[00:00:03] Speaker 01:
The United States Court of Appeals for the Federal Circuit is now open and in session.

[00:00:08] Speaker 01:
God save the United States and this honorable court.

[00:00:13] Speaker 00:
Good morning.

[00:00:14] Speaker 00:
The first case for argument this morning is 191463, California rich wind energy versus United States.

[00:00:23] Speaker 00:
Mr. Hayes, whenever you're ready.

[00:00:26] Speaker 02:
Thank you, your honor, and may it please the court

[00:00:30] Speaker 02:
This case involves two very large wind farms that were developed over a seven-year and a four-year period respectively.

[00:00:40] Speaker 02:
The development efforts occurred in accordance with two transactions, so-called development agreements, by which the project companies, Bishop Hill and California Ridge, agreed to pay fees of $60 million and $50 million respectively

[00:00:57] Speaker 02:
to the developers in return for development services.

[00:01:02] Speaker 02:
There's no question that under the terms of these fee for service agreements, the services were provided.

[00:01:10] Speaker 02:
Two wind farms, each producing an excess of 200 megawatts of electricity, operate in southern Illinois to this day.

[00:01:19] Speaker 02:
The Tucker Act case was brought after the

[00:01:22] Speaker 02:
Treasury Department reduced the amount of the grants the projects companies were entitled to receive under section 1603.

[00:01:28] Speaker 02:
The government did not defend that arbitrary reduction at trial.

[00:01:35] Speaker 02:
The case was tried over four days during which the plaintiff called 10 witnesses and put in evidence a significant number of documents, evidence even the trial court called abundant.

[00:01:46] Speaker 02:
The plaintiff's testimonial and documentary evidence was largely uncontroverted.

[00:01:51] Speaker 02:
Trial court's opinion is seven pages long.

[00:01:54] Speaker 02:
It's factual findings, such as they are, were not sufficient to comply with rule 52 or permit meaningful appellate review.

[00:02:03] Speaker 02:
Thank you.

[00:02:04] Speaker 04:
Counsel, this is Judge Toronto.

[00:02:06] Speaker 04:
Can I ask you a question?

[00:02:09] Speaker 02:
Certainly, Your Honor.

[00:02:10] Speaker 04:
Sure.

[00:02:11] Speaker 04:
One of the things I guess I'm a little bit uncertain about is this.

[00:02:16] Speaker 04:
Why isn't it right to say that the only question here

[00:02:20] Speaker 04:
or rather a sufficient question is whether the CFC committed error in finding that the contract dollar amounts, the 50 and 60 million dollars respectively, simply were not proven to be reliable indicators of the value of the development services.

[00:02:45] Speaker 04:
And if the answer to that is that

[00:02:49] Speaker 04:
Court of Federal Claims had enough evidence to find that.

[00:02:55] Speaker 04:
Why is it necessary to talk about language like sham?

[00:03:04] Speaker 02:
Well, Your Honor, let me respond first by saying that I think there is a great deal of evidence in the record which establishes that

[00:03:19] Speaker 02:
the fees charged for the development services were appropriate, by which I mean within a commercially acceptable range.

[00:03:33] Speaker 02:
So for example.

[00:03:34] Speaker 04:
Right.

[00:03:35] Speaker 04:
I think, though, if you don't mind, I was asking what might be described as a threshold question, that even though

[00:03:44] Speaker 04:
the parties seem to divide up the legal analysis into a sham issue and into a kind of evidentiary reliability of accuracy of value issue.

[00:03:58] Speaker 04:
I guess I want to understand whether one needs even to address any language about sham if, and I know you're going to contest

[00:04:09] Speaker 04:
this if, but as a legal matter, do we need to discuss sham if the findings would support the conclusion that the $50 and $60 million figures are simply not reliable indicators of the development costs?

[00:04:28] Speaker 02:
Well, Your Honor, you're quite right.

[00:04:31] Speaker 02:
I would contest a conclusion that they were not reliably

[00:04:37] Speaker 02:
reliably and accurately measuring the development cost.

[00:04:44] Speaker 02:
Having said that, the party's focus on the two issues obviously flows from the opinion of the trial board, which I would submit is primarily based on its sham

[00:05:02] Speaker 02:
transaction analysis.

