AM General LLC v. Demmer Corporation

Filing 208

OPINION AND ORDER: Court concludes Pla AM General LLC prevails on its breach of contract claim in its entirety and enters judgment in favor of Pla AM General LLC and against Dft Demmer Corporation in the amount of $27,966,498, plus prejudgment interest from September 9, 2011 to the date of the judgment, plus attorneys' fees and costs and post-judgment interest. Court further holds that AM General properly withheld excessive payments made to Demmer and need not return them. Counts I and II of Demmer's Counterclaim are dismissed with prejudice and Demmer shall take nothing for its Counterclaim. Parties directed to meet and confer w/in 14 days on the amounts to be added to the judgment for prejudgment interest, costs, and attorneys' fees. To the extent the parties cannot reach agreement on the amounts to be added to the judgment, AM General is directed to file post-judgment briefing setting out its position on any outstanding disputes within 28 days of the judgment. Demmer to file any objections or response within 14 days of Pla's submission. AM General may reply within 14 days after Demmer's response. AM General's ddls for submissions for Costs and Attorneys' Fees under Fed. R. Civ. P. 54 are extended as set forth herein pursuant to N.D. Ind. L.R. 54-1. Signed by Judge William C Lee on 10/6/2014. (lns)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION

AM GENERAL LLC,
Plaintiff,
Cause No. 3:12-CV-00333-WCL-RBC
v.
DEMMER CORPORATION,
Defendant.

OPINION AND ORDER
Plaintiff AM General. LLC (“AM General”) brought this contract action against
Defendant, Demmer Corporation (“Demmer”), seeking recovery of amounts it allegedly
overpaid to the Defendant under their contract. [D.E. 1]. Demmer counterclaimed seeking
payment of monies AM General withheld from it under the contract. [D.E. 11].
From June 16, 2014 through June 20, 2014, the undersigned presided over a non-jury
trial in which the parties were afforded a full opportunity to be heard, examine and crossexamine witnesses, present evidence bearing on the issues, and argue the law and the evidence.
After the trial, both parties submitted Revised Proposed Findings of Fact and Conclusions of
Law [D.E. 202; D.E. 203], which the Court has thoroughly reviewed along with the citations to
the trial transcript and other record evidence.
Having had the opportunity to observe the witnesses, evaluate their demeanor,
qualifications, and credibility as well as to independently review hundreds of documentary
exhibits and all deposition transcript excerpts submitted for review separate and apart from the

1

excerpts read into the record at trial, the Court now, pursuant to Federal Rule of Civil Procedure
52(a), makes the following Findings of Fact and Conclusions of Law.
JURISDICTION
AM General is a Delaware limited liability company with its principal place of business
in South Bend, Indiana. AMG’s sole member is AM General Holdings LLC, a Delaware limited
liability company with its principal place of business in South Bend, Indiana. AM General
Holdings LLC has two members, MacAndrews AMG Holdings LLC and The Renco Group, Inc.
MacAndrews AMG Holdings LLC is a Delaware limited liability company whose sole member
is MacAndrews & Forbes Holdings, Inc., a Delaware corporation with its principal place of
business in New York, New York. The Renco Group, Inc. is a New York corporation with its
principal place of business in New York, New York.
Demmer Corporation (“Demmer”) is a Michigan corporation with its principal place of
business in Lansing, Michigan. This Court has jurisdiction of the underlying dispute based upon
diversity of citizenship pursuant to 28 U.S.C. §1332. [D.E. 147 at p. 2].
FINDINGS OF FACT
1.

AM General manufactures and sells the High Mobility Multipurpose Wheeled

Vehicle (“HMMWV” or “HUMVEE”) family of vehicles to, among others, the United States
Government (“TACOM” or “Government”). Am. Pretrial Order (D.E. 147), Stipulations of Fact
(“Stip.”) ¶ 1.
2.

Starting in 2007, Demmer manufactured and sold Bi-Metal Doors to AM General

for integration into the HMMWVs that AM General manufactured for the Government. Bi-

2

Metal Doors are a type of armored door. AM General purchased Bi-Metal Doors from Demmer
pursuant to eight (8) separate purchase orders, which were called “blanket contracts.” Stip. ¶ 6.1
3.

From time to time, AM General would modify a blanket contract to add a new

line item. Sometimes, AM General would send the new line item only as a change blanket
contract, and other times it would send the entire blanket contract, listing all line items of the
blanket contract including the most recent line item containing the modification. Stip. ¶ 8.
4.

In 2009, AM General began negotiating with the Government for a new contract

to govern the Government’s purchase of HMMWVs between 2010 and 2013. Stip. ¶ 10.
5.

To support its negotiations with the Government, AM General issued various

Requests for Quote (“RFQs”) in June 2009 to its suppliers, including Demmer. Stip. ¶ 11.
6.

AM General sent Demmer an RFQ requesting Demmer to propose new firm-fixed

prices for 2010-2013 for parts included in the “Aluminum Program,” which included the BiMetal Doors (the “June RFQ”). Stip. ¶ 12. The June RFQ was an excel spreadsheet, PTX-2, the
first tab of which was PTX-1. Stip. ¶ 13.
7.

The June RFQ stated that any contract resulting from the RFQ process would be

subject to AM General’s standard noncommercial terms and conditions for government
contracts, found at PTX-3.2 Stip. ¶ 14.
8.

The terms and conditions contained in PTX-3 applied to AM General’s purchase,

in 2010 and 2011, of Bi-Metal Doors from Demmer. Stip. ¶ 15.
A.

AM General Requests Demmer’s Cost or Pricing Data in Writing.

1

The AM General part numbers for the Bi-Metal Doors are: 6039226; 6039226T2; 6039227;
6039227T2; 6039324; 6039324T2; 6039325; 6039325T2. These part numbers comprise the front left,
front right, rear left, and rear right doors in each of two different colors. Stip. ¶ 7.
2

Throughout this Order, Plaintiff’s exhibits are designated as “PTX ___” while Defendant’s exhibits are
designated as “DTX ___.” Numbers following the hyphen refer to the page number of the exhibit.

3

9.

On July 21, 2009, AM General Buyer Roger Mills wrote Demmer’s Marie

Roberts and requested that Demmer submit certified cost or pricing data to support its July 2009
proposal for 2010 shipments of Bi-Metal Doors.

PTX-013-001; Tr. 196:10-197:6 (Mills).

Demmer Executive Tim Dargitz received a copy of this request for certified cost or pricing data
and understood its meaning. PTX-192 (Dargitz Dep.) 44:12-45:7, 47:16-48:19. (Based on
internal questions, Mills conducted further research at AM General in August and September of
2009 and confirmed his understanding that Demmer was required to submit certified cost or
pricing data. Tr. 206:21-208:8, 209:3-210:14 (Mills).) On multiple occasions, Mills explained
that Demmer had the option either to provide the cost or pricing data to the Government or to
supply it directly to AM General. PTX-013-001, PTX-014-001, PTX-015-001, PTX-019-001;
Tr. 197:12-25 (Mills).
10.

Demmer elected to provide the cost or pricing data directly to AM General and to

allow AM General to audit Demmer’s 2010 Bi-Metal Door proposal and the cost data supporting
that proposal. Tr. 212:15-25 (Mills); PTX-024-001; PTX-030-001.
11.

Both Demmer and AM General understood that Demmer would not certify its

cost or pricing data for the 2010 price proposal until after final agreement on price. PTX-014001; Tr. 198:15-23 (Mills); Tr. 260:9-10 (McConville); PTX-195 (Roberts Dep.) 54:13-55:1.
B.

Demmer’s Experience with Cost or Pricing Data, Audits, and NTE Pricing

12.

As of the summer of 2009, Demmer had experience submitting and certifying

cost or pricing data. Tr. 198:24-199:11, 213:16-22 (Mills); PTX-192 (Dargitz Dep.) 24:4-18,
25:10-16, 28:20-29:6, 29:22-30:8; PTX-008-001 (5/21/08 certificate of current cost or pricing
data signed by Demmer). Demmer also had experience with supplier and government audits.
Tr. 641:17-18, 683:10-684:16 (Shawa-DeCook); PTX-192 (Dargitz Dep.) 77:18-22, 78:22-

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79:14. Demmer also had experience in being required to renegotiate its pricing downward after
an audit of its certified cost or pricing data. Tr. 213:1-214:6 (Mills).
13.

Demmer itself had previously issued purchase orders using not-to-exceed prices.

Tr. 724:3-5 (Shawa-DeCook). Demmer’s executives understood that a NTE or “not to exceed
price” is an interim or placeholder price that is subject to revision downward based on further
audit and/or negotiations. PTX-192 (Dargitz Dep.) 158:10-15; PTX-194 (McDonald Dep.)
206:4-7, 207:1-7; PTX-197 (Sjoberg Dep.) 178:1-10.
14.

Demmer also received regular advice from a government contracting consultant.

Tr. 725:1-13 (Shawa-DeCook); see, e.g., PTX-058-001 (1/6/10 email discussing DCAA3 audits
and warning that “Demmer has to be prepared for significantly more oversight by the
Government”). In January 2010, that consultant advised Demmer of the risks of accepting
government contracts with not-to-exceed pricing. Tr. 725:20-726:2 (Shawa-DeCook); PTX-066001. When a Demmer employee received that information, he forwarded it to Demmer’s Chief
Financial Officer as well as two Demmer executives (Koch and Dargitz) who attended an
important meeting with AM General on February 4, 2010. PTX-066-001; Tr. 726:21-727:4
(Shawa-DeCook).
C.

Demmer’s First Two Price Proposals for 2010 Bi-Metal Door Pricing

15.

In July 2009, Demmer submitted a proposal in response to the June RFQ. This

was Demmer’s first proposal for Bi-Metal Doors to be delivered in 2010 and future years. Tr.
870:6-15 (Tenlen). Using the prices Demmer proposed in July 2009 and the quantities contained
in the June RFQ, the proposed contract was expected to exceed $650,000 in value. PTX-2, Tab
“REQUEST FOR QUOTE”; PTX-4; PTX-5; Stip. ¶ 16; see also PTX-12.
3

“DCAA” is the Defense Contract Audit Agency. DCAA is part of the Department of Defense and
conducts audits of contractor (and subcontractor) proposals (as well as post-award audits). Tr. 259:5-9
(McConville).

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16.

