In the United States Court of Federal Claims
No. 08-237 C
(Originally Filed Under Seal: June 6, 2013)
(Filed: June 21, 2013
ALABAMA POWER COMPANY, )
GEORGIA POWER COMPANY, )
and SOUTHERN NUCLEAR )
OPERATING COMPANY, INC. )
Plaintiffs, )
v. )
)
THE UNITED STATES, )
Defendant. )
ORDER on Motion to Strike Expert Report1/
Defendant’s Motion to Strike Plaintiffs’ Expert Report (ECF No. 93) was filed
under seal on April 3, 2013. Plaintiffs’ Response to the Government’s Motion to
Strike the Expert Report of Jesse Funches (ECF No. 94) was filed on April 16, 2013.
Defendant’s Reply (ECF No. 95) was filed on April 26, 2013. The underlying
dispute arises out of plaintiffs’ Motion to Compel and to Permit Designation of
Additional Expert(s) (ECF No. 79) on which the court held a telephone conference
and a hearing, and the court then allowed limited additional discovery including
interrogatories, requests for production of documents and the designation of an
additional expert witness (Tr., ECF No. 89 & Order, ECF No. 86). The parties
disagree over whether the designation of plaintiffs’ expert witness was within that
allowance.
During the pendency of this phase two spent nuclear fuel (SNF) case, and
following close of discovery,2/ the Federal Circuit issued its opinion in Consolidated
1/
This Order was originally filed under seal on June 6, 2013. (ECF No. 97.) The parties
were afforded an opportunity to propose redactions. As no redactions were proposed, a public
version of the Order is now being filed.
2/
The court’s January 9, 2009 scheduling order set a May 29, 2009 deadline for plaintiffs
(continued...)
Edison Co. of New York, Inc. v. United States, 676 F.3d 1331 (Fed. Cir. 2012). This
decision provided further guidance relating to the burden of proof and other matters,
particularly concerning any recovery of the substantial Spent Fuel Storage and
Reactor Decommissioning fees (SFS/RD) paid by nuclear utilities to the Nuclear
Regulatory Commission (NRC).
Plaintiffs filed a Motion to Compel and to Permit Designation of Additional
Expert(s) (ECF No. 79) on May 14, 2012, seeking an order compelling defendant to:
identify individuals with knowledge of plaintiffs’ claims for, and the defendant’s
defenses to, recovery of NRC fees; and to make an RCFC 30(b)(6) witness available
to testify in response to topics 9, 10 and 11 of an RCFC 30(b)(6) deposition notice
served in January, 2012. Those topics were:
9. The rulemaking that changed the annual fee under 10 C.F.R. Part 171
for NRC generic activities charged to licensees beginning in fiscal year
1999.
10. The budgeted resource allocations relate [sic] to the various NRC
fee classes, and planned activities relating to those budgeted resource
allocations.
11. Any and all pertinent information relating to NRC fees and whether
the Government has or can identify if any adjustments need to made
[sic] to the amount claimed by Plaintiff(s).
(Pls.’ Mot. Compel, Ex. 1 at 3, ECF No. 79-1.)
Plaintiffs’ Motion also sought to designate an additional expert(s) to address
the Federal Circuit’s burden of proof on the recovery of NRC fees in SNF cases. The
Motion stated (in part):
Recent Federal Circuit decisions reflect a change in law in the
proof required to recover or defend against the recovery of NRC fees.
See [Consolidated Edison]; see also Boston Edison Co. v. United States.
2/
(...continued)
to disclose expert reports for damages from 2005 through 2008. (Order, ECF No. 31.) The deadline
for plaintiffs to supplement previous damages and expert disclosures to include January 1, 2009
through December 31, 2013, was July 29, 2011. (Order, ECF No. 63.)
-2-
Although courts previously accepted on a res ipsa basis that the SFS/RD
fee was caused by the Government’s breach, in Consolidated Edison, the
Federal Circuit refused recovery of NRC fees to a utility, holding that
the utility failed to establish a direct link between the breach and the rule
change.
Although Plaintiffs disagree with the Federal Circuit’s decision
in Consolidated Edison as it relates to the burden of proof for recovery
of NRC fees, Plaintiffs nevertheless intend to comply with its dictate.
