government. The fact is, though we will have to fight that suspension and debarment, we also know that Mr. Cho's actions are going to cause yet another notice of suspension. So I --

this suspension and debarment is something that we believe that we can address, but it also comes to the fact that Nova Datacom's president realizes that it has to wind down. That

the -- and I'm going to get to just the crush of what we know, the onslaught of litigation and administrative sanctions and what -- what will ever happen to Mr. Cho. The other correction I want to make to you, Your Honor, is I don't believe -- and I am the worst at math. But

looking at the documents that Mr. Khoury gave you, they are not

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 31 of 69 PageID# 417 31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

a 1/12th value of the POs. PO 5205 has a $9.2 million overall value. invoice, 117-93, was only for $547,410. And the

If it was exactly

1/12, according to my brain's Mr. Chiarodo's math, it would have been 736,000. Similarly, in the other PO, which is a $2.9 million value, if it was 1/12th, it would have been $232,000. invoice 11794 was for 359,000. from my math. THE COURT: But does that change his basic point? I think it does because I -And the

So they're not exact 1/12ths,

MS. VAN GELDER: THE COURT: How?

MS. VAN GELDER:

Because I think that the fact that

there were different invoices with different amounts means that this is not just a 1/12th, we're not doing anything. That

there were things going on with each purchase order that would cause different amounts to go. THE COURT: All right. Your Honor, with respect to -- and

MS. VAN GELDER:

this goes to -- I'm going -- I started to do this yesterday, and I'll do it again. I'm passing to Mr. Khoury, one for the

Court -- this is the balance sheet for the ten months prior to -- to October 31st. THE COURT: million? Is this the one that goes to the $13

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 32 of 69 PageID# 418 32

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MS. VAN GELDER: THE COURT:

Exactly, Your Honor.

All right. And I think as a fair reading of

MS. VAN GELDER:

the -- of the transcript would say was that I started talking about this and then I took myself down a -THE COURT: All right. -- detour. And I do

MS. VAN GELDER:

Your Honor, let me first of all explain.

not understand Mr. Khoury's argument that they have -- the employees have already been paid. do know this. THE COURT: Well, what he's saying is that the I didn't follow that. But I

employees have already been paid for the work that was -- that they did. I'm not saying Nova Datacom has been paid, but the

employees during that period of time have already been paid. There's nothing in this record saying that employees were not paid for the period of time that they did the work. So in other words, all he's doing is countering something that probably isn't material anyway, but it certainly tugged at my heart strings that people had already done work for which they, individually, had not been paid. And what I think Mr. Khoury was arguing is, Yeah, they've been paid for that time period. Nova Datacom may not

have been paid for that particular invoice, but those people have been paid for that work that they did during that time

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 33 of 69 PageID# 419 33

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

period. Do I have it right, Mr. Khoury? MR. KHOURY: That's it, Your Honor. Your Honor, for the time period of

MS. VAN GELDER:

the two purchase orders that are at issue, Nova Datacom has paid its employees. To do that, it has -- had to forego other So if I can go through our

payments, vendors or other things. balance statement -THE COURT: Yes.

MS. VAN GELDER: THE COURT:

-- this will --

Go ahead. -- this may help.

MS. VAN GELDER:

Your Honor, if you look -- and of course, Nova Datacom is a small 8A business. But if you look at the balance

sheet, the accounts receivable line and under the assets is $7.8 million. Out of that $7.8 million, approximately 3.6 of So, the account

that are pending invoices for Eyak services.

receivables that we will be -- coming in from our other contracts is approximately $4.3 million. When you look at the accounts payable, you have to add first the 2.6, which is the first line, and then going to the second page, you'll see the notes payable for GE Capital and Microsoft. GE Capital finances the products that we buy for the USACE contract. So, we buy them on financing. When we get

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 34 of 69 PageID# 420 34

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

paid, we pay GE. When you add the accounts payable on top of the GE Capital, you get approximately $4.27 million. I should tell you that our payroll to our employees is not included on this balance sheet. But when you take the accounts payable of 4.27 with the account receivables but minus EyakTek of 4.3, we have a $30,000 difference that we're operating on. The payroll for Nova Datacom on a monthly figure is approximately $450,000? MR. KHOURY: Half a month. Half a month.

MS. VAN GELDER:

So, by continuing to pay people because they're on the job, we have to go into the hole. So continuing the USACE

contract without payment, draws all the resources from the other payments. So without the payment, we're going into

deeper and deeper financial distress, which is already affecting money that we have to pay for GE and for other issues. With respect to the two purchase orders at issue, we have paid, and I'm talking just straight out payments, not profit, not inflation, not even general overhead, we have paid for the two purchase orders at issue $451,000 in payroll, 700 -- God bless you. THE COURT: Excuse me. Go ahead. I'm sorry.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 35 of 69 PageID# 421 35

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MS. VAN GELDER:

-- (Continuing) $730,000 in product.

And approximately 40- or $50,000 for travel for these people to get to their remote locations. So, they're holding 900,000, and we can show payments out of 1.12 for this time period, that we're not getting paid for. Yes, we are trying to pay our employees, and

that's why we're here because we will not be able to pay for them for the next payroll. pay them. So, the other thing I want to make clear -- and I think the indictment makes this very clear -- Nova Datacom didn't retain the inflations that were in the prior POs. The We just are -- we have no cash to

indictment is very clear, and I will direct the Court's -THE COURT: Well, they weren't the beneficiaries. It

was EyakTek or somebody else who got the inflation out of it. MS. VAN GELDER: 12 percent on every PO. THE COURT: Routine was that EyakTek would subcontract Your Honor, EyakTek got a 12,000 -- a

with Nova Datacom if Nova Datacom would give them a kickback. MS. VAN GELDER: THE COURT: Yes.