Demmer’s Karl Tenlen prepared the first proposal. Tr. 870:6-9 (Tenlen). Before

Demmer submitted its proposal for 2010 pricing to AM General, Tenlen presented it to
Demmer’s executive team, including Dargitz, Matt Heppler, and Heather Shawa-DeCook. Tr.
870:13-871:3 (Tenlen).
17.

The Bi-Metal Door was not a “commercial item” as defined expressly by the

Federal Acquisition Regulation (“FAR”) or as defined by reference in the Truth in Negotiations
Act (“TINA”).

Stip. ¶ 17; see also PTX-020-005, -008–009 (Demmer’s “assertion of

commerciality” over various parts other than the Bi-Metal Doors).
18.

Demmer’s contract with AM General for the Bi-Metal Door was sole sourced in

2009 and 2010. Tr. 107:8-13 (Peterson); Tr. 199:12-201:4, 202:3-203:5 (Mills); PTX-015-001.
The Bi-Metal Door had been sole sourced to Demmer since at least 2007. Tr. 107:14-18, 152:36 (Peterson).
19.

The June RFQ required Demmer to submit a “cost breakdown” with its proposal.

PTX-001-003, ¶ 14; Tr. 110:3-9 (Peterson). A cost breakdown is a detailed description of the
various elements that tells AM General “all the elements that make up th[e] price.” Tr. 110:1021 (Peterson); Tr. 269:7-11 (McConville) (“A cost breakdown is a description of the cost
elements that are included in a cost, so it would be labor, material, overhead, and any other
elements of cost.”); PTX-192 (Dargitz Dep.) 33:4-34:11 (cost breakdown is “all the different
cost elements that feed into a proposal or agreed upon price”).
20.

In generating price proposals, AM General expects suppliers to use actual costs as

much as possible and build up the unit price using actual, reliable cost information plus a
specified profit rate. See Tr. 110:22-111:9 (Peterson).

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21.

The total price proposed by a supplier must be fair and reasonable. See PTX-001-

003, ¶ 14; Tr. 108:8-21, 111:2-9 (Peterson); Tr. 262:1-13 (McConville); Tr. 684:24-685:12
(Shawa-DeCook); Tr. 869:25-870:5 (Tenlen); PTX-192 (Dargitz Dep.) 75:9-17.
22.

Demmer provided cost or pricing data in response to the June 2009 RFQ. See

PTX-097-001 (9/8/10 email in which Demmer’s chief accountant confirmed to DCAA that
Demmer had provided cost or pricing data to AM General for Demmer’s 2010 price proposal);
PTX-192 (Dargitz Dep.) 71:7-72:4 (explaining that AM General’s audit of Demmer’s proposal
for Bi-Metal Door pricing for 2010 was “to review cost—cost or pricing data, which we
provided to them [AM General]”); PTX-194 (McDonald Dep.) 155:2-5 (“Q. Is it your
understanding that Demmer had provided AM General with cost and pricing data to support the
selling prices for 2010? A. Correct.”).
23.

Demmer knew in the fall of 2009 that only Demmer was being asked to quote the

Bi-Metal Door in response to the June RFQ. PTX-015-001; Tr. 200:13-201:4, 202:10-203:5
(Mills); PTX-017-002 (handwritten notes of Demmer’s COO dated 7/28/10, “10. Doors are in
Gov. audit. Not competed.”); PTX-032-001 (handwritten notes of Demmer’s COO dated 9/21/10
that read under “AMG-Audit,” “1. Sole sourcing of alu. doors reasons for audit”); PTX-197
(Sjoberg Dep.) 91:14-92:2; PTX-192 (Dargitz Dep.) 55:25-56:3, 56:11-15.
24.

In August 2009, Demmer revised and resubmitted its proposal to account for new

aluminum pricing provided by AM General. Stip. ¶ 18. This was Demmer’s second proposal
for 2010 pricing. Tr. 871:22-872:2 (Tenlen); PTX-026-001, PTX-27. The only change to the
first proposal was to account for a change in the price of aluminum. Tr. 872:3-6 (Tenlen).
25.

Tenlen, who prepared Demmer’s price proposals, had not conducted any

investigation of the labor costs associated with Bi-Metal Doors before he submitted the first two

7

proposals. Tr. 871:19-872:10 (Tenlen). He had undertaken no such investigation between 2007
and 2009. Tr. 871:7-14 (Tenlen). The labor hours Demmer submitted in the first two proposals
were 27.491 hours per door, which came from Demmer’s original 2007 proposal. Tr. 872:15-24
(Tenlen). Tenlen had prepared the first two submissions without any expectation of having to
show AM General his work. Tr. 873:18-21 (Tenlen).
26.

On July 29, 2009, after Demmer submitted its first price proposal, Demmer

learned that AM General had decided to purchase from another supplier certain armor parts that
Demmer had previously supplied. PTX-018-001. AM General advised Demmer that it was
changing suppliers for those parts because Demmer’s prices for those parts were too high. PTX192 (Dargitz Dep.) 68:9-15; PTX-017-002 (handwritten notes of Demmer’s COO dated 7/29/09,
“Highly likely we are losing the steel parts due to price.”). Given this loss in business, Demmer
was “concerned [it] could lose all parts, including the doors.” PTX-197 (Sjoberg Dep.) 54:2455:6.
27.

Around this time period, Demmer learned that AM General expected that the

Government would request an 8 percent reduction in the prices it was paying. AM General itself
was not asking Demmer for a price reduction. Tr. 924:3-6 (Tenlen) (“Q. Okay. Now, did you
want to do something to reduce the price because AM General was asking you for a price
reduction? A. They were not asking for a price reduction, no.”).
28.

Given its concerns about losing parts to other suppliers and Demmer’s

understanding of the Government’s likely negotiation position, Demmer adjusted its proposal to
achieve an eight percent reduction in price. See infra ¶¶ 32-33.

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29.

In connection with its various price proposals for Bi-Metal Doors, including

Demmer’s December 2009 price proposal, Demmer did not provide AM General with accurate
or complete data. See infra ¶¶ 32-33, 39-45; Tr. 551:2-5 (Bingham).
D.

AM General’s Audit Request and Demmer’s Revised Price Proposal

30.

On or about August 3, 2009, AM General informed Demmer that it intended to

audit Demmer’s proposal for 2010 prices. PTX-021-001, PTX-022-001, PTX-024-001.
31.

When Demmer’s CFO learned that AM General wanted to audit Demmer’s

proposal, she reviewed Demmer’s previous submission and deemed the data that Demmer had
supplied to AM General “inadequate.” Tr. 638:4-8 (Shawa-DeCook).
32.

Demmer began working on another revised price proposal. Demmer’s change to

its price proposal was not, however, the result of an objective analysis of its cost structure. See,
e.g., PTX-032-001 (handwritten notes of Demmer’s COO dated 9/21/10, under “AMG-Audit,”
“Make strong cost assumptions” and “Give them what is advantageous to you”); PTX-197
(Sjoberg Dep.) 91:14-92:25. Rather, Demmer internally decided to establish the 8 percent
reduction as an end-point, and re-work the data to back into that final number. See PTX-183-008
(identifying as a task to “make a target cost model (not for viewing) that maintains an 8%
reduction”); PTX-185-001 (cost matrix for the rear left Bi-Metal Door captioned in handwriting,
“TARGET”).4 The resulting cost breakdown that Demmer submitted to AM General therefore
was incomplete and inaccurate.
32.1

Demmer’s COO testified that Demmer targeted an 8 percent reduction in its price
proposal. PTX-197 (Sjoberg Dep.) 55:8-20. Tenlen, Shawa-DeCook, Heppler,
and Dargitz all reported, directly or indirectly, to the COO, Sjoberg. PTX-197

4

Although Demmer claims that AM General’s Don Plude directed Demmer to reduce its price by 8
percent, there is no evidence that Plude or anyone else at AM General encouraged or advised Demmer to
achieve such a reduction by backing into the cost numbers. That would contradict AM General’s
requirements. Tr. 110:22-111:9 (Peterson); see also PTX-001-003. Moreover, Tenlen—who prepared
the proposal—denied that AM General requested an 8 percent price reduction. Tr. 924:3-6 (Tenlen).

9

(Sjoberg Dep.) 28:9-24; Tr. 868:19-23 (Tenlen). Sjoberg testified that the size of
the reduction Demmer offered to AM General was made with “team approval”
that “went through the whole organization up to and including Bill Demmer.”
PTX-197 (Sjoberg Dep.) 36:3-9; see also id. at 35:6-25 (identifying as team
members himself, Shawa-DeCook, Heppler, McDonald, Tenlen, and Dargitz).
32.2 Tenlen, a lower-level Demmer employee, claimed that he was not working
towards a target, but acknowledged on cross-examination that “after we had
already prepared our quote, there was some analysis” and “there was an analysis to
compare, that it happened to come out to an eight percent [reduction] . . . .” Tr.
877:6-25 (Tenlen).
32.3 Tenlen also conceded that “at one point during this activity,” he prepared a “target
matrix,” which is “an analysis of changing variables to get a predicted result.” Tr.
880:9-15 (Tenlen). He also made a “target cost model.” Tr. 880:16-17 (Tenlen).
Tenlen labeled that target cost model, “not for viewing.” Tr. 881:4-7, 15-16
(Tenlen). The purpose of the target cost model “was to maintain an eight percent
reduction.” Tr. 881:12-14 (Tenlen). The target cost model was to see if the final
price number stayed above 8 percent. Tr. 882:5-12 (Tenlen). His handwritten
notes, from an “audit prep” meeting, also note, “Make a cost model using the 353
percent info. All else being equal, enter 300 percent and see if the number stays
above 3550—This must be!” PTX-183-005; Tr. 882:18-24 (Tenlen). (The price
in Demmer’s third proposal was $3538 for front doors and $3579 for rear
doors—an average price of $3,558.50 per door. PTX-042-014, -016.)
32.4

In a document dated October 15, 2009—four days before the meeting with AM
General when Demmer unveiled its third price proposal—Tenlen generated a cost
model on which he wrote “TARGET” in all caps at the top. PTX-185-001; Tr.
883:10-21, 884:2-7 (Tenlen). The model that is shown in the document is, “BiMetal Doors 09-0708 Quote Matrix 10-15-09 with 355 Burden.” PTX-185-001.
This coincides with the burden rate in Tenlen’s other notes around the same time
period. See PTX-183. (The “burden” or overhead rate is part of the overall cost
that is included in the price proposal. See, e.g., Tr. 814:2-10 (Tenlen); PTX-194
(McDonald Dep.) 59:19-60:3.)

