[00:00:00] Speaker 00:
The next case for argument is 23-1556, Team Systems versus Secretary of Homeland Security.

[00:00:09] Speaker 00:
Mr. Bolen, we'll note your votes.

[00:00:12] Speaker 01:
Thank you.

[00:00:13] Speaker 01:
Good morning, Your Honors.

[00:00:14] Speaker 01:
May it please the Court, James Bolen for the Appellant Team Systems.

[00:00:19] Speaker 01:
The board's interpretation of the restocking CLIN005 in the contract was legal error.

[00:00:27] Speaker 01:
we believe that TSI's interpretation is the only reasonable one, or at least it is a reasonable interpretation.

[00:00:32] Speaker 01:
The CLIN, the only quantity that's mentioned in this CLIN description is the quantity of product that is reduced or canceled, not restuck.

[00:00:43] Speaker 01:
The government's interpretation and the board's interpretation below rests on the assumption that the applicable quantity

[00:00:52] Speaker 01:
that you multiply the unit price on on a CLIN-5 is the quantity actually restocked, you know, physically restocked.

[00:00:59] Speaker 01:
And with that is an implicit assumption that there was some incurred cost.

[00:01:03] Speaker 01:
And you'll sort of see that.

[00:01:04] Speaker 02:
I don't think that latter statement is necessarily correct.

[00:01:08] Speaker 02:
I think this provides a, elsewhere it provides a per unit basis.

[00:01:13] Speaker 02:
So you don't have to show your actual cost for the restocking.

[00:01:17] Speaker 02:
But this still is a restocking CLIN.

[00:01:19] Speaker 02:
It's not a cancellation CLIN.

[00:01:21] Speaker 02:
Don't you have to show?

[00:01:23] Speaker 02:
So let me ask you hypothetically.

[00:01:25] Speaker 02:
So the government orders 100 million bottles of water.

[00:01:29] Speaker 02:
You order 100 million bottles of water from your manufacturer, and they get delivered to you.

[00:01:34] Speaker 02:
And the government comes back and says, oh, we only need 20 million.

[00:01:38] Speaker 02:
And you take the remaining 80, and you don't send them back to the manufacturer, which would be restocking.

[00:01:46] Speaker 02:
But you sell those on to another party.

[00:01:50] Speaker 02:
because you're in the business of selling water.

[00:01:53] Speaker 02:
Is there any restocking there if you sell them on to another party?

[00:01:57] Speaker 02:
In that instance, no.

[00:01:59] Speaker 02:
So why should you get a cancellation fee or a restocking fee when there's no restocking?

[00:02:05] Speaker 01:
Because the restocking fee is a cancellation fee.

[00:02:09] Speaker 02:
If it was a cancellation fee, wouldn't it say it was a cancellation fee?

[00:02:13] Speaker 01:
Your Honor, respectfully, no.

[00:02:14] Speaker 01:
And that's contrary to the three expert reports that we've seen.

[00:02:18] Speaker 02:
Yeah, you were too late on those.

[00:02:19] Speaker 02:
I mean, that's no use of discretion analysis.

[00:02:21] Speaker 02:
And my colleagues might disagree, but just assume for purposes of my questions that I'm not looking at those experts.

[00:02:28] Speaker 02:
I'm looking at the plain language of this.

[00:02:30] Speaker 02:
and the title of it is restocking fee, and the second sentence says, this fee covers the cost of restocking.

[00:02:38] Speaker 02:
How is this not a restocking fee, and in your view, a cancellation fee?

[00:02:45] Speaker 01:
It's because restocking fee is a common term in the industry to mean cancellation.

[00:02:51] Speaker 00:
OK, but on the plain language, we don't win.

[00:02:56] Speaker 00:
It covers the cost of restocking.

[00:02:59] Speaker 01:
That explains the purpose, but the purpose does not mean that you actually have to incur cost.

[00:03:07] Speaker 00:
Well, if it says the fee covers, if there's nothing that it's covering, then that answers the question, right?

[00:03:15] Speaker 01:
You can cover a hundred million, you can cover zero.

[00:03:18] Speaker 02:
Doesn't it at least require restocking?

[00:03:21] Speaker 02:
Even if, say for instance, you had

[00:03:23] Speaker 02:
a good deal with your manufacturer, and they didn't charge you anything for restocking.

[00:03:28] Speaker 02:
They just said, we'll take back whatever you don't use for free.

[00:03:33] Speaker 02:
There's still restocking there.

[00:03:36] Speaker 02:
And in that case, you would get the restocking fee.

[00:03:40] Speaker 01:
So I think it's really important for the court to consider the risk.

[00:03:45] Speaker 01:
What is being paid with this fixed price?

[00:03:47] Speaker 01:
So the risk to TSI here is that their restocking fee

[00:03:53] Speaker 01:
could have been $0.80 a liter.

