[00:00:04] Speaker 03:
The United States Court of Appeals for the Federal Circuit is now open and in session.

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God save the United States in this honorable court.

[00:00:15] Speaker 01:
Good morning, counsel.

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Our first case for today is 2019-1728, James Talcott Construction versus the United States.

[00:00:25] Speaker 01:
Mr. Meacham, please proceed.

[00:00:28] Speaker 05:
Thank you, your honor.

[00:00:29] Speaker 05:
As you are familiar with the briefing,

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This case is about construction at some housing units at Maelstrom Air Force Base in Great Falls, Montana.

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During the course of construction, mold was found in the crawl spaces.

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I think it's important for the panel to understand what a crawl space is and how it's isolated from the occupied and living spaces.

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A crawl space suggests a

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an area under the living unit which houses plumbing, HVAC, dust, and that type of thing.

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Excuse me, this is Judge Lynn.

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Am I correct that the crawl space is a sealed space, sealed from the outside environment, but when

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In the finished unit, it is mechanically ventilated by the HVAC system.

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It is not sealed from the outside.

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It is sealed between the crawl space and the living unit.

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Between the crawl space and the outside, there are gaps in the framing and so forth.

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And so the way this system was designed is that air from the HVAC system

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would not heat the crawl space, but it would be pumped, minor amounts of air would be pumped into the crawl space.

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And then that air that was pumped in would create a pressure that would then push air to the outside, not up into the living unit.

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So there is ventilating air that is mechanically pumped in during normal operation.

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Yes.

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But there are no deliberate vents in the structure to the outside.

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There are no deliberate vents in the structure outside.

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That's correct.

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All right.

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And so the system was designed to have that air filter out because there's minor portions of, when you talk about ventilation, it's not a significant amount.

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There's minor portions of air that are pushed out during the system when the system is in operation.

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But there's enough air circulating to prevent the buildup of mold.

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That is correct, once it's in operation.

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So the issue here is mold that may develop during the course of construction.

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That is correct.

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All right.

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Thank you.

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And so all of the areas to the living space are areas that are sealed off.

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The specifications were clear that after the first floor framing was installed, which includes the joists and the flooring system, which is a tongue and groove flooring, once a penetration was put in the floor to prevent

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Any air from flowing into the first floor, that area was to be sealed.

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Even the duct work, you mentioned the ventilation system, even the duct work that passed through the crawl space was to be a seamless material or to be tightly sealed.

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They did not want any air coming from the crawl space into the living area.

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And as mentioned in the brief, those areas, even though they receive minor amounts of air, they're deemed to be unheated areas and unconditioned areas.

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Now, as it relates to mold, the mold is not regulated by the EPA.

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There are no specifications within the contract that indicated there were limitations on mold that would be found on,

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rough framing materials, which were those materials that were in the crawl space.

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Now, the contract is not silent on mold.

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The contract recognizes that mold can grow on organic material.

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And so in those living spaces, the contract was very clear that if there is mold found on the finished carpentry, cabinets, drywall,

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those type of organic surfaces that the mold was to be removed.

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However, in regards to the rough framing and the crawl space, there was no such specification.

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The contract did not require the contractor to perform any ventilation, did not require the contractor to control moisture in the crawl space.

[00:05:34] Speaker 02:
Mr. Mecham?

[00:05:35] Speaker 05:
Yes.

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This is Judge Chen speaking.

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There was some provision incorporated into the contract, wasn't there, that the contractor would need to do some mold remediation if it was discovered in large quantities or unhealthy amounts.

[00:06:01] Speaker 02:
I guess to protect the employees during the construction.

[00:06:06] Speaker 05:
No, Your Honor, that is not the case.

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What the reference is, is there's a reference to EMT 385.

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EMT 385 is in relationship to the safety of the occupants of the building.

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Now, EMT 385 refers specifically

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to indoor air.

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And indoor air under ASRA is defined as those areas that are in occupiable spaces.

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This is judgment.

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What makes you say that the indoor air quality as used in EMT 385 is defined by the

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ASHRAE definition.

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In other words, why does that definition apply?

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Because EMT-85 specifically refers to ASHRAE in that provision of the specifications of the EM385.

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EM385 says that

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You need to, it refers to the indoor air quality.

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It refers to the ASHRA specifically in regards to how that is to be applied.

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And then when you go to the ASHRA, the ASHRA is very specific in talking about what is an enclosed, occupiable area.

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And indoor air.

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Where is the reference to ASHRA?

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in the EMT, EM385?