Testimony from one or more experts would be helpful to the Court in
establishing the link between the fee change and the breach, and further
can provide additional insight into the allocation of fees as contemplated
by Boston Edison. When the deadline to designate experts and
exchange reports expired, Plaintiffs were neither aware of the
Government’s defenses nor the clarification of the law relating to the
burden of proof. Thus, Plaintiffs were not in the position to identify an
expert on this issue. Therefore, Plaintiffs now seek to designate one or
more experts to address the burden of proof set forth recently in
Consolidated Edison and Boston Edison. At least one other trial court
has allowed additional discovery in light of these decisions. See, e.g.,
Entergy Gulf States, Inc. et al. v. The United States, No. 03-2625C, 2012
WL 1499044 (Fed. Cl. Apr. 27, 2012).
(Pls.’ Mot. Compel, Designate Expert(s) 5, ECF No. 79.)
Defendant’s Opposition (ECF No. 83) contended that its discovery responses
were fulsome and that additional experts were not warranted because Consolidated
Edison was not a change in law as it did not overturn any existing precedent; Boston
Edison was also not a change in law and was issued more than seven months before
the close of discovery; plaintiffs already had an expert report on NRC fees; and
defendant would be severely prejudiced if additional experts were allowed.
The bulk of plaintiffs’ Reply (ECF No. 84) addresses and counters points
concerning discovery obligations and interpretations of various communications
between counsel concerning the same. The Reply also addresses defendant’s position
that additional experts were not necessary because the recent Federal Circuit cases did
not alter precedent as follows:
-3-
Prior to the Federal Circuit’s recent decision issued in 2012, the
Court of Federal Claims accepted arguments made by utilities in spent
fuel cases and allowed recovery of NRC fees at the trial court level
based on the notion that causation could not be disputed based on a
quasi res ispsa theory that logically, it stands to reason, that these fees
would not exist had the Government not breached. This approach was
recently rejected. Compare Boston Edison Co. v. U.S., 93 Fed. Cl. 105
(2010) (permitting recovery and accepting logical argument that the fee
would not exist had the Government not breached) and Consolidated
Edison Co. of New York, Inc. v. U.S., 92 Fed.Cl. 466 (2010) (assuming
causation) with Consolidated Edison Co. v. New York, Inc. v. United
States, 676 F.3d 1331 (Fed. Cir. 2012); see also Boston Edison Co. v.
United States, 658 F.3d 1361 (Fed. Cir. 2011). In these recent decisions,
the Federal Circuit arguably set forth a new standard, not applied in the
earlier cases, for proving causation for claims seeking recovery of the
SFS/RD fee. Plaintiffs can meet this standard with expert testimony,
likely from former NRC employees, and will do so if permitted by the
Court.
(Pls.’ Reply in Support, Mot. Compel, Designate Expert(s) 7-8, ECF No. 84.)
There was considerable discussion concerning these matters during the
telephone conference held on June 26, 2012. Specifically, addressing plaintiffs’
request to designate additional expert(s), colloquy included the following:
MS. BRENNAN: Okay, Your Honor, that [order allowing
interrogatories] gets us part of the way. That still leaves us with – up in
the air the question of whether or not we can designate an expert. It
would be very, very limited, Your Honor, just on the causation issue for
the fee change, the SFSRD fee.
THE COURT: I certainly have no objection to having the expert
identified and testifying in that regard. I’m not sure of what weight
would be given to the testimony. It depends on who the expert is and
what the basis is for the testimony, obviously, but sure.
(Tr. 39-40, ECF No. 89.)
-4-
Objecting, the government pointed out that plaintiffs already had an expert on
causation for NRC fees, the case had been going on for too long already and this
additional discovery, including another expert for plaintiffs, would be prejudicial.
Response in part was as follows:
MS. BRENNAN: Your Honor, we are trying to respond to two things.
First of all, the government contends that our expert, Mr. Metcalf[e], is
not qualified to testify about causation on this issue, essentially and
okay, well, if that’s the case, then let us designate someone who is if you
don’t think that he is.
We’re also responding to the April 16, 2012 Federal Circuit
decision. I mean, that is, you know, the timing of it is unfortunate that
it came after the close of discovery, but it did. But it’s before trial, and
so it’s not too late to respond to it. It’s going to be on the very discrete
issue of causation.
In theory, the government shouldn’t have to obtain an expert
because they have the NRC, and they have access to the people who are
currently still at the NRC and can – as they said, there are dozens of
people who know about these issues. And instead of getting an expert,
if they want to put somebody up, they can put somebody up to topic
number nine in the 30(b)(6) deposition notice. They don’t have to have
an expert. They’ve got the NRC right there for them. We don’t have
that and we’d like to have an expert who can talk about it who’s a
former NRC employee.