[00:05:04] Speaker 04:
But why wouldn't we read the trial court's focus on sham as simply meaning at least and maybe this is therefore legally enough that when there's a round trip money circle and when the contracts are entered into after in one case apparently all of the services and in the other case

[00:05:32] Speaker 04:
almost all of the other services, and when the contract has a kind of three-clause, single-sentence description, that all that taken together simply allows the finding that the taxpayers here did not meet their burden of showing that those two dollar amounts are reliable indicators of the actual development costs.

[00:05:58] Speaker 02:
Well, Your Honor, I think

[00:06:03] Speaker 02:
It's inappropriate to reach that conclusion because there is abundant evidence.

[00:06:12] Speaker 02:
First of all, let me back up and say the evidence is that the transactions had business purpose and substance.

[00:06:22] Speaker 02:
The transactions were the development agreements.

[00:06:25] Speaker 02:
by which the project companies agreed to make payments of development fees in return for the development of two wind farms.

[00:06:33] Speaker 02:
That's precisely what occurred, and there's no evidence to the contrary.

[00:06:38] Speaker 02:
There's also evidence that the amount of the development fees were consistent with fair market value, as testified to by the plaintiff's expert, and contradicted by the government, uncontroverted the government

[00:06:55] Speaker 02:
offered no evidence to refute that proposition whatsoever.

[00:07:00] Speaker 02:
Further, the notion that the timeline is such that the development of Bishop Hill begins in 2005 and is completed in 2012.

[00:07:16] Speaker 02:
The development agreement is entered into in

[00:07:23] Speaker 02:
the early part of 2012.

[00:07:25] Speaker 02:
With regard to California Ridge, the development of the project begins in 2008, as the evidence shows, and is concluded in 2012.

[00:07:32] Speaker 02:
The development agreement is entered into in 2011.

[00:07:37] Speaker 02:
The evidence also demonstrates that the activity, the development activity, was ongoing and not completed at the time the two development agreements were entered into.

[00:07:51] Speaker 02:
The notion that somehow the implication, I guess I should say, that somehow these development agreements are after the fact renditions is not supported by the record and, of course, not referenced in any way, shape, or form in the trial court opinion.

[00:08:13] Speaker 02:
So I'm not sure, Your Honor, I'm answering your question, but I'm trying to.

[00:08:20] Speaker 02:
And as we pointed out in our briefs, in particular our reply brief, there's a great deal of evidence in this case completely ignored by the trial court, which establishes that while there were wire transfers in a single day.

[00:08:51] Speaker 02:
The reality, the underlying economic reality and substance of those transactions was different than the superficial picture the government tries to paint based simply on the wire of transfers and the fact that they occurred in a day.

[00:09:08] Speaker 00:
Yes, but counsel, if you were paying attention to what I understood Judge Toronto was talking about, and I have the same concern, leaving aside the circular transaction and the timing of it,

[00:09:21] Speaker 00:
There's also focus in the court of federal claims opinion that goes to the point Judge Toronto made that there was no reliable indicator of the actual development costs.

[00:09:33] Speaker 00:
And the court of federal claims judge did reach that conclusion.

[00:09:37] Speaker 00:
He cited some of the testimony by Brian Shuler and others and even the Delote accountant guy that failed to give a reliable indication

[00:09:49] Speaker 00:
of the actual cost of development.

[00:09:53] Speaker 00:
Why am I, I assume you disagree with what I've said, so tell me why I'm wrong.

[00:09:59] Speaker 02:
Well, with all due respect, Your Honor, the government didn't contest any of the development costs except the fee.

[00:10:04] Speaker 02:
They're all stipulated.

[00:10:06] Speaker 02:
There's no dispute about the development costs in either one of these cases.

[00:10:10] Speaker 02:
They're stipulated by the government.

[00:10:12] Speaker 02:
The only cost, the only cost

[00:10:14] Speaker 00:
Well, we're talking about the jail balance fees.

[00:10:16] Speaker 00:
I'm sorry.

[00:10:17] Speaker 00:
Okay.

[00:10:17] Speaker 00:
So I, I, I apologize.

[00:10:18] Speaker 00:
So it's, I forget actual development costs, development, the expense, the expenditure of the development fees and the purposes for which those fees were incurred.

[00:10:31] Speaker 02:
Um, your honor, the fees were incurred as the record I would suggest plainly demonstrates in return for the services rendered.

[00:10:46] Speaker 02:
The services rendered were the development of these two wind farms.