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I'm trying to find it.

[00:08:10] Speaker 05:
Yes.

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Let me, if you go to appendix 8331.

[00:08:21] Speaker 04:
Yes.

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It talks about an industrial hygienist or other qualified under a 6K

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zero one investigations, and the Israel hygienist, other qualified and competent person will initiate an IAQ, indoor air quality, investigation using appropriate guidelines published by, and it talks about ACGIC, and then the refrigeration and air conditioning engineers, that is ASHRA.

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And so those are the standards that are to be used.

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None of these other standards that are in there discuss that issue.

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And so the ASHRA is the standard.

[00:09:07] Speaker 02:
And in fact... Mr. Mecham?

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This is Judge Chen.

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I see a construction log at 82957 where JTC on January 5th, 2011 indicates that...

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mold was found in the crawl space of building 620, we are proceeding per EM385-06.K.03.

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That is correct.

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I mean, just to let you know what I'm thinking here, it appears to me that JTC understood that this EM385 provision

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had some kind of requirement and obligation it needed to follow if something were to occur and that something would be this mold that was found in the crawl space and it immediately understood and invoked this EM385 provision.

[00:10:18] Speaker 05:
That is correct and so because that area

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was an enclosed area that had workers.

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What they did is they went in and they had someone come in and look at the area.

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They did a review of that.

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And by February, they had people back in the area working.

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So that was a safety issue in regards to the workers.

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So the workers, what they did is they wiped things down and they went back in and they commenced working.

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Now what the government required was significantly more than that.

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So in regards to the safety provision, if you review all of the documents, JTC at that point, the only thing that it could find in regards to mold was 385.

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It had someone come in, they looked at the mold, they were able to occupy it.

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The government, if you look at the entire scope of the government's documents, at no time did the government indicate to JTC that you are required to remediate this mold and perform this remediation activity and certification in accordance with EM 385.

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It was later determined that 385 was not applicable.

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It was only applicable to indoor air.

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But on the initial finding of the mold, there was a determination made that we should come in, have someone come in and look at this, and make that evaluation.

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It was then subsequent to that, in January 26, where the government

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then issued their letter where they specifically said, and you'll see in that letter dated January 26, there is absolutely no reference to EM 385.

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The government's directive was based upon the FAR clause 52-236-9, protection of existing vegetation, structures, et cetera, which was found to be not applicable

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Because this was new construction, it was not existing construction.

[00:12:49] Speaker 01:
Mr. Mason, would you like to save the remainder of your time for rebuttal?

[00:12:58] Speaker 01:
Yes, I will.

[00:13:00] Speaker 01:
Very good.

[00:13:00] Speaker 01:
Then let's hear from the government.

[00:13:02] Speaker 01:
Please proceed.

[00:13:04] Speaker 00:
May it please the court.

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The court should affirm the judgment in favor of the United States dismissing the complaint because Talcott simply re-arguing factual propositions

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that were correctly rejected by the trial court after its nine-day trial in Seattle, where it heard from 15 witnesses, three of whom were experts, who talked about some 252 exhibits.

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Even if Talcott is successful in overcoming any legal finding here, it would still run into a finding of fact which it simply can't overcome.

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As you just heard from our colleague Steve Mecham,

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This case concerns the replacement of military housing at the Malmstrom Air Force Base.

[00:13:46] Speaker 00:
Ms.

[00:13:46] Speaker 02:
Acevedo?

[00:13:47] Speaker 00:
Yes.

[00:13:48] Speaker 02:
Am I pronouncing your name correctly?

[00:13:50] Speaker 00:
You are correct, yes.

[00:13:51] Speaker 02:
Okay, great.

[00:13:52] Speaker 02:
Ms.

[00:13:52] Speaker 02:
Acevedo, I heard Mr. Mecham say something about how the presence of mold in the crawl space would be absolutely irrelevant to any occupant of the home because

[00:14:11] Speaker 02:
the, as I understand it, the indoor air in the home, nothing from the crawl space ever goes up into the house.

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And so even if there's something incredibly noxious or mold or something like that, there really isn't any concern.

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And so you can't say that

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mold, even if it's grass-like growing all over the place in the crawl space, is a material defect to the home.

[00:14:46] Speaker 02:
Could you comment on that and explain what, if anything, in the record refutes that?

[00:14:54] Speaker 00:
Certainly.

[00:14:55] Speaker 00:
The testimony of their own mold expert, who was a fast expert, not a traditional expert, Mr. Keith Cron,

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Cron, incidentally, is spelled with a C, not a K. Found at page 15407 refutes that.

