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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 and this honorable court.

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Good morning.

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There are four cases before the court this morning, three of which are set for argument.

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The first argued case is case number 19, 2024, pyrotechnic specialties versus Secretary of Defense.

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Mr. Cooper, I understand that you've reserved five minutes for rebuttal.

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Is that right?

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Yes, Your Honor.

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Okay.

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Are you prepared to begin?

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Yes, Your Honor.

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All right.

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You may.

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Good morning.

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May it please the court, on behalf of Pyrotechnics Specialties, Incorporated, which I will refer to probably as PSI throughout this argument, we request that the court reverse the decision of the Armed Services Board of Contract Fills, because the judgment of the board was not supported by the substantial evidence of trial.

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There are two aspects of the lack of substantial evidence to support the board's ruling.

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First, the board relied primarily on the testimony of one inspector, Mr. Bowen, who admitted in his testimony that he had a lack of personal knowledge about the production and testing of the signal flare at issue, both at PSI and also more importantly at Martin Electronics, which was the vendor who produced

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the flare before PSI took over the contract.

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Mr. Bowen, specifically, he testified while being led by a government attorney that Martin Electronics had produced a million of these flares at a class A designation, meaning they were fit for any purpose, for any use.

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But then when he was on cross-examination, he was unable

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to say, he could not recall ever witnessing any testing of Martin electronics.

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He couldn't recall any details of Martin electronics.

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And he couldn't say how many of those million flares were accepted on deviations.

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And as I'll talk about in a minute, that's a critical aspect of this case because the TDP in this instance is defective.

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Moreover... Well, let me back up before we get to the TDP.

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Is it your position that if the government has ever accepted defective product in the past, it's somehow bound to accept defective product in the future?

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No, Your Honor, I'm not arguing that.

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The only reason I focus on what occurred at Martin Electronics is because it's critical to understand that the problem in manufacturing this product, which comes from the

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termination of the production of the 363L ceiling disc by 3M, another vendor, they stopped making that ceiling disc.

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And the problems that PSI experienced were also experienced by Martin Electronics.

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We don't say that the government is always bound to accept all of these flares on deviation, but what we do say is the fact that neither vendor could manufacture the flare is evidence

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that the GDP is defective.

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Once the ceiling... But wasn't PSI able to produce lots that were accepted without deviation while using the ceiling dish?

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I believe, Your Honor, that almost all of the lots were accepted on deviation.

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There were... Interfix 1.3, I see, was accepted without deviation.

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But once the 363L product by 3M was discontinued,

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And 3M said, well, you've got this 433 material, this paper, this double-sided adhesive you could use.

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And they said it has similar chemical characteristics and tensile strength.

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But it did not work in this application as well.

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And once PSI had to make that switch, then the problem occurs that the government specifications no longer work in the same way.

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And that's why the government loses the benefit of their immunity from

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from the production or excuse me, from the design of the splare.

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It's the replacement of that ceiling disc that leads, it's like a row of dominoes.

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You hit the first one and then all of these other problems of production occur.

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Those same problems occur at Martin Electronics and that's what shows.

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Is it your position that there's just not enough evidence of what happened at Martin Electronics or that your

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that there was evidence that all of those things occurred?

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Kind of both, Your Honor.

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First of all, there was evidence as to what happened at Martin Electronics.

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TSI, when they experienced these difficulties in production, hired an employee from Martin to come in and try to right the ship.

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And he had knowledge of the production of flares, and he testified at the trial.

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So there was some evidence as to what occurred at Martin.

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But more importantly, that is the sort of evidence that was excluded at trial as being irrelevant based on the government's objections.

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And we contend that it was relevant.

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And in fact, part of the problem- Isn't there a new disc after the start of this particular contract?

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There is.

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So there's two new discs, Your Honor.

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There's the 433 disc that's made using a 3M product that did not work.

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And then PSI actually took, when the production shut down for almost a year, they took that opportunity to design a steeling disc that they thought would work.

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But it's during that design process and testing that you see some of the abnormalities, like the flare.