[00:03:56] Speaker 01:
And they would have been in serious financial trouble.

[00:03:58] Speaker 01:
This was an emergency order.

[00:04:01] Speaker 01:
These contracts were bid.

[00:04:03] Speaker 02:
I don't see how that matters to the interpretation of this.

[00:04:07] Speaker 02:
If the $0.20 was too low, then you negotiated a bad deal.

[00:04:11] Speaker 02:
That doesn't have any bearing on what the plain language of this means when it's talking about restocking.

[00:04:17] Speaker 02:
I mean, I find your position in this case almost incredulous that when something is titled a restocking fee and says the point of this fee is to cover the cost of restocking, and you want to say it doesn't deal with restocking at all, it's a cancellation fee.

[00:04:32] Speaker 01:
We're not saying it doesn't deal with restocking.

[00:04:34] Speaker 01:
We acknowledge that.

[00:04:36] Speaker 02:
Your whole point is there doesn't have to be any restocking whatsoever, that it's a cancellation fee.

[00:04:42] Speaker 01:
What we are saying is that this CLIN is in lieu of the Termination for Convenience Clause that would normally cover exactly this sort of thing.

[00:04:51] Speaker 01:
This was a separate arrangement where the parties agreed in advance to fix an amount, so this covers it.

[00:04:58] Speaker 04:
I mean, if this clause was not here... Under the termination for convenience clause, you would have to establish your injury and your costs.

[00:05:08] Speaker 04:
Here, you don't have to establish the cost.

[00:05:11] Speaker 04:
It's set, but it covers restocking.

[00:05:15] Speaker 04:
So it's specific to that event.

[00:05:21] Speaker 01:
Right.

[00:05:25] Speaker 01:
The actual description, though, and again, the definition says what it triggers.

[00:05:31] Speaker 01:
And it's the initial order quantity is decreased or canceled.

[00:05:34] Speaker 01:
So that's what's telling you when the clean five fee kicks in.

[00:05:40] Speaker 01:
OK.

[00:05:42] Speaker 00:
But it doesn't establish that you get the fee or the amount of the fee or what the fee covers.

[00:05:47] Speaker 00:
It just says that's the circumstance in which this might apply.

[00:05:52] Speaker 00:
And then it says that the fee covers the cost of restocking.

[00:05:58] Speaker 00:
That's the operative language, right?

[00:06:01] Speaker 01:
Right.

[00:06:01] Speaker 01:
It does.

[00:06:02] Speaker 01:
And so it's essentially, it's a blanket pre-negotiated amount.

[00:06:06] Speaker 01:
And so in any case... Or restocking costs.

[00:06:08] Speaker 02:
Right.

[00:06:11] Speaker 02:
individual cost for restocking.

[00:06:13] Speaker 02:
This is not a cancellation clause.

[00:06:18] Speaker 02:
It just doesn't say that.

[00:06:21] Speaker 02:
If you wanted the regular T for C clause, I suppose you could have tried to negotiate it.

[00:06:25] Speaker 02:
I mean, you probably wouldn't have gotten it.

[00:06:27] Speaker 02:
But in that case, you would have been

[00:06:29] Speaker 02:
If there was no restocking there, then you also would not have gotten anybody, right?

[00:06:34] Speaker 02:
Go back to my hypothetical.

[00:06:36] Speaker 02:
If we had the traditional T4C clause, government order is 100 million bottles of water, then only once 20, you sell the 80 you have left at either the same profit or a bigger profit.

[00:06:49] Speaker 02:
You don't get anything under the T4C clause, do you?

[00:06:52] Speaker 02:
Because you don't have any increased costs for the cancellation.

[00:06:55] Speaker 01:
There could be and there probably would be indirect costs.

[00:07:00] Speaker 01:
But keep it straight to my eyes.

[00:07:02] Speaker 01:
Sure.

[00:07:04] Speaker 01:
I don't disagree with that.

[00:07:05] Speaker 01:
Right.

[00:07:07] Speaker 02:
So why are you trying to get more because of this?

[00:07:09] Speaker 02:
Because it's a restocking clause.

[00:07:13] Speaker 02:
When you let's just assume I have no idea because there's no facts in here.

[00:07:17] Speaker 02:
You didn't try to show there was restocking I'm gonna assume for purposes again of a hypothetical that you incurred no additional out-of-pocket cost Because of the government's cancellation Why should you get money for restocking that didn't occur?

[00:07:31] Speaker ?:
I

[00:07:32] Speaker 01:
Because that was the negotiated crisis, the nature of fixed-price contracts.

[00:07:38] Speaker 01:
When parties propose and say, hey, I'm going to be charged a restocking fee, that's what TSI said under the emergency conditions.

[00:07:45] Speaker 01:
And so they were invoking, and they said, well, we're proposing $0.20 for Clean 5.