Isn't that -Yes.

MS. VAN GELDER: THE COURT:

So Nova Datacom isn't getting anything

other than the contract as a whole. MS. VAN GELDER: Correct.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 36 of 69 PageID# 422 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT:

The subcontract. Your Honor, if the -- I direct --

MS. VAN GELDER: THE COURT:

And that's a lot. I direct the Court to the -- to the The $20 million

MS. VAN GELDER:

indictment, particularly pages 11, 12, and 13.

inflation, which I believe is noted on page 11, and that would be 11 paragraph C, is followed on page 12 that 18 million of that 20 million went to Kerry Khan. THE COURT: EyakTek. No. Kerry Khan is the Corps of

MS. VAN GELDER: Engineers. THE COURT:

Oh, Corps of Engineers.

Oh, yes.

Okay.

MS. VAN GELDER: THE COURT:

So Mr. Khan got 18 million.

All right. Mr. Alexander got 1 million, and

MS. VAN GELDER:

Mr. Khan -- Mr. Babb of EyakTek got $700,000. THE COURT: And what you-all got was the contract. Correct. So it's not that we have

MS. VAN GELDER:

this extra money hanging around -THE COURT: Worth a lot of money. Your Honor, I have no doubt that this I -- I will stipulate to that. But

MS. VAN GELDER: was worth a lot of money.

I will also stipulate that -- that even when this happened and when these POs were -- were put in, we were working. servicing the United States Corps of Engineers. We were

And the real

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 37 of 69 PageID# 423 37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

problem that I believe that EyakTek has is not only has the Corps of Engineers claimed back any money -- and as I briefly stated yesterday, they're holding $2.5 million which would cover any inflation that they have. But they haven't directed

him to pay or not to pay, and they haven't kicked us off the job. They haven't renegotiated us. They haven't terminated us

for cause.

They have a plethora of procedures that they could There were bad

punish us if we were really the bad actors. actors in this contract on both sides.

But for the quantum

meruit claims, for the unjust enrichment, without any claim by the Government we can show that we have $1.12 million in hard payments to personnel and to vendors and to travel, and that 900,000 is less than what we would even show for that. So we're not even claiming right now for the TRO for the contract. We're saying even under quantum meruit, they

don't have enough in the bank to even cover that. So, yes, our people were being paid for the time period, but that has caused the -- the cash flow. And we do

have contracts with other Government agencies that will be ongoing, despite as you know the suspension and debarment because we can complete those. We would like to be able to complete them, but we -- we're going to have to start winding down. to have to start selling off. orderly fashion. We're going

We would like to do that in an We want to

We want our people to get jobs.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 38 of 69 PageID# 424 38

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

renegotiate contracts so those employees will migrate or novate over to them. But the fact of the matter is, with this balance sheet, with the 30,000 difference, and most of the money in our accounts receivable being held either by the Government or EyakTek, then we will not be able to stay in business. And

that we believe -- and I don't have to repeat the cases that we've unfortunately given you in the wrong way -- but that would be irreparable harm. With respect to the Microsoft case, I read the Microsoft case differently. The harm that we are saying is

being caused in this action is because of the retention of the money by the defendant. defendant. The harm is being caused by the

And it is clear that in this case both of us have And that's -- maybe that's why there's a But --

unclean hands.

deafening silence from the Government. THE COURT: too.

Well, the Government has unclean hands

The Corps of Engineers. MS. VAN GELDER: Clearly. But the Government will do

what the Government will do.

And well, it may be at first

blush admirable that EyakTek is trying to protect the Government's interest, but the Government isn't asking them to do it. And in the absence of their requested direction, then And by the contract, it

the money should go to who it is owed. was owed to us months ago.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 39 of 69 PageID# 425 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

And that is really simply the case.

And there is

no doubt our -- our affidavit sets forth -- now, we included the October amount which was taken out for the PO, but Mr. Livingston's affidavit plus this balance sheet clearly show that we are in no position to continue paying for USACE contractors if we aren't being paid. Which goes back to also

the e-mail that I showed you yesterday, Your Honor, in which EyakTek even after the indictment, the date of that e-mail was after the indictment. And they are telling USACE, We're going to make sure EyakTek's people are there. replace that PM. mind. So, Government's getting the benefit. getting the benefit. EyakTek's You know, they're going to

They're -- our job is to keep the mission in

I do not know and I don't mean to be

smarmy by saying this, I don't know if they put their 12 percent in escrow. But they're getting paid. They will

continue to be getting paid.

They have the benefit of their 12 And

percent, and they don't have the right to retain ours. that is about as simply as I can say it, Your Honor. THE COURT: All right.

Mr. Khoury, let me ask you.