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There's one side is in all the briefs, where when testing one end, the other end blows off, I don't know, 40 feet down the range or something, because there was too much pressure built up in the aluminum tube.

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PSI, yes, there was a new disk, but PSI actually had to design it.

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Part of the problem that occurs, though, is throughout this trial, the government objected as to any evidence of bad faith of the government inspectors or the contracting officer coming into evidence.

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Now, in their brief that they filed with this court, I think it's on page 40 of this brief, they now say, well, PSI urged the panel, the board here, to apply the wrong arbitrariness apprecius standard.

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And the standard they now say should be used has four factors.

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The very first one is evidence of subjective bad faith on the part of the government official.

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So the government seems to now acknowledge in their briefs to this court that, in fact, evidence of bad faith was relevant and is important.

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But I've gone through those objections.

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And it appears to me that things weren't actually excluded, that you claim were excluded.

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I mean, the dialogue back and forth with respect to a lot of the objections seemed to show that things were admitted and were allowed.

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It was just a question of developing the theory properly.

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That is correct for some of the objections.

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You're right, Your Honor.

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And so in many instances, as I recall, Judge Page, and of course, PFI was a first aid litigant at the time, but I observed the trial of rather transcript

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And my recollection is that Judge Page, in many instances, would say, I'm going to admit it to whatever probative value it may have.

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When I determine if we're going to allow this bad-faced evidence in, you have to recall, though, the court must recall that this trial occurs in October of 2014.

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It's not until December of 2016, January of 2017 that the court finally determines what issues were being tried.

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It's like watching a baseball game.

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Well, wasn't part of the problem that

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PSI did decide to go pro se.

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I mean, the problem was that there was a difficulty really determining exactly what the theory was, and there was a misunderstanding of basic evidentiary principles.

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And I got the feeling that the judge was actually trying to work with these pro se parties to try to make it easier on them to try to prove their case, not the other way around.

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I don't fault the court, Your Honor, and by the court I mean the judge.

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I don't fault the board for how it treated PSI.

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I'm not trying to in any way impugn Judge Page or say that she treated PSI improperly.

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It is difficult dealing with pro se litigants.

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I understand that.

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I clerked for a trial judge.

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I get that.

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But the reality is that decisions were made that were difficult.

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PSI had a very consistent theory of this case throughout the trial.

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And that was from the outset, even in the pre-trial conferences, that the government's bad faith was relevant and admissible and should come into evidence.

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What is your precise theory of bad faith?

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The precise theory, Your Honor, unfortunately, there's no proper evidence in the record.

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But PSI had multiple contracts.

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They produced not only the signal flare, but they produced the flash bang grenade.

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And what you see is that the DCMA inspectors were responsible for the inspection of the flares and the flash bang grenades.

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And what you see is the concerted effort by these inspectors, especially Mike King, whose deposition testimony, in which he acknowledges he perjured himself in grand jury testimony about PSI.

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these inspectors conspired against PSI.

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That's the theory, and that's what was excluded from evidence.

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Well, but what the judge said is you have to lay a foundation, and in fact, he allowed you to precisely ask if prior fraud was a factor in the consideration, and the answer was no.

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Right?

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I think he allowed us to ask one witness that, but the critical thing is at that juncture, the deposition testimony of Mike King

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should have been allowed into evidence in response to that testimony from the contracting officer, I believe, who was asked that question.

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And at that point, Mike King's testimony became directly relevant as to the truthfulness of that testimony by the contracting officer.

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And it was ultimately excluded.

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That deposition, among other pieces about it, was that deposition especially, the exclusion of which is so harmful.

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And the government's only objection to the admission of the deposition

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was on relevance grounds.

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They now, in their briefs, stated they were foundational issues.

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They did not raise that with the court at the time.

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So that's problematic.

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Was Mike Pink involved in this contract in any capacity?

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He was not an assigned inspector.

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But yes, he was knowledgeable of the testing.

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And he was involved behind the scenes in how PSI was treated in this contract and in the efforts to have this contract terminated.

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And it's that involvement which really necessitates the conversion of the termination from default or for default to one of the convenience.

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That and also the inability to manufacture the product now that 3M has discontinued the 363L ceiling disc materials.

