Trust Title Company v. United States , 118 Fed. Cl. 99 ( 2014 )

In the United States Court of Federal Claims
No. 11-745C
(Filed: September 10, 2014)
************************************** Post-trial decision in contract case;
) termination for default; reprocurement;
TRUST TITLE COMPANY, ) liquidated damages
)
Plaintiff, )
)
v. )
)
UNITED STATES, )
)
Defendant. )
)
**************************************
Donald C. Holmes, Greensboro, Maryland, for plaintiff. Of counsel was Andrew C.
Bisulca, Woodbridge, Virginia.
Eric Laufgraben, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C., for defendant. With him at the trial and on the
briefs was Michael N. O’Connell, Senior Trial Counsel, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington, D.C. With him on the briefs were
Stuart F. Delery, Assistant Attorney General, Civil Division, Robert E. Kirschman, Jr., Director,
and Bryant G. Snee, Deputy Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C. Of counsel was Todd P. Maiberger, United
States Department of Housing and Urban Development, Office of General Counsel, Washington,
D.C.
OPINION
LETTOW, Judge.
In this contract case, the court conducted a trial from November 18 through 21, 2013 and
February 5 through 6, 2014 in Washington, D.C. In 2010, plaintiff, Trust Title Company (“Trust
Title”), contracted with the United States Department of Housing and Urban Development
(“HUD” or “the government”) to provide real estate closing services for HUD, consisting of
settlement and title services, in connection with the sale of HUD-owned properties in North
Carolina to private buyers. Trust Title was awarded two separate contracts, one for Eastern
North Carolina and one for Western North Carolina, although the terms of the contracts are
1
virtually identical. Just over three months after the beginning of performance on the contract, the
government terminated both contracts for default. Trust Title seeks conversion of these
terminations for default to terminations for convenience. Compl. ¶¶ 148, 157.1 Trust Title also
seeks the reversal of estimated excess reprocurement costs assessed against it by the contracting
officer in the total amount of $620,998.16. Compl. ¶¶ 159-60. Those costs are also at issue in
connection with the government’s counterclaim, which seeks recovery of the government’s
actual excess reprocurement costs for closing agent services in Eastern and Western North
Carolina, plus liquidated damages, missing sales proceeds, and other damages for an overall total
of $819,043.16. Def.’s Answer and Counterclaim ¶¶ 185-193, ECF No. 17.2
FACTS3
I. CONTRACTUAL DEVOLUTION
A. Trust Title’s Contracts
In April 2010, HUD’s regional office in Atlanta solicited requests for proposals to
perform closing services for sales of HUD-owned properties in Western North Carolina and
Eastern North Carolina, respectively. See DX 1.4 Trust Title submitted a proposal for each
1
Prior to trial, both parties submitted a series of partial motions for summary judgment.
Trust Title’s motion for partial summary judgment on entitlement, ECF No. 27, was denied, see
Order of May 1, 2013, ECF No. 57, as was its motion for partial summary judgment to eliminate
the defendant’s reprocurement cost assessment, ECF No. 49, see Order of June 3, 2013, ECF No.
66. Trust Title initially sought the costs it would be entitled to recover under a termination for
convenience, see Compl. ¶¶ 6, 13, but later conceded that because it had not submitted a certified
monetary claim to the contracting officer for those costs and damages prior to filing suit, as
required by the Contract Disputes Act, 41 U.S.C. § 7103, this court did not have jurisdiction over
such claims, see Def.’s Partial Mot. to Dismiss at 4-5, ECF No. 89; Pl.’s Opp’n to Def.’s Partial
Mot. to Dismiss and to Bifurcate and Produce an Expert Report at 2-3, 6, ECF No. 97. Because
of that circumstance, the government’s partial motion to dismiss, seeking to dismiss any claims
by Trust Title for specific costs attendant to a termination for convenience, ECF No. 89, was
granted, Order of Oct. 25, 2013, ECF No. 114. Accordingly, those monetary claims are not
presently before the court.
2
The government has not pursued its claim for missing sales proceeds. In fact, all sales
proceeds have been remitted to the government.
3
This recitation of facts constitutes the court’s principal findings of fact in accord with
Rule 52(a) of the Rules of the Court of Federal Claims. Other findings of fact and rulings on
questions of mixed fact and law are set out in the analysis.
4
Citations to defendant’s exhibits are denoted as “DX __,” and plaintiff’s exhibits are
identified as “PX __.” Defendant’s demonstrative exhibits are cited as “DDX __,” and plaintiff’s
demonstrative exhibits are cited as “PDX __.” Citations to the trial transcript are to “Tr. __.”
2
contract, see DX 3 and DX 4, and was awarded both contracts on June 30, 2010, see DX 14.
Trust Title’s contracts with HUD were to become effective the next day, July 1, 2010. See DX
15 (Contract C-ATL-01971 – the “West contract”) and DX 16 (Contract C-ATL-01970 – the
“East contract”); 5 Tr. 883:20-22 (Test. of Melisa Barbee, HUD Contracting Officer). Its
proposals were the lowest-priced, technically acceptable proposals. See DX 11; Tr. 877:1-8
(Barbee).
Delays occurred on both contracts that prevented Trust Title from immediately beginning
performance. For the East contract, HUD issued its first task order on July 1, 2010, ordering
1,800 in-house property closings and 540 third-party closings, consistent with the estimates in
the contract. DX 18 (Task Order 1 for East Contract); DX 16 at 4.6 Nevertheless, Trust Title
could not begin performing closings on the East contract, Tr. 887:5-16 (Barbee), because the task
order only reflected a funding amount of $399,215.00, DX 18 at 2, when, based on the estimated
quantities of closings and other related services, funding in the amount of $553,450.00 was
required, id. at 1. At the time, there was a risk funding would never be fully provided. Tr.
887:14-16 (Barbee). A modification to this task order was signed on July 27, 2010 and became
effective the next day, July 28, 2010. DX 115. This modification committed the additional
money needed to fully fund the contract, and it ostensibly allowed Trust Title to begin
performance on the East contract. Tr. 887:17 to 888:8 (Barbee). Receipt of a Trust Title Name
Address Identification Number was necessary for Trust Title to begin performing closings, and
Trust Title was not assigned that number until August 3, 2010. Tr. 1221:19-23 (Test. of
Christopher William (“Kip”) Gardner, President of Trust Title). Trust Title did not submit a
claim for additional time or money as a result of the delayed funding for the East contract, and
the modification recommitted Trust Title to its obligations as stated in the original contract. Tr.
888:9-12 (Barbee). On the East contract, Harrington Moran Barksdale, Inc. (“HMBI”), the asset
manager responsible for marketing and selling HUD properties, first started assigning contracts
to Trust Title on August 3, 2010. See DX 90; see also Def.’s Post-Trial Br. at 5, ECF No. 153;
Pl.’s Post-Trial Br. at 6-7, ECF No. 156.
On the West contract, two bid protests were filed, and a stop-work order directed Trust
Title to cease any performance of the contract. Tr. 883:23 to 884:11 (Barbee). As a result, HUD
did not issue its first task order on the West contract until August 6, 2010, following the
resolution of the two bid protests. Tr. 884:15 to 885:16 (Barbee); see also DX 20 (Task Order 1
for West Contract). The period of performance on the West contract was thus August 6, 2010
through June 30, 2011. Tr. 885:17-20 (Barbee). Trust Title never submitted a request for more
5
Except where otherwise noted, the proposals and contracts are substantially the same for
both the Western and Eastern regions. Thus, references to DX 3 are also applicable to DX 4 and
vice-versa, and references to DX 15 are also applicable to DX 16 and vice-versa.
6
A third-party closing is defined in the contract as “[a]ny instance where a purchaser/
funding lender uses a closing agent other than HUD’s contracted closing agent.” DX 15 at 11.
“Third[-]party closings are identical to a non-third[-]party closing with the exception that the
[c]ontractor is not required to prepare the HUD-1.” DX 15 at 37.
3
money or time as a result of this delay on the West contract. Tr. 399:12 to 401:1 (Gardner),
885:21 to 886:3 (Barbee).
In performing closing services for the sale of HUD-owned properties in North Carolina.
Trust Title agreed to receive $224 dollars for every in-house closing and $225 dollars for every
third-party closing. DX 15 at 4. These prices were to include all steps necessary to perform a
closing, but notably did not include title insurance. Id. at 3. If a buyer opted to purchase title
insurance from Trust Title, Trust Title was allowed to charge the buyer a title insurance
premium. Id. ¶ C.5.2.A.4(a)(3). For an in-house closing, Trust Title was required to complete a
30-year title search for the property, prepare the deed, prepare the closing statement on Form
HUD-1, conduct a closing, record the deed, and wire the proceeds to HUD by 2:00 p.m. on the
next banking day following the closing. Id. ¶¶ C.5.2, C.5.3, C.5.5. Third-party closings were
identical to in-house closings, except that Trust Title was not responsible for preparing the HUD-
1. Trust Title was required to physically attend all third-party closings. Id. ¶ C.1.1.A. HUD’s
standard sales contract provided that a closing must occur within 45 days, Tr. 40:4-10 (Test. of
Ralph Jackson, Jr., Director of the Real Estate Owned Division of HUD’s regional office in
Atlanta), and Trust Title stated in its proposals that it could complete a closing within 38 days,
Tr. 657:20 to 658:1 (Gardner). Trust Title was also required to be familiar with HUD’s Good
Neighbor Next Door program and to obtain a copy of the pertinent housing notice and any
updates and revisions. DX 15 ¶ C.5.4.A.7 The contract was a requirements contract, although
certain estimates were provided in the contract. Id. ¶ I.3. Each contract contained a maximum
number of orders, 195 within 30 days, above which Trust Title was permitted to refuse any
additional orders via written notice to the contracting officer within three days of receiving the
order. Id. ¶ I.3(b), (d).8 The contract also incorporated by reference a Federal Acquisition
7
HUD’s Good Neighbor Next Door program provides assistance to law enforcement
officers or teachers to purchase homes. Among other things, qualifying persons “must agree to
execute a second mortgage and note in the name of the Department.” DX 15 ¶ C.5.4.A.2.
8
The contract incorporated an order-limitations clause pursuant to 48 C.F.R. § 52.216-19.
In pertinent part, the clause states,
(b) Maximum Order. The contractor is not obligated to honor —
(1) Any order for a single item in excess of 195;
(2) Any order for a combination of items in excess of 2340; or
(3) A series of orders from the same ordering office within 30 days
that together call for quantities exceeding the limitation in
subparagraph (b)(1) or (2) of this section.
(c) If this is a requirements contract . . . , the Government is not required
to order a part of any one requirement from the Contractor if that
requirement exceeds the maximum-order limitations in paragraph (b) of
this section.
(d) Notwithstanding paragraphs (b) and (c) of this section, the Contractor shall honor any
order exceeding the maximum order limitations in paragraph (b), unless that order (or
orders) is returned to the ordering office within 3 business days after issuance, with
written notice stating that Contractor’s intent not to ship the item (or items) called for and
4
Regulation, 48 C.F.R. (“FAR”) § 52.233-3, id. ¶ I.1, which provides for an equitable adjustment
in the delivery schedule or contract price in the event of a stop-work order if “[t]he [c]ontractor
asserts its right to an adjustment within 30 days after the end of the period of work stoppage
. . . .” FAR § 52.233-3(b)(2).
B. Sequela
Beginning in early August, HMBI, HUD’s asset manager, sent Trust Title a large number
of contracts for closing, some of which had been held for a significant period of time while Trust
Title’s contracts were under stop-work orders. Tr. 62:15 to 63:8 (Jackson), 394:18-24
(Gardner).9 Trust Title endeavored to set up offices in Charlotte and Raleigh and to commence
operations. See infra, at [16-17]. HUD otherwise did not act with alacrity to brief Trust Title on
its processes and expectations; the post-award conference with Trust Title was not held until
August 26, 2010. Nonetheless, by late August, the contracting officer, Melisa Barbee, had
concerns about Trust Title’s ability to perform the assigned closings. On August 31, 2010,
Ms. Barbee sent Trust Title’s President, Mr. Gardner, an e-mail requesting an estimate of how
many closings Trust Title would be able to accomplish by September 30th. DX 34. At that time
she was “getting e[-]mails, phone calls from customers, from management[, and] from [the]
G[overnment ]T[echnical ]R[epresentative] about performance issues with Trust Title.” Tr.
894:16-18 (Barbee). Fundamentally, closings were not occurring at HUD’s desired rate. Tr.
894:19 to 895:1 (Barbee). A conference call among Mr. Gardner, Ms. Barbee, and others was
held on or about September 1, 2010, during which Mr. Gardner informed Ms. Barbee that he
would not be able to perform all of the outstanding closings by September 30th. See Tr. 896:4-
15 (Barbee). Ms. Barbee testified that she wanted such a statement in writing, so she e-mailed
Mr. Gardner to confirm the statements he made on the call. Tr. 897:9-16 (Barbee); see also DX
42 (E-mail from Barbee to Gardner (Sept. 8, 2010)). In response to Ms. Barbee’s e-mail,
Mr. Gardner wrote:
Unfortunately we will not be able to meet the 612 closings as originally
planned. The reasons are many and include a new contractor, new
the reasons. Upon receiving this notice, the Government may acquire the supplies or
services from another source.