32.5 This targeted price reduction, unrelated to Demmer’s actual cost structure, was
consistent with an idea from Demmer’s CEO, Bill Demmer, who suggested to
Shawa-DeCook, Sjoberg, and Dargitz in late August 2009 that Demmer “offer to
negotiate a price reduction for all of our AMG armor prior to audit, a price that we
would find MORE acceptable than a price negotiated from an audit[.]” PTX-028001. Shawa-DeCook agreed that “a pre-negotiation would be beneficial” but did
not think it would be possible if DCAA were involved. PTX-029-001. The price
reduction likewise was based on Demmer’s concern about losing additional
business from AM General. See supra ¶ 27.

10

32.6 Tenlen claimed that the 8 percent reduction in price reflected in the cost
breakdown that he generated was not a target, but instead the result of an analysis
that just “happened to come out to an eight percent [reduction]” that Demmer
executives had targeted. Tr. 876:18-878:7 (Tenlen). This claim is not supported
by the persuasive record evidence.
33.

When it submitted revised price proposals to AM General, Demmer did not

disclose the fact that it was backing into an 8 percent price reduction.
E.

Demmer’s Revised Price Proposal Unveiled at the October 19, 2009 Meeting

34.

On October 19, 2009, AMG representatives Stephen Hodge, Todd Lentych, and

Dean Fiess traveled to Demmer to begin auditing Demmer’s proposal for 2010 prices for BiMetal Doors. Stip. ¶ 19.
35.

At the October 19, 2009 meeting, Demmer presented changes to the cost

breakdown supporting Demmer’s 2010 Bi-Metal Door proposal. The changes resulted in a
reduction to the price Demmer had proposed in August 2009. Stip. ¶ 20.
36.

The price changes that Demmer identified at the October 19, 2009 meeting were a

surprise to AM General.

Tr. 640:2-5 (Shawa-DeCook); Tr. 876:3-10 (Tenlen); PTX-194

(McDonald Dep.) 31:15-32:2. Demmer had continued to work on its revised price proposal up
until the night before or morning of the meeting. Tr. 639:11-13 (Shawa-DeCook); Tr. 832:10-15
(Tenlen). This last-minute work coincided with Demmer’s effort to make its price proposal
come out to an 8 percent price reduction. See supra ¶¶ 32-33.
37.

After the October 19, 2009 meeting, Demmer re-submitted its 2010 Bi-Metal

Door proposal with lower pricing reflecting cost breakdown changes that Demmer described at
the October 19, 2009 meeting. Stip. ¶ 21. This was Demmer’s third proposal for 2010 pricing.
Tr. 875:13-20 (Tenlen). After the meeting, Demmer submitted the third proposal with a revised
cost breakdown to AM General in spreadsheet form. PTX-041-001 & PTX-042-014, -016, -020.

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F.

Demmer’s December 2009 Price Proposal and the Data Demmer Provided in
Response to AM General’s Audit Requests

38.

In December 2009, Demmer revised and submitted its 2010 Bi-Metal Door

proposal to account for new aluminum pricing provided by AM General. Stip. ¶ 22. The only
change between Demmer’s October 2009 proposal (sometimes referred to as Submission
Number 3) and Demmer’s December 2009 proposal (sometimes referred to as Submission
Number 4) was the change in the aluminum price. Tr. 386:22-387:11 (Lentych); Tr. 640:8-16
(Shawa-DeCook).
39.

Demmer’s October and December 2009 proposals were based in part on

Demmer’s projection that it would take 14.59 hours of direct labor to make each Bi-Metal Door
assuming that in 2010, Demmer manufactured the number of Bi-Metal Doors projected in the
June 2009 RFQ. Stip. ¶ 23.
40.

Demmer’s own cost data revealed that it typically took Demmer between only 4

and 6 hours to make each Bi-Metal Door. PTX-047-005; Tr. 688:24-689:8 (Shawa-DeCook).
41.

When AM General asked for additional information to substantiate Demmer’s

14.59 labor hours projection in the fall of 2009, Demmer recognized the discrepancy. See PTX048-001 (McDonald email to Tenlen providing the actual labor hours data and noting that it was
“not what you wanted the totals to come out to”) & PTX-049-005.
42.

Demmer nevertheless did not correct the inaccurate labor hours projection it used

to support its 2010 price proposal. Instead, Demmer, without disclosing the fact to AM General,
aggregated the Bi-Metal Door labor hour data with data from a different, more labor-intensive
door. See Tr. 392:18-393:2 (Lentych); 554:1-14, 555:19-556:3 (Bingham).
42.1

In early December 2009, Demmer representatives Tenlen, ShawaDeCook, Dargitz, Koch, and Angell discussed “[t]he concern [ ] that the
cost breakdown that Dean [Fiess] has been presented shows 14.59 hours

12

per door.” PTX-050-001; Tr. 691:9-14 (Shawa-DeCook); Tr. 890:13-23,
891:6-13 (Tenlen).
42.2

After this meeting, Demmer included in its labor hours calculation the
amount of time it took to make the Bi-Metal Door and the Frag 5 Door. Tr.
638:13-17 (Shawa-DeCook); Tr. 845:1-4 (Tenlen). The Frag 5 Door was a
separate, and more labor-intensive door. Tr. 392:18-393:2 (Lentych);
554:1-14, 555:19-556:3 (Bingham).

42.3

Demmer’s CFO believed that AM General would question the averaging of
labor hours from two different doors. Tr. 693:2-6 (Shawa-DeCook). She
believed that, if Demmer did average the labor hours for Bi-Metal Doors
and Frag 5 doors, Demmer would need to explain the logic behind doing so
and demonstrate to AM General why averaging the labor hours for the two
doors made sense. Tr. 693:7-16 (Shawa-DeCook).

42.4

Demmer, however, did not disclose to AM General that it was aggregating
the labor hours for two different products in the data supporting Demmer’s
2010 price proposal. Tr. 482:14-18, 500:5-8 (Fiess); Tr. 551:6-25
(Bingham). To the contrary, Demmer furnished information designed to
mask the fact that the labor hours projection combined labor hours for
making two different products. See PTX-53-001 (“I’ll have to run the
mandates for both doors and make sure that they tie out and try to do
something that will combine them that will look system generated.”); PTX054-001 (Shawa-DeCook confirms that she had already asked Tenlen to
generate a “system generated” report).

42.4.1

Demmer contends that it disclosed the blending of the labor
hours to AM General, or that AM General should have realized
that Demmer had done so. The persuasive and credible evidence
adduced at trial weighs against this position.

42.4.2

Shawa-DeCook could not recall telling anyone at AM General
that Demmer was averaging hours for Bi-Metal Doors and Frag
5 doors. Tr. 694:3-6 (Shawa-DeCook). Nor could she point to
anyone else at Demmer who did so. Tr. 694:7-9 (ShawaDeCook).

42.4.3

The documents that Demmer provided to AM General did not
disclose that data from two different doors had been aggregated
(even if Demmer did not send the “system generated” report in
PTX-53 to AM General). See PTX-051-001 (12/9/09 Tenlen
email to Fiess providing three months of “Charged Labor
Hours” without referencing the source of the information or
even a project code); Tr. 846:19-22 (Tenlen) (“I do not indicate
that in this e-mail, no.”); see also PTX-056-001 (12/17/09

13

Tenlen email to Fiess referencing “two project codes” but not
disclosing that the two different codes come from two different
doors); Tr. 897:19-898:6 (Tenlen) (agreeing that he did not
identify anywhere in PTX-56 that one of the project codes was
for Bi-Metal Doors and one was for Frag 5 doors). PTX-56
includes handwritten identification of two project
codes—without any explanation of what those project codes
mean.
42.4.4

42.4.5

42.5

42.6

Tenlen chose from a six-month menu of labor hour information
and chose to provide Fiess with three months of labor hour
information that reflected the higher value, rather than the lower
value. Tr. 896:8-10 (Tenlen); PTX-55-001; see also PTX-046001 (12/1/09 Tenlen email to Koch, “I will get you a selection of
weeks to choose from. With that, maybe we can find some
numbers that fall in our favor.”).
Fiess credibly and persuasively testified that he does not believe
he knew that Demmer was combining the information from the
two doors in 2009. Tr. 482:14-18 (Fiess). Fiess typically kept
information received from suppliers in written form, usually
through email correspondence to maintain “a good record to
establish . . . what we were talking about.” Tr. 475:14-20
(Fiess). If that information had been disclosed to him orally at
the time, he would have written it down, as was his practice. Tr.
475:21-476:4, 482:23-483:11, 485:5-13 (Fiess); see also Tr.
498:22-25 (Fiess); Tr. 500:5-8 (“Q. Mr. Fiess, you understood,
December ’09, numbers of doors shipped there, included both
FRAG 5 and Bi-Metal Doors, right? A. I don’t believe that was
the case.”). There is no evidence of any written disclosure.
Lentych, who scrutinized Fiess’s analysis of the labor hours, had no
reason to believe from Fiess’s written reports or conversations with
Fiess that the Bi-Metal Door labor hour data that Fiess had received
from Demmer also included labor hour data for the Frag 5 door. Tr.
391:16-392:7 (Lentych). If the data that Fiess reviewed included Frag 5
door data, Lentych would have wanted to know and expected to know
that—from both Fiess and Demmer. Tr. 392:8-20 (Lentych). Based on
Lentych’s knowledge at the time, there are significant differences in
cycle times between the two doors that would have impacted his review
of the information. Tr. 392:18-393:2 (Lentych).
Tenlen’s testimony does not support the conclusion that he told Fiess
about the blending of the data for the two doors; rather, consistent with
Fiess’s recollection and the contemporaneous document, Tenlen advised
Fiess that Demmer was supplying two project codes, but did not explain

14

that the two codes corresponded to two different doors. See Tr. 850:22851:6 (Tenlen) (referring to combining different project codes, but not
mentioning Frag 5 doors); Tr. 851:17-852:7 (Tenlen) (talking about
Tenlen sending PTX-56, which did not disclose anything about Frag 5
doors); Tr. 852:24-853:3 (Tenlen) (“Q. Did you have such a discussion
about the information that you sent in PTX 56? A. Well, the discussion
was in advance of that, not after the fact, and, as I told you, I told him
that it was two different projects”—but again not mentioning Frag 5
Doors); Tr. 925:12-22 (Tenlen) (testifying, on redirect, that he
“believe[s]” he told Fiess that “he was going to be getting a break-out of
two different reports, which would have been FRAG 5 and Bi-Metal,”
but not testifying that he advised Fiess what the two codes meant).
43.