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Okay.

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Do you want to save the rest of your rebuttal?

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Yes, Your Honor.

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Okay.

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We'll hear from the government.

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I may please the court.

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The board held a four-day hearing, made 185 fact-findings and 66 pages, and a fair reading of the transcript of the four days of the hearing shows a judge who is bending over backwards to be as overly inclusive as possible, mindful of the fact that PSI was represented by party representatives and not represented by counsel.

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Judge Page repeatedly

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uh... gave guidance as to how these party representatives could establish the foundations for the testimony they were trying to get in and ultimately she sustained the termination for defaults and failed to deliver lots of 4-2 and lots of 4-3 uh... that's the failure to deliver is not really disputed and therefore the burden of proof shifted to PSI in order to excuse its default and what the government concedes that

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the board deviated from its standard of review when evaluating PSI's arguments.

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Why isn't that a problem?

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Well, in terms of the use of discretion analysis, we believe that the board did not apply the proper standard.

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There's a four-part test that this court has used in McDonnell Douglas, originating from the 1982 court-acclaimed case.

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United U.S.

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Fidelity and Guarantee.

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There's four factors.

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The board did not apply that.

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But based on the findings of the board itself, there's clearly a reasonable contractual-related basis for the termination for default.

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A lot of the testimony, again, this is a challenge to a termination for default decision.

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So all of the incidences with the quality assistance representative

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who's name was mentioned by counsel.

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It's notable that Judge Page does not mention this gentleman's name because there have been absolutely inflammatory, somewhat scandalous allegations of this man engaging in unethical and perhaps even criminal behavior without any

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without even bothering to call this gentleman.

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This gentleman, by the way, he's been having any contact or work on this contract, which was terminated after seven years.

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After a few months, he was gone from the contract.

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The contracting office.

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Okay, I think you're jumping around a little bit.

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So on the standard of review, you admit that they used the wrong standard of review when they were supposed to use a de novo review.

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And, but it's your position that that was harmless?

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Is that right?

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Yes, exactly like in McDonald Douglas.

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I think it's very similar to McDonald Douglas.

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In fact, the board's analysis was similar to what caused the Court of Federal Claims in McDonald Douglas to get sideways in order to be sort of focusing on whether the contracting officer, in this case, it was whether the Navy customer really wanted to terminate for default

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whether there's proper consideration of the FAR factors, and all of this kind of APA type analysis, had the board come out the other's way, would have been reversible errors.

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But I think, as in McDonnell Douglas.

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Okay, what about the TDP?

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I mean, it does seem like everybody who tried to use the ceiling just had problems with it.

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Yes, and the board made numerous findings that Martin did experience problems.

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But they managed to produce, and the evidence is not really disputed, a million of these units.

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And PSI was able to produce these units as well.

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But the issue is, after giving multiple extensions, multiple modifications, delivery schedule modifications, working with PSI, and there were very serious manufacturing problems that developed.

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For instance, although,

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PSI and its replies makes it seem like the agency was dinging them for these trivial non-compliance issues.

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In fact, there was during an earlier lot, there was a shutdown under the contract because the unit fell apart during the functional task, which obviously not only would have endangered the life or limb of the ultimate customer or user, but also they had to shut down testing because the testing was too dangerous

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for the actual testing officials.

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So these are serious manufacturing problems that persisted throughout.

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And one of the issues of dispute, well, I'll just get back to the board.

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The board's finding was that the PSI, granted they did not have... Ms.

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McCarthy, this is Judge Torrento.

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Can I just ask you to focus on

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The very specific thing that was the basis for the default was the failure of, what is it, 4-2 and 4-3, is that right?

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Yes.

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Okay.

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So tell me what one knows about the problems of manufacturing for those specific devices

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And in particular, and I'm talking about PSI here, but I'm also interested in whether Martin successfully produced those particular devices or whether Martin's million units involved pre-4-2 and 4-3 components.

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I don't think the record is clear on that.

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I can tell you about the problems with the lot 4 and lot 4-2 and 4-3 were that they had some leakers and primarily it was long smoke time.