[00:10:52] Speaker 02:
And the evidence in the record establishes that the payments of the development fees, $50 million and $60 million respectively, were made by the companies that made them for the underlying reasons testified to by Mr. Malikarni.

[00:11:16] Speaker 02:
when he testified about the accounting records and testified to by Ms.

[00:11:20] Speaker 02:
Schultz and testified to by Mr. Murphy.

[00:11:23] Speaker 02:
The trial court ignored all of that testimony.

[00:11:27] Speaker 02:
Trial court focused solely on the fact that the wire transfers took place on the same day.

[00:11:37] Speaker 02:
And as we pointed out in our briefs,

[00:11:43] Speaker 02:
we submit respectfully that under the existing case law, it's inappropriate to focus on a single factor like that in determining that a transaction has no business purpose and no substance and therefore a sham.

[00:12:01] Speaker 02:
And in addition to the fact that the case law teaches you can't focus on a single factor,

[00:12:08] Speaker 02:
Case law also teaches, I would submit, that one has to look at the transactions at the time of their inception and look at the motivations of the parties at the times the transactions come into existence.

[00:12:24] Speaker 02:
And the record I submit clearly establishes that when at that point in time, the business purpose was to develop wind farms

[00:12:37] Speaker 02:
And the substance of the transaction is clear.

[00:12:40] Speaker 02:
They did develop wind farms.

[00:12:43] Speaker 04:
So.

[00:12:43] Speaker 04:
Can I just ask, when you say at that point, do you mean early 2012 and 2011 when these agreements were actually inked or when the actual development work began in 2005 and 2008 respectively?

[00:12:59] Speaker 02:
Well, I mean.

[00:13:03] Speaker 04:
It was not wholly unimportant, at least to the governments,

[00:13:06] Speaker 04:
theory on appeal that if not all then most of the actual development work predated the assignment of these 50 and 60 million dollar values.

[00:13:23] Speaker 02:
Well, it is true that as the record and the evidence show, and we don't dispute this, that development began before

[00:13:35] Speaker 02:
Development of these two projects began before the projects companies were created and before the development agreements were entered into.

[00:13:44] Speaker 02:
That's the nature of the company's business.

[00:13:47] Speaker 02:
And the record was replete with information about that.

[00:13:51] Speaker 02:
And a significant point with regard to that is the company, as the evidence indicates, undertakes a number of development efforts, not all of which bear fruit.

[00:14:00] Speaker 02:
So yes, it's true that.

[00:14:04] Speaker 02:
There were development activities undertaken before Bishop Hill and California Ridge were created.

[00:14:09] Speaker 02:
There were development activities which continued after the project companies were created.

[00:14:15] Speaker 02:
And there were development activities that took place after the two development agreements were executed.

[00:14:24] Speaker 02:
It was a continuum.

[00:14:26] Speaker 02:
And so those are the facts.

[00:14:32] Speaker 02:
And I would respectfully submit that the fact that the development agreements were executed at a time when some development, some but not all development activities had been completed does not lead to the conclusion that there was no business purpose for the development agreement and there was no economic substance to it.

[00:14:57] Speaker 02:
Now, with regard to the amount of the respective fees,

[00:15:03] Speaker 02:
The evidence in the case is to the effect that there were specific business reasons unrelated to the financing which led to the determination of what were appropriate fees that can be found in the Murphy testimony, that can be found in the Schultz testimony, that can be found in the Mark Atlas testimony.

[00:15:28] Speaker 02:
The government's theory is the numbers were only selected in order to increase the indirect costs and therefore increase the grant amount.

[00:15:41] Speaker 02:
And I see my time is up.

[00:15:43] Speaker 00:
Okay.

[00:15:44] Speaker 00:
Why don't we hear from the other side and we'll retain your rebuttal time.

[00:15:47] Speaker 00:
Thank you.

[00:15:49] Speaker 01:
Thank you.

[00:15:51] Speaker 00:
Mr. Carpenter.

[00:15:53] Speaker 01:
Thank you, Your Honor.

[00:15:54] Speaker 01:
May it please the court to address Judge Toronto's question.

[00:15:59] Speaker 01:
Absolutely, the claims court found that plaintiffs failed to prove that the $50 million to $60 million fees were actual bona fide costs of the wind farms, given the circumstances of these

[00:16:20] Speaker 01:
roundtrip economically meaningless wire transfers, the post-cock agreements entered into long after development began, and all of these other sort of dubious circumstances.