DX 15 ¶ I.3.
9
The testimony and exhibits at trial do not consistently state how many orders Trust Title
received in the first month of performance. Compare Tr. 1221:11-13 (Gardner) (“[O]rders
received in the first 24 business days or 30 calendar days w[ere] 650 orders.”), with Tr. 1168:18-
24 (Gardner) (stating that Trust Title received 763 cases during the first 30 days of performance).
The confusion appears to stem from uncertainty how to calculate the first “month” of
performance on each contract, because they did not begin the same day, and how to determine
precisely when an order was “received” by Trust Title. See Tr. 670:10-25 (Gardner). It is
readily apparent to the court, and the parties agree, that Trust Title received far more than 195
closings per contract within the initial 30-day period. See Def.’s Post-Trial Br. at 8 (“The
important point, however, is that all of these numbers are considerably above the 390 limit. . . .”).
5
employees, new offices, no transition plan, significant backlog, undefined
processes, conflicting requirements, etc. However, the fact is we have
employees working till midnight and beyond 6 & 7 days a week in an
attempt to get ahead of the wave of orders and frustrated agents. This is
not a matter of just throwing “bodies” at a problem, there are backlog and
workflow issues still being resolved while the orders continue to come in.
An employee is unable to be productive with 350 e[-]mails a day. We
thought we would be able to contain the backlog issue early in the process
but have been unable.
DX 42. Ms. Barbee testified that she was unsatisfied by Trust Title’s response, in part, because
Trust Title’s proposals had emphasized its experience in performing closings. Tr. 897:24 to
898:11 (Barbee).
In Ms. Barbee’s view, Trust Title’s performance did not improve, and she sent a cure
notice on September 16, 2010. Tr. 898:12-18 (Barbee); see also DX 50 (Cure Notice). The cure
notice informed Trust Title of the government’s concerns with its performance, and gave Trust
Title an opportunity to demonstrate improvement. Tr. 898:21-25 (Barbee). The cure notice
stated that as of September 14, 2010, there were 758 outstanding cases waiting to close, despite
HUD’s attempts to help Trust Title speed up the process by providing Trust Title with copies of
the lenders’ title policies and by allowing Trust Title to conduct ten-year title searches instead of
30-year title searches. DX 50 at 1. The cure notice also pointed to specific contractual
obligations that Trust Title was not meeting. Specifically, the government cited to the number of
customer-service complaints it was receiving, the requirement that Trust Title physically attend
third-party closings, the requirement that Trust Title wire the proceeds from a sale to HUD no
later than 2:00 p.m. on the next banking day following closing, and the requirement that Trust
Title send HUD reports reflecting the current status of all assigned closings. Id. at 1-2. HUD
noted that as of the date of the cure notice, Trust Title had only closed 18 cases, and for 15 of
those cases, the proceeds were not timely wired to HUD. Id. at 2. Finally, the cure notice
informed Trust Title that it needed to submit a plan for improvement and that if the deficiencies
were not “cured” within ten days of receipt of the notice, the government might terminate Trust
Title for default. Id. at 1.
Trust Title responded to the cure notice on September 24, 2010. DX 132 (Trust Title’s
Response to Cure Notice). Trust Title asserted that “[s]ervice contracts of this nature are
generally phased in with the new contractor while being phased out with the previous
contractor.” Id. at 1. The contract, however, made no mention of a transition phase. Trust
Title’s position was in part contradictory to its proposal, which had emphasized its ability to
open offices quickly and to begin performance virtually upon award of the contract. DX 3 at 27
(“Our new Western North Carolina office is scheduled to be opened upon receipt of the
Solicitation award. The Firm is experienced in opening and running branch offices . . . . Our
Firm has already purchased furniture and equipment necessary to open the office immediately,
which leaves minimal additional expense.”); id. at 28 (affirming that Trust Title could establish a
remote office quickly and representing that it had previously opened a functioning office within
ten business days); see also Tr. 879:1-18 (Barbee) (explaining that another offeror’s proposal
was technically unacceptable because it required four weeks to staff an office and that Trust
6
Title’s proposal also would have been unacceptable if it specified a transitional period). Trust
Title further explained that it had underestimated the resources it would need to devote to
communicating with attorneys frustrated over delayed closings due to the deferred beginning of
performance. DX 132 at 1. But, Trust Title stated that it was addressing this issue and had
“added additional personnel to reach out to the clients” and to handle the initial surge in assigned
closings. Id. at 2. At trial, Mr. Gardner explained that Trust Title had hired one additional
person in the Orlando office who was to work on the HUD contract remotely and allocated an
existing employee in Orlando to work on the contract remotely. Tr. 459:1-9 (Gardner). Trust
Title also maintained that HUD was contributing to Trust Title’s performance difficulties by
failing to provide a timely post-award conference, failing to provide necessary documents, and
by being unfamiliar with banking laws in North Carolina, which required that funds only be
disbursed after the recordation of deeds. DX 132 at 2. Trust Title also stated that it had been
promised a “modification” by HUD whereby HUD would provide copies of title policies and
foreclosure information with each file. Id. at 3. Mr. Gardner testified that he had intended this
letter to explain improvements Trust Title was making but also to identify unresolved issues
preventing performance. Tr. 454:17-21 (Gardner).
Following the cure notice and response, the contracting officer sent Trust Title a “show
cause letter” on October 7, 2010. DX 55 (Show Cause Letter). The letter stated, “The purpose
of this show cause letter is to advise you that because of your failure to provide Closing Agent
Services as required by [the contracts], the Government is considering terminating the contract[s]
for default pursuant to [FAR §] 52.249-8 of the contract.” Id. at 1.10 According to HUD’s
records, the number of cases then waiting to close had reached 851, and Trust Title had
succeeded in closing (or otherwise reconciling) 128 cases out of 1,027 assigned. Id. (HUD’s
numbers cannot be reconciled). The show-cause letter reiterated the customer-service and
timely-delivery-of-proceeds deficiencies first identified in the cure notice, and it also raised new,
though related, deficiencies. Id. The government asserted that Trust Title was (1) not following
the proper procedure for extension requests, (2) not following the proper procedure for cancelled
contracts, and (3) retaining signed deeds longer than the permissible five days. Id. at 2-3.
Moreover, the government responded to Trust Title’s explanations for the difficulties it faced in
performing closings by noting that the contract did not promise a transition period allowing the
new contractor to be phased into performance. Id. at 3. Indeed, the “solicitation required that
the offerors provide information that addresse[d] its experience, financial resources and general
ability to establish an office quickly.” Id. Additionally, HUD rejected Trust Title’s contention
that the delay of the post-award conference, to August 26, 2010, had negatively impacted Trust
Title’s ability to complete closings. Id. at 4. It also dismissed Trust Title’s claim that HUD was
not familiar with the “required forms, banking and [Real Estate Settlement Procedures Act
10
In pertinent part, FAR § 52.249-8 provides that for fixed-price supply and service
contracts, the government may terminate the contract in whole or in part if the contractor fails to
“(i) [d]eliver the supplies or to perform the services within the time specified in this contract or
any extension; (ii) [m]ake progress, so as to endanger performance of this contract . . . ; or
(iii) [p]erform any of the other provisions of this contract . . . .”
7
(“RESPA”)11] regulations and conflicting requirement[s] in the contract,” by stating that “[Trust
Title has] not provided any relevant documentation to support [its] claim.” Id. As part of the
show-cause letter, HUD enclosed a series of spreadsheets listing the closings assigned to Trust
Title, the closings performed by Trust Title and when proceeds were wired to HUD, and the
deeds Trust Title improperly retained when closings did not occur or were postponed. Id.,
Enclosures 2, 3, 6.
Trust Title’s response to the show-cause letter largely blamed HUD for Trust Title’s
inability to perform closings. DX 61 at 1 (Trust Title’s Response to Show Cause Letter) (“This
letter will provide you with facts and circumstances that show that any inability to perform to the
contract requirements w[as] due to circumstances beyond our control and without our fault or
negligence. This letter will further show . . . that [HUD] knew or should have known of the
numerous conflicts within this contract at the time of solicitation.”).” 12 Trust Title asserted that
(1) HUD was responsible for the backlog of cases, (2) HUD failed to provide required training,
(3) HUD misunderstood North Carolina law regarding table funding,13 (4) HMBI was
uncooperative, (5) Trust Title had opened local offices in full compliance with the contract,
(6) Trust Title could not ensure compliance with contract requirements by third-party attorneys
in third-party closings, and (7) HUD misunderstood RESPA requirements. Id. Trust Title
concluded its response by stating that “[i]f HUD believes its image may be better represented
through a law firm, Trust Title will cooperate with HUD to achieve this through mutually
acceptable means.” Id. at 14-15.
A meeting between HUD and Mr. Gardner occurred on October 27, 2010 at
Mr. Gardner’s request. Tr. 913:3-21 (Barbee). Ms. Barbee prepared a contemporaneous record
of this meeting. See DX 70 (Minutes of Meeting with Gardner (Oct. 27, 2010)). Her notes
reflect that Mr. Gardner believed that certain requirements in the performance work statement
11
RESPA is codified at 12 U.S.C. § 2601-2617. Among other things, it requires use of a
HUD-1 settlement statement that itemizes fees charged by the lender or broker to a person
applying for a loan to purchase real estate. See 12 U.S.C. § 2603 (entitled “[u]niform settlement
statement”).
12
Trust Title did not dispute HUD’s calculation of the number of cases assigned to Trust
Title or the closings performed (1,027 assigned, 128 closed or otherwise reconciled) but argued
that the numbers did not present the whole picture. DX 61 at 2 (“It is our position that this
statement, while it may be mathematically correct, obfuscates the fact that this is a new contract
. . . .).” Trust Title did, however, contend that HUD’s records regarding extension requests and
the mishandling of deeds and expired contracts were largely incorrect. See id. at 7.
13
The contracts required that all closings be table funded, unless prohibited by state law.
DX 15 ¶ C.5.3.2 (“All closings shall be table funded unless prohibited by state law, in which
case alternative procedures shall be established in the Closing Agent’s technical proposal.”).
Table funding means that funds are disbursed at the table when a deed is provided to the buyer at
the time of closing. See Tr. 55:20 to 56:2 (Jackson); DX 15 ¶ C.2 (definition). In North
Carolina, funds cannot be disbursed until a deed is physically recorded. Tr. 499:16-18
(Gardner); see also Tr. 583:4-14 (Fussell). Therefore, North Carolina law bars table funding as
such.
8
were defective, and HUD knew or should have known that these tasks could not be performed.
Id. at 3. Moreover, she noted that “Mr. Gardner stated that if the [g]overnment wishes to work
with him, he wants HUD to pay for [the] cost on the surge of his business, the additional
resources or personnel he had to hire when he was awarded the contract. He stated that if we
terminated the contract for default he will seek damages because he believes HUD is at fault and
knew the contract [wa]s defective.” Id. Ms. Barbee requested that Trust Title submit all
outstanding sales proceeds to the Treasury by October 29, 2010, but “October 29th came and
went and we did not get the proceeds. And that’s when I decided to terminate the contract.” Tr.
917:7-13 (Barbee).
C. Termination
On November 9, 2010, HUD terminated its contracts with Trust Title for default,
pursuant to FAR § 52.249-8, because “Trust Title failed to provide wire transfer of funds for
closings and to provide a course of action to alleviate the backlog on closings assigned to Trust
Title, per tasks in the Performance Work Statement.” DX 76 (Termination Notice) at 1. The
notice also stated that “[a]s of the date of this termination letter, the majority of the proceeds still
have not been wired.” Id.14 The notice advised Trust Title that HUD was seeking liquidated
damages for the late wire transfers. Id. at 2.
D. Reprocurement
After Trust Title’s contracts were terminated for default, HUD began the process of
reprocuring closing services. Immediately following the termination, HUD used a “buyer select”
model, whereby buyers selected their own closing agents, and HUD contributed up to $400 in
closing-agent fees. Tr. 129:6-15 (Jackson). The buyer-select program continued for
approximately 90 days. Tr. 130:10-12 (Jackson). The contracting officer, Ms. Barbee, issued a
reprocurement solicitation on December 28, 2010. Tr. 930:4-9 (Barbee); see also DX 137
(Reprocurement Solicitation and Amendments). Given the urgent need to close contracts,
Ms. Barbee used her discretion as to the manner of reprocurement pursuant to 41 U.S.C.