Demmer’s decision to aggregate Frag 5 and Bi-Metal Door labor hours rendered

the results that AM General received inaccurate and incomplete. It takes longer to make a Frag
5 Door than a Bi-Metal Door. Tr. 554:1-14, 555:19-556:3 (Bingham). The Court takes special
note that Demmer’s retained witness, Jimmy Jackson, did not consider this question. Tr.
1041:17-23 (Jackson). Moreover, Jackson’s analysis of the aggregating of the Bi-Metal and
Frag 5 door data assumed, at the threshold, the central issue: that the greater the number of BiMetal Doors produced in a month, then the more time spent on Bi-Metal Doors would be
improperly reflected in the Frag 5 labor hour data. Tr. 1040:12-18 (Jackson). Jackson’s claim
that it was appropriate to aggregate the data, therefore, is circular. See also Tr. 1041:24-1042:11
(Jackson) (confirming that he did not evaluate any correlation between the percentage of doors
that were Bi-Metal relative to the combined hours per door or whether, as the percentage of
combined doors that are Bi-Metal goes up, the combined labor hours per door go up or down).
44.

Additionally, Demmer did not support its projection that the amount of time it

would take to make a Bi-Metal Door would nearly double if the volume of doors produced
dropped. Based on a reliable analysis of the data, the inverse correlation between hours-per-door
and door volume is weak and does not support the 14.59 hour projection that Demmer proposed.
Tr. 556:8-557:3, 557:25-558:8 (Bingham).

15

45.

The evidence convincingly established that Demmer’s personnel intentionally

provided data that would inflate the projected costs in the 2010 price proposal. See, e.g., PTX198 (Tenlen Dep.) 223:14-224:6. For instance, when DCAA sought to audit Demmer’s price
proposal in the fall of 2010, Demmer personnel recognized that its “obvious exposure is in direct
labor hours.” PTX-102-001. Likewise, when AM General announced that it wanted to continue
its audit on November 2, 2010, Demmer’s CFO advised the Demmer personnel involved in
defending Demmer’s costs, “there will be a big story to prepare between now and when they
[AM General] arrive.” PTX-108-001. Also, On November 10, 2010, Tenlen directed two
Demmer employees to “work ‘outside’ of mandate and simply look at the personnel roster and
list names of associates that ‘touch’ AMG door parts.” PTX-112-002. “Frankly, I want the
numbers to be on the aggressive or high side.” Id. He told them to use a “generalized head
count process,” rather than Demmer’s electronic time tracking system, to generate a labor hours
number. He advised them, “We want the higher number.” Id.
46.

Tenlen generated a cost matrix, named “CURRENT STAFFING SUMMARY,”

with an hours-per-door figure of 14.68 hours per door at a quantity of 40,000 doors. Tr. 919:12920:10 (Tenlen); PTX-111-015. Tenlen came to this projection even though actual labor hours
in 2010 were less than 7.5 hours per door. Tr. 920:11-13 (Tenlen).
G.

Dean Fiess’s December 2009 Report

47.

On December 18, 2009, Dean Fiess circulated within AM General a report on the

analysis he had completed as of that date of Demmer’s proposal for 2010 prices. DTX-AA. His
report analyzed the information that AM General had received from Demmer as of that time. Tr.
509:10-12 (Fiess). In circulating his report internally, Fiess noted that Demmer’s proposed labor
hours of 14.59 “can be improved or possibly negated provided Demmer/Karl can back up their

16

14.59 hours with more data points, etc.” DTX-AB-001. The internal circulation of a report by
Fiess did not mean that AM General’s audit of Demmer was complete or finished. Tr. 493:22494:2 (Fiess); Tr. 112:10-12 (Peterson); Tr. 393:3-16 (Lentych).
48.

Fiess worked in the Finance Department. Tr. 114:18-20 (Peterson); Tr. 473:20-24

(Fiess). He supported the Supply Chain Management department with supplier audits from time
to time. Tr. 114:18-23 (Peterson); Tr. 400:11-20 (Lentych); Tr. 474:4-14 (Fiess).
49.

Although AM General sent the report to TACOM, no one advised Demmer of

that fact. Tr. 734:23-25 (Shawa-DeCook); Tr. 854:3-10 (Tenlen). There is no record evidence
that anyone at TACOM reviewed, commented on, or even read the document. There is no
record evidence that Demmer ever learned about Fiess’s report or that AM General provided a
copy of the report to Demmer before discovery in this litigation. Accordingly, regardless of the
substance of Fiess’s report, Demmer could not have relied upon it in December 2009 or January
2010 to conclude that AM General had completed its audit of Demmer.
50.

Contemporaneous documents further confirm that Demmer believed that AM

General’s audit of Demmer was ongoing during December 2009-January 2010. For example, on
January 13, 2010—nearly a month after Fiess had circulated his report internally—Demmer’s
Dargitz advised AM General that “DCAA is requesting an audit on the bi-metal doors[.]” DTXAF-003. Dargitz was surprised at the request because, as he advised AM General’s Plude, “I
thought that’s what your guys were doing.” Id. After discussing the issue internally at AM
General, Plude reported back to Dargitz “that AMG is ok with the DCAA audit and that Demmer
needs to support it [the DCAA audit] along with our effort.” DTX-AF-002 (emphasis added).
There is no record evidence that AM General advised Demmer that the AM General audit of
Demmer was over as of the date of this email, January 14, 2010.

17

51.

Members of AM General’s Supply Chain Management Department did not agree

with all of Fiess’s conclusions in the report. Tr. 116:1-117:4 (Peterson); Tr. 390:2-10 (Lentych).
In particular, both Peterson and Lentych had questions about the number of labor hours Demmer
had projected to build a door.

Tr. 116:6-18, 184:9-185:11 (Peterson); Tr. 390:11-391:6

(Lentych). Disagreement with information in a report generated by Fiess was not controversial
or unusual. Tr. 117:5-14 (Peterson).
52.

After reviewing the Fiess report, Peterson directed the Supply Chain Management

team (lead by Lentych) to get additional information from Demmer. Tr. 117:15-25 (Peterson).
This was consistent with Peterson’s usual practice of reading Fiess’s comments and then
discussing those comments with the Supply Chain Management team under his direction and
directing those personnel, rather than Fiess, to follow up with any additional work. Tr. 185:1324 (Peterson); see also Tr. 937:4-14 (Castelluccio) (explaining that the audit report was sent to
TACOM but that subsequent activities “could cause additional information to be obtained”); Tr.
976:12-976:20 (Plude) (even with Fiess’s December Report in hand, Supply Chain Management
still needed to conduct additional audit work, which could be done as the parties began to
negotiate prices).
53.

AM General’s Supply Chain Management department had final responsibility

over supplier audits, for reviewing the information received during supplier audits, for
determining if a supplier’s price is fair and reasonable, and for determining if the information
provided by the supplier during an audit is adequate. Tr. 112:25-113:14 (Peterson); Tr. 436:1015 (Lentych).
54.

After reading the Fiess Report, on January 25, 2010, Lentych sent a detailed email

to Demmer identifying “a number of points that AMG would like to discuss with Demmer

18

before this audit can be closed.” PTX-065-001; Tr. 393:3-394:1 (Lentych). Lentych identified
questions about Demmer’s proposed profit rate, overhead, labor hours, and volumes. Id. When
Lentych sent this email on January 25, 2010, both AM General and Demmer understood that
AM General’s audit of Demmer was open. Tr. 266:18-20 (McConville); Tr. 393:3-5, 394:2-21
(Lentych); Tr. 485:14-486:10 (Fiess); Tr. 696:22-25 (Shawa-DeCook) (“Q. And so you
understood that, as of the date of this e-mail, January 25th, 2010, AM General’s audit was still
open, correct? A. Yes.”); Tr. 899:3-5 (Tenlen) (“As of January 25th, you understood that AM
General’s audit was still open, correct? A. I did, yes.”); PTX-194 (McDonald Dep.) 145:23146:4, 149:19-21 (same).
55.

The overwhelming and supported evidence was that as of January 25, 2010,

Demmer and AM General had not agreed to settled pricing for Bi-Metal Doors to be shipped in
2010. Tr. 267:12-19 (McConville); Tr. 486:3-10 (Fiess).
H.

In February 2010, Demmer Invokes the DCAA Audit To Put AM General’s
Audit on Hold.

56.

In early January 2010, the Defense Contract Audit Agency (“DCAA”) initiated its

own audit of Demmer’s 2010 Bi-Metal Door price proposal. PTX-059-001.
57.

Demmer attempted to persuade DCAA not to conduct the audit. See generally

PTX-69, PTX-71. Shawa-DeCook corresponded with DCAA multiple times, questioning the
need for a DCAA audit. Id.
58.

Shawa-DeCook had substantial financial incentives for minimizing Demmer’s

“audit givebacks,” which are “any reduced proposal pricing that came from a negotiation of a
proposal.”

Tr. 706:6-707:4 (Shawa-DeCook); PTX-088-006 (Shawa-DeCook’s scorecard,

listing as the “Goal” for audit givebacks in 2010 “0%” and identifying the AM General audit as
one of the audits being measured); PTX-144 (listing “0%” as the goal for audit givebacks).

19

Shawa-DeCook receives a discretionary management bonus based, in part, on audit
givebacks—that is, reduced proposal pricing that came from audits and negotiations. In 2008,
her bonus was $1.5 million. Tr. 706:3-707:17 (Shawa-DeCook).
59.

By February 12, 2010, Shawa-DeCook had successfully persuaded DCAA to put

its audit of Demmer’s 2010 price proposal on hold. PTX-077-001; Tr. 650:3-9, 701:12-16
(Shawa-DeCook); PTX-192 (Dargitz Dep.) 141:7-9.
60.

Demmer did not advise AM General that DCAA had put its audit of Demmer’s

2010 price proposal on hold. See infra ¶¶ 94-97.
I.