[00:16:33] Speaker 01:
So the court can definitely affirm the trial court's decision.

[00:16:40] Speaker 01:
without reaching the sham question just based on a lack of any clear error in finding that they failed to carry their burden of proof on that issue.

[00:16:58] Speaker 01:
clearly found that plaintiffs failed to prove that the development agreements resulted in anything more than economically meaningless same-day circling of cash between Invenergy and plaintiffs, and of course resulted in increased basis claims that allowed them to attempt to claim a higher Section 1603 payment.

[00:17:24] Speaker 01:
And really, the court doesn't even need to go farther than that.

[00:17:28] Speaker 04:
Well, I guess, can I just, I mean, another way of stating my question is, do we even need to say that?

[00:17:38] Speaker 04:
That is, there clearly was development work that was done by Invenergy, and there was payment from the beneficiary of that work.

[00:17:53] Speaker 04:
It's a little hard to see why the transaction

[00:17:58] Speaker 04:
in the form of payments in exchange for work, had no economic consequence and was a sham.

[00:18:08] Speaker 04:
I guess what I keep focusing on in my mind, and would like to hear whether you think I'm off in this, is whether it is sufficient to say, well of course there was a economically substantial transaction, but the only question is whether the dollar amounts

[00:18:27] Speaker 04:
are reliable indicators of the value.

[00:18:30] Speaker 04:
And that is something that the two taxpayers here had to prove, and the CFC said no, because the dollars might have been made up after the fact in almost any amount.

[00:18:48] Speaker 04:
And the lack of specificity in the agreement.

[00:18:53] Speaker 04:
But I guess I want to understand if you think,

[00:18:57] Speaker 04:
There's something inseparable about the C amount and the substantiality of the transaction.

[00:19:11] Speaker 01:
No, it's not inseparable.

[00:19:14] Speaker 01:
And the question, I think, as you framed it, is a sufficient question.

[00:19:20] Speaker 01:
We would disagree as to whether it was economically substantial.

[00:19:26] Speaker 01:
But yes, the court doesn't need to reach that.

[00:19:31] Speaker 01:
Under the statute, the plaintiff's burden is to prove that

[00:19:37] Speaker 01:
that these were costs of the wind farms.

[00:19:40] Speaker 01:
And so certainly, all of those various factors that are present here and that the claims court found established that they did not prove that $50 or $60 million was an accurate cost.

[00:20:03] Speaker 01:
I would answer your question, yes.

[00:20:05] Speaker 04:
Okay.

[00:20:06] Speaker 04:
And can I just ask, I don't think we heard anything about this this morning, but at least in the briefs there is some discussion of the role of U.S.

[00:20:16] Speaker 04:
banks investment or the subsidiary of U.S.

[00:20:20] Speaker 04:
banks investment in the two taxpayers here and how that might have been affected by the value assigned in the 2011 and 2012 agreements

[00:20:34] Speaker 04:
What do you make of that?

[00:20:40] Speaker 01:
Well, I think the plaintiff's argument on that isn't very clear, but essentially they're trying to show, well, I think their argument is basically that because U.S.

[00:20:58] Speaker 01:
Bank had become a partner

[00:21:01] Speaker 01:
in the holding companies that were the direct owners of the plaintiffs, shortly before the fees were purportedly paid, that the way that Invenergy treated that for accounting purposes somehow affected

[00:21:24] Speaker 01:
the relative partnership interests of US Bank and Invenergy.

[00:21:29] Speaker 01:
And I think our response to that would be first that they did not ever make that argument in the court below.

[00:21:35] Speaker 01:
So they waived it.

[00:21:37] Speaker 01:
And second, the claims court was fully aware of the evidence of Invenergy's accounting treatment and expressly found that it wasn't sufficient to carry plaintiff's burden.

[00:21:53] Speaker 01:
And for one reason being that they did not, you know, they did not show these accounting entries that they now claim demonstrated this change in partnership interests.

[00:22:15] Speaker 01:
So there's no clear error in that.

[00:22:18] Speaker 01:
You know, the court chose to credit

[00:22:21] Speaker 01:
the stipulations and the bank statements as to what the transaction was really about.