§ 3304(a)(2) (formally codified as 41 U.S.C. § 253(c)(2)). Tr. 927:23 to 928:11 (Barbee); DX
137. The reprocurement solicitation was sent to eight potential offerors identified by HUD’s
program office. Tr. 928:12 to 929:18 (Barbee). When issued, each contract was to last six
months, with a six-month option period. Tr. 933:9-23 (Barbee). Ms. Barbee later intended to go
back and resolicit the services using full and open competition. Tr. 939:10-20 (Barbee). Six
contracts were awarded: two to Dale Fussell for both Eastern and Western North Carolina, DX
101 (Fussell East Reprocurement Contract), DX 102 (Fussell West Reprocurement Contract),
two to J.E. Thornton for both Eastern and Western North Carolina, DX 97 (Thornton East
Reprocurement Contract), DX 99 (Thornton West Reprocurement Contract), one to Peter
Chastain for Western North Carolina, DX 98 (Chastain Reprocurement Contract), and one to
Donato & Grewal for Eastern North Carolina, DX 100 (Donato & Grewal Reprocurement
14
Trust Title provided HUD with all proceeds due. See Tr. 173:24 to 174:4 (Jackson)
(testifying that there was one closing where HUD had not received the proceeds, but that the
situation has since been resolved).
9
Contract).15 All of the contracts became effective on January 31, 2011, except Peter Chastain’s,
which became effective on February 18, 2011. See DXs 97-102.
The government notes that the requirements specified in the performance work statement
for each of these six contracts were almost identical to those set out in Trust Title’s contract. Tr.
932:11-19 (Barbee). That representation is correct but misleading because the reprocurement
contracts had a different basis for allotting the services to be performed. The reprocurement
contracts were indefinite delivery, indefinite quantity (“IDIQ”) contracts as contrasted to
requirements contracts, the work was split among four contractors, and some transition was
provided. See Tr. 927:7-11 (Barbee); see, e.g., DX 97 ¶ B.1. HUD changed the type of contract
so that the closings “[would] be distributed evenly among a group of contractors.” Tr. 927:13-15
(Barbee). The replacement contractors charged between $350 and $575 per closing. Def.’s
Post-Trial Br. at 52.16 The estimated quantities varied slightly among the contracts. The
contracts for J.E. Thornton, Peter Chastain and Donato & Grewal permitted them to reject any
orders in excess of 175 within a 30-day period for a single contract. DX 97 ¶ I.3, DX 99 ¶ I.3,
DX 98 ¶ I.3, DX 100 ¶ I.3. Mr. Fussell’s contract for Eastern North Carolina allowed him to
refuse any orders in excess of 195 in a 30-day period, DX 101 ¶ I.3, and he was allowed to refuse
any orders in excess of 175 in a 30-day period for his contract in Western North Carolina, DX
102 ¶ I.3. Each contract obligated the government to purchase at least 175 closings from each
offeror within the contractual term of six months. See, e.g., DX 97 ¶¶ B.1, B.3.
On May 16, 2011, the HUD contracting officer wrote to Trust Title demanding
$560,176.00 for estimated excess reprocurement costs, based on the difference between Trust
Title’s prices and those of the replacement contractors. DX 23 (HUD’s Demand Letter). She
also demanded the payment of liquidated damages for the late wire transfers. Id. at 2. The
government’s counterclaim against Trust Title seeks $758,221.00 for actual excess reprocure-
ment costs and $14,007.65 in liquidated damages for late wire transfers. Def.’s Post-Trial Br. at
54.
15
Initially Ms. Barbee awarded a seventh contract to the O’Brien Law Firm (“O’Brien”),
Trust Title’s predecessor, for Western North Carolina, but O’Brien rejected the contract because
the estimated quantities, as shared among three other awardees for Western North Carolina, did
not make the contract worthwhile for it. Tr. 931:1-8 (Barbee).
16
J.E. Thornton was to receive $500.00 for every in-house closing and third-party closing
in Eastern North Carolina, DX 97 at 4, and $400.00 for every in-house closing and third-party
closing in Western North Carolina, DX 99 at 4. Peter Chastain contracted to receive $400.00 for
every in-house closing and $375.00 for every third-party closing in Western North Carolina. DX
98 at 4. Donato & Grewal was to receive $575.00 for every in-house closing and $450.00 for
every third-party closing in Eastern North Carolina. DX 100 at 4. Dale Fussell agreed to receive
$375.00 for every in-house and third-party closing in Eastern North Carolina, DX 101 at 4, and
$350.00 for every in-house and third-party closing in Western North Carolina, DX 102 at 4.
10
II. TRUST TITLE’S PERFORMANCE
At issue in this case is whether any of Trust Title’s performance deficiencies were
excusable, i.e., whether they were due to causes beyond its control or attributable to HUD’s
actions.
A. Timeliness of Closings
The government asserts that Trust Title was improperly staffed and was not fully ready to
begin performance upon receipt of the contractual award. As a result, the government contends
that Trust Title failed to perform closings in a timely fashion. Trust Title responds that HUD’s
actions and inactions prevented Trust Title from being in a position to perform. At trial, the
government listed the cases assigned to Trust Title for closing, when those cases closed, and
when wires of proceeds were sent to HUD. See DX 90; see also DX 227, DX 228, DX 229, and
DX 230 (separating cases by contract and type of closing, i.e., in-house or third party).17 The
exact number of cases ultimately assigned to Trust Title and closed by Trust Title was disputed.
HUD’s listing reflects that 1084 cases were assigned to Trust Title, DX 90, but Mr. Gardner
testified that Trust Title was assigned 1031, see PDX 441. The parties similarly differed slightly
over exactly how many cases Trust Title closed. Mr. Gardner testified that Trust Title closed
497 cases, see PDX 441, while the government asserts that Trust Title closed 496, Def.’s Post-
Trial Reply Br. at 3, ECF No. 159. The court need not determine with specificity the exact
number of cases assigned to or closed by Trust Title. The record shows that Trust Title was
unable to keep up with assigned closings. Notably, Trust Title does not assert that it timely
performed assigned closings.
1. Staffing.
The contract required Trust Title to open and staff a local office within the geographic
area covered by each contract. In its proposals, Trust Title represented that it would open offices
in Charlotte and Raleigh. DX 3 at 10; DX 4 at 10. The proposals represented that each local
office would have seven full-time employees almost exclusively dedicated to work on the HUD
contracts. DX 3 at 10; DX 4 at 10. Trust Title did open offices in both Raleigh and Charlotte,
although those offices took some time to set up. For “several weeks” until an office was
organized in Charlotte, Ms. Cindy Radabaugh, a Trust Title employee in that office, testified that
she was working out of the kitchen of Trust Title’s Vice Chairman. Tr. 280:22 to 281:3
(Radabaugh). Once operational, neither of Trust Title’s offices achieved the level of staffing
projected in its proposals, even though the proposals listed the qualifications of specific
17
The information was compiled from HUD’s SAMS database. SAMS, which stands for
single-family assets management systems, was HUD’s system for recording asset transactions.
SAMS kept records on cases from acquisition to reconciliation (sale). Tr. 91:13 to 92:7
(Jackson). Trust Title argued at trial that the “date closed” date on the spreadsheet could be
inaccurate because it merely reflected the date the HUD-1 was signed and did not reflect when
all of the tasks required to complete a sale were completed, such as recordation of the deed. Tr.
102:9 to 103:25 (Jackson); see also PDX 441 (summarizing Mr. Gardner’s testimony about
differences between HUD’s analysis of assigned cases and Trust Title’s).
11
employees who would be working on the contract as well as their resumes. DX 3 at 12-24 &
App. (Resumes); DX 4 at 12-24 & App. (Resumes).18 Several specifically named key personnel
never were hired by Trust Title.
The East contract noted that a specific attorney would serve as “Contract Manager-
Attorney” in the local Raleigh office and would devote 90% of his time to the HUD contract.
DX 16 ¶ 13. Trust Title expected that the named attorney would provide the necessary legal
supervision of the office. Tr. 419:1-6 (Gardner). Mr. Gardner acknowledged that the attorney
was never hired, and that the Contracting Officer was never informed of this. Tr. 376:21 to
378:24 (Gardner). Mr. Gardner also testified that Trust Title never hired five other people
identified in its East proposal, including an alternate contract manager, two closing agents, a pre-
closing processor, and a post-closing processor, all of whom were specifically named and were
expected to devote 90% of their time to the HUD contract. Tr. 378:25 to 379:21 (Gardner).
Trust Title never informed HUD that it had not hired those people. Id.19
On the West contract, Trust Title never hired the identified contract manager or three
other employees who were to perform closing services in the local Charlotte office, all of whom
were to dedicate at least 90% of their time to the HUD contract. Tr. 381:20 to 382:11 (Gardner);
see DX 15 ¶ I.13. According to Mr. Gardner, four employees were ultimately hired to work full-
time in the Charlotte office: Cindy Radabaugh, Dorothy Swint, Mark Vesich, and Chaz Seale.
Tr. 389:21 to 391:2 (Gardner); see also Tr. 282:12-16 (Radabaugh) (testifying that Mr. Vesich
was only there briefly).20 Mr. Dale Fussell, a North Carolina attorney who represented buyers of
HUD properties in approximately 10-20 closings while Trust Title was conducting closings for
HUD, Tr. 525:10-16 (Fussell), testified that at first everything seemed to go smoothly with Trust
Title, but “it seemed to kind of go bad quickly,” Tr. 526:3-14 (Fussell). Mr. Fussell was able to
get about five to ten of his closings done relatively smoothly, Tr. 529:15-19 (Fussell), but by
18
The proposals noted that some of the named “employees” had gone through multiple
interviews, but had yet to undergo standard background checks. This suggests that they were
technically not yet “employees” of Trust Title. See DX 3 at 11.
19
The contract required that “[p]rior to diverting any of the specified individuals to other
projects, the contractor shall notify the [c]ontracting [o]fficer reasonably in advance and shall
submit justification (including proposal substitutions) in sufficient detail to permit evaluation of
the impact on the program. No diversion shall be made by the contractor without the written
consent of the [c]ontracting [o]fficer.” DX 15 ¶ I.13(b).
20
On September 10, 2010, Mr. Seale, Trust Title’s Vice Chairman, sent an e-mail to
Mr. Gardner asking “How do we handle closings, especially any full closings, when our staff
walks out? I can’t do them. Can we get anyone in Charlotte immediately to help people in
need?” PX 352 (emphasis in original). In another e-mail Yvonne Moskey, Trust Title’s Vice-
President of National Operations, sent a message to Mr. Gardner on September 22, 2010, asking
him about hiring additional staff and whether they should be paid by the hour or by file. DX
199. Mr. Gardner testified that he was not aware of any staff leaving as early as September 2010
and that Mr. Seale was perhaps referring to a future time when staff might walk out. He
specifically may have been referring to Mr. Vesich. Tr. 407:1-7 (Gardner).
12
“September-October it . . . seemed to just die and became extremely difficult to get anything
accomplished.” Tr. 528:15-16 (Fussell). In his view, “it seemed like they just didn’t have
enough people working. As far as I could tell in Charlotte they had Cindy Radabaugh, who I
dealt with quite a bit, and they brought Chaz Seale in I think the second month, and he was there
only briefly. And then the beginning of October he left; said he was going to Florida and
wouldn’t be back, and I never saw or heard from him again. . . . I never had dealings with
anybody except Cindy [in the Charlotte office].” Tr. 526:17 to 527:3 (Fussell).21
Ms. Radabaugh also attributed Trust Title’s performance deficiencies to a lack of
personnel. Tr. 283:4-10 (Radabaugh) (“[T]here wasn’t the ability to do some of the things that I
knew were required [in the contract] because of the manpower issue.”). Ms. Radabaugh testified
that closings were not occurring due to delays in getting the title search information. Tr. 298:11-
13.22 She testified that Trust Title had three abstractors,23 Shaunta Staples in Charlotte, Yolanda
21
Mr. Fussell dealt with about seven or eight different people with Trust Title during this
time, but except for Mr. Seale and Ms. Radabaugh, the others appeared to him to be located in
Florida or Virginia. Tr. 530:9-16 (Fussell).
22
Trust Title asserts that some of its difficulties in performance, including difficulties in
conducting timely title searches, were attributable to its lack of access to a computer-based
system identified as “P260” in the contract. The contract defines P260 as “[a]n internet based
system that will serve as the primary system of record for all REO case management
transactions. This system will assign each HUD-owned property for [v]endors to track the
disposition activity from conveyance to sale.” DX 15 at 11. P260 was never made available to
Trust Title during the course of its performance. Tr. 659:23 (Gardner). According to Trust Title,
the government’s failure to supply P260 made it impossible for Trust Title to perform at the
speed and price specified in the contract. Pl.’s Post-Trial Br. at 32-33. Access to P260 “would
have prevented errors and resolved many title issues, expedited the process of communication
with all parties, and resolved the issues in a more efficient manner,” and “in its proposal, [Trust
Title] relied on its ability to access and receive training on P260.” Compl. ¶¶ 41-42. According
to Mr. Gardner, all foreclosures have prior title policy information available, and he expected it
to be readily available on P260 for each of the properties assigned to Trust Title for closing.