Has EyakTek been debarred? MR. KHOURY: THE COURT: MR. KHOURY: No, it has not, Your Honor. Why not? Because --

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 40 of 69 PageID# 426 40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: know. MR. KHOURY: Honor. THE COURT: MR. KHOURY:

I think the right answer is you don't

Well, unfortunately, I do know, Your

Oh. Or I -- in fact today, we met with the

suspension and debarment official to discuss after we had submitted a -- a substantial pleading to him in essence demonstrating what the company has -- has done to assure its present responsibility, providing information about all that's gone on here from -- from what the company knows. And the

suspension and debarment official told us that he was -- he was at this point not going to suspend the company, but that it was subject to obviously what may or may not happen in the investigation. THE COURT: So what happens if -- if Nova Datacom has

to shut down and leave the work it's doing under the subcontract? MR. KHOURY: Well, then, EyakTek will have to find And in fact, Your Honor, we have

somebody else to do that.

learned today that they've walked off the job at the Corps. And so EyakTek is -- is -THE COURT: MR. KHOURY: What do you mean walked off the job? The employees -- there were eight

employees who were -- and this has nothing to do with the two

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 41 of 69 PageID# 427 41

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

task orders that -- or the two purchase orders that are before the Court. But the employ -- there were eight employees who

were currently working under a different EyakTek purchase order, and we have been told at USACE headquarters that they have walked off the job. Which gets to the point here, Ms. Van They're going out of business

Gelder has made it quite clear. anyway.

Asking for an injunction -THE COURT: Well, I -- I just asked you a question. I don't need any further argument. All right. All right. Sorry. Sorry.

You've answered it. MR. KHOURY: THE COURT: consider.

I'm going to recess and

Did you want to say anything more, Ms. Van Gelder, based on what he's just said? MS. VAN GELDER: THE COURT: I don't --

No, Your Honor.

-- think it calls for anything, but I

didn't want to deprive you of that opportunity. MS. VAN GELDER: THE COURT: about 15 minutes. The Court stands in recess for 15 minutes. THE LAW CLERK: All rise. No, Your Honor. We'll recess. It will be

All right.

(5:26 P.M. TO 5:45 P.M. RECESS TAKEN ~ OFF THE RECORD.) THE LAW CLERK: THE COURT: All rise. I want to begin with the

All right.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 42 of 69 PageID# 428 42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

non-merits matter.

I want to begin by complimenting counsel

because your briefs and arguments have been helpful, and I appreciate that. The matter is before the Court on a request for temporary restraining order pursuant to rule 65. The standard

to be applied in examining this request changed recently with the Winter case in the Supreme Court followed by Real Truth About Obama in the Fourth Circuit. The parties are not in dispute about -- about that standard. In essence, Winter swept aside Blackwelder or

actually Real Truth in Obama issued the final coup de grce, and it's no longer the sliding scale. It's now very simply

that there must be a clear showing of irreparable harm, a clear showing of likelihood of success on the merits, issuance of an injunction should be in the public interest, and the fourth -- the fourth factor -What is the -MR. KHOURY: THE COURT: Balance of hardships, Your Honor. Balance of hardships is still in there, For a moment there all I

but it's -- the balance of hardships.

could think of was, my heavens, another Herman Cain moment. Not Herman Cain. Who's the guy. Rick Perry. Perry, yes.

MS. VAN GELDER: THE COURT:

Oh, Perry.

In any event, as it turns out, balance of hardships

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 43 of 69 PageID# 429 43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

is not a significant factor in this -- in this calculus. The facts are spread out in a fairly extensive record, and it's -- the compliment I paid counsel is that they in the end explained that fairly clearly. The dispute is over two invoices that are for work that has already been done by Nova Datacom, Nova Datacom, on a subcontract with Eyak Technology for work for the Army Corps of Engineers. The work's already been done. have not been paid. These two invoices

They have not been paid because this

entire process has been disrupted by the discovery by the Department of Justice of a conspiracy to commit fraud and bribery in connection with this contract. There is an indictment, and a number of persons have been indicted. The U.S. Corps -- the U.S. Army Corps of And the

Engineers person has been indicted, and some others.

indictment speaks about essentially a conspiracy that resulted in overpayment of about $20 million, is the allegation. And we

don't know with any great specificity what amount of inflation in the invoices is attributable to the two invoices in question. By inflation, what I mean is that these were kickbacks. What happened is that -- what happened allegedly is

that Novacom or -- Data -- Nova Datacom, in order to obtain this subcontractor -- subcontract from Eyak Technology agreed

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 44 of 69 PageID# 430 44

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

to pay money to Eyak Technology, a person, and U.S. Army Corps of Engineer persons in order to ensure that they got the contract. So they would inflate the invoice to reflect that. We don't know what the precise amount of inflation is attributable to the two invoices in question. We do know

the period of time for which the invoices are involved. The invoices are -- the two invoices are for the period -- or one of them, which is 5205, is for the period 9-30 -- I beg your pardon -- 9-28-2010 to 9-27-2011. The period for the second one, which is 5208 C, is 9-28-2010 to 9-27-2011. So it's the same period for both of

the invoices, but the -- the 9 -- the 5208 C had a modification for the period 1-1-11 to 9-27-11. Now, the case is complicated in some ways because a -- I think it's the -- the Government persuaded the owner of Nova Datacom to cooperate by continuing to participate in the conspiracy so that the Government could net the co-conspirators it was seeking to get. June of 2011. What the Government didn't do and what Nova Datacom didn't do is to ask, Well, if we continue and we keep doing this work, how are we going to get paid? I think to put it This is This cooperation generally began in

bluntly, the Government didn't care about that.

different from the usual Government cooperation where all the money that's involved or all the drugs that are involved come

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 45 of 69 PageID# 431 45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

from the Government.

And the Government doesn't lose anything.