The February 4, 2010 AM General-Demmer Meeting

61.

On February 4, 2010, AM General representatives Stephen Hodge, Todd Lentych,

and Dean Fiess traveled to Demmer. Stip. ¶ 24.
62.

The purpose of the February 4, 2010 meeting was “a continuation of the audit.”

Tr. 486:1-2 (Fiess); accord Tr. 400:5-10 (Lentych).
63.

At the outset of the meeting, Demmer’s Dargitz “approached Todd Lentych and

asked him if AM General was going to finalize prices, and Todd said, ‘No, that’s not what we’re
doing here.’” Tr. 486:5-10 (Fiess).
64.

At the February 4, 2010 meeting, Dean Fiess requested Demmer to provide 12

months of 2009 labor hour data. Stip. ¶ 25.
65.

Demmer did not provide the data that Fiess requested. Tr. 400:21-23, 401:12-25,

402:3-403:1 (Lentych); PTX-83-001 (3/4/10 email from Demmer’s Tenlen to AM General’s
Lentych advising, “I owe . . . some supporting information regarding our labor hours calculation
on the door assembly quotes.

At this time, we are holding off on sending any further

information until the DCAA audit is closed.).

20

66.

Demmer invoked a competing DCAA audit as the reason not to provide

additional information to AM General. Tr. 400:21-401:7 (Lentych); Tr. 856:18-857:13 (Tenlen);
Tr. 858:13-24 (Tenlen) (“[W]e [Demmer] brought up the fact that we cannot be audited by both
of you at the same time, one has to take precedence over the other, and it was agreed that, right
at that point, any future labor information or questions being answered, that DCAA would take
precedence.”); see also Tr. 643:12-15 (Shawa-DeCook); 647:23-648:4 (Shawa-DeCook) (“I
suggested that we do not supply any additional information to AM General while the DCAA
audit was underway.”); PTX-067-001 (2/3/10 internal Demmer email, “Given that DCAA is
proceeding, we need to continue and complete the audit with them therefore I strongly
recommend AMG not coming [sic] tomorrow. We will complete the DCAA audit and then
resume negotiations with AMG once the audit report is complete.”); PTX-068-001 (2/3/10
internal Demmer email, “Is this after my email to Tim stating that I strongly disagree with them
[AM General] still coming? DCAA states [sic] audit proceeds given yesterday’s announcement
and we really should be dealing with them now. Resume AMG negotiations once DCAA is
complete.”).
J.

At Demmer’s Request, AM General Puts Its Audit on Hold

21

67.

At Demmer’s request, AM General agreed to put its audit on hold pending the

resolution of the DCAA Audit. Tr. 118:16-22 (Peterson); Tr. 400:9-10, 400:21-401:4 (Lentych);
Tr. 697:9-11 (Shawa-DeCook), Tr. 698:5-8 (Shawa-DeCook) (“Q. And so you wanted the AM
General audit to be put on hold, right? A. I wanted to deal with DCAA, yes, so, yes, it would put
AMG on hold to DCAA.”); Tr. 856:18-857:13 (Tenlen); see also Tr. 903:9-14 (Tenlen)
(confirming that, at the end of the February 4, 2010 meeting, AM General did not say that its
audit of Demmer was complete); PTX-194 (McDonald Dep.) 55:3-25; see also id. at 55:22-25
(“Q. So you understood from talking to Ms. Shawa-DeCook that the AM General audit would be
put on hold until the DCAA audit was finished. A. Correct.”).
68.

As of March 4, 2010, both AM General and Demmer understood that AM

General’s audit of Demmer was on hold and therefore remained open. PTX-083-001 (3/4/10
Tenlen email to AM General:

“At this time, we are holding off on sending any further

information until the DCAA audit is closed.”); Tr. 703:19-23 (Shawa-DeCook); see also PTX083-001; Tr. 906:24-907:11, 908:18-909:8 (Tenlen); PTX-194 (McDonald Dep.) 63:13-22
(testifying about PTX-84, dated 3/5/10, and agreeing that it was her understanding that, as of that
time, the AM General audit remained open). As of March 4, 2010, Demmer also knew that AM
General understood that it was “not going to get any more information from Demmer until the
DCAA audit was closed[.]” Tr. 700:20-23 (Shawa-DeCook); PTX-073-001 (2/10/10 internal
Demmer email advising “we are not going to send AMG any labor information unless they
become very demanding”); Tr. 905:12-24 (Tenlen).
K.

The February 2010 Change Blanket Contracts and the Additional Note

69.

At the February 4, 2010 meeting, Lentych advised Demmer that AM General

wanted to put purchase orders in place to achieve the cost savings that were shown in Demmer’s

22

December 2009 price proposal.

Tr. 856:18-857:1 (Tenlen).

Lentych further advised the

Demmer representatives that because “finalization wouldn’t be achieved” given the pending
DCAA audit, “they [AM General] were going to put some note in the contract indicating that
this audit was still ongoing for that reason.” Tr. 856:18-857:13 (Tenlen). “It was just a brief
statement, but it was enough that I [Tenlen] understood what he [Lentych] was saying, that we
were here, we were looking—we were at the final innings of finishing up this contract, but there
was this DCAA stuff coming in here that seemed to be standing in the way of everybody coming
to an agreement[.]” Tr. 857:18-25 (Tenlen).
70.

Lentych advised Tenlen that AM General was “going to indicate a note on the PO

indicating that this financial audit was still on going.” Tr. 858:25-859:5 (Tenlen); see also
926:15-19 (Tenlen) (“Q. All right. Did they give you any impression as to whether the AMG
folks wanted to keep their audit open as long as the DCAA was on the place? A. I believe that
the DCAA involvement did create a factor in keeping the audit open.”). Tenlen and the other
Demmer personnel in attendance at the meeting reported to Demmer’s CFO on the discussion of
the purchase order change that AM General planned to issue. Tr. 719:5-9 (Shawa-DeCook).
71.

On or about February 12, 2010, AM General issued a Change Blanket Contract

for each of the Bi-Metal Doors to Demmer (the “February 2010 Change Blanket Contracts”).
The blanket contracts relating to the sale of the eight Bi-Metal Doors, with revisions through
July 1, 2011, are contained in PTX-5. Stip. ¶ 9. Demmer’s most recent price proposal included
proposed Bi-Metal Door prices for 2010 that were significantly lower than the price AM General
had been paying in 2009. PTX-78. The February 2010 Change Blanket Contracts also included
language making them retroactive back to January 1, 2010: “Effective 1/01/2010 . . . Demmer
Accounting Dept must contact AMG Accounting Dept to balance delivery payments from

23

1/01/2010.”

PTX-78-001; PTX-151; PTX-153; Stip. ¶27.

In response to the retroactivity

language in February 2010 Change Blanket Contracts, Demmer credited AM General for
payments AM General made earlier in 2010 for Bi-Metal Doors that exceeded the prices
included in the February 10, 2010 Change Blanket Contracts as modified by subsequent
purchase order changes in 2010. PTX-151; PTX-153.
72.

Demmer retrieved the Change Blanket Contracts on February 15, 2010 by

accessing them on AM General’s web portal. Stip. ¶ 26.
73.

Demmer received the February 2010 Change Blanket Contracts, reviewed them,

and accepted them in its internal system. Stip. ¶ 28.
74.

Upon receipt of the February 2010 Change Blanket Contracts, Demmer did not

request that AM General delete the “Additional Notes” they contained. Stip. ¶ 31. Nor did
anyone affiliated with Demmer contact AM General to object to the Note or seek any
clarification of the Note’s meaning. Tr. 353:25-354:5, 354:14-16 (Hodge); Tr. 420:13-421:17
(Lentych); PTX-197 (Sjoberg Dep.) 113:5-21.
75.

Tenlen retrieved and reviewed the Change Blanket Contracts when they arrived.

Tr. 860:2-8 (Tenlen). He looked at the additional Note in the contract and it “didn’t cause [him]
great concern.” Tr. 860:9-13 (Tenlen). The Note matched his understanding from the February
4, 2010 meeting: the words in the Note “might not have been the words that I chose, but I saw
that they’re making reference that the 2010 pricing—that there’s an audit still going on. And I
found it interesting but not over-concerning that they were wanting to secure themselves that,
regardless of what the outcome of the audit was, that this latest proposal that Demmer provided,
because Demmer proposed this, this would be the highest price that there could be, so I thought,

24

well, that was kind of creative on their part to establish that boundary.” Tr. 860:12-861:7 (Tenlen)
76.

The relevant language from the February 2010 Change Blanket Contracts is:

77.

Demmer shipped the Bi-Metal Doors that AM General ordered pursuant to the

February 2010 Change Blanket Contracts. Stip. ¶ 29.

78.

Demmer invoiced AM General for Bi-Metal Doors at the prices stated in the

February 2010 Change Blanket Contracts, subject to slight modifications for material changes
during the year. Stip. ¶ 30.
79.

The credible and persuasive evidence is that the February 2010 Change Blanket

Contracts imposed open, non-settled, temporary, placeholder, ceiling, not-to-exceed prices that
temporarily reduced the price of each part to match the price included in Demmer’s December
2009 proposal for 2010 Bi-Metal Doors. Tr. 122:2-12, 123:10-22 (Peterson); Tr. 300:11-17
(McConville); Tr. 345:13-346:23 (Hodge); Tr. 403:19-25 (Lentych); Tr. 860:9-861:7 (Tenlen);
Tr. 732:15-733:8 (Shawa-DeCook); PTX-162-002.

In establishing the open, non-settled,

temporary, placeholder, ceiling, not-to-exceed prices in the February 2010 Change Blanket
Contracts, AM General relied upon the data that Demmer had provided in its December 2009

25

price proposal. See, e.g., Tr. 860:9-861:7 (Tenlen) (explaining that the December 2009 price
proposal referenced in the Note came from Demmer).
80.

AM General Buyer Steve Hodge wrote the language used in the Additional Note

relating to 2010 pricing (the “Note”). Tr. 349:5-14 (Hodge). He sent the February 2010 Change
Blanket Contracts to Demmer after the draft Note had been reviewed, revised, and approved by
his supervisors and colleagues. PTX-074-001, -006; PTX-075-001, -007; Tr. 122:13-22, 129:1924, 130:24-132:22 (Peterson); Tr. 418:16-24, 419:9-21 (Lentych); Tr. 345:10-19, 346:24-347:5,
347:22-348:10, 349:5-350:14, 350:15-352:15 (Hodge); see also Tr. 270:17-271:4, 271:6-10
(McConville).
81.