Mr. Fussell, a contractor currently performing closing services for HUD in North
Carolina, uses P260 and testified that the system contains documents such as the sale contract,
the prior title package done by the foreclosing attorney, the foreclosed deed of trust, and any
HUD appraisals. Tr. 601:21-25 (Fussell). In Mr. Fussell’s view, P260 was not a tool they used
very often, but it was helpful to be able to pull a title package from a foreclosing attorney and get
a prior title policy if his team could not find it. Tr. 602:14-18 (Fussell). While the prior title
information was useful, the contract required the closing agent to perform a 30-year title search
regardless of whether a prior title policy had been located. Tr. 603:3-14 (Fussell). In a non-
HUD closing, a prior title policy is more valuable because the buyer can often get a new title
policy from the previous insurer at a preferred rate and without completing a full title search. Tr.
532:14 to 533:15 (Fussell).
The government contends that the contract never made any affirmative representations
regarding the usefulness of P260 to the contractor or regarding the types of documents that
would be available on P260. Def.’s Mem. of Contentions of Fact and Law at 35, ECF No. 109.
13
Powell in Raleigh, and a third woman in Raleigh whose name she could not remember at trial.
Tr. 298:24 to 299:3 (Radabaugh). In addition, she recalled an examiner, Dawn Chitwood, who
was responsible for compiling all of the search information into a format usable at a closing. Tr.
299:5-13 (Radabaugh). Due to difficulty in getting title-search information, Trust Title began
suggesting that potential buyers hire their own counsel who could perform a title search. Tr.
301:10 to 302:2, 307:15-19 (Radabaugh) (“We did ask buyers’ attorneys for their title searches,
yes.”).24 Ms. Radabaugh testified that some lawyers would initially refuse to share their title
search information, but would later send it to Trust Title to facilitate a closing. Tr. 315:14-25
(Radabaugh). Mr. Fussell corroborated Ms. Radabaugh’s testimony, stating that Trust Title
shared with him that they were having trouble getting title work done, and to facilitate his
client’s closings, Mr. Fussell shared his title work with Trust Title. Tr. 527:4-12 (Fussell).25
Mr. Gardner asserted that Trust Title was unable to hire the employees identified in its
contracts because of the delays in the beginning of contract performance. Tr. 390:17 to 391:2,
650:21 to 651:4 (Gardner). To compensate for understaffed offices in Raleigh and Charlotte, as
well as the surge of cases at the beginning of performance, Trust Title reassigned certain
employees to the HUD contract who were physically located in offices in Florida and Virginia.
See Tr. 458:17 to 459:6 (Gardner).
Access to legal services became particularly problematic for Trust Title during the course
of its performance. In addition to representing that its contract manager for the West contract
was going to be an attorney, Trust Title had advised in its proposals that it was going to hire
another North Carolina attorney as a consultant on both contracts. DX 16 ¶ I.13; DX 15 ¶ I.13.
Mr. Gardner testified that Trust Title had a verbal agreement with that attorney, but ultimately
never retained the attorney. Tr. 380:19 to 381:4 (Gardner). Mr. Gardner further stated that when
Trust Title represented in its proposals that it had contracted with a Charlotte law firm with
In fact, the contract only specified that the contractor was to upload completed closing packages
into P260. See DX 15 ¶ C.5.5.4.
The unavailability of P260 does not excuse Trust Title’s obligations under the contract.
Trust Title did not state its reliance or expectations regarding P260 in its proposal and the
solicitation did not make any representations regarding efficiencies that could be achieved
through the use of P260. Moreover, Trust Title had never used P260 prior to receiving the
contract. Tr. 261:16-21 (Gardner). Nonetheless, Trust Title’s performance was at least
hampered by its inability to gain access to and use P260.
23
An abstractor performs the actual title search, and an abstract of title is a summary of
those search results. Those search results are then translated to a formal title opinion, which
must be performed by a lawyer in North Carolina. See 537:24 to 538:11 (Fussell).
24
This was true even though Trust Title was contractually obligated to perform a 30-year
title search, later a 10-year title search with HUD’s permission, see Tr. 900:5-12 (Barbee), even
for third-party closings, see Tr. 302:19 to 303:2 (Radabaugh); Tr. 1023:23 to 1024:1 (Seale).
25
Aside from his dealings with Trust Title, Mr. Fussell has never shared his title work
with a title company or attorney representing a seller. Tr. 534:23 to 535:3 (Fussell).
14
“extensive relationships with all the major lenders” in western North Carolina, DX 3 at 33, the
reference was probably to that attorney’s law firm. Tr. 381:5-9 (Gardner); see also DX 4 at 33
(“We also have contracted with a Raleigh law firm with extensive relationships with all major
lenders in Eastern North Carolina.”). The “verbal agreement” that Trust Title had with the
attorney apparently did not contemplate the payment of money for her legal services; rather, the
attorney would perform services in exchange for the opportunity to have access to potential
clients. See Tr. 384:4-16 (Gardner). On July 1, 2010, the day the contracts were originally to go
into effect, Mr. Seale responded to an e-mail from that attorney, thanking that attorney for their
communications and explaining that “[w]e [Trust Title] were awarded the bid this week and are
reviewing the extremely tight financial expenditures that are allowed, along with a new
evaluation of all procedures.” DX 233. Mr. Gardner recalled meeting with the attorney during
the stop-work-order period after receiving the contract, but at that point in time already knew
they were not going to hire the attorney. Tr. 427:2-22 (Gardner). He testified that Mr. Seale had
told him the attorney’s business had picked up and would not have as much time to devote to the
contract. Tr. 427:6-10 (Gardner).
When Trust Title failed to retain either of the attorneys it named in Raleigh, it began
looking for other lawyers willing to provide services at a price it could afford. See Tr. 430:9-14
(Gardner). On July 10, 2010, one of the attorneys it was considering had informed Trust Title, in
an e-mail to Mr. Seale, that “[t]he attorney giving an opinion on title cannot be an owner or
employee of the title insurer issuing the title insurance. . . . An easy solution is employing, say
on a contract basis, an outside attorney to review title and sign off on title opinions.” DX 121.
Accordingly, it appears that Trust Title could not have directly employed a lawyer who could
provide opinions on title because Trust Title wanted also to be able to sell title insurance to
buyers. See Tr. 357:16 to 358:1 (Gardner) (testifying that Trust Title expected to sell title
insurance to at least some buyers); see also Tr. 419:24 to 420:11 (Gardner). Mr. Gardner
testified that he was aware of this limitation before contracting and that it was not the reason
Trust Title failed to hire the attorney it had considered to head the Raleigh office. Tr. 419:24 to
421:11 (Gardner). The principally considered lawyer, Mr. Gardner testified, wanted to maintain
his law practice and provide contract management to Trust Title, and this was something Trust
Title learned after contracting with HUD. Tr. 421:20 to 422:4 (Gardner). Trust Title
interviewed one other lawyer to serve as a contract manager, but chose not to hire him. Tr.
422:5-21 (Gardner).
On July 19, 2010, Peter Chastain, the Managing Attorney for Peter Chastain &
Associates, P.A., a North Carolina law firm, e-mailed Mr. Gardner to suggest that his firm might
perform closing services for Trust Title on the HUD contract. Mr. Chastain explained,
We would very much like to assist your firm in servicing your newly
awarded contract in NC or in aiding you in getting started. Your firm will
need to service this contract through a law firm established by you or with
assistance from a firm licensed to practice law in NC. This is an attorney
state, not a title state. When HUD mistakenly awarded this contract to
“Lakeside Title” in Cleveland, OH in 2005, they soon found their error
15
and required Lakeside to start a law firm which turned into “The O’Brien
Law Firm.” It would seem your firm is now in this same conundrum.
DX 122. Mr. Chastain further explained that his firm had subcontracted with Trust Title’s
predecessor, O’Brien, to help them perform closings. Id. Trust Title discussed a potential
subcontracting arrangement with Mr. Chastain, but ultimately did not pursue it, in part because
Mr. Chastain wanted $175 per closing for his services. Tr. 425:15-25 (Gardner). Trust Title
engaged in discussions with still another North Carolina firm but was unable to reach a
financially feasible agreement with them.26
Overall, it appears that Trust Title was attempting to implement a business model
whereby attorneys would perform free or low-cost legal services for Trust Title in the hopes of
gaining other business. See DX 193 (E-mail from Seale to Gardner (Aug. 1, 2010)); see also Tr.
437:22 to 444:4 (Gardner). Mr. Seale explained to Mr. Gardner that any significant law firm
would be unlikely to be interested in
los[ing] money in hopes of some business. (I’m also still concerned
that without the monetary benefit that our ‘preferred’ firms won’t get
the business.) . . . There’s a lot to work out with [name omitted], or any
primary firm, and with any other firms that we want as ‘preferred[.’]
26
One of the principals of that firm wrote in an e-mail to Mr. Gardner on August 4, 2010,
I feel as if we are still beating the same dead horse:
We either supervise [Trust Title] in the representation of HUD in all 100
counties in the same fashion we represent our current REO clients, which
means that we pull title, prepare deeds, and answer questions of third[-]
party attorneys, for a reasonable fee (which will deplete your entire seller
side), [or] anything less falls short of proper supervision as required by
State Law.
As for the buyer[’]s side we are happy to draft deeds and share title in our
closings where we are supervising the moving parts, and we will do our
best to patronize your title company, with HUD and non-[HUD] closings.
As we all know it[’]s up to the borrower, and what is in the borrower[’]s
best interest.
Unfortunately, I understand your position, and I am sure these terms are
not financially sound for your company. I appreciate the time to try and
work this out, however after four hard days of talking and negotiating . . .
we are still too far apart on what we need to make this work. . . .
DX 26.
16
And with business potentially beginning Monday our ‘preferred’ lawyer
strategy will be difficult to have in place.
DX 193. Mr. Gardner emphasized at trial that the “preferred lawyer strategy” was merely a
strategy that was discussed and not a “policy.” Tr. 435:25 to 436:1 (Gardner). That said,
Wayne Roper, a lawyer eventually hired by Trust Title, did not charge a fee for supervising title
searches or providing attorney opinions of title in exchange for being referred by Trust Title to
buyers interested in buyer’s-side counsel. Tr. 437:22 to 438:18, 439:4-7 (Gardner) (explaining
that the goal of the preferred lawyer strategy was “[t]hat the real estate agent would be favorably
impressed with the efficiency and want to do business with Wayne Roper, not just on HUD
properties, but other properties.”); see also DX 194 at 6 (E-mail from Moskey to Gardner (Aug.
5, 2010)); Tr. 502:14 to 503:7 (Gardner). Trust Title and Mr. Roper ultimately hoped that their
closing process would be so smooth that realtors would start directing business to the lawyers
referred by Trust Title. Tr. 442:8 to 443:6 (Gardner). Mr. Gardner acknowledged that Trust
Title’s business model was predicated on lawyers agreeing to this type of arrangement. Tr.
444:2-6 (Gardner). Mr. Roper eventually sought to discontinue his relationship with Trust Title
around September 22, 2010, but he continued doing some work as a courtesy to Mr. Gardner.
Tr. 449:15-21 (Gardner). But see DX 198 (E-mail from Susan Stoakes to Seale (Sept. 22, 2010)
(“Wayne is no longer approving deeds.”)). Trust Title entered into an arrangement with another
attorney, John Hazlehurst, on or about September 29, 2010, whereby Trust Title would pay him
$150 to provide attorney opinions of title and $250 for Good Neighbor Next Door closings, but
nothing for deed preparation. DX 128 (E-mail from Gardner to Hazlehurst (Sept. 29, 2010)); see
also Tr. 450:20 to 451:3, 451:24 to 452:16 (Gardner). At the end of September or the beginning
of October, Trust Title also asked Mr. Fussell to do title searches, provide attorney opinions of
title, and perform deed preparation or review, for which they paid him $125 per closing, which
was far below the normal $350 he would charge for such services. Tr. 535:21 to 536:9 (Fussell).
Trust Title eventually stopped paying Mr. Fussell for his work near the middle or end of October,
at which time he was still owed about $3,000. Tr. 539:11-20 (Fussell).27 Paying these rates for
legal services essentially eliminated Trust Title’s ability to perform closings for $224 and $225.
By the end of October 2010, only one person was left in Trust Title’s Charlotte office,
and Trust Title was having difficulty paying its staff. See DX 82 (Spreadsheet Summarizing
Unpaid Payroll for Q3 and Q4 2010). Mr. Seale had packed up his desk and left the office on
October 27, 2010, the same day that Trust Title had its meeting with HUD after receiving the
show-cause letter. Tr. 396:2-22 (Gardner); see also DX 211 (E-mail from Chitwood to Moskey
and Gardner (Oct. 27, 2010)). Mr. Gardner testified that HUD had made it “very clear” at the
meeting on October 27, 2010 that the contract was going to be terminated. Tr. 397:7-9
(Gardner). After October 27, 2010, only one employee in the Raleigh office could perform
closings, and she was working primarily from home. Tr. 398:11-23 (Gardner). Ms. Radabaugh
testified that she, Ms. Swint, and Ms. Staples had not been paid for the month of October, and
27
In early or mid-October Trust Title asked Mr. Fussell if he wanted to take over its
contract with HUD, but Mr. Fussell declined because the price HUD was paying Trust Title for
each closing was too low to make it worthwhile for him and he was concerned about the state of
the contract by that point. Tr. 548:16 to 549:9 (Fussell) (“It just looked like a sinking ship, and I
wasn’t going to jump on.”).