They get the drugs back and they get the money back. But here, what the Government was asking is for Nova Datacom to go ahead and continue in the conspiracy so that they could net other people. And it doesn't appear on this

record, and I'm not sure it's material even so whether anybody gave any consideration to how Nova Datacom was going to get paid. But Nova Datacom went ahead and did cooperate. Now, the argument for a -- an injunction, for a temporary restraining order to issue at this time, the precise temporary restraining order that is sought is a requirement that Eyak Technology pay these two invoices, totalling I think about 900 and some thousand dollars. And the argument is that

if Eyak Technology does not pay these invoices, then the continued existence -- not so much the continued existence of Nova Datacom, but the way in which it ceases to exist will be severely impacted. Ms. Van Gelder, as she always does, was very can -very straightforward and lucid and candid. And she said that

what's at stake is not whether Nova Datacom ceases to do business, but rather how they cease to do business. Whether

they cease to do it in an orderly fashion and pay their employees, have their employees have time to get other jobs and the like. That's an important point. Nova Datacom has been debarred. Of course, Nova

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 46 of 69 PageID# 432 46

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Datacom will -- will I'm sure resist that and try to get it turned around. Perhaps they will succeed. But at the present

time, according to this record, I think it is clear that Nova Datacom will go out of business. And the question is, will

they do it in an orderly fashion or will they have to close up the doors more quickly. Now, those are some facts. There were some other

facts brought out today, one by Mr. Khoury in which he pointed out that the employees have already been paid for this work. Well, there was some suggestion yesterday that they might not have been paid for this work, but I think the real suggestion that Ms. Van Gelder was making is not that. wasn't suggesting that. What she was really suggesting is that they won't be paid in the future. And I think I injected the fact that She

it's Thanksgiving and Christmas, and it tugged at my heart strings, as I'm sure it would tug at anyone's heart strings. But in the end it's not really material because irreparable harm is not based on whether certain employees will receive compensation at Thanksgiving and Christmas. The real issue I

think is -- is whether this injunction should issue in order to allow Nova Datacom to wind down its business in an orderly fashion. But in any event, I think it is clear that for these

two invoices, they've -- the employees who did that work already received their salaries for that period of time.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 47 of 69 PageID# 433 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

But the more important point that Mr. Khoury made is that there is no way to tell on this record whether there is any inflation or how much inflation is attributable to these two invoices. I think he'd be prepared to say there's

certainly some inflation, because what EyakTek has done is to escrow the amounts owed under these two purchase orders and seek guidance from the Army as to whether -- and how much they should pay. The Army's silence on this has been deafening. Of

course, the Army's not a clean hand situation either because their person is the person who solicited the bribes, I expect. That's I think what's suggested in the indictment. And he

certainly received the lion's share of the profits from this illegal operation. But in any event, I think it is clear that we cannot determine on this record with any accuracy or certainty what amount, if any, of inflation is attributable to these two purchase orders. Now, let's look at the legal principles a little more closely. Yesterday I expressed the view that in a contract case for which damages are sought, it is extremely rare for there to be a basis for an equitable remedy of a TRO because it is axiomatic that damages are an adequate remedy. The

argument, however, made by the plaintiff, or the petitioner in this case, is that they're going to go out of business if they

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 48 of 69 PageID# 434 48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

don't get this.

They'll go out of business anyway, but they're

going to go out of business in a very disorderly fashion that will disrupt the work and everything else. And I might point out, there's nothing in this record -- I don't have anything from the Army that says, Oh, please, don't have these people run away from the job because this is national security or some other kind of work and we desperately need them. any evidence of that. But in any event, it is true that a mandatory injunction, which is what is sought here, requiring action by a party is appropriate in exigent circumstances where it is necessary both to protect against irreparable harm in a deteriorated circumstance created by the defendant and to preserve the Court's ability to render effective relief on the merits. That's right out of the Microsoft case. And in Microsoft, the Court reversed a District Court's mandatory preliminary injunction requiring Microsoft to distribute the plaintiff's software with its operating system and web browser. In other words, it was an injunction That's not present here. I don't see

requiring them to distribute that together. The District Court justified the injunction as necessary to prevent Microsoft from obtaining a future advantage in the marketplace based on past wrongs. The Fourth

Circuit held that future harm in the marketplace was not

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 49 of 69 PageID# 435 49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

sufficient irreparable harm.

Any present harm identified was

defined to generally in the injunction did not aid or protect the Court's ability to enter final relief. Of course, on the facts that case is not apposite at all, but the principle is. A mandatory preliminary injunction in any circumstance is disfavored and warranted only in the most extraordinary circumstances. 266 makes that point. Taylor against Freeman at 34 F.3d

And it is true that the authority of any

District Court to issue such a preliminary injunction should be sparingly exercised. Mandatory preliminary injunctions do not

preserve the status quo, and normally should be granted only in circumstances when the exigencies of the situation demand such a relief. And here the argument is that they do. Without this

relief the result will be that there will be a disorderly winding down of business. Now, the parties argued about whether the relief here would alter the status quo or would not alter the status quo. There are some cases that I think are illustrative in

that regard, but in the end that's not what really is decisive in this case. harm. I think what's decisive in this case is the

What harm counts for irreparable harm. In my view, the source of the irreparable harm in

these cases is not the absence of an immediate damages remedy, that is it's not the failure to pay these invoices. It's the

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 50 of 69 PageID# 436 50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

debarment.

That's the problem.

Because there would be other

revenues coming in if they could continue to do that, and the matter would shake out after that. And in Blackwelder and Blackwelder and the I

Statesville against -- not Blackwelder.