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The crawl spaces are semi-conditioned crawl spaces, and they provide heat to the home.

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HVAC air is introduced into the crawl space, but the crawl spaces are not airtight.

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They are designed to leak air.

[00:15:27] Speaker 00:
Otherwise, it would be like a balloon, right?

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air has to leak from the crawlspace.

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So the crawlspace air would leak up into the rest of the home and it would be carried by the HVAC air to the entire home.

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I asked Mr. Cron if it was his opinion that the introduction of conditioned air into the crawlspace would result in air from the crawlspace being circulated to other parts of the house and he said correct.

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And that is also backed up by the testimony of our expert, Mr. Jeffery Peters, which is down at page 16585.

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And Talcott himself acknowledged that the crawl space is not airtight, so that the air that's introduced by the HVAC that is then released to the house.

[00:16:15] Speaker 00:
So that is 15449.

[00:16:16] Speaker 00:
OK, thanks.

[00:16:23] Speaker 00:
Addressing the constructive change claim first, Talcott raises three claims, one for constructive change, one for a breach of contract based on a recorded implied warranty specifications, and a third for damages.

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On the constructive change claim first, taking that one now, they have to prove two things.

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They have to show that they performed work that was outside the contract, and they have to show that they did that at the direction of the government.

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So the trial court correctly held, obviously, that homes with what it described to be a vast amount substantial and pervasive mold growth did not comply with the contract expectation that the work be conducted in a skillful and work bin-like manner, and that it be warrantied from defects.

[00:17:08] Speaker 00:
It found that that amount of mold, mold which it said was covered floor joists, decked walls, gray beams, and appeared grass-like in the soil, was a material defect.

[00:17:19] Speaker 00:
But even if that... Council, this is such more.

[00:17:22] Speaker 01:
Is it true that other properties were also similarly infested with all of this mold, other properties not being built by JTC?

[00:17:36] Speaker 00:
So it is true that during... There were several phases of construction that during other phases of construction, mold was encountered during the construction phase.

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However, if you look at the place that cited for that, and I believe it is, if you'll give me just one moment.

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I'm looking for the site here.

[00:18:07] Speaker 00:
It's that mold.

[00:18:08] Speaker 00:
I think it's 9552 to 9553.

[00:18:11] Speaker 00:
That mold.

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was not the same type of mold.

[00:18:16] Speaker 00:
The trial court heard a lot of testimony about that.

[00:18:19] Speaker 00:
It was spotty mold.

[00:18:20] Speaker 00:
It was not the same.

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This was pervasive, substantial, and vast amount of mold.

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It was not the infestation that we see here.

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It was an occasional sighting of mold.

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But in any event, in those circumstances, if you look at the documents that cited in support of that, there the contractors accepted responsibility for the means and methods that caused the mold.

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and none of them submitted a claim or an REA in connection with it.

[00:18:48] Speaker 01:
I guess I'm not certain why that necessarily weighs in favor of the government.

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I mean, you know, the government is the giant in the room.

[00:18:58] Speaker 01:
The fact that the other contractors decided to just remediate and not go after the government for payment based on it being a design flaw, it doesn't seem to me to make it clear that it's not in fact a design flaw.

[00:19:14] Speaker 01:
if basically everyone was encountering the same problem and if they were using the government's designs, isn't this a design contract then?

[00:19:25] Speaker 00:
It's not a design contract because as the trial court correctly held, the contract contains performance requirements and in making that holding at page 6 of its opinion, it relied on notes 2 and 3 of the general structural notes

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which state, quote unquote, the contract structural drawings and specifications represent the finished structure.

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They do not indicate the method of construction.

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But in any event, CalCOT cannot prevail on its plan for design specification because it cannot overcome the trial court's factual finding that what caused the mold was its sequencing of construction in enclosed and saturated crawl spaces without taking any measures to

[00:20:08] Speaker 00:
dehumidify, ventilate, or otherwise dry them out, and not any purported reliance on an alleged defective specification.

[00:20:16] Speaker 02:
This is Judge Chen again.

[00:20:18] Speaker 02:
Sure.

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My understanding is one significant cause of the degree of mold in this particular circumstance is the choice to not lay down the plastic vapor barrier

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I guess until several weeks or a few months after everything else regarding the floor had been assembled and sealed off.

[00:20:49] Speaker 02:
Do you know if those other prior home constructions by other contractors also chose to not put down the plastic vapor barrier first?

[00:21:02] Speaker 00:
I don't know the answer.