17
when she confronted Mr. Gardner about that fact at the end of October and did not receive a
satisfactory response, she quit. Tr. 337:3 to 338:5 (Radabaugh).28 Ms. Swint quit at the same
time, leaving Ms. Staples alone in the Charlotte office, even though she was unable to perform
closings. Tr. 338:6-19 (Radabaugh). Ms. Radabaugh believed that at that time Jonathan Dees
had already left the Raleigh office, leaving Ms. Powell as the only remaining employee in
Raleigh. Tr. 338:20-25 (Radabaugh). By November 15, 2010, Trust Title owed $51,239.91 in
unpaid wages to its employees, with about $45,000 of that amount accruing in October and
November 2010. DX 82. At the time of trial, Trust Title still owed some unpaid wages to its
former employees. Tr. 411:9-12 (Gardner).29
2. Volume of work.
According to Trust Title, it received an unreasonably large number of cases within the
first month of contract performance. The high volume was due to the month-long delay in
performance, during which time buyers continued to sign contracts that could not be ratified by
HMBI or closed because no firm could perform closing work for HUD. This hiatus in closings
occurred at the busiest period of the year for real estate sales and at a time when the housing
market had begun to recover somewhat and HUD had a large number of foreclosed properties on
its books that it was endeavoring to sell. The government recognized that contracts piled up in
July while Trust Title could not perform any closings. Tr. 62:15-19 (Jackson); see also Tr.
395:17-22 (Gardner).
Trust Title asserts that it had a start-up plan that contemplated having 30 days from
receipt of initial cases to produce settlements, but “HUD destroyed Trust Title’s start[-]up plan
by dumping, in the first 30 days, over 540 cases on Trust Title. . . . From the first day of contract
performance, Trust Title was confronted with completely unanticipated work – attempting to
mollify highly agitated buyers, real estate brokers and attorneys who did not understand the basis
of Trust Title’s contract with HUD – and that HUD had accumulated a huge backlog of stale
cases.” Pl.’s Mem. of Contentions of Law and Fact ¶¶ 6, 8, ECF No. 100.
The contracts were requirements contracts pursuant to FAR § 52.216-21. Accordingly,
the contracts did not specify a number or schedule of closings throughout the duration of the
contract. DX 15 ¶ I.4. Rather, Trust Title would receive an “order” for closing services when
Trust Title received a new case ID number in HUD’s SAMS or P260 system. Id. ¶ I.6. The
contracts estimated that Trust Title would receive 1800 in-house closings and 540 third-party
closings per contract per year, for a total of 2340 closings per contract per year. Id. at 4. Thus,
Trust Title was estimated to receive 195 closings per contract per month. Trust Title was to be
paid upon completion of a closing. As previously noted, the contracts permitted Trust Title to
reject any orders for closing services beyond the 195 monthly estimate. Id. ¶ I.3 (incorporating
28
Ms. Radabaugh eventually received her unpaid wages. Tr. 339:20-22 (Radabaugh).
29
In addition to having difficulty paying its staff, Trust Title appeared to also have
problems paying abstractors it hired to run title searches. Tr. 635:21 to 638:1 (Gardner). By the
end of October, both East Coast Abstracting and Fidelity would no longer accept orders from
Trust Title. Id.
18
FAR § 52.216-19). To reject any orders in excess of 195 within a 30-day period, the contract
required Trust Title to reject the excessive orders within three days of receiving them with
written notice to the contracting officer that it did not intend to fulfill the orders. Id. ¶ I.3(d).
Upon receiving such notice, the government was free to acquire services from someone else. Id.
Trust Title was aware of its ability to reject orders in excess of 195, but it never exercised it. Tr.
387:21 to 388:24 (Gardner); Tr. 890:19 to 891:19 (Barbee).30
The cases Trust Title received during the first month of contract performance were about
evenly split between the West and East contracts. Tr. 897:20-23 (Barbee).31 Mr. Gardner
testified that Trust Title received contracts from HMBI that had been signed by buyers, though
not ratified by HMBI, as far back as May 2010, though only a few were signed in May 2010.
See PDX 448 (reflecting Mr. Gardner’s testimony that Trust Title received 55 contracts that had
been signed by buyers prior to July 1, 2010). It appears that once Trust Title was able to begin
performance, HMBI quickly ratified the contracts that had been signed by buyers in July and
passed large numbers of contracts on to Trust Title for closing. See Tr. 63:2-8 (Jackson). Trust
Title was still entitled to the full 45 days to close the sales, Tr. 63:9-12 (Jackson), but for reasons
that are self-evident, buyers were anxious to close, see Tr. 471:13-21 (Gardner).
Trust Title never rejected any orders even though it was not obligated to accept any
orders in excess of 195 in a 30-day period on a single contract. Tr. 388:7-19 (Gardner). In fact,
on August 24, 2010, Mr. Gardner sent an e-mail to Ms. Barbee, stating that “we have
restructured our operations to add significant additional resources to help clear the backlog and
to enhance HUD’s reputation in the marketplace.” PX 110 at 1. Moreover, Mr. Gardner
expressed his belief in a conference call with HMBI that at one time he believed Trust Title
would be able to handle the initial surge in volume. DX 104 at 9:15-18 (Transcript of
Conference Call Between HMBI and Trust Title). He also acknowledged that “[Trust Title]
should’ve taken different measures than [it] did up front.” Id. at 10:14-16.
30
Although the government asserted that HUD was obligated to use Trust Title for all of
its closing services needs in North Carolina unless Trust Title rejected any orders, see Def.’s
Post-Trial Reply Br. at 13; see also Tr. 388:25 to 389:3 (Gardner), the contract appears to state
otherwise, see DX 15 ¶ I.3(c) (citing FAR § 52.216-19(c)). The contract provides, “Except as
this contract otherwise provides, the Government shall order from the Contractor all the supplies
or services specified in the Schedule that are required to be purchased by the Government
activity or activities specified in the Schedule.” DX 15 ¶ 1.4(c) (incorporating FAR § 52.216-
21). The immediately preceding paragraph, however, states, “If this is a requirements contract
. . . the Government is not required to order a part of any one requirement from the Contractor if
that requirement exceeds the maximum-order limitations in paragraph (b) of this section.” Id.
¶ 1.3(c) (emphasis added). Thus, the contract appears to have permitted the government to
discontinue assigning closings in excess of 195 in a 30-day period per contract, but it did not
require the government to do so.
31
Mr. Jackson testified that HUD continued to assign closings to Trust Title’s
predecessor, O’Brien, until the end of June 2010. Tr. 61:20 to 62:14 (Jackson). According to
Mr. Jackson, O’Brien was responsible for performing all closings assigned to it in June, even if
the closing itself did not occur until later. Tr. 61:22 to 62:6.
19
3. Incomplete or “piecemeal” contracts.
Mr. Gardner testified at length about the significant delays caused by the receipt of
incomplete sales contracts from HMBI. He testified that approximately 25% of the orders Trust
Title received in the first month of performance were incomplete, e.g., missing a proper earnest-
money deposit or missing certain information on the contract. Tr. 677:22-23 (Gardner). Most
importantly, in Trust Title’s view, earnest-money deposits were not necessarily connected to
contracts HBMI had ratified, creating time-consuming and difficult work to rectify and complete
the contractual documentation. See Tr. 688:8 to 689:19 (Gardner). Moreover, the earnest-
money deposits were not necessarily in the proper form. Sometimes the earnest-money deposits
were not in the correct amount, not certified, or lacking identifying information such as the
purchaser name or property address. Tr. 654:1-12 (Gardner).
Trust Title’s contracts with HUD only specified that the closing agent was responsible for
holding earnest-money deposits, providing no further details. DX 15 ¶ C.5.2.A.2. Trust Title
chose to have earnest-money deposits mailed to its office in Reston, Virginia, Tr. 1229:4-5,
1251:21-24 (Gardner), and also chose to have HMBI enter contracts in an electronic program
from which Trust Title could download the contracts and load the information into Trust Title’s
internal tracking system. Mr. Gardner testified that by using such a system, anybody working for
Trust Title, in any office, could work with the files. Tr. 1248:14 to 1249:24 (Gardner). This
electronic system was supposed to increase Trust Title’s efficiency. Tr. 653:3-10 (Gardner). By
using such a system, however, contracts were necessarily being separated from earnest-money
deposits, and Trust Title had to match earnest money with the electronically submitted contracts.
Tr. 654:8-12 (Gardner). During a conference call with HMBI, HMBI questioned whether this
was the best way to forward contracts to Trust Title because Trust Title could not explain why a
few contracts that were loaded by HMBI could not be located in the electronic system. DX 104
at 64:14 to 66:22. Mr. Gardner also testified that at the beginning of this process, HMBI was
only able to provide incomplete information about a contract. Tr. 653:11-14 (Gardner). He did
not clarify if that was because HMBI had trouble submitting information electronically or
because HMBI did not have the information. Trust Title never returned incomplete contracts to
HMBI. Tr. 461:5-11 (Gardner).
Ms. Barbee testified that Trust Title never complained to her about the way in which it
received earnest-money deposits from HMBI. Tr. 919:19-23, 920:5-8 (Barbee). Nor did Trust
Title complain about receiving contracts in a piecemeal fashion from HMBI. Tr. 920:9-19
(Barbee). Additionally, Mr. Gardner testified that although he had an hour-and-a-half to two-
hour conference call with HMBI on September 20, 2010, he did not address the issue of earnest-
money deposits arriving separately from contracts. Tr. 1230:9 to 1231:4 (Gardner), see also DX
104. During this conference call, Trust Title discussed a number of work-flow issues with
HMBI, but Trust Title focused on a need to receive tax information and data on homeowners’
associations’ fees in a more timely fashion from HMBI. DX 104 at 36:4 to 44:20.
4. Forms and training.
Trust Title asserts that HUD failed timely to provide or approve a form of deed, as well
as documents required to complete Good Neighbor Next Door closings and a general-title
20
affidavit, also referred to as a seller’s affidavit. Tr. 462:18-23 (Gardner). The contract required
that Trust Title get approval from HUD before using its special warranty deed. Tr. 463:8-13
(Gardner). HMBI had sent Trust Title a copy of the deed it had been using. Tr. 466:1-3
(Gardner). Mr. Gardner sent the government’s technical representative a copy of the deed on
August 18, 2010, and she responded on August 19, 2010 that the deed was acceptable. DX 157
(E-mail from Carolyn Homan, Government Technical Representative, to Gardner (Aug, 19,
2010)); see also Tr. 466:1-3 (Gardner). Mr. Gardner elaborated at trial that prior to that e-mail
there had been delay in trying to get the deed approved. He had asked the government technical
representative where to send a deed for approval, and she had responded that deed approval was
not necessary. Mr. Gardner then pointed her to the language in the contract explaining that Trust
Title was required to have the deed approved and she then responded with her approval. Tr.
629:2-14 (Gardner).
Regarding the Good Neighbor Next Door documents, Mr. Gardner testified that they
were initially very difficult to find, and the contracting officer eventually located them online
and sent them to Trust Title. Tr. 720:8 to 722:20 (Gardner); PX 163 (E-mail from Homan to
Gardner (Sept. 8, 2010)). According to Mr. Gardner, this type of problem could have been
avoided by proper training. Tr. 723:7-18 (Gardner). Ms. Radabaugh, however, testified that she
did not recall Good Neighbor Next Door transactions causing any serious delay for Trust Title.
Tr. 329:11-14 (Radabaugh).
Trust Title also argues that the lack of formal training provided by HUD significantly
contributed to Trust Title’s inability to perform closings. Tr. 480:8-13 (Gardner). But see Tr.
293:24 to 294:1 (Q. “Do you recall any specific training that you needed?” Ms. Radabaugh. “No,
not really.”). The contract stated that Trust Title would be required to attend a one-day training,
but it did not go into any detail regarding what that training would encompass. Mr. Gardner
testified that, in his view, “any reasonable person would assume that if training is required prior
to commencement of a contract, that one could assume in a contract that is involved with real
estate settlements of the magnitude of this, that there would be a meeting that would discuss
policies, procedures, forms, contact information, normal transition information that would be
associated with any type of business of this nature.” Tr. 479:14-21; see also Tr. 707:5-8
(Gardner) (“But the training, in our mind when we submitted our proposal, was very clearly a
show stopper because . . . in boarding a client, there is a transition period.”). Additionally, Trust
Title did not receive its post-award conference until August 25 or 26, 2010, approximately three
weeks after the contract start date. Tr. 661:21-23 (Gardner). Mr. Gardner testified that the
conference was conducted by telephone and lasted about 20 minutes, which is in stark contrast to
the multi-hour post-award conference received by Mr. Fussell in connection with a reprocure-
ment contract. Tr. 661:1-20 (Gardner); see also Tr. 564:22-25 (Fussell).