Federal Leasing cases, those were cited by the plaintiff. looked at those.

And there, the preliminary injunction -- in

fact, if I look at the facts again, they do stand -- one, the Federal Leasing case does say that the possibility that adequate compensatory or other corrective relief will be available at a later date in the ordinary course of litigation does weigh against the claim of irreparable harm. But they

also said in that case that going out of destroying a business would be a possibility. In Federal Leasing, the plaintiff sought a preliminary injunction that would require the insurance -insurer, defendants, to process the plaintiff's claims on a rolling basis rather than at the expiration of each sales agreement into which the plaintiff had entered. In other words, the preliminary injunction that the District Court ultimately granted in that case required the acceleration of claims processing, not claims payment. And in

Blackwelder, which of course is now been consigned of the dust bin of legal history -- that makes me feel old because Blackwelder was -- has been in existence for a long time. actually, I've lasted longer than Blackwelder. And

That gives me

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 51 of 69 PageID# 437 51

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

some concern. But in Blackwelder, the plaintiff sought a preliminary injunction that the defendant, which was a furniture manufacturer, restore the plaintiff, a furniture dealer, to its status as authorized dealer of a defendant's product. So in this respect, the Fourth Circuit held that an That would require the

injunction should have been granted.

plaintiff and the defendant to continue the business relationship that had existed before defendant terminated it. So the source of the irreparable harm in those cases was not the absence of an immediate damages remedy, but rather interruption of the parties' established prior course of business, of conduct. And each injunction required resuming

that course of conduct, which in neither case required the payment of potentially disputable sums of money. Now, whether the data -- or whether the harm is irreparable, as I indicated, Blackwelder and Federal Leasing, careful reading of those cases reveals that the irreparable harm was the imminent loss of customer goodwill caused by the plaintiff's inability to honor purchase orders. In other

words, the harm to the plaintiff was primarily derivative of the harm to its customers. What made the harm irreparable is And these people would It's only

that reputation can be easily damaged.

buy furniture elsewhere and they'd never come back. with difficulty repair.

And that's not the goodwill harm that

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 52 of 69 PageID# 438 52

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

is presented here. So, in both Blackwelder and Federal Leasing, the harm that was incalculable and irreparable was the loss of goodwill attributable to the plaintiff's inability to satisfy their customer's demands. And that's not the case here, so I

think those cases are not very persuasive here. The plaintiff in each of these cases identified specifically how continuation of the status quo would harm its reputation among customers, and that's not the case here. It's

the absence of customers and preexisting harm to Nova Datacom's reputation caused by the chief technology officer's malfeasance, neither of which would be redressed by any preliminary injunction that continues to harm Nova Datacom. Well, Datacom -- Nova Datacom contends that Eyak's withholding of the funds and putting them in escrow is responsible for its current cash flow problems. Nova Datacom

has not succeeded, though, in my view in demonstrating that whatever irreparable harm currently befalls Nova Datacom is attributable to EyakTek's withholding of these sums. First, the party submissions strongly suggest that the sum that Nova Datacom seeks is only a fraction of its operating revenue, but that's not really decisive here. But it

does appear plainly from this record the debarment and the harm to the company's reputation and financial viability are the primary sources of Nova Datacom's cash flow problems. Neither

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 53 of 69 PageID# 439 53

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

of these sources is attributable to EyakTek's withholding of payment with respect to the two invoices in issue. And as is clear, Nova Datacom is going to go out of business at some point in time. An injunction here would

merely delay the inevitable and make it more orderly to be sure, and people would be paid some, which they might not otherwise get. sooner. But although EyakTek's withholding of the funds in escrow has undoubtedly harmed the financial health of Nova Datacom, I don't doubt that point at all. Nova Datacom cannot That's true. They might have to be laid off

make a clear showing that the harm it has presented is irreparable; i.e., that going out of business is attributable even primarily to EyakTek's withholding. It's attributable to

that person's engaging in this illegal conduct and resulting disbar -- debarment. So, this request for a temporary restraining order founders on the first requirement, that is a clear showing of irreparable harm. That showing, in my view, cannot be made.

And as I said, the purpose of a mandatory injunction would be to protect against irreparable harm in deteriorating circumstances created by the defendant. sure it's created by the defendant. the contrary on this record. I'm not

In fact, I'm finding to

And to preserve the Court's

ability to render effective relief on the merits.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 54 of 69 PageID# 440 54

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Well, it's unclear what the courts mean by effective relief on the merits. But certainly the

injunction -- the failure to issue the injunction isn't going to affect this Court's ability to hold a trial on the complaint that's been filed, and if the plaintiff succeeds, to issue a -an appropriate judgment. I don't need to address -- I don't need to reach or address public interest or balance of equities. I will say

briefly on the -- on the likelihood of success on the merits, I can't say there's a clear showing of a likelihood of success on the merits. I can say without any lack of confidence that it

is clear - Ms. Van Gelder has made this point emphatically and clearly - that they -- that Nova Datacom did the work, and that everyone was satisfied with the work. And that's the work that

is attributable to these two invoices, and that they should be paid for it. The problem I'm having with the clear showing of likelihood of success on the merits is it is unclear whether, as the defendants argued today -- defendant argued today, whether the plaintiff can prevail on a breach of contract claim where the invoice is fraudulent. Well, the invoice is fraudulent perhaps, but if it is, it's the -- the defendant was a joint tortfeasor in that regard, was a co-conspirator in the fraud. And I don't know

under Virginia law and I don't know of any authorities that

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 55 of 69 PageID# 441 55

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

have been cited that address this, whether that impairs the ability of the plaintiff to recover on a quantum meruit basis. I suspect in the circumstances it may not. But I don't have a

clear showing of that now, and it seems to be a novel issue. And as I said, I don't reach the other -- I don't need to reach and decide the public interest and the balance of the equities. I should state briefly that the defendant argued clearly that the plaintiff has unclean hands, and that's the end of the -- that's the first step, and that's the end of the inquiry. The reason I don't think that is, in my view, is because I don't think the defendant's hands are any cleaner than the plaintiff's. So if the plaintiff has unclean hands

and the defendant has unclean hands, it's not clear to me that defendant -- and they did it together, that the plaintiff's unclean hands would be a bar to it. So I passed over that.