The purpose of the language in the Note was to impose open, non-settled,

temporary, placeholder, ceiling, not-to-exceed prices based on Demmer’s most recent price
proposal, which would be negotiated downward after AM General had completed its audit. Tr.
122:2-12, 123:10-22 (Peterson); Tr. 269:24-270:4, 270:13-16 (McConville); Tr. 417:14-24,
419:6-21 (Lentych); Tr. 352:21-353:1 (Hodge); Tr. 974:3-9 (Plude). As Tenlen described his
expectation of what the Note would include, “this latest proposal that Demmer provided, that
this was going to be the top of the line, because Demmer proposed this [price], this would be the
highest price that there could be[.]” Tr. 860:12-861:7 (Tenlen).
82.

The first sentence (“2010 pricing will be re-negotiated following completion of

the Oct, 2009 AMG-Demmer Finance Audit results in cost breakdown changes”) mandates a renegotiation of Demmer’s price proposal for 2010 Bi-Metal Doors at a specified
time—completion of AM General’s audit of Demmer. Tr. 126:2-127:8 (Peterson); Tr. 419:1519 (Lentych). When AM General issued the February 2010 Change Blanket Contracts, the
parties had exchanged some information and conducted some preliminary negotiations; thus,

26

although the parties had not yet agreed on 2010 pricing, they did negotiate and agree that the
higher, 2009 prices would not carry over to 2010. Tr. 298:14-21 (McConville); Tr. 420:1-6
(Lentych). That explains the use of the term “re-negotiation” rather than negotiation. The
reference to “cost breakdown changes” is a noun, and refers to Demmer’s updated cost
breakdown, which was submitted to AM General in October 2009 (and was the subject of the
audit). Tr. 127:9-24, 128:2-4 (Peterson); Tr. 347:6-21 (Hodge). Demmer—like any other AM
General supplier—had made changes to its cost breakdown. A cost breakdown change is not a
product of an audit by AM General. Tr. 127:21-22 (Peterson); Tr. 269:12-23 (McConville); see
also Tr. 127:6-8 (Peterson) (“So in there, we planned to renegotiate the 2010 pricing once we
completed auditing those cost breakdown changes that Demmer provided to us.”). There is no
missing “if” (or any other words) in the first sentence. Tr. 127:25-128:1 (Peterson). If Demmer
changed its cost breakdown again (as it had in October), then AM General “would have to audit
those changes,” Tr. 181:14-17 (Peterson), as well, and re-negotiate based on the results of that
audit, id. at 180:20-25. See also Tr. 176:1-4 (Peterson) (2010 pricing would be renegotiated if
there were cost breakdown changes during the audit). But AM General did not believe that was
the only scenario in which pricing would change: AM General expected that the not-to-exceed
pricing would change after completion of the audit, regardless of whether Demmer made further
cost breakdown changes. See Tr. 182:11-183:3 (Peterson).
83.

The second sentence (“However, any price re-negotiated will not exceed the Dec.

2009 pricing set within this contract revision”) refers to the December 2009 price proposal that
Demmer submitted and makes the prices within that proposal the not-to-exceed price subject to
subsequent, mandatory re-negotiation. Tr. 128:7-18 (Peterson); Tr. 300:11-17 (McConville); Tr.
417:21-24 (Lentych). The parties agreed to incorporate as a not-to-exceed price the December

27

2009 price proposal because that proposal was lower than the price AM General had been paying
for Bi-Metal Doors in 2009. Id. In the words of Lentych, Demmer’s December 2009 price
proposal “null and voided” the price that AM General had been paying in 2009. Tr. 418:11-15
(Lentych).
84.

AM General’s choice of the phrase “will not exceed” was synonymous with “not-

to-exceed” or “NTE.” The meaning was, “Not to exceed, will not exceed. It [the price]
wouldn’t go any higher than the quote that they [Demmer] provided us [AM General] in 2009,
December, but we [AM General] still have to go in and audit those cost changes that they
[Demmer] presented to us.” Tr. 128:19-23 (Peterson); accord id. at 181:18-183:3, 188:21-189:3
(Peterson); Tr. 379:4-15 (Hodge); see also id. at 379:9-15 (Hodge) (“Q. Mr. Peterson told you to
call these things ‘NTE’ prices back in February 2010? A. Correct. Q. Is there a reason you didn’t
use the phrase ‘NTE’ in the notes when you drafted them back in February 2010? A. No. I used
‘will not exceed.’ It means the same thing.”); Tr. 264:8-13 (McConville) (explaining that no
particular words are required to establish not-to-exceed pricing).
85.

There is no genuine dispute between the parties on this question. As Demmer’s

CFO testified, “The additional note language had not-to-exceed, yes.” Tr. 731:15-18 (ShawaDeCook); see also Tr. 677:7-8 (Shawa-DeCook) (“Q. Did you see the words ‘not to exceed’? A.
I seen it in the note . . . .”). This testimony is consistent with Demmer’s internal documents
during the course of performance. See PTX-091-001 (Tenlen, “AMG also indicated that even
though the audit was not closed, any additional changes to the prices would only be in one
direction… less.”); PTX-107-001 (Demmer’s CFO was “trying to get ammo to prove our audit
with AMG should be completed—therefore they can amend the PO’s to take out the downward
pricing.”); PTX-114-001 (Shawa-DeCook asks Tenlen to “tell me which PO’s have the

28

additional note regarding price audits not being finalized/etc.”); PTX-120-001 (Shawa-DeCook
to Tenlen, Koch, Dargitz, and Heppler, “For the part numbers with the NTE clause—I need to
know which fall under the $700,000 threshold—those part numbers we will not be required to
disclose current cost data.”); PTX-129-001 (Demmer’s Chief Accountant refers to the prices in
the February 2010 Change Blanket Contracts as “submitted and accepted as NTE.”); PTX-135002 (Demmer’s COO wanted to “dispute the NTE clause” and on 12/16/10 wrote detailed notes
about his concerns that, “The NTE contract leaves all risk w. Demmer. There is only downward
move.”); PTX-142-001 (January 2011, Tenlen advises, “we are looking at the [new] contracts
carefully to insure that the wording regarding the NTE pricing and the AMG/Demmer
negotiations has been removed or superseded.”); PTX-162-002 (June 2011 presentation prepared
by Demmer’s CFO that explained, in February 2010, “AMG amends Bi-Metal & Aluminum
Stamping PO’s to add a NTE clause.”); PTX-178-001 (Tenlen and Shawa-DeCook exchange
emails about the “POs with the NTE note on them”; Tenlen responds, “The February [2010]
contracts had the NTE language on them[.]”); see also PTX-100-002 (internal Demmer
document, “We from time to time receive orders that are POI’s (Purchase Order of Intent) or
NTE’s (Not to Exceed) or other such nomenclatures. The commonality of these orders is that
they will be subject to audit. . . . It is also important to understand that from the customer[’]s
perspective these orders are ‘Not To Exceed’.” (emphasis added)).
86.

In Shawa-DeCook’s view, “do not exceed,” “will not exceed,” “not to exceed” is

a single, common term. Tr. 724:21-25 (Shawa-DeCook). And as Tenlen, who reviewed and
approved the contracts with the Note for Demmer, put it, the price set in the February 2010
Change Blanket Contracts was “the top of the line” and “the highest price that there could be.”
Tr. 860:12-861:7 (Tenlen).

29

L.

Both Parties Understood the February 2010 Change Blanket Contracts To
Impose Unsettled, Not-to-Exceed Pricing.

87.

In addition to the conversation between the parties at the February 4, 2010

meeting and Demmer’s contemporaneous understanding of the Note, AM General had additional
interactions with Demmer that further confirmed the parties’ understanding of the February 2010
Change Blanket Contracts.
88.

In a March 4, 2010 email exchange in which Demmer confirmed that AM

General’s audit would be on hold until the DCAA’s audit of Demmer had closed, Lentych
continued to ask Demmer for additional support for Demmer’s proposed profit.

Lentych

advised, “This information is still needed and should not wait for DCAA to finish their audit.
AMG does not agree with the 14% profit at the present time and will need data for Demmer to
support the 14%. This will become an accounting nightmare if we prolong this as AMG will
request a credit from the 01/01/10 Aluminum Program effectivity [sic] date if the profit is
decreased from 14%.”

PTX-084-001; Tr. 403:2-9 (Lentych).

Lentych’s reminder about

Demmer’s price being reduced retroactively is consistent with the temporary, not-to-exceed
pricing established in the February 2010 Change Blanket Contracts.
89.

On multiple occasions starting in late March or early April 2010, AM General’s

Peterson reminded Demmer’s Tim Dargitz, that “we still had not finalized the pricing on those
[Bi-Metal Door] contracts and they were still sitting out there.” Tr. 133:11-135:3 (Peterson); see
also id. at 134:13-14 (“I said, you know, ‘Tim, we still have’—‘We still have that price we’ve
got to finalize on those contracts’”). Peterson’s conversations with Dargitz were “that we had
NTE pricing still out there.” Tr. 180:4-10 (Peterson). Those conversations continued throughout
2010. Id. at 134:17-20.

30

90.

At no time did Dargitz disagree with Peterson, act confused, or claim that the

prices in the February 2010 Change Blanket Contracts were final. Tr. 134:21-135:3 (Peterson).
91.

Anne McConville likewise spoke to Demmer’s Shawa-DeCook about the status

of 2010 pricing in November 2010. Tr. 275:14-276:2 (McConville). As she had in written
contemporaneous correspondence, see, e.g., PTX-118-001, DTX-BE-001 (which McConville
drafted, see DTX-BD-001), McConville advised Shawa-DeCook that prices for 2010 were notto-exceed and permitted AM General to reduce them after the results of an audit. Tr. 276:3-15
(McConville). Shawa-DeCook did not dispute those statements. Id. Nor did Shawa-DeCook
contend that the prices AM General had been paying Demmer in 2010 were final or not subject
to further negotiation. Tr. 276:16-22, 299:1-13 (McConville). Shawa-DeCook likewise did not
take the position that the Note had put in place settled pricing that could not be changed. Tr.
276:23-277:1, 299:9-13 (McConville).