[00:07:50] Speaker 01:
If it turns out they don't actually get charged, fixed-price contracting doesn't allow you to go back and revisit that.

[00:07:57] Speaker 00:
But you just said the fee is for restocking.

[00:08:00] Speaker 00:
How are you to determine the quantity, the amount of money?

[00:08:04] Speaker 00:
How are we supposed to calculate the amount of money if not in terms of the quantity that was restocked?

[00:08:12] Speaker 01:
We are not disagreeing that the CLIN is to cover the cost, whatever those may be, of restocking.

[00:08:19] Speaker 01:
We agree.

[00:08:20] Speaker 01:
It's sort of a plug number.

[00:08:22] Speaker 01:
This is the maximum liability the government would receive.

[00:08:26] Speaker 01:
But the quantity is determined by the amount canceled, because that's the only quantity described in CLIN 5.

[00:08:31] Speaker 01:
CLIN 5 does not say the things that the government wants it to say.

[00:08:35] Speaker 01:
And we've argued that- The quantity isn't

[00:08:39] Speaker 00:
There's no quantity identified in Clean Five.

[00:08:42] Speaker 00:
It refers to the quantity either decreases or the order is canceled.

[00:08:47] Speaker 00:
That's the predicate.

[00:08:49] Speaker 00:
But once you get to that, what establishes what the fee is, is what it covers.

[00:08:54] Speaker 00:
And it says it covers the cost of restocking.

[00:08:57] Speaker 01:
Right.

[00:08:59] Speaker 01:
And the cost of restocking doesn't have to be

[00:09:02] Speaker 01:
more than zero.

[00:09:05] Speaker 01:
Because you're negotiating this in advance.

[00:09:07] Speaker 02:
But there has to be restocking.

[00:09:09] Speaker 02:
Even if the cost was zero, there's no restocking.

[00:09:13] Speaker 02:
You didn't attempt to show that there was restocking.

[00:09:16] Speaker 02:
I get you.

[00:09:17] Speaker 02:
You don't have to show under this clause the actual cost.

[00:09:20] Speaker 02:
And even if they were zero, the government negotiated a per unit cost because they didn't want to go through the business of trying to figure out actual cost.

[00:09:30] Speaker 02:
So maybe you could do it for zero money.

[00:09:32] Speaker 02:
But the predicate for this to kick in is restocking.

[00:09:39] Speaker 02:
Right.

[00:09:41] Speaker 02:
And I understand the court's set.

[00:09:43] Speaker 02:
Well, let me just ask you this.

[00:09:44] Speaker 02:
If that's the right legal reading of this, if that's what we find, you agree that there was no restocking here on the record we have?

[00:09:53] Speaker 01:
We agree.

[00:09:54] Speaker 01:
OK.

[00:09:54] Speaker 01:
Right.

[00:09:56] Speaker 01:
But if I may, I'd like to turn back to Judge Hughes you mentioned before about the timeliness.

[00:10:02] Speaker 01:
And I'd like to make a run at that.

[00:10:05] Speaker 01:
In our opposition to FEMA's summary judgment motion, and this is on appendix 0465, we said that if the government or the board was inclined to rule in FEMA's favor, we wanted the right to present testimony on restocking fee, as that term's understood, to natural practice and other parties.

[00:10:27] Speaker 01:
We had agreed with FEMA early on to pause expert and fact discovery.

[00:10:33] Speaker 01:
to exchange summary judgment motions on this.

[00:10:35] Speaker 01:
The board did not enter judgment.

[00:10:36] Speaker 02:
Let me ask you this.

[00:10:37] Speaker 02:
Even if that is all wrong, if our plain reading decides restocking, none of that stuff matters, right?

[00:10:44] Speaker 02:
You don't get to your testimony if our plain reading is restocking the required.

[00:10:49] Speaker 01:
I actually disagree completely.

[00:10:51] Speaker 01:
I think Metro Constructors requires this court to send it back to the board to consider expert testimony.

[00:10:56] Speaker 04:
Well, the facts in metric construction is a little different, and I don't know, you don't over-read what's set forth in metric.

[00:11:06] Speaker 00:
And can we find it was harmless error?

[00:11:08] Speaker 00:
I mean, we do that all the time in cases.

[00:11:11] Speaker 00:
So it was harmless error because nothing they could have contributed would change our reading of the plain meaning of the contract.

[00:11:19] Speaker 01:
But I would say respectfully that the contract does not say the words.

[00:11:24] Speaker 01:
I know it talks about recycling, but it does not say, unlike the other additional claims, it does not say

[00:11:29] Speaker 01:
that the quantity is the quantity actually restocked.

[00:11:32] Speaker 01:
I mean, that's inferred, but it doesn't say that.

[00:11:36] Speaker 02:
But that's not what we're talking about now.