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And earlier... Just correct me if I'm wrong.

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My understanding, and I may well be wrong, is that the theory of PSI is that putting aside problems that predated 4-2 and 4-3

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The only reasonable inference from the record as to 42 and 43 is that the problem was the specifications demand for a particular, what is it, ceiling disc or something like that.

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And as to that, which is the only thing that matters, there's only one possible basis for the defective results because manufacturing defects didn't apply to that and Martin didn't apply to that.

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Well, as the board found, there's no evidence in the record to show that there was any nexus between the allegedly defective ceiling disc and the manufacturing problems that they have.

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In fact, the contracting officer who was new, Ryan Pearson, asked for a root cause analysis, which the PSI mentions repeatedly in its briefing, but that was rejected.

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Appendix page 1635,

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because the agency concluded that based upon the data submitted, the root cause in this instance is not conclusive.

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Conclusive.

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Just to be clear, was that specifically about the 4-2-4-3?

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Yes.

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This is preceding LASP-4-2, but this is the root cause analysis.

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I'm sorry.

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It's really, really important to me, and I could be confused.

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if this root cause analysis matters, it has to be about the 4-2 and 4-3.

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Is this?

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Right.

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It preceded 4-2 and 4-3 because they were shut down.

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So the content officer wanted to resume the contract in early 2011 and specifically asked PSI for a root cause analysis, which it subsequently rejected on February 7, 2011 at 1635.

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Then they proceeded with lot four.

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And on appendix page 2101, there's the quality assurance representative's report on September 2, 2011, and this is for lot 42, showing that even with the deviation, even though the smoke time was increased from 19 seconds to 25 seconds, still the range of the smoke temperatures were from 25 to 41 seconds.

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And there's no evidence in the record, and the burden was on PSI to adduce this, that Martin had greater relaxation of smoke time.

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In fact, it doesn't make much sense because these are five and a half inch units.

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And the idea of having a 41.48 second smoke time means that it could not be robust and continuous, which is what

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a stranded pilot needs while he's treading water in the water.

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So these were serious deviations.

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At appendix page 74, the board found that PSI had failed to present any detailed or credible analysis that the allegedly defective specifications were the cause of what the agency saw as an inspection problem.

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Can you clarify something for me?

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It's my understanding that the specification

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required discs that satisfied certain requirements, but didn't require a particular disc.

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Is that right?

[00:21:32] Speaker 01:
Exactly.

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That's absolutely correct, Your Honor.

[00:21:35] Speaker 01:
That's absolutely correct.

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And PSI, when PSI, there's a lot of evidence in the record about how it engaged another subcontractor to come up with a different disk.

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The agency exceeded the PSI's desires to do that.

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It didn't instruct PSI to do that.

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The drawing, the technical data package contains drawings and the agency approved whether certain ceiling disks satisfied the drawing.

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And it was, but it was up to PSI

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to manufacture them, and they simply did not adduce the evidence.

[00:22:06] Speaker 02:
Did the PSI at some point get permission to use a thicker disc?

[00:22:12] Speaker 01:
Yes.

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Yes, it did.

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And then still had problems with use of the thicker disc.

[00:22:17] Speaker 01:
Right, and it blames the thicker disc.

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But again, this is a situation in which the agency is exceeding the PSI's desire to use these different discs, so long as they conform with the drawings.

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But it could continue to be the view of the agency that, on Genetics page 1635, that the test data as presented, and this is in February 2011, appears to show that it's more of a quality deficiency with the production line than with the suing disk issue.

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And Judge Page noted, after really bending over backwards, that she was extremely indulgent of PSI during the four-day hearing,

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she ultimately concluded correctly that there was no detailed or credible analysis that would link the ceiling disc to the problems with meeting the specifications.

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And these were not trivial problems.

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These go to safety of life and limb, and also just the functionality.

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If you have a long smoke time, then the product will not succeed and be successful in its intended use.

[00:23:26] Speaker 00:
Can you just recount what happened at the hearing with respect to the Martin evidence?

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What was requested by PSI?

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What were the government's objections?

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What was the testimony?

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What was the adjudicator's ruling?