[00:22:29] Speaker 01:
And in any case, I think as a matter of law, paper transfers reflected in accounting entries, that's not even conclusive evidence that the transactions actually occurred, much less that they were economically meaningful.

[00:22:50] Speaker 00:
I'm not recalling off the top of my head.

[00:22:53] Speaker 00:
I don't have it in front of me.

[00:22:55] Speaker 00:
Are there a statement of related cases?

[00:22:57] Speaker 00:
Are there other cases pending that could arguably be affected by what we decide in this case or is this an off case?

[00:23:10] Speaker 01:
Not that I'm aware of.

[00:23:14] Speaker 01:
Yes, not that I'm aware of.

[00:23:16] Speaker 01:
I have a vague memory that perhaps there is something with these same parties pending in the claims court, but it's possible that I'm also thinking of another case that I have.

[00:23:30] Speaker 01:
I'd be happy to double check and submit something at 28J or something like that to the court.

[00:23:37] Speaker 01:
I am not clearly aware that there are any other cases pending.

[00:23:45] Speaker 01:
So, yes, I mean, our position is ultimately that these

[00:23:53] Speaker 01:
transactions lack economic substance both at the payment level and sort of as the overall development agreement transactions as we discussed that the court doesn't have to reach that question in order to affirm because ultimately it comes down to whether plaintiffs prove that these were bona fide costs of the wind farms and they didn't for reasons explained by the claims court and

[00:24:23] Speaker 04:
What is your response to this?

[00:24:26] Speaker 04:
Mr. Hayes, I think, said there was evidence, and I think he referred to testimony by Mr. Murphy, Mr. Shultz, and Mr. Atlas that established that these contract dollar amounts were in fact a reasonable valuation of the development services provided.

[00:24:55] Speaker 01:
To specifically answer the question, there's a caveat, but I'll come to that after.

[00:25:04] Speaker 01:
To answer the question, I think we would say that that evidence was focused on the wrong issue.

[00:25:12] Speaker 01:
Those evaluations were based on what they

[00:25:17] Speaker 01:
What plaintiffs viewed as the fair market value of the completed wind farms and not on a specific value of services provided.

[00:25:28] Speaker 01:
The caveat to that is that we don't accept the proposition that there were

[00:25:35] Speaker 01:
that Invenergy was some sort of outside service provider, providing services in exchange for a fee.

[00:25:44] Speaker 01:
Invenergy is the developer.

[00:25:47] Speaker 01:
They do some of those development things through subsidiaries that they control.

[00:25:53] Speaker 01:
But Invenergy is the developer.

[00:25:55] Speaker 01:
And if they want a wind farm, they have to do these various things to develop and have a wind farm at the end of it.

[00:26:02] Speaker 01:
So they are performing services for some outside entity.

[00:26:07] Speaker 01:
They're just doing the normal development work that they would do.

[00:26:10] Speaker 01:
And the costs of that development work were separately included in the basis that they claimed and the treasury allowed.

[00:26:22] Speaker 01:
the development fees are an attempt to recover, you know, amounts that they admit are amounts in excess of the costs of those development activities.

[00:26:36] Speaker 04:
Can I just ask you about this?

[00:26:38] Speaker 04:
I was left a little bit unclear from the briefing, including the reply briefing.

[00:26:42] Speaker 04:
Maybe Mr. Hayes can address this.

[00:26:46] Speaker 04:
at least on the taxpayer's side, is the, let's just take the $50 million, is the $50 million, does that represent the full valued price of a development service which would include in the ordinary course the costs incurred by the development service provider as well as a profit?

[00:27:16] Speaker 04:
that a development service provider would expect to make on top of its costs?

[00:27:22] Speaker 04:
Or is this $50 million, does it represent only the development service provider's profit?

[00:27:32] Speaker 01:
It represents only profit.

[00:27:35] Speaker 01:
The actual cost of the services they provided, as I said, were separately claimed as basis

[00:27:41] Speaker 01:
and allowed, you know, they received payments for, 1603 payments included, that was actual costs.

[00:27:51] Speaker 01:
They have testimony, there are documents in which they admitted that those amounts, the 50 or 60 million, were amounts in excess of actual costs.

[00:28:02] Speaker 04:
I know, but just, I'm sorry to beat this, but,

[00:28:09] Speaker 04:
A total of cost plus profit would be an excess of costs.