[00:21:04] Speaker 00:
I don't know the answer to that.

[00:21:06] Speaker 00:
There's information, I was correct, the appendix was 9552 to 9553.

[00:21:11] Speaker 00:
And it doesn't indicate what steps they took and what sequencing of construction that they used, but it does make very clear that each of the contractors in all of the preceding phases took contractor responsibility for their needs and methods and didn't seek reimbursement for the government.

[00:21:27] Speaker 00:
And again, we're not talking, I'm sorry, go ahead.

[00:21:29] Speaker 02:
Another question is, I seem to recall there was some,

[00:21:34] Speaker 02:
view or finding, I don't know if it was a finding, that the cost and degree of remediation that those contractors had to do is not the same cost and level that JTC had to undertake, is that right?

[00:21:50] Speaker 00:
That may or may not be.

[00:21:52] Speaker 00:
There's no evidence in the record that I'm aware of.

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about the cost that each of those contractors encouraged to remediate the mold.

[00:22:00] Speaker 00:
What there is evidence in the record about is the court's factual finding here that JTC's remediation was not at the direction of the government but at its own direction.

[00:22:10] Speaker 00:
The court held that Talcott hired one hygienist company and chose to proceed with its recommendation unilaterally.

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The record contains no evidence of the government selecting one method over another nor expressing any preference.

[00:22:23] Speaker 00:
That's at page nine of the appendix.

[00:22:25] Speaker 00:
is defining by the trial court.

[00:22:27] Speaker 00:
Here, they had one plan.

[00:22:29] Speaker 00:
They hired one.

[00:22:30] Speaker 00:
You were correct when you were talking with Mr. Mecham earlier that they did identify the mold as being something that raised potential safety concerns.

[00:22:38] Speaker 00:
And as they are required to do a connection with the safety manual, they began proceeding with that manual immediately.

[00:22:44] Speaker 00:
And that manual requires them to hire what's called a certified industrial hygienist.

[00:22:49] Speaker 00:
They did that.

[00:22:49] Speaker 00:
They hired Mr. Keith Kron and he assessed the mold and gave them a plan.

[00:22:54] Speaker 00:
The plan had three options.

[00:22:56] Speaker 00:
They chose Mr. Kron, they chose that one plan, and they chose what option to follow without any input or direction of the government.

[00:23:07] Speaker 00:
And in fact, Your Honor, that's borne out no more clearly than in the cover letter to the Corps, which is down at 5091 of the appendix, where they indicate that they've already implemented the plan

[00:23:19] Speaker 00:
when they provide it to them.

[00:23:22] Speaker 02:
Could you explain why that makes a difference?

[00:23:25] Speaker 02:
What if hypothetically we were to say, well, this design is defective.

[00:23:31] Speaker 02:
So therefore, it's the defective design that caused the mold problem.

[00:23:41] Speaker 02:
Why would it matter that JTC wasn't

[00:23:46] Speaker 02:
directed or ordered by the government to do the mold remediation plan?

[00:23:55] Speaker 00:
So, if the defective design caused the problem, I guess there's a couple points there.

[00:24:04] Speaker 00:
If they are design specs, you would have to demonstrate that it was the defective design specification that was the cause.

[00:24:10] Speaker 00:
And here the trial court made a factual finding that the court and Talcott cannot overcome that what caused the mold

[00:24:16] Speaker 00:
was their sequencing and not any reliance upon a purported design specification.

[00:24:20] Speaker 00:
But even assuming that was the case, they cannot say that we directed them in terms of how to proceed and, you know, how to conduct the remediation when we didn't know about the remediation until it was already implemented.

[00:24:38] Speaker 00:
We received their plan on March 1st.

[00:24:41] Speaker 00:
So if you look at their plan, let's take a look at it.

[00:24:44] Speaker 00:
5092 of the record, you'll see in the first paragraph, it says, the file is dated February 10th.

[00:24:57] Speaker 00:
The following scope of work was started at your January 12, 2011 approval.

[00:25:03] Speaker 00:
On January 12th, that email is found at page 5184 of the record.

[00:25:08] Speaker 00:
Deja Talcott directed Crohn to establish a corrective action plan to remediate and provide future correction for potential microbial mold growth within a crawl space.

[00:25:19] Speaker 00:
And that is the direction that Crohn follows in formulating its plan.

[00:25:26] Speaker 00:
We didn't receive their plan until March 1st.

[00:25:30] Speaker 00:
And that document is obviously a proceeding page here.