THE COURT: Well, one thing I have learned from the spent fuel cases
is that sometimes when you don’t cover something, you get remanded
and you have to end up spending more time and effort on it. What I’d
like to do is any issues raised, whether timely or not, I’d like to get
resolved. So I don’t think it will add a great deal to the case to have one
expert nominated by the Defendant and one by the Plaintiff on the fee
issue in terms of the causation aspect of it.
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And if the Circuit means that it can only be proven by documents,
as I say, I’m not sure what weight would be given in the ultimate ruling,
but at least we covered the issues, so we wouldn’t get a remand on that
point. So I think, yes, both parties can designate experts to cover the
remand question and hopefully the written interrogatories can solve the
problem on getting the facts.
(Id. at 41-43.)
Also, the court issued an Order (ECF No. 86) which granted plaintiffs’ Motion
to Compel to the extent of allowing no more than ten interrogatories and three RCFC
34 requests for production of documents on topics 9, 10 and 11 listed above.
Defendant was ordered to provide to plaintiffs copies of discovery produced in
response to Entergy Gulf States, Inc. v. United States, No. 03-2625C, 2012 WL
1499044 (Fed. Cl. April 27, 2012). Plaintiffs were also permitted to designate an
expert “as to this document production and interrogatory response within ten (10)
business days after completion of discovery.” Defendant was given the right to
depose that expert and designate its own, who also would be subject to deposition by
plaintiffs. The court indicated its availability to resolve any difficulties.
Subsequently, plaintiffs promulgated the interrogatories and requests for
production authorized. Responses prompted further controversy over a protracted
period of time, with final responsive documents produced by the government on
March 5, 2013. (Def.’s Mot. Strike 3, ECF No. 93.) Notwithstanding that statement,
in its Reply, defendant represented that additional responsive documents would be
forthcoming.3/
3/
The Government produced today three additional documents that
relate to the manner in which NRC staff charged their time in 2005
and 2006, including descriptions of the NRC’s planned activities and
associated time-keeping codes. While the Government’s March 5,
2013 production included similar documents covering the years
before 2005 and after 2006, the current production fills in a gap in
that production that resulted from the NRC’s inability, initially, to
locate the documents for 2005 and 2006. Additionally, as we
discussed with Southern’s counsel, the NRC’s Chief of Records and
Archives recently informed the Government that documents
potentially related to the NRC’s fee calculation process may be
(continued...)
-6-
Accordingly, plaintiffs designated Mr. Jesse Funches, a former Chief Financial
Officer of the NRC, as an expert on causation for the NRC fee changes. Mr. Funches
issued an Expert Report on NRC Annual Fee For Spent Fuel Storage/Reactor
Decommissioning on March 13, 2013.4/
According to defendant’s Motion to Strike, Mr. Funches’s expert report offers
two principal opinions: (1) a causal link exists between DOE’s delay in accepting
SNF and the NRC’s creation of the SFS/RD fee in 1999 (causation opinion); and (2)
a percentage of the SFS/RD fee from 2005 through 2013 is attributable or caused by
the proliferation of dry storage necessitated in major part because of DOE’s delay.
Striking is appropriate, defendant reasons, because these opinions are not dependant
on the discovery responses recently provided; and secondly, the report is beyond the
scope of the court’s order because it is based on publicly-available information, not
any documents recently produced.
Defendant asserts:
Mr. Funches’s causation opinion is beyond the scope of this Court’s
June 27, 2012 order because it does not address or rely upon the
document production or interrogatory responses, as required by that
order. Order, Dkt. 86, June 27, 2012.
Similarly, Mr. Funches’s calculation opinion does not rely on the
information or documents produced by the Government in response to
Southern’s discovery requests. A100. Instead, as he states in his report,
he relied entirely upon “the work papers prepared by the [Office of the
Chief Financial Officer] to support each year’s annual fee rule, the
3/
(...continued)
located in the NRC’s archives in Suitland, Maryland. The
Government is seeking to access these materials in order to determine
if they are responsive to Southern’s extremely broad document
requests. See Def. App., Dkt. 93-1, at A148-49.
(Def.’s Reply 8 n.6, ECF No. 95.)
4/
That expert report is included in the Appendix to Defendant’s Motion to Strike. (Def.’s
Mot. Strike A89-142, ECF No. 93-1 (sealed).)
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description of the programs in the NRC annual budget submission to
Congress, and [his] knowledge and experience with the NRC budget
structure and fee allocation methodology . . . .” A98. The fee rule work
papers and budget submissions Mr. Funches refers to were
publicly-available to Southern well before the Government’s responses
to Southern’s discovery requests. See A102-103. As such, Mr.