There aren't any authorities that address that issue. But I think, as I said, the issue of a temporary restraining order is decided on the basis of the fact that the harm is not irreparable, doesn't qualify as irreparable harm in these circumstances, and it isn't a clear showing of that. And

also there's no clear showing of likelihood of success on the merits, even though I take -- I take Ms. Van Gelder's point that the work was done. The U.S. Army Corps of Engineers and

EyakTek were happy with the work that was done, and they

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 56 of 69 PageID# 442 56

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

haven't been paid for that work that was done. So the motion for a temporary restraining order must be denied. And I don't do that -- I haven't done it

quickly or easily because I took seriously the argument, even though it was a very novel argument. It's always novel. It's

now been more than -- well, 25 years, and the number of times that I have granted a mandatory injunction to remedy a breach of contract is zero. I've never done it before, but what Ms.

Van Gelder did is to make me stop and look at this thing much, much, much closer. She made a very appealing argument.

But in the end, as I said, I don't think that the claim that we need the money to help us go out of business in a more orderly way qualifies as irreparable harm, especially when the going out of business isn't attributable to the unpaid two invoices. It's really attributable to the bad acts of the

plaintiff itself, or this -- not the plaintiff -- well, yes, the person at the plaintiff who engaged in this bad conduct. And so -- but I am denying the TRO for the reasons stated. Now, I am willing to consider a somewhat expedited trial, but I'm not sure it helps at all. And I'll tell you

why, and I'll let you think about it, and you can file something. I can make time for you, maybe in later January or

sometime in February, and we can do this. However, let's face it. Some of these witnesses And matters

are going to take the Fifth Amendment, probably.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 57 of 69 PageID# 443 57

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

are still very volatile, I can tell.

And even if I held such a

trial, and even if a judgment were then entered in favor of the plaintiffs, let's stay on quantum meruit for a substantial amount of money, let's say for $800,000 or so, that judgment would I think, because lawyers are lawyers, would be appealed. I don't think it would be successful. one lost record is not bad. money. And I'm not sure that an expedited trial, Ms. Van Gelder, would help your client anymore, but I want to give you that opportunity to think about it and talk about it. I don't I think my

But it would delay payment of the

know what effect a trial on breach of contract, quantum meruit, unjust enrichment -- you know, there would be -- first, there would be battles about, can you have unjust enrichment when you have a contract? contract? Well, the answer is going to be, well, ordinarily not, but in this case it's pled in the alternative because the contract may not be valid because of the -- may have been in some way invalidated by this general principle that fraud was committed. regard. So in any event, that's my ruling to date. And But there will be some opening skirmishes in that Can you have quantum meruit when you have a

I'll enter an order saying for the reasons stated from the bench. I'm not going to write on this. But I think my reasons

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 58 of 69 PageID# 444 58

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

have been adequately elucidated here from the bench. But I want to give the parties an opportunity to discuss this. Now of course, there's always the opportunity to

resolve this by some other means. MS. VAN GELDER: THE COURT: Yes. Your Honor, first, I would say that We have made a settlement offer I'm not sure this will help May I address that, Your Honor?

MS. VAN GELDER:

we have thought about this.

today to the -- to the defendants.

bring them to the table, but we did make it and will continue to make it, and perhaps we can go to the magistrate and -THE COURT: arrangements. MS. VAN GELDER: So I would like to set a trial. I do Yes, I would be happy to make those

believe that we can make our case without anybody -THE COURT: Bring me the red book, please. -- anybody taking the fifth, because Now Alex Cho was

MS. VAN GELDER:

it would be the people who are working there.

just -- if we're doing a quantum meruit, we're going to bring in the people who say, I was there and I did this and -- and so that's a very simple case for us to bring. I do believe that we have sort of seen this before, the Harrison case, SAIC, all of the false claims cases where there is that fraud ab initio argument -THE COURT: I see them all the time that's pled in the

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 59 of 69 PageID# 445 59

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

alternative. MS. VAN GELDER: Right. And the courts have said,

even if this fraud ab initio -THE COURT: issue. But I'm sure Mr. Khoury will raise the I'll have to think about it

It will be fully briefed.

and I'll read the cases and decide it. MS. VAN GELDER: THE COURT: Your Honor, I --

Now, the point is that -- and the reason I

say that is that Voltaire said he was ruined twice in life, once when he lost the litigation and a second time when he won one. In other words, for the client, litigation is at best a The only people who profit from litigation

pyrrhic victory. are lawyers.

They can educate their kids in private schools

and ivy league universities. I know. I did that. Not that my kids -- my kids

are now through school.