[00:23:46] Speaker 01:
Well, one of the officials testified.

[00:23:51] Speaker 01:
It was the government's

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the government's main witness was Kevin Bowen, and he had familiarity with Martin, but they didn't call anyone from Martin.

[00:24:03] Speaker 01:
They didn't call, they really, it was a failure of proof on their part.

[00:24:08] Speaker 00:
There wasn't really a whole lot of evidence, and I have to- Was evidence offered by PSI that was rejected by the adjudicator?

[00:24:19] Speaker 01:
Uh, counsel can correct me, but I'm not, I don't believe so.

[00:24:22] Speaker 01:
I read the entire four days of transcripts this weekend.

[00:24:26] Speaker 01:
And, uh, the overwhelming oppression is that, um, I, I, you know, I think that particularly with regard to the, to the allegations of fraud, the judge let a lot of, uh, speculation and innuendo and defamatory statements, uh, I don't know if they're defamatory or not, but she let them on the record.

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And I think it's notable.

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that in her decision, Judge Page does not identify this, she calls him the former lead QAR.

[00:25:00] Speaker 01:
She doesn't identify him by name, I think to protect him because a lot of this evidence came into the record, which is quite damaging to this man's reputation without a scintilla of evidence to prove it.

[00:25:12] Speaker 01:
Not a scintilla of evidence to prove it.

[00:25:14] Speaker 01:
And with regard to the excluded deposition,

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This is like any trial.

[00:25:19] Speaker 01:
Yes, deposition testimony can come in under certain circumstances, but they didn't even bother to put this gentleman on their trial list and call him as a witness themselves, which they could have done.

[00:25:28] Speaker 01:
They chose not to, and then they want to get his deposition testimony admitted because they want to make serious allegations against him without confronting him in court.

[00:25:39] Speaker 01:
And again, all of these allegations of alleged fraud

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vastly predate this termination decision in 2011.

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And the contracting officer who made the termination decision doesn't know anything about this.

[00:25:54] Speaker 01:
He came onto the contract in 2010.

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So he had no knowledge of any of this prior allegations.

[00:26:03] Speaker 01:
And so there was certainly no evidence of bad faith in the decision-making itself.

[00:26:08] Speaker 01:
He, as the judge found, he followed all of the FAR factors and then they try and in their briefing, they try and use his analysis of the FAR factors to decide in determining whether to terminate for default.

[00:26:20] Speaker 01:
They use it against them by saying, say they had another supplier already set up and one of the FAR factors requires the contracting office to determine whether there's another source for the contract material if the contract were devolved.

[00:26:38] Speaker 01:
And in any event, we think that Judge Page bent over backwards to be as inclusive as possible and that her findings are supported by substantial evidence and asked to the court.

[00:26:49] Speaker 02:
Okay.

[00:26:50] Speaker 02:
Thank you, counsel.

[00:26:50] Speaker 02:
All right.

[00:26:53] Speaker 02:
We'll hear the rebuttal.

[00:26:55] Speaker 03:
Yes, Your Honor.

[00:26:56] Speaker 03:
Thank you.

[00:26:57] Speaker 03:
The critical thing is that it's not whether or not the TDP is producible.

[00:27:01] Speaker 03:
It's whether or not it's a promise when you enter into one of these contracts that the TDP is producible en masse.

[00:27:08] Speaker 03:
At appendix 1004 is a letter from Martin Electronics that was admitted into evidence where Martin says they manufacture approximately 30% of the units required by the contract with only 4% accepted for delivery.

[00:27:23] Speaker 03:
I don't know how else you prove that Martin could not manufacture these any better than PSI and that shows the problem with the TDP.

[00:27:32] Speaker 03:
The reality is when you look at the board's decision

[00:27:36] Speaker 03:
The board ignores substantial evidence.

[00:27:39] Speaker 03:
For instance, it says the PSI offered no evidence.

[00:27:41] Speaker 00:
Mr. Cooper was on the Martin question.

[00:27:45] Speaker 00:
Yes.

[00:27:46] Speaker 00:
Did you offer some evidence that the adjudicator rejected?