[00:25:34] Speaker 00:
And you can see in the cover page at 5091,

[00:25:37] Speaker 00:
They indicate JPC has started mold remediation on building 620 and will continue the process as applicable.

[00:25:44] Speaker 00:
They had received a plan and were already implementing it when it was provided to us.

[00:25:48] Speaker 00:
We didn't direct them with respect to what to do and how to remediate the mold.

[00:25:54] Speaker 00:
We did require them to remediate the mold, however.

[00:25:57] Speaker 00:
That is true because, as the trial court correctly found, homes with pervasive vast amounts of substantial mold growth

[00:26:04] Speaker 00:
which would have gone to the entire home per the testimony of their own expert, as well as ours, and the admission of Mr. Talcott himself would not have complied with the contract.

[00:26:20] Speaker 01:
Okay.

[00:26:20] Speaker 01:
Council, is that it?

[00:26:22] Speaker 01:
Do you have anything further?

[00:26:23] Speaker 00:
If you have no further questions for me, I could address the delay damages if you would like me to, but I believe it's unnecessary as there's no causation.

[00:26:35] Speaker 01:
Well, I don't hear any questions, so thank you, Council.

[00:26:38] Speaker 01:
Let's have Mr. Meacham back up for his rebuttal time.

[00:26:41] Speaker 05:
Thank you.

[00:26:43] Speaker 05:
Yes, Your Honors, thank you very much.

[00:26:45] Speaker 05:
In regards to the issue of the air filtering from the crawl spaces into the living units, Mr. Cron did not review the plans and specifications that was brought out in his

[00:27:04] Speaker 05:
cross-examination.

[00:27:06] Speaker 05:
In regards to the government's expert, when I asked the government's expert about this being a non-conditioned space and about the crawl spaces being sealed, he specifically said, I just don't agree with it.

[00:27:19] Speaker 05:
Well, from a contractor's perspective, you need to look at the plans and specifications, and the plans and specifications specifically say those areas are sealed off.

[00:27:29] Speaker 05:
In regards to the

[00:27:31] Speaker 05:
Methodologies that were used, the judge was correct.

[00:27:39] Speaker 05:
The government gave us a directive, gave JTC a directive to remediate the mold.

[00:27:45] Speaker 05:
They selected the methodology that they considered to be the best, but it doesn't overcome the government's directive to remediate the mold and then also to

[00:28:00] Speaker 05:
ensure that it doesn't come back.

[00:28:02] Speaker 05:
In regards to Judge Chen's comment or question about the installation of the vapor barrier, I refer you to Appendix 9 or 4921, which is the government's March 11, 2011 letter.

[00:28:19] Speaker 05:
It says JTC shall continue to implement the recommendation provided by TPA

[00:28:25] Speaker 05:
and have CTA perform final inspections prior to installing the vapor barrier to ensure that the mold problem has been sufficiently resolved.

[00:28:35] Speaker 05:
Additionally, the government will require re-inspection of each building.

[00:28:39] Speaker 05:
So the government was telling JTC that you have to perform this work as directed by CTA to ensure that there's not going to be a mold issue.

[00:28:52] Speaker 05:
And we want you to do it before the vapor barrier is placed down.

[00:29:00] Speaker 05:
Now, in regards to the other phases, I think it's important for the court to understand that, and this was brought up by Judge Moore, but if you look at appendix 9, 5, 6, 7, this is where the government is reviewing the mold remediation plan.

[00:29:20] Speaker 05:
And it specifically states the USACE, Corps of Engineers, requested that the contractor submit a mold remediation plan to address the crawl space mold problem.

[00:29:31] Speaker 05:
This is contractor's plan approved by the CIA.

[00:29:35] Speaker 05:
Note, all housing phases have experienced mold problems just like Project 7E.

[00:29:43] Speaker 05:
This was not an isolated issue.

[00:29:46] Speaker 05:
This was an issue that was pervasive.

[00:29:48] Speaker 05:
And it was not until specifications were issued for the Phase 7G that required the contractors to address the mold issues.

[00:29:58] Speaker 05:
I'm sorry for my overrun a little bit.

[00:30:00] Speaker 01:
Nope.

[00:30:00] Speaker 01:
Thank you, Mr. Meacham.

[00:30:01] Speaker 01:
We thank both counsel.

[00:30:02] Speaker 01:
The argument was helpful, and this case is taken under submission.

[00:30:06] Speaker 01:
Thank you, Your Honor.

[00:30:09] Speaker 03:
Your Honor, we're to adjourn until tomorrow morning at 10 a.m.