One of them in an ivy league I can only say I

university, but I can't say he's educated.

paid for a lot of money for him to spend time there. I was just reminiscing. He's a doctor now, but he

named his children Jacob and Sarah, and he hasn't the slightest idea who Jacob and Sarah were in the Old Testament. that I paid Princeton $100,000. And for

But he's a pediatric

cardiologist, and he doesn't care about knowing about Jacob and Sarah. So I'm telling his children about Jacob and Sarah

because I don't want them not to know it, although it's going

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 60 of 69 PageID# 446 60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

to come as a shock to both of them when they get to be that age. In any event, the point I'm making is settlement is the best for both. MS. VAN GELDER: I totally agree. But I believe

without specter of a trial, that -- that settlement will just be a delay tactic. THE COURT: sound one. Mr. Khoury. MR. KHOURY: Yes, Your Honor. Your Honor, we -- we -All right. I -- I think your point is a

if we are going to go to trial we're going to need some discovery here because all of these facts have been kept -THE COURT: hurry. MR. KHOURY: has said -THE COURT: your firm. Just think how profitable it will be for -- kept from us. And as -- as the Court Well, you're doing all these things in a

You'll do all these depositions in a hurry, and It will be -- and then you'll go to I mean,

you'll do all this stuff.

the magistrate because you'll argue a bunch of things.

this is -- you'll just make a lot of money in a short period of time. MR. KHOURY: for -And that's -- that might be wonderful

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 61 of 69 PageID# 447 61

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: complaint?

And let me ask the question.

You filed a

MS. VAN GELDER: THE COURT:

Yes, Your Honor.

You didn't ask for a jury. No, I didn't, and I would not ask for

MS. VAN GELDER: one. THE COURT:

I couldn't imagine that you would. Or you won't ask.

And you didn't ask for a jury. You haven't had a chance to ask. MR. KHOURY: THE COURT: MR. KHOURY:

You want to --

We have yet --- discuss that with --- to answer, Your Honor, and I'm not

sure what the answer is to that. THE COURT: Well, since you participated in the fraud,

I'm not sure you would want that. MR. KHOURY: Well, be that as it may, Your Honor, the

suggestion that witnesses will not have to take the fifth, we are looking -THE COURT: I think you're probably right. Some of

them may take the fifth, but we'll cross that bridge when we come to it. In the meantime, you can earn some money. Because

I think Ms. Van Gelder is exactly right.

Unless I show that

I'm going to try this case -- and you know the Eastern District, if I set a trial, then absent an asteroid hitting Alexandria, we're going to have that trial. And that will be

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 62 of 69 PageID# 448 62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

like the -- remember Sam Johnson, what he said about the man who was about to be hanged? concentrates his mind. Well, I want to wonderfully concentrate your client's mind. That's what Ms. Van Gelder was getting at. He said it wonderfully

Am I right, Ms. Van Gelder? MS. VAN GELDER: Yes, Your Honor. And in deference to

the Court's time, I am willing to say we will go to the magistrate, and then we will come back and ask for the -- for the Court's time so that he will have an opportunity to talk to his client -THE COURT: Well, who is --- about the --

MS. VAN GELDER: THE COURT: case? MS. VAN GELDER: THE COURT:

-- the magistrate judge assigned to this

Judge Anderson. I saw him today. He looked But I'm

All right.

harried, so -- but I will ask him to see you-all.

going to pick time now because my docket fills up pretty quickly. MS. VAN GELDER: THE COURT: That would be fine.

And what I have in mind is beginning this

case at 10:00 a.m. on the 7th of February. MS. VAN GELDER: Hampered as I am as a person totally

devoted to a BlackBerry, I believe I'm open, but I don't have

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 63 of 69 PageID# 449 63

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

anything at this moment to -- to know. MR. KHOURY: Your Honor, just -- at this point, we

would just want to reserve our objection to setting it that soon because we do believe that trying to -- trying to get the information that we're going to need to get from the Government, which actually received a lot of these products or -- or may have received a lot of these products and the services, especially given the nature of the conspiracy here where the Government folks were telling EyakTek -THE COURT: Well, you know they did some work, and you

know the Government was satisfied with it, and you know that you set aside a bunch of money. MR. KHOURY: satisfied with it. Honor, is that -THE COURT: 7th. MR. KHOURY: Finding that out from the Government Well, you'll have to find out by February I don't know that the Government was

And the reason I don't know that, Your

while a criminal investigation is going on is going to be near impossible, Your Honor, filing the -THE COURT: MR. KHOURY: THE COURT: Well, were you in the Corps? I was not, Your Honor. Ah. Well, you know what they say in the The impossible takes a

Corps, the difficult we do immediately. little longer.

But February 7th is the man about to be hanged.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 64 of 69 PageID# 450 64

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

And I -- I do that because I really believe this can be done. In any event, in the normal course of events, Mr. Khoury, this case would probably be set no later than May or June anyway. And I don't think there's going to be any fraud

trial and everything mopped up by then, and we don't wait for criminal matters. And if somebody comes to trial in a civil

case and takes the fifth, that's an inference that can be drawn in favor or against that whoever offered that -- well, it isn't against that party. But if somebody comes in here, the Army,

let's say, and says, I take the Fifth Amendment; I'm not going to testify, I give the jury an instruction that says, You may draw the inference that the answer to that question would have been unfavorable to the person calling that witness, or to the party calling that witness. Now, I'm not saying I'll definitely do that in this case, but that's what I've done in the past and I'll hear from you at the time. And, of course, there have been asteroids that have hit the earth in various places. And I'm not saying that

I've -- that there aren't circumstances where I wouldn't set a later date. I'm just -- I want you to walk out of here, Mr.