[00:28:13] Speaker 04:
I'm trying to understand if the $50 million purports to represent a proper payment to some service provider, which presumably would include a market price of the service provider, which would include the service provider's own costs and its profits, or does the $50 million represent only the service provider's profits to the exclusion of the service provider's costs?

[00:28:40] Speaker 01:
I would say the agreements don't answer that question, but other evidence from the record testimony of Invenergy's president and memoranda that we cited in our brief show that the 50 or 60 million represents only profit.

[00:28:59] Speaker 01:
Okay.

[00:29:05] Speaker 01:
I think unless there are additional questions,

[00:29:08] Speaker 01:
I will rest on our brief to the other arguments that we've made.

[00:29:13] Speaker 00:
Thank you.

[00:29:16] Speaker 00:
Mr. Hayes, you've got five minutes left of rebuttal.

[00:29:20] Speaker 02:
Thank you, Your Honor.

[00:29:22] Speaker 02:
Let me respond to the final colloquy between the Court and Mr. Carpenter first.

[00:29:35] Speaker 02:
These development agreements are, as I said at the outset, fee for service agreements.

[00:29:42] Speaker 02:
And they happen to be between related entities.

[00:29:46] Speaker 02:
But as we pointed out in our brief, that's not impermissible on its face.

[00:29:52] Speaker 02:
And the developers, the energy companies that were developers, are entitled to make a profit.

[00:30:00] Speaker 02:
And it's as if, by analogy,

[00:30:03] Speaker 04:
I'm sorry, Mr. Hayes, does the $50 million represent Invenergy's profit or the combination of Invenergy's costs and Invenergy's profits?

[00:30:20] Speaker 02:
Let me answer it this way, if I may, Your Honor.

[00:30:24] Speaker 02:
The $50 million fee is a cost to the project company.

[00:30:34] Speaker 02:
It is the fee that the developers charged for providing the development services.

[00:30:47] Speaker 02:
And the same is true with regard to the 60 million.

[00:30:50] Speaker 02:
It's a cost to the project.

[00:30:54] Speaker 04:
No, no.

[00:30:54] Speaker 04:
Mr. Hayes, I get that Invenergy's costs and California Ridge's costs are two different things.

[00:31:01] Speaker 04:
And California Ridge's costs include

[00:31:04] Speaker 04:
everything it has to pay to a developer, which would include the developer's costs and the developer's profits.

[00:31:10] Speaker 04:
Is the 50 million dollars the developer's profits or the total of the developer's profits and costs?

[00:31:20] Speaker 02:
The 50 million in isolation is essentially the developer's profit.

[00:31:26] Speaker 02:
Okay.

[00:31:27] Speaker 02:
And that number, and the 60 million, this is equally true, that number is

[00:31:34] Speaker 02:
Completely, that concept, first of all, that you can charge development fees and make a profit, and they are profit, is completely consistent with Treasury guidance with respect to the 1603 program.

[00:31:48] Speaker 02:
And the expert testimony that we put on at trial with regard to the three ways Treasury said you could value development fees, I'm using that as a shorthand.

[00:31:58] Speaker 02:
Our expert used the fair market value method

[00:32:01] Speaker 02:
and concluded and opined that the fees charged here were appropriate, given the cost of the development and the effort and the success of the projects, and completely consistent, indeed below what could have been charged.

[00:32:19] Speaker 02:
So there is that point.

[00:32:24] Speaker 02:
And Treasury, in its guidance, specifically said,

[00:32:28] Speaker 02:
that developers could charge markups such as this.

[00:32:32] Speaker 02:
So it is a profit to the developers, and it's perfectly appropriate under the 1603 program and existing case law.

[00:32:45] Speaker 02:
And it doesn't change, I would submit, the substance of these development agreement transactions, nor the business purpose of them.

[00:32:55] Speaker 03:
Now, since I've been looking at a lot of- Can I just ask you a clarification?

[00:32:57] Speaker 00:
I'm sorry, can I just ask you a clarification of the terminology you're using?

[00:33:01] Speaker 00:
We've been talking about costs, and we've been talking about profits.

[00:33:05] Speaker 00:
And what is a markup?

[00:33:08] Speaker 00:
Is a markup another way of describing profit, or does markup include costs and profits?

[00:33:18] Speaker 00:
You just used the term markup, so I'm just trying to clarify where that is in the discussion.

[00:33:24] Speaker 02:
I understand, Your Honor.