[00:27:51] Speaker 00:
I mean, refused to admit or something like that?

[00:27:56] Speaker 03:
I think we did, Your Honor.

[00:27:58] Speaker 03:
And I believe that there were, when you go through the examination of Mr. Bowen,

[00:28:05] Speaker 03:
and also the contracting officer, Mr. Pierce, there were pieces of evidence with Martin electronics that were excluded on relevance grounds.

[00:28:15] Speaker 03:
In part, the government continually objected that what Martin was able to do was irrelevant, that the government's bad faith was irrelevant.

[00:28:23] Speaker 03:
Now the government acknowledges that they should have gone through this McDonnell-Douglas analysis with four factors, the first of which is bad faith,

[00:28:31] Speaker 03:
you know all of their objections to trial doesn't matter how lenient judge page was the reality is all of the government's relevance objections to trial are improper when you look at the standard that they now say the board should have considered and when judge when the boy why wasn't it fair to say that the only thing that matters is what the adjudicator did not what the government did and unless you can point to

[00:28:59] Speaker 00:
the exclusion of evidence that relied on an incorrect standard.

[00:29:06] Speaker 00:
I'm not sure how you gain traction.

[00:29:10] Speaker 03:
That's a fair point.

[00:29:11] Speaker 03:
And so I focus on the government's objections because they made so many of them, which of course has had an impact on a pro-state litigant.

[00:29:18] Speaker 03:
There's 60 pages of nothing but objections to this bad-faced evidence raised by the government.

[00:29:24] Speaker 03:
It's infusing the tribunal, the Appendix 188

[00:29:28] Speaker 03:
through 251.

[00:29:30] Speaker 03:
But I think the reality is the exclusion of Mr. King's testimony, who was, by the way, I think I mentioned earlier, Mr. King was, in fact, the inspector on this contract early in the contract in 2006 from the first interfaces.

[00:29:43] Speaker 03:
So he would have had knowledge about those and he would have had an impact on this contract.

[00:29:48] Speaker 02:
Why didn't you call Mr. King?

[00:29:51] Speaker 03:
My understanding, Your Honor, is Mr. King was in Kuwait at the time.

[00:29:54] Speaker 03:
He had been sent there on another matter for the government.

[00:29:57] Speaker 03:
He was unavailable to testify.

[00:29:59] Speaker 03:
I don't think that's in the record, but he was also on the government's witness list.

[00:30:04] Speaker 03:
So there's a lot to be made of, well, PFI did not identify him on their witness list, but he was on the government's list.

[00:30:10] Speaker 03:
And so PFI could have called him if he had been in the country.

[00:30:12] Speaker 03:
He was unavailable.

[00:30:14] Speaker 03:
I think that the board applied the wrong standard here and excluded evidence that should have come in.

[00:30:19] Speaker 03:
I think that had PSI been allowed to introduce Mr. King's deposition, show more evidence with that faith, and explain why this product was not manufactured by Martin, then I think that the substantial evidence clearly would have weighed in.

[00:30:36] Speaker 03:
And I think the evidence already does, actually.

[00:30:39] Speaker 03:
For instance, the board says in its ruling that PSI offered no evidence of correct crimping.

[00:30:44] Speaker 03:
Yet there's substantial testimony about that in numerous documents as to that.

[00:30:49] Speaker 03:
And there's no explanation offered by the board in its decision as to why that evidence is not even considered.

[00:30:55] Speaker 03:
The board never even mentions the evidence.

[00:30:57] Speaker 03:
It's as if they missed a day of the testimony, which I know they did not.

[00:31:01] Speaker 03:
And I don't say that flippantly, but there's large chunks of evidence that the board does not review in its decision that substantiate PSI's claims.

[00:31:10] Speaker 03:
So we think the board's decision

[00:31:14] Speaker 03:
should be reversed, and either a new trial should be permitted where this evidence can come in, or that this court should convert the termination for default to one of conversion.

[00:31:23] Speaker 03:
Thank you all for your time this morning.

[00:31:27] Speaker 02:
Thank you, counsel.

[00:31:28] Speaker 02:
The case will be submitted.