Funches’s calculation opinion is beyond the scope of the Court’s June
27, 2012 Order and should be stricken.
Moreover, Southern cannot plausibly claim that Mr. Funches’s
report is based upon the Government’s recently produced documents
because his report in this case is nearly identical to the report he issued
in another spent nuclear fuel case, Energy Northwest v. United States,
No. 11-447C (Fed. Cl.). In Energy Northwest, Mr. Funches issued his
report on February 15, 2013 – 23 days before the Government produced
additional documents in response to Southern’s requests. Accordingly,
the inescapable conclusion is that Southern used its supposed need for
additional discovery to justify its untimely designation of Mr. Funches
nearly four years after the Court’s May 2009 deadline for disclosure of
Southern’s expert reports. The Court should not countenance
Southern’s dilatory actions in this regard and should strike Mr.
Funches’s expert report in its entirety as beyond the scope of the Court’s
June 27, 2012 Order.
(Def.’s Mot. Strike 5, ECF No. 93.)
Separately, defendant reminds that plaintiffs sought the additional expert
outside of the discovery period only “‘to address the burden of proof set forth recently
in Consolidated Edison and Boston Edison’” which plaintiffs characterized as a
“‘change in law.’” (Id. at 2 (citing Pls.’ Mot. 5-6, ECF No. 79).) Neither of Mr.
Funches’s opinions address that burden of proof according to defendant, adding that
the Federal Circuit in Consolidated Edison now requires public statements by the
NRC establishing a direct link between DOE’s breach and the 1999 rule change. No
such documents were produced by the government in recent production or otherwise,
and Mr. Funches’s report does not cite any.
-8-
As for causation for NRC fees, defendant also points to similarity between Mr.
Funches’s recent expert report and that of Mr. Metcalfe.
Assessment of Damages, Kenneth P. Expert Report on Nuclear Regulatory
Metcalfe, Kimberly R. Reome, May 29, Commission Annual Fee For Spent Fuel
2009 Storage/Reactor Decommissioning, Jesse L.
Funches, March 13, 2013
Causation: “Had DOE performed in Causation: “If there had not been the
accordance with its contractual increased need for additional on-site spent
obligation, Southern would not have fuel storage because of DOE’s breach of the
incurred NRC fees associated with Standard Contract, the NRC would not have
NRC activity relating to onsite spent assessed a fee to recover its generic
fuel storage, and those costs are regulatory costs for out-of-pool storage on
therefore included in Southern’s all Part 50 reactor licensees, but instead of
damages.” A26. would have continued to assess a fee to
recover those costs only on licensees that
stored fuel under a Part 72 License.” A 91.
(Def.’s Mot. Strike 9, ECF No. 93.)
Defendant concludes that:
[T]he only discernible difference between Mr. Funches’s report and
Southern’s May 29, 2009 report is that Mr. Funches uses slightly
differently percentages than Mr. Metcalfe and Ms. Reome did to
calculate the percentage of the [SFS/RD] fee that Mr. Funches believes
relates to dry fuel storage. Compare A100, Funches Expert Report at 12
with A143, table from Metcalfe/Reome May 29, 2009 Report and A144,
table from Metcalfe/Reome July 29, 2011 Report. This slight
difference, however, was wholly unrelated to the Government’s recent
discovery responses and the Consolidated Edison and Boston Edison
Federal Circuit decisions.
(Id.)
Any similarities aside, under the guidance of Consolidated Edison, a causation
opinion/admission from an NRC insider during relevant time periods might be
accorded greater weight and is closer akin to contemporary public statements by the
NRC the government claims are required.
-9-
Plaintiffs describe Mr. Funches’s report as concluding: (1) that there is a causal
link between the rulemaking that changed the 10 C.F.R. Part 171 annual fee for NRC
generic activities charged to licensees beginning in fiscal year 1999 and the
Government’s breach of the Standard Contract; and (2) costs recouped by the SFS/RD
Fee that are related to dry spent fuel storage, reactor spent fuel pool storage, and
reactor decommissioning. Plaintiffs also disagree with defendant’s reading of
Consolidated Edison, asserting that the decision did not hold that a SNF plaintiff
must meet its causation burden solely by NRC public statements. Rather, the Federal
Circuit held that neither the NRC public statements nor other evidence in the record
established requisite causation. The Federal Circuit’s holding was based on a failure
of proof in that specific case. Consol. Edison, 676 F. 3d at 1338 (“ENIP has failed
to show that the 1999 rule change was the result of DOE’s breach.”). Plaintiffs want
to cross that causation hurdle with the testimony of Mr. Funches, who was Chief
Financial Officer of the NRC at the time of the 1999 rule change.