[00:11:38] Speaker 02:
We're talking about whether it was a harmful error to not consider the expert's testimony about this language.

[00:11:46] Speaker 02:
And if we determine, as a matter of plain language, that this requires restocking to kick in, then whatever the expert said doesn't matter.

[00:11:58] Speaker 02:
Because you don't get to expert testimony if the language of the contract is plain, right?

[00:12:04] Speaker 01:
I disagree.

[00:12:04] Speaker 01:
That's not what metric instructor said.

[00:12:06] Speaker 02:
OK, that is a fundamental issue of contract law, that you don't go to extrinsic evidence.

[00:12:12] Speaker 02:
You are really pushing it here.

[00:12:14] Speaker 02:
That case is not on point.

[00:12:16] Speaker 02:
The plain language of the contract controls you don't go to extrinsic evidence.

[00:12:21] Speaker 02:
if you find that it's plain.

[00:12:24] Speaker 01:
John, my reading of metric is that you can look at trade practice as part of the initial assessment of contract meaning because it may show that language that appears on its face to be perfectly clear and unambiguous in fact has a meaning different from its ordinary meaning.

[00:12:43] Speaker 01:
That's what we're saying.

[00:12:45] Speaker 01:
to the extent the court says restocking fee only means this situation, then at a minimum, the board should look at and consider whether that term is a term of art in the industry.

[00:12:58] Speaker 01:
And when people say restocking fee, they consider it a cancellation fee.

[00:13:02] Speaker 01:
And what we're saying is that the board has to look at that to determine is this clause ambiguous or not.

[00:13:14] Speaker 01:
If you have any other questions, I may reserve my time.

[00:13:17] Speaker 01:
Yes, thank you.

[00:13:17] Speaker 01:
Thank you.

[00:13:28] Speaker 03:
I wanted to first briefly turn to the reference to 465 in which Team Systems claims reserves... Could you just, so we don't forget about it, could you just respond to his last point about metric constructors?

[00:13:42] Speaker 03:
No, no, I think metric constructors is indeed distinguishable, and metric constructors involve the question of relamping.

[00:13:50] Speaker 03:
Both parties argued about relamping a term that did not appear at all in the contract.

[00:13:54] Speaker 03:
Here we have the language of the contract.

[00:13:56] Speaker 00:
In your opinion, in your brief, JOEP, which clearly says that these are irrelevant for the contract language.

[00:14:05] Speaker 00:
Yes.

[00:14:05] Speaker 03:
I mean, when you have plain language in the four corners of the contract, you can interpret it as unambiguous.

[00:14:10] Speaker 03:
You focus upon the language of the contract first and foremost.

[00:14:15] Speaker 03:
Well, I think that actually flows into my point.

[00:14:17] Speaker 03:
Because team systems even recognize this.

[00:14:20] Speaker 03:
They say they reserve their right to sort of introduce declarations later on.

[00:14:24] Speaker 03:
But what they actually reserve

[00:14:26] Speaker 03:
is, and this is on appendix 465, their footnote states, you know, that in the event the board determines that claim 005 was patently ambiguous and declines to construe the meaning against the government, TSI requests the author to provide testimony.

[00:14:42] Speaker 03:
So they recognized at the time that indeed if it was unambiguous, they wouldn't be introducing declarations.

[00:14:50] Speaker 03:
That actually cuts against their argument that they sort of had reserved their rights and that this was something that would come in later and it wasn't untimely.

[00:14:59] Speaker 03:
Overall, the government's position I think is set forth pretty well in our briefs.

[00:15:03] Speaker 03:
We hold that a restocking fee requires restocking.

[00:15:07] Speaker 03:
Consistent with the plain language of the contract.

[00:15:11] Speaker 03:
If the court has any questions.

[00:15:16] Speaker 03:
All right, for those reasons, the reason is set forth in the brief.

[00:15:18] Speaker 03:
We respectfully request this court to determine the decision on the board.

[00:15:21] Speaker 03:
Thank you.

[00:15:27] Speaker 01:
Thank you, Your Honor.

[00:15:29] Speaker 01:
I'll raise the issue of the expert reports again.

[00:15:34] Speaker 01:
I think when the board did not enter judgment before and the parties agreed to a joint schedule, it was a joint schedule for expert reports.

[00:15:42] Speaker 01:
There was FEMA agreed to a deadline for expert reports.

[00:15:46] Speaker 01:
We exchanged them.

[00:15:47] Speaker 01:
They did not rebut them.

[00:15:48] Speaker 01:
They did not depose them.

[00:15:51] Speaker 01:
And for that reason, we submit that these reports were submitted timely, and the board should have considered them.

[00:15:58] Speaker 00:
Thank you.

[00:15:59] Speaker 00:
Thank you.

[00:15:59] Speaker 00:
Thank both sides.

[00:16:00] Speaker 00:
The case is submitted.