B. Wire Transfer of Funds
The contract required that Trust Title wire proceeds to HUD via SAMS no later the 2:00
p.m. the next business day following a closing. DX 15 ¶ C.5.5.2. In HUD’s show-cause letter,
HUD asserted that for 91% of the cases closed by Trust Title at that point in time, proceeds had
not been received by HUD within the required time. DX 55 at 2. Trust Title did not dispute this
finding in its response to the show-cause letter, but it asserted that the timing was due to factors
21
beyond its control. DX 61 at 6 (“Trust Title has communicated the conflicts in the contract and
requested and not received direction with respect to third[-]party closings.”). Overall, Trust Title
failed to wire funds within one day of closing, as determined by the date on the HUD-1, in the
vast majority of both in-house and third-party closings.32
Mr. Gardner explained that funds could only be disbursed after recording the deed, Tr.
499:16-18 (Gardner), and only cleared funds could be disbursed, Tr. 739:14-19 (Gardner). He
further testified that he was fully familiar with the laws and customs of North Carolina when he
signed the contract with HUD, Tr. 500:15 to 501:2 (Gardner), yet the recording requirement for
disbursement under North Carolina law created particular problems for Trust Title with third-
party closings because Trust Title was reliant on the third-party attorney to record the deed
promptly and then send the proceeds to Trust Title, see Tr. 772:8-11 (Gardner); see also PX 345
at 7 (a sample closing document with a receipt reflecting the recordation of a deed for a closing
that had occurred six days before).
The contract contemplated that in third-party closings, the third-party attorney might
be the one to actually record the deed. See DX 15 ¶ C.5.3.4(f) (Trust Title was required to
“[e]nsure that the deed is filed for recordation [and] [o]btain recording information/receipt from
the third[-]party for submission with the complete closing package, or within 24 hours of receipt
from third[-]party . . . .’’). At trial, Mr. Gardner explained that a buyer would not want the
seller’s agent to have control over recording the deed. Tr. 499:4-10 (Gardner). Mr. Brian
Buchanan, Trust Title’s Chief Financial Officer, testified that Trust Title was unable to force
third-party attorneys to complete actions, such as recording the deed or wiring proceeds, in a
timely enough fashion to enable Trust Title to meet its own contractual requirements with HUD.
Tr. 870:4 to 871:19 (Buchanan).33 Even if a deed was promptly recorded by the third-party
attorney, if Trust Title received a check, Trust Title was forced to wait a few days for the check
to clear before it could wire those proceeds to HUD. Tr. 738:16 to 740:10 (Gardner); see also
PX 295 (E-mail from Gardner to Barbee (Aug. 24, 2010)). Otherwise, in Trust Title’s view, it
was illegally borrowing against its own escrow account. Tr. 738:16 to 740:17 (Gardner). Thus,
according to Trust Title, exchanging a deed for a check and wiring funds to HUD before
ensuring the deed was recorded and the check had cleared was not possible. Tr. 738:24 to
32
The court accepts that funds could not be wired until the deed had been recorded and
that a deed may not be able to be recorded precisely the same day a HUD-1 is signed. By any
measure, however, Trust Title failed to ensure that deeds were promptly recorded and funds
promptly wired. Specifically, Trust Title only wired funds within two business days of closing 9
times for in-house closings, see DX 227, DX 229, and 49 times for third-party closings, see DX
228, DX 230, or slightly less than 12% of the time.
33
Testimony at trial suggested that Trust Title was not regularly attending third-party
closings. See Tr. 323:10-19 (Radabaugh) (testifying that she recalled Trust Title attending one
third-party closing; Tr. 1087:7 to 1088:10 (Seale) (testifying that he tried to go to some closings
but often he did not have the correct schedule or the time to attend).
22
740:13 (Gardner).34 Respecting in-house closings, where Trust Title was not reliant on a third-
party attorney to record a deed or disburse proceeds, Mr. Gardner did not explain why proceeds
were not wired to HUD within the time established in the contract. See Tr. 641:7 to 642:4
(Gardner). He stated that only once or twice did a lender fail to disburse funds in a timely
fashion, which would have delayed Trust Title. Tr. 642:2-4 (Gardner).
Mr. Gardner acknowledged that it was physically possible to record a deed and transfer
proceeds to HUD on the same day, even for a third-party closing. Tr. 467:6-8 (Gardner). Wire
transfers from the buyers could have solved part of the problem because wire transfers are
immediately cleared funds. See Tr. 467:1-2 (Gardner). Trust Title had sent closing instructions
to buyers requiring them to wire them funds no later than 11:00 a.m. the day after closing. DX
41 at 2-3; Tr. 624:23 to 625:2 (Gardner). Mr. Gardner testified that these instructions were
enforced, and that Trust Title never asked for checks,35 but he also acknowledged that there were
occasions where they received checks. Tr. 841:21 to 842:18 (Gardner). But see Tr. 870:4 to
871:19 (Buchanan) (testifying that he did not see how Trust Title could force third-party
attorneys to do anything). The government compared recordation dates of certain deeds
provided by Trust Title at trial to the dates these sale proceeds were wired to HUD and found
significant delays even after recordation had occurred. See Def.’s Post-Trial Reply Br. at 5.
Moreover, Trust Title’s banking records, PX 343, indicate that Trust Title received wires from
third-party attorneys but waited days to initiate a wire transfer to HUD, e.g., PX 343 at 324 (File
ID: S10I38268), 325 (File ID: 10I38315).
At trial, Mr. Fussell described how he complied with the fund-wiring requirements of his
reprocurement contract. He explained that while the HUD requirements upset some buyer-side
lawyers in North Carolina, he ensured their compliance so he could comply with the terms of his
contract with HUD. He sends them a closing instruction sheet that they are required to sign and
return to him. Tr. 561:24 to 562:8 (Fussell). He noted that “one of the sticking points is we
make them wire the money to us, and they don’t like doing that. A lot of attorneys don’t like to,
and they can’t charge a fee for it, and that really upsets them that we won’t let them charge a fee
for wiring the funds.” Tr. 562:9-13 (Fussell); see also Tr. 580:10-16 (Fussell) (“We make all
buyers wire funds to us. We make all third-party closing attorneys wire funds to us. . . . That’s
the only way to [comply with the contract].”). Mr. Fussell required attorneys to wire funds by
10:00 a.m. the day after closing, and he recognized that meant a third-party attorney had to
record a deed almost immediately because funds could not be wired until the deed was recorded.
Tr. 583:4-14 (Fussell). Mr. Fussell testified that by getting the third-party attorneys to sign
closing instruction sheets, he was able to threaten them with a state bar complaint if they failed to
comply. Tr. 583:15-20 (Fussell). Moreover, if a third-party attorney proved unable to wire the
34
Mr. Gardner testified that he had learned from other attorneys that O’Brien used to
exchange a check for a deed on the courthouse steps and then promptly wire the proceeds to
HUD, which in his view, was impermissible under North Carolina law. Tr. 466:12-21, 679:16-
22 (Gardner).
35
Trust Title’s escrow account records confirm that it was receiving wired sale proceeds
from third-party attorneys on a regular basis. DXs 173, 174 (e-mails from Gardner to Barbee
(Oct. 21, 2010)).
23
funds on time or record on time, then he would cancel the closing and reschedule it for another
day. Tr. 589:17-22 (Fussell). Trust Title asserts that its problems with third-party attorneys
stemmed, in part, from a shift in contract requirements between its contract and O’Brien’s
contract. One such issue revolved around the $5,000 credit HUD provided to buyers to help
cover closing costs. When O’Brien had the contract, that credit was permitted to cover the costs
of a buyer’s attorney, but Trust Title was told by its government technical representative that the
credit could no longer be applied towards a buyer’s attorneys’ fees. Tr. 666:14-23 (Gardner); see
also PX 287 (e-mail from Homan to Gardner (Aug. 20, 2010)). Predictably, third-party attorneys
were disgruntled by this shift because they now had to seek and obtain fees directly from their
clients. Tr. 667:5-11 (Gardner).36
DISCUSSION
I. TERMINATION FOR DEFAULT
The notice of default termination states that Trust Title was terminated pursuant to FAR
§ 52.249-8 because it “failed to provide wire transfer of funds for closings and to provide a
course of action to alleviate the backlog on closings assigned to Trust Title.” DX 76 at 1. At
trial, the government asserted that Trust Title was terminated for default for failing to comply
with these requirements and others, including: “1) timely disbursement of sales proceeds to the
[g]overnment; 2) timely performance of closings; 3) informing HUD of reassignment of key
personnel; 4) performance of 30-year title searches; 5) attendance at third-party closings; and 6)
providing good customer service.” Def.’s Post-Trial Br. at 27. Notably, “the government is not
limited to the reasons [for the termination] stated in the cure notice, but may rely on any rationale
36
Issues also arose as to how the HUD-1 should be prepared to accurately reflect the
disbursements at closing, including the earnest-money deposit. The buyer (or the buyer’s
realtor) would provide Trust Title with the earnest-money deposit. Trust Title testified that it
went back and forth with HUD over how to reflect the earnest-money deposit on the HUD-1 in a
way that satisfied HUD and Trust Title’s interpretation of RESPA. HUD did not want to “show
that earnest[-]money deposit on the seller’s side [because] they want to be able to look in one
place on a settlement statement, which is down in the bottom number, proceeds to the seller . . . .
And they want that number to match SAMS because that will be their audit.” Tr. 682:4-9
(Gardner). Trust Title ultimately decided to wire back the earnest-money deposit to the third-
party attorney who would then wire the entire sale proceeds to Trust Title at the time of closing.
Tr. 681:13-24 (Gardner), see also PX 278 at 2 (E-mail from Gardner to Hunter Edwards,
Attorney with Brady & Kosofsky (Sept. 7, 2010)), 9-11 (E-mail from Hardy, HMBI, to Moskey
(Sept. 8, 2010)).
This solution appears to be in contrast to that chosen by Trust Title’s predecessor. Dale
Fussell testified that O’Brien had handled earnest-money deposits by showing the earnest-money
deposit previously sent to the closing agent as a credit to the buyer on the HUD-1, and then when
money was sent to the closing agent to complete the sale, the money was reduced by the amount
of the earnest-money deposit. Tr. 549:10-23 (Fussell). Mr. Fussell testified that such a tactic
complied with RESPA because all parties were receiving their funds in exactly the way the
HUD-1 reflected. Tr. 551:2-18 (“[D]isbursing funds that somebody’s holding, less money that
they’re holding already[,] is not a RESPA violation.”).
24
justifying the default termination decision based in facts that existed at the time of termination.”
Liquidating Tr. Ester Du Val of KI Liquidation, Inc. v. United States, 116 Fed. Cl. 338, 383
(2014) (citing Empire Energy Mgmt. Sys, Inc. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004);
Joseph Morton Co. v. United States, 757 F.2d 1273, 1277 (Fed. Cir. 1985)).
A. Legal Standards
The government bears the burden of proof and must show, by a preponderance of the
evidence, that the decision to terminate the contract for default was justified. Lisbon
Contractors, Inc. v. United States, 828 F.2d 759, 764 (Fed. Cir. 1987). Courts are averse to
default terminations, but nonetheless the court must “strike a balance between [this aversion] and
the fact that ‘the [g]overnment, just as any other party, is entitled to receive that for which it
contracted.’” 5860 Chicago Ridge, LLC v. United States, 104 Fed. Cl. 740, 745-55 (2012)
(quoting McDonnell Douglas Corp. v. United States, 323 F.3d 1006, 1015 (Fed. Cir. 2003)). To
prevail, “[t]he government . . . must establish that the default termination was based on ‘good
grounds and on solid evidence.’” Id. at 755 (quoting J.D. Hedin Constr. Co. v. United States,
408 F.2d 424, 431 (Ct. Cl. 1969)). “A court’s review of a default justification does not turn on
the contracting officer’s subjective beliefs, but rather requires an objective inquiry.” McDonnell
Douglas Corp. v. United States, 567 F.3d 1340, 1355 (Fed. Cir. 2009) (quoting McDonnell
Douglas, 323 F.3d at 1016), vacated on other grounds, General Dynamics Corp. v. United
States, __ U.S. __, 131 S.Ct. 1900 (2011). That inquiry may incorporate a determination
whether the contracting officer properly concluded “that there was no reasonable likelihood that
the contractor could perform the entire contract effort within the time remaining for contract
performance.” McDonnell Douglas, 567 F.3d at 1346 (quoting Lisbon Contractors, 828 F.2d at
765) (internal citations and quotations omitted).