Plaintiffs claim as irrelevant and particularly disingenuous the government’s
noting of “similarities” between the report of Mr. Funches and that of the prior report
of Mr. Metcalfe. As the government previously suggested, the opinions offered by
plaintiffs’ economics experts are insufficient to satisfy plaintiffs’ burden in that
regard.
Adopting the government’s construction of this court’s June 27, 2012 Order
to allow expert testimony only as to interrogatory responses and document
production by the government, would lead to placing the substance of Mr. Funches’s
testimony squarely within the government’s control which could severely restrict the
scope of his testimony by either artificially limiting document production, or by
artfully crafting responses to interrogatories (or both). The government stated in its
Motion to Strike, “[y]et in response to Southern’s discovery requests, the Government
produced no documents containing public statements establishing a link (direct or
otherwise) between DOE’s breach and the 1999 rule change, and Mr. Funches’s does
not list any such documents as ‘reviewed and considered in connection with
preparation of [his] report.’” (ECF No. 93 at 6-7 (quoting expert report).) Plaintiffs
conclude such a result would be a “procedural whipsaw;” according to the
government, plaintiffs’ earlier experts did not meet Consolidated Edison causation
requirements which “did not exist when their reports were filed, and its supplemental
expert would be unable to meet that precedent because the Government chose not to
produce helpful documents.” (Pls.’ Resp. 9, ECF No. 94.)
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The court is not passing on the adequacy of Mr. Funches’s opinion nor whether
it meets the requirements of Consolidated Edison. That is a matter reserved for trial
on the merits in which the weight of the respective expert reports can be measured.
There is no prejudice. Mr. Funches could be a fact witness, perhaps on
rebuttal, and as a former government employee, the nature of his knowledge and
testimony would not be a surprise to the government. This is particularly so in that
a trial date has not been set.
Furthermore, Mr. Funches has recently been added as an expert witness in
several other SNF cases concerning the allocation and causation of damages for NRC
fees. In System Fuels, Inc. v. United States, No. 03-2621C (Judge Williams) an
Unopposed Motion to Permit Designation of an Additional Expert Witness was filed
on May 22, 2013 (ECF No. 125), reciting the government’s statement that it “‘will
not oppose a motion for leave to permit the designation of Mr. Funches as an
additional expert,’ but reserves all rights to challenge Plaintiffs’ underlying claim for
NRC fees.” That Motion was granted on May 23, 2013. (ECF No. 126). See also
Entergy Gulf States, Inc. v. United States, No. 03-2625C, 2012 WL 1499044, at *2
(Fed. Cl. Apr. 27, 2012) (granting plaintiffs’ motion to compel NRC fees-related
discovery in light of Boston Edison Co. v. United States, 658 F.3d 1361 (Fed. Cir.
2011) and Consolidated Edison Co. of New York, Inc. v. United States, 676 F.3d 1331
(Fed. Cir. 2012)); Energy Northwest v. United States, No. 11-447C (Damich, J.)
(granting an unopposed motion for an additional expert disclosure outside the
deadline for initial expert disclosure although the government reserved the right to
object to the expert report on all other grounds). As relevant here, the motion in
Energy Northwest filed on February 27, 2013, recites:
At the time of EN’s initial expert disclosures in March 2012, the Federal
Circuit had not yet rendered its decision in Consolidated Edison Co. of
N.Y. v. United States, 676 F.3d 1331 (Fed. Cir. 2012), which provided
further guidance on the issue of damages associated with payment of the
SFS/RD Fee. In light of that decision, as well as EN’s ongoing efforts
to identify and prepare support for its recovery of damages associated
with the SFS/RD Fee, EN identified Mr. Jesse L. Funches, former Chief
Financial Officer of the NRC. Mr. Funches was directly involved in the
NRC’s adoption of the SFS/RD Fee. EN anticipates that Mr. Funches
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will provide both fact and expert testimony to support EN’s SFS/RD Fee
claim in this case.
Energy Northwest v. United States, No. 11-447C, Unopposed Mot. Additional Expert
Disclosure 2, ECF No. 30.
ACCORDINGLY, Defendant’s Motion to Strike Plaintiffs’ Expert Report
(ECF No. 93), and defendant’s request for oral argument contained in its Reply (ECF
No. 95), are DENIED.
s/ James F. Merow
James F. Merow
Senior Judge
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