Rather, Shawa-DeCook took the position that AM

General should not use Demmer’s actual costs to finalize 2010 prices.

Tr. 277:2-14

(McConville).
92.

Throughout 2010, no one at Demmer claimed that the February 2010 Change

Blanket Contracts established firm, fixed prices that could not be changed. Tr. 145:14-146:4
(Peterson); Tr. 354:20-23 (Hodge); Tr. 432:23-433:17 (Lentych).
M.

From March through October 2010, Demmer Did Not Inform AM General
that the DCAA Audit Was On Hold.

93.

AM General reasonably relied on Demmer to inform AM General if DCAA put

its audit of Demmer on hold. Tr. 404:14-22, 462:5-20 (Lentych). AM General had no reason to
know when the DCAA would complete its work and the Supply Chain Management personnel
involved in the Demmer supplier audit were not in regular contact with DCAA. Tr. 404:17-24
(Lentych); Tr. 973:7-15 (Plude).

At that time, moreover, AM General’s Supply Chain

31

Management and Contracts personnel did not believe that AM General could participate in a
DCAA audit of an AM General supplier unless that supplier agreed to, and did, provide
information about the audit directly to AM General. At Demmer’s request, Plude apparently
hoped to have AM General participate in the DCAA’s audit of Demmer, but Rick Castelluccio
(who was part of the department that interfaced with TACOM as opposed to suppliers, Tr.
930:14-19 (Castelluccio)), advised Plude that this was not possible. He informed Plude on
January 14, 2010, “I know of no right/permission that we [AM General] could have any role in
an Audit by DCAA. I have never heard of it, nor has Ali Wengrowski [of TACOM, see Tr.
935:24-25 (Castelluccio)].” DTX-AF-002. Castelluccio did advise that “there’s no reason
Demmer can’t forward or cc us [AM General] on any questions raised by DCAA.” DTX-AF002.
94.

No one from Demmer informed AM General that the DCAA’s audit of Demmer

was on hold. Tr. 702:10-13, 702:25-703:6 (Shawa-DeCook); PTX-192 (Dargitz Dep.) 183:2124; PTX-193 (Heppler Dep.) 173:6-8 (“Q. To your knowledge was AM General notified that the
DCAA audit had been put on hold? A. Not that I know of.”); PTX-194 (McDonald Dep.) 56:1624 (“Q. And so at that point you knew that the DCAA audit was on hold. A. Correct. Q. Did you
then notify AM General that the DCAA audit was on hold? A. I did not. Q. To your knowledge
did anyone else from Demmer notify AM General that the DCAA audit was on hold? A. I do not
know.”); PTX-197 (Sjoberg Dep.) 117:22-118:6; Tr. 425:7-14 (Lentych).
94.1

Although Demmer’s CFO claimed that she assumed AM General
somehow knew that the DCAA’s audit of Demmer was on hold, she never
checked. Tr. 702:5-9 (Shawa-DeCook). And she was not aware of
anyone at Demmer telling anyone at AM General that the DCAA audit
had been put on hold. Tr. 702:10-13, Tr. 702:25-703:6 (Shawa-DeCook).
She could not “point to a single time where someone from Demmer told
someone from AM General that the DCAA audit was put on hold.” Tr.
703:15-18 (Shawa-DeCook).

32

94.2

94.3

Shawa-DeCook had written communications with AM General in the days
and weeks following February 12, 2010—after she learned the DCAA
audit of Demmer was on hold. In those communications, AM General
confirmed its understanding that AM General’s own audit would be on
hold until the DCAA audit was complete. See PTX-083-001; Tr. 700:1-23,
702:14-24 (Shawa-DeCook). Dargitz’s recollection is no different. He
testified that he understood that Demmer had asked that the AM General
audit and negotiations be put on hold pending the DCAA audit; that the
DCAA put its own audit on hold; and that he could not remember telling
anyone at AM General that the DCAA audit was on hold. PTX-192
(Dargitz Dep.) 183:12-24.

94.4

95.

In late January 2010, Shawa-DeCook wrote internally at Demmer that she
wanted to “make sure AMG knows” that DCAA was conducting an audit
of Demmer. PTX-063-001. This contemporaneous document suggests
that Shawa-DeCook believed that Demmer needed to inform AM General
of DCAA’s audit of Demmer.

Demmer’s executives spoke to AM General’s Plude by telephone on
February 19, 2010—one week after the DCAA informed Demmer that the
DCAA audit was on hold. PTX-081-001; PTX-193 (Heppler Dep.) 176:59. During that phone call, Demmer did not discuss with Plude the status of
the DCAA’s audit. PTX-192 (Dargitz Dep.) 143:15-144:8; PTX-193
(Heppler Dep.) 176:22-24.

Through the fall of 2010, Demmer recognized that AM General’s audit of its

2010 price proposal was on hold. See PTX-098-001 (9/8/10 internal Demmer email about the
“DCAA Door Audit” noting that “AMG has not officially closed our audit yet”); PTX-099-001
(9/8/10 internal Demmer email, “I would think the only open issue would be our 2010 pricing
that we submitted the data for.”). Demmer’s executives also believed that if AM General
learned that the DCAA audit had been put on hold, then AM General would insist on moving
forward with its own audit. PTX-192 (Dargitz Dep.) 143:15-144:22; PTX-081-001.
96.

Demmer has suggested that AM General should have known or must have known,

that DCAA’s audit of Demmer was on hold.

The persuasive evidence does not support this

contention. Rather, the record evidence supports AM General’s claim that it was depending on
Demmer to advise AM General of this issue. Tr. 404:14-24 (Lentych). Demmer, not DCAA,

33

informed AM General about the DCAA audit in the first place. See DTX-AF-003 (1/13/10
Dargitz email to Plude advising of the DCAA’s audit request).

Demmer, not DCAA,

encouraged AM General to put its own audit on hold pending the outcome of the DCAA audit.
See supra ¶ 67. And Demmer, not DCAA, responded to AM General’s inquiries about the status
of the DCAA audit. See supra ¶¶ 67-68 & infra ¶ 97.
97.

In August 2010, AM General asked Demmer in writing about the status of the

DCAA audit of Demmer: “AM General knows the Government did an audit with Demmer, but
we do not know the results of this audit.” PTX-095-002. In response to this inquiry, Demmer
still did not inform AM General that the DCAA’s audit of Demmer was on hold. Tr. 714:20-22,
717:5-20 (Shawa-DeCook); Tr. 910:14-16 (Tenlen).
98.

AM General’s August 2010 inquiry came up as part of a broad record-updating

exercise for an upcoming TACOM proposal. As part of that effort, McConville (who is not
assigned to suppliers, see Tr. 103:22-104:4 (Peterson)), inquired whether Demmer had supplied
a certificate of cost or pricing data for its 2010 price proposal. Tr. 272:25-274:24 (McConville);
Tr. 355:9-24 (Hodge). A certificate typically is not supplied until after the parties have reached
agreement on price. See supra ¶11. In response to this inquiry, Demmer’s personnel confirmed
that “AMG had started auditing, then we were contacted by DCAA—Tom Bowden—so if I
remember correctly AMG stopped” and that “even though the audit was not closed, any
additional changes to the prices would only be in one direction . . . less.” PTX-091-001.
Demmer personnel confirmed that they “can’t very well certify what hasn’t been confirmed,” or
finalized. PTX-093-001. Tenlen explained internally, “It seems that AMG wants certified
pricing but, because they have not closed the negotiations, they want the ability to revise prices
if necessary.” Id. When Tenlen received the inquiry, he “remembered this note that said they

34

wanted to renegotiate if there was any cost breakdown changes as a result of the audit, so that
made me think of the audit. My immediate response back to Steve was that, ‘So is the audit
closed’?” Tr. 863:5-12 (Tenlen). Hodge responded, “No, it was not.” Tr. 863:15-20 (Tenlen).
99.

In response to AM General’s August 2010 inquiry, no one at Demmer claimed

that AM General and Demmer already had a final agreement on price. Tr. 713:7-10, 714:1-4
(Shawa-DeCook).
100.

As part of this inquiry, Demmer’s CFO advised Demmer’s staff that she did not

“want to awake DCAA,” PTX-091-001, which had placed its audit of Demmer’s 2010 price
proposal on hold. Tr. 704:21-705:22 (Shawa-DeCook).
101.

In response to the August 2010 inquiry about providing a certificate, Demmer did

not provide a certificate for 2010 pricing. Tr. 274:12-17 (McConville); Tr. 355:21-24 (Hodge);
Tr. 654:6-11 (Shawa-DeCook). Demmer never provided a certificate for 2010 pricing. Tr.
714:17-19 (Shawa-DeCook). Demmer did not provide a certificate for 2010 pricing in August
2010 because the parties had not agreed to final prices for 2010 at that time; therefore, no
certificate was required. Tr. 274:18-275:2 (McConville); Tr. 355:25-356:5 (Hodge); PTX-195
(Roberts Dep.) 83:1-20 (Demmer’s Roberts, “You can’t certify pricing if negotiations are still
open.”), id. at 84:8-11 (“they were asking us to certify a price that hasn’t been negotiated”). Had
Demmer erroneously supplied a certificate at that time, AM General would have recognized the
error and informed Demmer that no certificate was owed. Tr. 275:7-13 (McConville). Such a
correction was unnecessary, as Demmer itself recognized that there had been no final agreement
on price and therefore nothing to certify. PTX-195 (Roberts Dep.) 83:1-20, 84:8-11.
N.

In Late October 2010, AM General Learns that the DCAA Audit of Demmer
Has Been Cancelled.

35

102.

AM General did not learn the status of DCAA’s audit of Demmer until late

October 2010. PTX-105-002; Tr. 120:9-16 (Peterson); Tr. 425:7-12 (Lentych).
103.

In late October 2010, DCAA advised AM General that the DCAA was cancelling

its audit of Demmer’s 2010 price proposal.

PTX-105-002.

In the same document, AM

General’s Castelluccio asked the Supply Chain Management department about the Demmer
contract. Castelluccio’s email—which was internal to AM General—does not indicate whether
he thought the purchase orders with “price revisions” in place at Demmer were NTE or firmfixed. See PTX-105-001.

Demmer’s suggestion, through questioning, that Castelluccio was

“incorrect” on the status of the contract with Demmer is misguided.