The contracts at issue here incorporated a default termination clause, FAR § 52.249-8,
see DX 15 ¶ I.1, which provided that the government could terminate the contract if Trust Title
failed to (i) deliver the supplies or perform the services within the time specified in the contract,
(ii) make progress, so as to endanger the performance of this contract, or (iii) perform any of the
other provisions of this contract, FAR § 52.249-8(a)(1)(i)-(iii). FAR § 52.249-8 requires the
contracting officer to provide the contractor with notice of the possibility of termination and a
ten-day period to make improvements. FAR § 52.249-8(a)(2). The inclusion of this default-
termination provision does not negate the applicability of common law concepts to government
contracts, but it can lessen the government’s burden in justifying a termination for default. The
government “may terminate a contract for default based upon the specific terms of the contract,
even if the failure giving rise to that default is not a ‘material breach’ under the common law,”
provided that the failure giving rise to the default termination is specifically noted as a ground
for termination in the contract’s provisions. 5860 Chicago Ridge, 104 Fed. Cl. at 756 (citing
Kelso v. Kirk Bros. Mech. Contractors, Inc., 16 F.3d 1173 (Fed. Cir. 1994)). If, on the other
hand, the failure relates only to “other provisions of th[e] contract” and is not specifically cited
as a ground for default termination, see FAR §52.249-8(a)(1)(iii), the court may require that the
alleged failure constitute a material breach. 5860 Chicago Ridge, 104 Fed. Cl. at 756.37 For
37
As the court noted in 5860 Chicago Ridge, to find otherwise would render default
provisions “mere surplusage.” 104 Fed. Cl. at 757 (“To give those default clauses some
25
example, in 5860 Chicago Ridge, the court held that the government was not required to show it
had been constructively evicted from a property to prove that it had properly terminated a lease
for default by the lessor if the government could show that the lessor failed to satisfy a particular
contractual provision that the contract specifically noted could give rise to a termination for
default. Id. at 757-59. Here, HUD’s assertions that Trust Title was not timely wiring funds and
had not provided an acceptable plan to alleviate the backlog of cases presumably fall under FAR
§ 52.249-8(i) and (ii), i.e., failure to perform the services within the time specified in the contract
and failure to make progress, respectively. Plainly also, the requirements to perform closings
and to wire funds within the time specified in the contract are material elements of the contract.
Moreover, in a case such as this one, where there is no single product delivery date or the
equivalent, “the court must examine other factors, including the contractor’s failure to meet
progress milestones, its problems with subcontractors and suppliers, its financial situation, and
its performance history. . . . Only after analyzing the totality of the circumstances can a court
determine whether a contractor failed to ‘[p]rosecute the work so as to endanger performance’ of
the contract.” Armour of Am. v. United States, 96 Fed. Cl. 726, 745-46 (2010) (alteration in
original) (quoting McDonnell Douglas, 567 F.3d at 1348, 1350-51), appeal dismissed, 430 Fed.
Appx. 895 (Fed. Cir. 2011)). If the government meets its burden of justifying the default
termination, the contractor can rebut such a finding by showing excusable delay. See Lassiter v.
United States, 60 Fed. Cl. 265, 268 (2004) (“Because the defendant satisfied its burden of proof,
plaintiff is required to demonstrate that his nonperformance was excusable.”) (citing DCX, Inc. v.
Perry, 79 F.3d 132, 134 (Fed. Cir. 1996)); see also FAR § 52.249-8(g) (“If, after termination, it
is determined that the [c]ontractor was not in default, or that the default was excusable, the rights
and obligations of the parties shall be the same as if the termination had been issued for the
convenience of the [g]overnment.”).
B. Propriety of Termination
The evidence at trial showed that Trust Title continuously failed to disburse sales
proceeds to HUD in a timely manner. See supra, at 22-24.38 Both the cure notice and the show-
cause letter alerted Trust Title to the gravity of this deficiency. By signing the contracts, Trust
Title had agreed to wire funds to HUD by 2:00 p.m. the next banking day after closing. Trust
Title inflates the importance of the prohibition on “table funding” in North Carolina. See Pl.’s
Post-Trial Br. at 35-37. Trust Title was not terminated for a failure to disburse funds at the
precise time the HUD-1 was being signed by the buyers at the “table.” See DX 76; see also
Def.’s Post-Trial Reply Br. at 9. Trust Title was terminated for failing to wire funds by 2:00
p.m. the next banking day after closing, which it acknowledged was technically possible, albeit
difficult. Trust Title’s explanations at trial for why it could not force third-party attorneys to
meaning, one must conclude that while defendant may, upon the occurrence of a material breach,
terminate the contract either under the default clause or the common law, it may also invoke
specific clauses in the contract that authorize default upon particularized failures without having
to show that such failures constituted a material breach.”).
38
Trust Title’s blanket assertion to the contrary in its post-trial brief is without citation to
the record. See Pl.’s Post-Trial Br. at 39.
26
record deeds or disburse funds in a sufficiently timely manner to allow Trust Title to comply
with its contracts with HUD does not excuse it from its contractual obligations. In some ways
Trust Title was responsible for its problems with third-party attorneys, or at the very least
responsible for exacerbating those problems because it did not often send a representative to such
closings. Perhaps more importantly, however, Trust Title failed promptly to wire funds for in-
house closings or for third-party closings for which it had received wire transfers from third-
party attorneys.
Trust Title asserted that it was familiar with North Carolina’s banking and real estate
regulations and presumably understood that the cooperation of attorneys would be required for
third-party Trust Title closings. Trust Title’s instructions that it sent to third-party attorneys,
which required a timely wiring of funds to Trust Title the day after closing, reflected that need.
See supra, at 23. Trust Title’s assertion at trial that it had no means of enforcing these
instructions, reflects its lack of diligence in monitoring third-party closings. Mr. Fussell, who
has similar instructions to third-party attorneys, agreed that getting third-party attorneys to
perform in accord with his closing instructions can be difficult, but it is the only way to comply
with the HUD contract requirements. See supra, at 23-24. To ensure compliance Mr. Fussell
had at least two methods. First, he could threaten uncooperative attorneys with a bar complaint,
and second, he could cancel a closing if it became apparent the attorney would not be able to
comply. See supra, at 24. Trust Title attacks Mr. Fussell’s second method as inhumane. In
Trust Title’s view, “[c]anceling settlements because [buyers] had difficulty either with title
issues, their own funds, checks versus money orders supplied and other procedural problems,
was not a humane way to proceed. . . . Trust Title made the decision to stop and wait for people
to provide necessary data, information, and funds so that they could settle on their house and
occupy it.” Pl.’s Post-Trial Br. at 38-39. Such reasoning does not justify delay in wiring funds
to HUD.
Trust Title’s failure to attend and monitor third-party closings is logically related to the
difficulties Trust Title asserts it faced in getting third-party attorneys to send accurate and timely
closing documents, recordation receipts, and funds. Despite these problems with third-party
attorneys, Trust Title actively suggested that buyers hire their own attorneys and generate third-
party closings in lieu of allowing Trust Title to perform in-house closings. Trust Title’s principal
impetus was to avoid commissioning a 30-year title search because one could be requested from
the third-party attorney. A third-party closing also reduced Trust Title’s staff time. In short,
Trust Title’s difficulty in working with third-party attorneys, to the extent it existed, is not the
responsibility of HUD, and was a foreseeable impediment to be overcome in performing the
contract. See Southeastern Airways Corp. v. United States, 673 F.2d 368, 376-79 (Ct. Cl. 1982)
(addressing excuses for failure to perform according to contractual specification); see also FAR
§ 52.249-8(c).
Setting aside Trust Title’s problems in getting third-party attorneys to record deeds and
disburse funds promptly, Trust Title still was not timely wiring funds to HUD. Trust Title did
not explain why it failed to timely wire funds to HUD for in-house closings, when it was in
control of recording the deed and ensuring availability of proceeds. On average, Trust Title
disbursed funds 7.3 days after an in-house closing on the East contract, DX 227 at 2, and 6.7
days on the West contract, DX 229 at 2. For comparison, on average, Trust Title wired funds 10
27
days after a third-party closing on the East contract, DX 228 at 4, and 10.3 days after closing on
the West contract, DX 230 at 5. Trust Title’s consistent failure to wire funds within the time
specified in the contract is a material breach of the contract.
Trust Title’s overall delay in performing closings was also a material factor in its
termination. “A default termination for failure to make progress is ‘appropriate if a
demonstrated lack of diligence indicated that the government could not be assured of timely
completion.’” Hannon Elec. Co. v. United States, 31 Fed. Cl. 135, 143 (1994) (quoting Discount
Co. v. United States, 554 F.2d 435, 441 (Ct. Cl. 1977)), aff’d, 52 F.3d 343 (Fed. Cir. 1995).
Trust Title had performed fewer than half of the assigned closings when it was terminated for
default. See supra, at 11. Moreover, it failed to present a plan to clear the backlog. Nearly all of
the slightly over 1,000 cases ultimately assigned to Trust Title were assigned prior to October 7,
2010, the date of the show-cause letter.39 As of October 7, 2010, Trust Title had closed 128
cases. See supra, at 7. By the time it was terminated on November 9, 2010, Trust Title had
closed 496 or 497 cases, see supra, at 11, but evidence at trial showed that Trust Title would
have been unable to continue to close cases or effectively clear the backlog of cases while also
receiving new ones. By the end of October, Trust Title could no longer send orders for abstracts
to two companies it had previously used, it was paying unsustainably large sums of money to
hire lawyers on a per file basis, and it could not pay its employees, who, in turn, were quitting.
Ms. Barbee testified that she was aware of Trust Title’s internal problems, Tr. 912:19-25
(Barbee), but even if she were not aware of the depth of those problems, this court may uphold
the “default termination if justified by circumstances at the time of termination, regardless of
whether the [g]overnment originally removed the contractor for another reason.” Kelso, 16 F.3d
at 1175.
Trust Title argues that HUD refused to give it an extension in the early days of contract
performance to account for the delay in the beginning of performance, the initial surge in
contracts to be closed, both of which circumstances were beyond Trust Title’s control.
According to Trust Title, “[o]n a simply mathematical basis under the contracts[’] terms, Trust
Title was entitled to at least a 105-day period of time before it was required to produce settled
cases.” Pl.’s Post-Trial Br. at 10. Trust Title claims it was entitled to a 30-day time extension
for the protest, 45 days to produce a settled case under the HUD buyers’ contract, and “at least
30 days to dig out from under the 600 stale and many incomplete cases dumped on it in the first
two weeks of performance.” Id. at 10-11. This claim is without support. Trust Title was not
automatically entitled to any such relief under the contract. The contract allowed for the
possibility of certain equitable adjustments, at the request of Trust Title. See supra, at 5.
Mr. Gardner testified that Trust Title never requested any sort of equitable adjustment for the
delay in the beginning of performance, nor did Trust Title ever inform HUD that it was rejecting
orders. Tr. 387:21 to 388:24, 399:12 to 401:1 (Gardner).
39
Trust Title stopped receiving contracts the week of October 25, 2010. That stoppage
may not have been ordered by HUD with relation to Trust Title’s performance, but rather may
have been attributable to a stop-work order on the new asset management contract as HUD was
replacing HMBI as its asset manager. DX 235; Tr. 669:13 to 670:2 (Gardner).
28
It is apparent to the court that HUD’s action in inundating a new contractor with
hundreds of stale cases was ill-advised. By failing to continue to close contracts in July, a peak
period of real estate sales, HUD’s actions did not set Trust Title on a path to successful contract
performance. Even the most seasoned contractor would have been challenged by HUD’s
actions. Nevertheless, the contract specifically included mechanisms by which Trust Title could
have protected itself. Absent a request from Trust Title for relief, HUD was not required to offer
Trust Title any equitable adjustments or to discontinue assignment of cases to Trust Title when it
became apparent that Trust Title was overwhelmed. Accordingly, the initial assignment of a
high volume of cases did not create an excusable delay for Trust Title’s performance.
Similarly, Trust Title was not contractually entitled to a transition period at the beginning
of contract performance. As with HUD’s decision to assign hundreds of cases within the first 30
days of performance, its decision to require immediate performance upon contract award was
unwise, but contractually permissible. Most significantly, when Trust Titled signed the
modification for the East contract, reconfirming its ability to perform the contract as originally
signed, it did not inform HUD that the delay in commencing performance had caused it to lose
employees or office space. See supra, at 3, 11-12. Trust Title at that time, or within 30 days,
could have requested an equitable adjustment to account for problems caused by the bid protest
on the West contract or the delayed funding on the East contract.
The court recognizes that the contracting officer and the government technical
representative appeared to give Trust Title little or no leeway in performing to the letter of the
contractual terms. E-mails presented at trial revealed a notable lack of assistance from
government officials. See supra, at 5, 21. Even so, the government is correct in noting that a
default termination may still be upheld where administration of the contract was “not
exemplary,” and the actions of unhelpful government officials do not excuse “plaintiff’s
naivet[é] in seeking and accepting contracts . . . , while possessed of such limited resources to
perform them.” Southeastern Airways, 673 F.2d at 379.