[00:33:25] Speaker 02:
And that's a term used by Treasury in its 1603 guidance.

[00:33:28] Speaker 02:
That's why I picked the term.

[00:33:30] Speaker 02:
I submit one way to think about this is by analogy to a cost plus fee contract to construct something.

[00:33:43] Speaker 02:
I will build you a building.

[00:33:46] Speaker 02:
I will charge you the cost.

[00:33:50] Speaker 02:
that I expend to build your building, and I will charge you a fee on top of that for my services.

[00:33:56] Speaker 02:
I think by analogy, that's what these agreements are.

[00:33:59] Speaker 02:
And to answer your question specifically, Your Honor, I think if one looks at the evidence, the Treasury guidances, which are in evidence, they use the term markup.

[00:34:09] Speaker 02:
They, by way of example, say a markup or fee in the 10% to 20% range, 10% to 20% of the other development cost is appropriate.

[00:34:20] Speaker 02:
And while I won't say Treasury was very specific in its language as to what markup meant, I think a fair reading from the guidance is it means a fee charged for the services rendered.

[00:34:36] Speaker 02:
Now, because I'm short of time, unless there are questions, there are a couple of other points I'd like to make.

[00:34:43] Speaker 02:
There are two cases pending in the Court of Claims by other Invenergy entities which have been stayed pending a decision in this case.

[00:34:53] Speaker 02:
Government says that the US bank argument was not raised by us below.

[00:34:58] Speaker 02:
That's not true.

[00:34:58] Speaker 02:
It was raised in closing argument.

[00:35:01] Speaker 02:
We cited to the appendix section in our brief and maybe our reply brief.

[00:35:09] Speaker 02:
I would also call the court's attention to pages 40 through 49 of our principal brief, in which we discussed at great length the testimony and evidence provided with respect to the accounting records.

[00:35:24] Speaker 02:
The government has argued that the accounting records were not shown to the trial court.

[00:35:31] Speaker 02:
I respectfully disagree with that and submit that if the court looks at those nine pages in the principal brief,

[00:35:39] Speaker 02:
the court will find that they are replete with appendix sites to testimony and documents, among which are the very accounting entries the government says the court wasn't shown.

[00:35:52] Speaker 02:
And unless there are further questions, finally, I would submit that

[00:36:11] Speaker 02:
The expert testimony provided by the plaintiffs in this case, among other things, establishes that the fees charged for development services were, to use a phrase counsel referred to, accurate costs.

[00:36:33] Speaker 02:
And I say that because if you look at the expert testimony,

[00:36:39] Speaker 02:
explains cogently and in detail how one is to value the cost to be charged for development services and explains clearly and cogently how these particular fees were within

[00:37:04] Speaker 02:
The range of appropriate fees using fair market value analysis, which our expert opined, is the appropriate methodology to use in this case.

[00:37:16] Speaker 00:
I assume just going back to, yeah, just one quick point.

[00:37:20] Speaker 00:
Going back to, you mentioned there were two cases pending before the Court of Federal Claims.

[00:37:24] Speaker 00:
I assume the issues in those cases do not include this development fee issue.

[00:37:30] Speaker 00:
Or am I right about that?

[00:37:31] Speaker 00:
They do.

[00:37:32] Speaker 02:
They do involve them.

[00:37:34] Speaker 02:
Now, they're at their very inception, Your Honor.

[00:37:36] Speaker 02:
They were filed, I don't remember exactly when, but around after this decision came down in the court of federal claims, and by agreement with the government, we stayed them pending this decision in this case.

[00:37:53] Speaker 02:
So they have, they're at their very infancy,

[00:37:58] Speaker 02:
There are development fees that were charged in those cases.

[00:38:02] Speaker 02:
Whether that becomes an issue of preeminence in those cases remains to be seen.

[00:38:07] Speaker 02:
But try to answer your question correctly.

[00:38:10] Speaker 02:
There are fees in the cases, in those projects.

[00:38:14] Speaker 00:
OK.

[00:38:15] Speaker 00:
Thank you.

[00:38:18] Speaker 00:
We thank both sides.

[00:38:20] Speaker 00:
We realize these are extraordinary circumstances.

[00:38:22] Speaker 00:
And we appreciate your cooperation.

[00:38:24] Speaker 00:
And the case is submitted.

[00:38:26] Speaker 00:
Thank you.