Khoury, with very little assurance that that's going to happen so that you can wonderfully concentrate your client's mind. Your client knows what services were performed. Your clients paid lots of -- how many -- you told me yourself.

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 65 of 69 PageID# 451 65

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Here it is.

They paid $10 million on -- with respect to You didn't pay $10

portions of these -- of this invoice.

million because you didn't know what was being done. MR. KHOURY: Well, Your Honor, we paid $10 million

because we were deceived as to what was being done and what was -THE COURT: MR. KHOURY: Your Honor. Well, didn't you go and look? What was being done was -- we tried to,

We tried to get documentation, and the Government

folks who are involved in this conspiracy immediately pushed back and said, We have signed DD-250 forms. Those are the

forms that the Government signs when they approve and accept services and products. They say, We have these signed DD-250s. And they -- it's -- it

You don't need any other documentation. was Mr. Khan, Mr. Alexander -THE COURT: MR. KHOURY: THE COURT: point. Well, you know --

-- and they got the contract --- I'm not foreclosing. I take your

It's not an invalid point.

I understand what you're

saying, but I don't think it's going to be, in the end, an obstacle. I don't think there is a dispute about what was done and whether it was satisfactory. here. That's not why we're The fact -- I

You paid $10 million for other stuff.

mean, maybe it is true that you don't know what they did and

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 66 of 69 PageID# 452 66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

you just did it on the basis of signed DD-2, whatever they are. Maybe that's true. But it seems to me your -- well, I don't

know the facts and I won't say more, but I doubt that this is -- that the fact that they didn't do the work or they didn't do the work to your satisfaction or to the Army's satisfaction, I doubt that's going to be a factor. it. MR. KHOURY: THE COURT: MR. KHOURY: from -THE COURT: MR. KHOURY: THE COURT: MR. KHOURY: THE COURT: You don't know --- the Government --- do you? We don't know at this point. All right. That's what I said. By Well, we respectfully -You don't know either. Right? But, I don't foreclose

We -- we would need to get discovery

And you would want to go into all these things. all means, do it.

Charge your client a fortune, then ask your

client -- send them bills every week and then ask them whether it wouldn't make better sense to settle this. better deal out of the settlement in the end. We'll see. But again, I say to you, Mr. Khoury, I think the points you raise are not invalid. different view right now. I hear you, but I'm of a You might get a I don't know.

Maybe in the future you'll change my

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 67 of 69 PageID# 453 67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

mind, but in the meantime, you've got a big task ahead of you. You're going to have to spend a lot of money -- your client's going to have to spend a lot of money, and that's the message I want you to take to your client in connection with the settlement. Now, do you want me to call and to communicate with Judge Anderson about a settlement conference? I won't do

that -- I won't do that, Mr. Khoury, unless you and Ms. Van Gelder assure me that there's some prospect -- I'm not going to waste Magistrate Judge Anderson's time unless there's some potential for -- for success. MR. KHOURY: Your Honor, I would like to talk to my

client before doing that -THE COURT: That's appropriate. That's appropriate. Just --

So if you will let me know.

I don't want you to call.

do a little joint prcipe or something that you can file by computer saying, The parties are in agreement, or the parties are not in agreement about whether there are any substantial prospects for settlement. If I get an affirmative answer, I

will call Judge Anderson and urge him to move on it very promptly. MS. VAN GELDER: THE COURT: Thank you, Your Honor.

Anything further this evening on behalf of

the plaintiff, Ms. Van Gelder? MS. VAN GELDER: No, Your Honor. Thank you for your

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 68 of 69 PageID# 454 68

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

time. THE COURT: MR. KHOURY: THE COURT: Mr. Khoury? No, Your Honor. All right. Thank you.

I thank counsel for your

cooperation, and I reiterate that I found your arguments very helpful. I really do need to understand things, and it's not like when I sit by designation on various courts of appeal where the issue is very sharply defined, thought about for months in advance and that's all there is. sort of moving target fashion. Here, it comes in a

Lots of new things are

presented, so oral advocacy makes a big difference in the district court. I've sat by designation in the Federal Circuit, the Fourth Circuit, the Third Circuit, the Second Circuit, and I can't remember the number of times -- I can't remember any times when the judges who came to hear argument were pretty clear about the result. Here, that's not the case. What you

do and what you say and what you write is very important. Thank you. MS. VAN GELDER: MR. KHOURY: Thank you, Your Honor.

Thank you, Your Honor. All rise.

THE LAW CLERK:

(PROCEEDINGS CONCLUDED AT 6:33 P.M.) -oOo-

Case 1:11-cv-01210-TSE-JFA Document 31

Filed 12/12/11 Page 69 of 69 PageID# 455 69

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA

) )

I, JULIE A. GOODWIN, Official Court Reporter for the United States District Court, Eastern District of Virginia, do hereby certify that the foregoing is a correct transcript from the record of proceedings in the above matter, to the best of my ability. I further certify that I am neither counsel for, related to, nor employed by any of the parties to the action in which this proceeding was taken, and further that I am not financially nor otherwise interested in the outcome of the action. Certified to by me this 11TH day of DECEMBER, 2011.

__/s/___________________________ JULIE A. GOODWIN, RPR CSR #5221 Official U.S. Court Reporter 401 Courthouse Square Tenth Floor Alexandria, Virginia 22314