The government presented substantial evidence at trial suggesting that Trust Title’s delay
in performing closings was largely caused by inadequate staffing and by its own internal work-
flow decisions. There is ample evidence in the record that Trust Title tried to implement a
preferred-lawyer strategy to obtain free or low cost legal services necessary to perform closings
in North Carolina. This strategy ultimately turned out to be unsuccessful, and eventually Trust
Title had no choice but to pay $125 to Mr. Fussell and $150 to Mr. Hazlehurst to provide the
requisite attorney supervision for a closing. See supra, at 17. This amount of money was much
larger than the $25 per closing that Trust Title had allocated for attorney supervision. Tr.
352:13-19 (Gardner). To alleviate the problems caused by a lack of access to legal services,
Trust Title encouraged buyers to hire their own attorneys, which allowed Trust Title to request
the title search from the third-party attorney. This reliance in turn exacerbated Trust Title’s
delays in wiring proceeds to HUD from completed closings.
Lastly, Trust Title asserts that three legal doctrines dictate that its termination for default
be converted to a termination for convenience. Pl.’s Post-Trial Br. at 75-76. First, Trust Title
points to Darwin Construction Co. v. United States, 811 F.2d 593, 596 (Fed. Cir. 1987). In
Darwin, the Armed Services Board of Contract Appeals found that a contracting officer had
29
terminated a contract “solely to rid the Navy of having to deal with [the contractor].” 811 F.2d at
596 (internal quotation marks omitted). The Board nonetheless upheld the termination for
default because of a presumption that government officials act in good faith. Id. at 595-96. The
court reversed the Board’s decision because once the Board had determined the contracting
officer’s decision was arbitrary and capricious, it could not reasonably uphold the termination for
default. Id. at 596. The Federal Circuit has since interpreted Darwin to stand for the proposition
that a contracting officer’s decision to terminate a contract for default is arbitrary and capricious
when there is no nexus between the decision to terminate for default and contract performance.
The government may not use a technical default by the contractor as a “pretext for terminating
the contract on grounds unrelated to performance.” McDonnell Douglas Corp. v. United States,
182 F.3d 1319, 1326 (Fed. Cir. 1999) (discussing Darwin). Darwin is inapplicable to this case,
where no pretext was involved. Trust Title was terminated for reasons directly related to its
performance.
Second, Trust Title asserts that “HUD may not change its prior interpretation of the same
or similar contract provisions, in the new [Trust Title] contracts without advising [Trust Title] in
advance, so that it may make necessary pricing adjustments when submitting its proposal for the
contracts.” Compl. ¶ 110 (citing L.W. Foster Sportswear Co. v. United States, 405 F.2d 1285(Cl. Ct. 1969)). Trust Title argues that it was held to a more stringent contract standard than the
prior holder of the contract to perform closing services for HUD. In that respect, Trust Title is
correct insofar as it was held to an exacting standard of performance by HUD’s contracting
officials, but nonetheless those officials were acting in accord with, not divorced from, the terms
of the contracts.
Third, Trust Title argues that the government was obligated to inform it of the problems
its predecessor had faced in performance, especially because during the course of performance
the title company awarded the earlier contract had to novate into a law firm. Pl.’s Post-Trial Br.
at 76 (citing Helene Curtis Indus. v. United States, 312 F.2d 774 (Ct. Cl. 1963)). Nonetheless,
Trust Title cannot reasonably argue that the government had “superior knowledge” of the
difficulties a title company would face in performing closings in North Carolina when Trust Title
openly acknowledged in its proposal that it knew attorney supervision was required for
numerous steps in a sale of property in North Carolina. See Grumman Aerospace Corp. v.
Wynne, 497 F.3d 1350, 1357 (Fed. Cir. 2007) (denying a superior knowledge claim where the
contractor had “reasonable notice” of potential challenges in performance).
In sum, none of Trust Title’s excuses suffice to explain or negate its flawed performance
of material terms of its contracts with HUD. Consequently, the court finds that the government
has satisfied its burden of proof to sustain the termination for default.
II. REPROCUREMENT COSTS
The contracts provide that if the contractor is terminated for default, the government
“may acquire, under the terms and in the manner the Contracting Officer considers appropriate,
supplies or services similar to those terminated, and the [c]ontractor will be liable to the
[g]overnment for any excess costs for those supplies or services” unless “the failure to perform
the contract arises from causes beyond the control and without the fault or negligence of the
30
[c]ontractor,” such as “acts of the [g]overnment in either its sovereign or contractual capacity” or
“acts of God.” FAR § 52.249-8(b)-(c). The “excess costs” referred to in FAR § 52.249-8(b) are
distinct from common law damages for breach of contract. See M.E.S., Inc. v. United States, 104
Fed. Cl. 620, 639 (2012) (explaining that “a claim for excess reprocurement costs under the
‘Termination for Default’ clause is different than one asserted under common law”); see also
John Cibinic, Jr., Ralph C. Nash, Jr., and James F. Nagle, Administration of Government
Contracts (“Cibinic, Nash, & Nagle”) 981 (4th ed. 2006). Damages are measured by the
difference between the reasonable reprocurement price and the defaulted contract price. Armour
of Am., 96 Fed. Cl. at 759. This measure of damages contrasts with that under the common law,
where a “reasonable reprocurement price” would require a determination of the market price for
the pertinent services or supplies. Mega Constr. Co. v. United States, 29 Fed. Cl. 396, 486-87
(1993). 40 The purpose of the excess-reprocurement-cost clause is to alleviate the burden of
proving a market price for the reprocured services by instead looking to the government’s actual
cost of reprocurement. M.E.S., 104 Fed. Cl. at 640 (citing Marley v. United States, 423 F.2d 324,
335 (Ct. Cl. 1970)). This evidentiary shortcut, however, requires certain predicate factual
findings. Contractual excess reprocurement costs may only be imposed when the government
can prove that: (1) the reprocured supplies are the same or similar to those involved in the
termination, (2) the government actually incurred excess costs, and (3) the government acted
reasonably to minimize the excess costs resulting from the default, i.e., the government used the
most efficient method of reprocurement to obtain a reasonable price and mitigate its losses.
Cascade Pacific Int’l v. United States, 773 F.2d 287, 294 (Fed. Cir. 1985).
The first factor relating to similarity poses particular difficulties in this case. Initially, the
government must establish that the reprocurement contracts are for substantially similar goods or
services, though not necessarily identical. If it succeeds, then, “in this circuit, where a
contractor’s breach results in the necessity for reprocurement of substantially similar goods or
services, the burden of proving the effects of changes in the reprocurement contract terms on the
contract price is properly placed on the breaching contractor.” Seaboard Lumber Co. v. United
States, 308 F.3d 1283, 1301 (Fed. Cir. 2002). Contrastingly, if the government fails to show that
the services are similar it “loses its right to recover excess costs and must recover, if at all, under
its common law right to damages.” Cibinic, Nash, & Nagle 987.
These principles of government contract law are of long standing. In United States v.
Axman, 234 U.S. 36, 42-45 (1914), the Supreme Court held that the government was not entitled
to reprocurement costs on a dredging contract because the replacement contractor had been
permitted to deposit the spoil in a place expressly prohibited to the terminated contractor. The
Court reasoned that the location of dumping the spoil was not incidental to the contract, as the
government argued, but instead, an “essential and particular term of the contract.” Id. at 43.
Since then, “[t]he cases in which the courts have barred a damage claim under Axman involved
substantial and material changes in the physical nature of the performance, i.e., the work to be
performed or the goods to be delivered, from the original contract to the re-let contract.”
Seaboard Lumber, 308 F.3d at 1298.
40
Although FAR § 52.249-8(h) preserves the government’s right to common law breach
of contract damages in cases of termination for default, the government has not pursued damages
under the common law in this case.
31
Trust Title argues that even if it was properly terminated for default, the reprocurement
cost assessment is improper because the reprocurement contracts were for “dissimilar services —
they [were] done without reference to the requirements of the existing contract. HUD ha[d]
determined to purchase a different type of service at a higher cost than that which [p]laintiff
stated it would provide in its proposal which was incorporated into the contract.” Compl. ¶
162.41 Trust Title asserts dissimilar treatment because the reprocurement contracts were IDIQ
contracts placed with law firms, not title companies, the reprocurement obligations were spread
among four firms holding six contracts, and the contracts provided for some transitional
arrangements. Pl.’s Post-Trial Br. at 55-59. The government responds that the IDIQ nature of
the reprocurement contracts did not affect price, and consequently, the government’s entitlement
to excess reprocurement costs is not negated. Def.’s Post-Trial Reply Br. at 34-36. The
government acknowledges that it “may not make substantial and material deviations in the
reprocurement contracts from the original, [but] ‘minor variations or deviations in the repurchase
contract do not relieve the defaulted contractor of his liability for excess costs.’” Def.’s Post
Trial Br. at 50-51 (quoting Armour of Am., 96 Fed. Cl. at 761 (internal citations omitted)).
The differences between the reprocurement contracts and Trust Title’s contracts are
sufficiently material to render the reprocurement dissimilar, such that the government is not
contractually entitled to excess reprocurement costs. HUD placed the reprocurement contractors
in a substantially improved position at the outset of performance as compared to Trust Title.
Most importantly, HUD spread the work across six different IDIQ contracts. See
Scevers, IBCA No. 1358-5-80, 83-2 BCA ¶ 16579, 1983 WL 12991 (IBCA 1983) (denying
excess reprocurement costs where a single services contract was reprocured as two separate
contracts). HUD specifically chose to use multiple contracts during the reprocurement to “make
sure that the closings that Trust Title had not closed were going to be distributed evenly among a
group of contractors.” Tr. 927:16-19 (Barbee). By splitting the work among six different
contracts, HUD ensured that no individual contractor was overwhelmed by a surge of business as
Trust Title had been. Not only was the work divided among six contracts, but HUD provided a
transitional arrangement to reduce the pressure for immediate closings. HUD implemented a
buyer-select program from November 2010 until January 2011, when there was no contractor to
perform closing services. That program enabled buyers to select their own counsel for closing
services, with an allowance provided by HUD to compensate for the work being provided. See
supra, at 9. Notably, HUD had not implemented such a program in July 2010 when Trust Title
was prevented from beginning performance, but rather had allowed a build-up of closings to
occur, accompanied by frustrated buyers. Additionally, it appears that the reprocurement
contractors were given a short transition period after award of the contract. Mr. Fussell was
awarded his contracts on January 31, 2011, and he testified that he had about two weeks to get
ready to begin performance. Tr. 571:6-8 (Fussell); see also DX 91 (reflecting case assignment
dates on Fussell’s Eastern contract); DX 92 (reflecting case assignment dates on Fussell’s
Western contract). Even then, Mr. Fussell was only given a manageable number of cases every
41
Trust Title further contends that HUD never intended to have a title company perform
closings and implies that HUD awarded the contract to Trust Title for the sole purpose of gaining
reprocurement costs. Pl.’s Mem. of Contentions of Law and Fact at 19-20. There is no
evidentiary support for this contention.
32
day. See DXs 91, 92. The other reprocurement contracts proceeded similarly. See DX 93; DX
94; DX 95; DX 96; DX 97.
Contracts for services do not exist in a vacuum. The context in which those services are
to be provided is as relevant to a determination of similarity as the contracts’ statements of work.
It is apparent to the court that HUD did not seek to reprocure substantially similar services
because, for the above stated reasons, the conditions under which the reprocurement contractors
were to perform were materially distinct from the conditions existing during Trust Title’s
performance. Thus, the first Cascade factor is not met, and the government is not entitled to
excess reprocurement costs.
III. LIQUIDATED DAMAGES
The government asserts that it is entitled to liquidated damages because the contracts
incorporated FAR § 52.211-11, a liquidated damages clause which provides, “Late deposit of
funds/wire transfer (per calendar day late) will be calculated using the following formula: Wire
Transfer Amount x .03[] x number of calendar days late/360 = $.” See Def.’s Post-Trial Br. at
25; see also DX 15 ¶ F.4. The contracting officer applied the formula to calculate the amount of
the liquidated damages to be $14,007.65. DX 23 at 2. The government submitted exhibits at
trial that justify this amount, see DX 227; DX 228; DX 229; DX 230, and Trust Title has not
provided the court with any reason that liquidated damages should not be awarded in the amount
requested. Accordingly, the government is awarded liquidated damages in the amount it
calculated.
CONCLUSION
For the reasons stated, the court finds that Trust Title was properly terminated for default,
but the government is not entitled to excess reprocurement costs. The government is, however,
awarded $14,007.65 in liquidated damages for late wire transfers during Trust Title’s period of
performance. Judgment shall be entered for the government on Trust Title’s claim and for the
government on part of its counterclaim, i.e., only for $14,007.65. The clerk is directed to enter
judgment in accord with this disposition.
No costs.
It is so ORDERED.
s/ Charles F. Lettow
Charles F. Lettow
Judge
33