See Tr. 314:1-19

(McConville). As Castelluccio credibly testified at trial, his recollection was that “any POs that
were in place with Demmer were NTEs, as far as I knew. Even when they were change orders,
they were not-to-exceed numbers.” Tr. 941:23-942:5 (Castelluccio). His boss had the same
understanding. PTX-203 (Daniels Dep.) 92:18-93:1 (“I don’t recall any time when it [the pricing
in the February 2010 Change Blanket Contracts] wasn’t referred to as not-to-exceed pricing.”).
103.1 Shortly thereafter, Supply Chain Management confirmed to Castelluccio
that the purchase orders in place with Demmer at that time were “NTE
prices, initially established to support the 2009, 2010 to 2013 proposal
effort. Although that effort was never placed on contract (at the prime
level), AMG was able to negotiate NTEs with Demmer for each of the
door parts. (NTEs have subsequently been updated to reflect changes in
insulation.) AMG disclosed the NTE prices, as well as Demmer’s readily
available cost or pricing data, on Disk One of our proposal backup. . . .”
DTX-BF-001; Tr. 329:19-333:18 (McConville). McConville drafted the
email and Plude reviewed and approved its release to Castelluccio. Tr.
333:7-12 (McConville); DTX-BG-001.
103.2 On November 5, 2010, Castelluccio promptly provided that information to
TACOM and DCAA.
DTX-BH-001.
Demmer’s contrary
suggestion—that AM General informed TACOM that AM General had
firm fixed prices with Demmer, see, e.g., Tr. 309:5-20 (Demmer
counsel)—is contradicted by the record evidence.

36

104.

In response to learning that the DCAA audit had been cancelled, on November 2,

2010, AM General contacted Demmer to complete AM General’s audit and negotiate and settle
prices for 2010. PTX-108-001. This request was consistent with Demmer’s expectation that
AM General would seek to complete its audit once it learned that DCAA had finished its work.
See supra ¶95. In a written inquiry to Demmer about this issue, AM General again reminded
Demmer that “[c]urrent purchase order prices for ‘Demmer Doors’ are based on NTE’s which
have not yet been finalized.” Id.
105.

In response to AM General’s inquiry, no one affiliated with Demmer objected to

the reference to the February 2010 Change Blanket Contracts as NTE’s that had not yet been
finalized. Tr. 420:16-421:3 (Lentych). Nor did anyone from Demmer contend that the February
2010 Change Blanket Contracts established settled prices that could not be reduced in the future.
106.

Instead, Demmer looked for “ammo to prove our audit with AMG should be

completed—therefore they can amend the PO’s to take out the downward pricing.” PTX-104001. That is how Shawa-DeCook viewed the Note in the February 2010 Change Blanket
Contracts—allowing for “downward pricing.” Tr. 727:11-18 (Shawa-DeCook). As part of this
effort, Shawa-DeCook wrote to DCAA, “Also, can you shed some light on what if anything this
means, as far as the cancellation at this time?

Cancelled based on AMG’s audit being

sufficient/finalized or another reason?” PTX-106-001. When Shawa-DeCook circulated a draft
of this email internally at Demmer on October 25, 2010, Tenlen advised, “I agree that the last
two sentences [quoted from her email to DCAA] could open the door for us to close out with
AMG.”

PTX-107-001.

There is no record evidence, however, that DCAA responded

affirmatively to Shawa-DeCook’s request for confirmation that “AMG’s audit [was]
sufficient/finalized.” PTX-106-001.

37

107.

By this time, November of 2010, Shawa-DeCook had seen the February 2010

Change Blanket Contracts.

Tr. 728:5-13 (Shawa-DeCook).

She wanted to take out the

downward pricing because she wanted AM General to remove the Note in those purchase order
changes. Tr. 728:14-18 (Shawa-DeCook). Subsequently, when she corresponded with her
colleagues at Demmer, she referred to the February 2010 purchase order changes as being NTEs.
Tr. 728:19-22 (Shawa-DeCook).
108.

Once AM General learned that DCAA had cancelled its audit of Demmer’s

proposal for 2010 pricing, AM General re-initiated its own audit efforts.

Tr. 120:17-22

(Peterson); Tr. 425:15-18 (Lentych); DTX-BE-001 (11/2/10 email from Hodge to Demmer
advising that current prices are “NTE’s which have not yet been finalized” and “Both Todd
Lentych and I intend to visit Demmer within the next week in order to negotiate and finalize
pricing. In support of the negotiations, please provide any updated cost or pricing data by
Friday, November 5, 2010.”).

Demmer did not provide information in response to AM

General’s request. Tr. 466:1-4 (Lentych).
O.

The November 18, 2010 Meeting Did Not Result in Final, Settled 2010 Prices.

109.

On November 18, 2010, AM General representatives Stephen Hodge and Todd

Lentych traveled to Demmer’s facilities in Lansing, Michigan. Stip. ¶ 33.
110.

The purpose of the meeting was to continue auditing Demmer’s proposal for 2010

pricing, as well as to support 2011 pricing efforts. Tr. 140:22-25 (Peterson); Tr. 356:9-13
(Hodge); Tr. 426:14-18 (Lentych); Tr. 976:21-977:5 (Plude). AM General’s own audit needed
to be resumed at this point because AM General had recently learned the DCAA had cancelled
its audit of Demmer. Tr. 120:17-22 (Peterson); Tr. 425:15-18 (Lentych).

38

111.

At the November 18, 2010 meeting, AM General representatives Stephen Hodge

and Todd Lentych were presented with a letter, signed by Demmer’s Tim Dargitz, that would
have set the final 2010 door price at $3,482.34 (the NTE price) and would have “terminate[d] the
additional notes on [the February 2010 Change Blanket Contracts]” and “conclude[d] any renegotiation and/or retroactive pricing for 2010 deliveries.” PTX-117-001.
112.

Hodge and Lentych declined to sign the letter at the meeting. No one affiliated

with AM General ever signed the letter. PTX-117; Tr. 141:1-14 (Peterson); Tr. 357:16-358:4
(Hodge); Tr. 427:22-428:6 (Lentych); Tr. 722:18-22 (Shawa-DeCook); Tr. 866:15-18, 867:7-16
(Tenlen).
113.

No one at AM General agreed with the content of the letter that Demmer

presented to Hodge and Lentych at the November 18, 2010 meeting. Tr. 141:15-25 (Peterson);
358:1-11 (Hodge); Tr. 428:5-16, 429:6-21 (Lentych). Demmer personnel claim that someone
from AM General indicated that 2010 pricing was “closed” or “behind us” around the time of
this meeting (something AM General personnel dispute, see Tr. 356:16-357:15 (Hodge), Tr.
427:5-21 (Lentych), Tr. 977:6-16 (Plude)). But the parties agree that AM General never signed
the letter or removed the Note from the February 2010 Change Blanket Contracts. Tr. 669:20
(“THE COURT: They refused to sign it.”); Tr. 141:9-16 (Peterson); Tr. 358:12-18 (Hodge); Tr.
427:22-428:6 (Lentych); Tr. 722:18-22 (Shawa-DeCook); Tr. 866:15-18, 867:7-16 (Tenlen).
Furthermore, Demmer itself wrote AM General on November 23, 2010—just a few days after
the meeting—to confirm that “AMG stands [sic] that 2010 is open for negotiations.” DTX-BM001; Tr. 723:3-20 (Shawa-DeCook). Accordingly, at most, Demmer’s evidence on this point
(undocumented, self-serving recollections from two Demmer representatives and a self-serving

39

note drafted by one of them, DTX-BL) indicates that there was an immaterial miscommunication
between the parties.
114.

More importantly, as shown by the November 18, 2010 letter (PTX-117),

Demmer acknowledged that the Note established open, non-settled, temporary, placeholder,
ceiling, not-to-exceed prices. See also Tr. 427:22-428:16 (Lentych). If Demmer believed at that
time that the February 2010 Change Blanket Contracts put in place settled, rather than open,
NTE pricing, there would have been no need to present AM General with the letter.
115.

Similarly, Tenlen’s view as of November 18, 2010, was that the issue of 2010

pricing had “been festering for several months and never had ultimate closure.” Tr. 866:8-14
(Tenlen). If Tenlen and his colleagues at Demmer had believed that the February 2010 Change
Blanket Contracts established settled, final prices, he would not have had such a concern. See
also PTX-192 (Dargitz Dep.) 182:18-183:24 (explaining that he was frustrated in November
2010 that the parties were “two thirds of the way through the year and we can’t seem to come to
closure”).
P.

The December 7-8, 2010 Meeting Did Not Result in Settled, Final 2010
Prices.

116.

On December 7 and 8, 2010, AM General representatives Stephen Hodge, Anne

McConville, Brian Peterson, and Don Plude attended a meeting at Demmer’s facilities in
Lansing, Michigan. AM General representative Todd Lentych attended the first day of this twoday meeting. Demmer was represented at the meeting by Timothy Dargitz, Heather ShawaDeCook, Matt Heppler, and Sten Sjoberg. The parties discussed pricing for Bi-Metal Doors for
2010 and 2011, and Demmer provided AM General with certain data, then available from
Demmer’s accounting system, pertaining to Demmer’s costs of production for Bi-Metal Doors
delivered to AM General during a portion of 2010. Stip. ¶ 34.

40

117.

During the December 7 and 8, 2010 meetings, no one affiliated with Demmer

contended that the February 2010 Change Blanket Contracts established settled prices that could
not be reduced in the future.

Tr. 145:14-146:4 (Peterson); Tr. 281:17-20, 281:24-282:1

(McConville); Tr. 432:23-24, 433:8-17 (Lentych). Nor did anyone affiliated with Demmer
challenge AM General’s characterization of the 2010 prices for Bi-Metal Doors as open. Id.
Indeed, in a PowerPoint presentation prepared and used by Demmer during the meeting,
Demmer itself acknowledged on an “AMG Timeline” for 2010, “Open ended PO’s
received—still in negotiations throughout the year.” PTX-123-004; see also PTX-193 (Heppler
Dep.) 193:20-24, 194:21-25 (testifying that PTX-123 was used at the December 7, 2010
meeting).
118.

Rather than disputing that the February 2010 Change Blanket Contracts set not-

to-exceed pricing, the parties disputed what information could or should be used to settle or
“definitize”5 the open 2010 prices. AM General wanted to use Demmer’s actual cost data from
2010; Demmer did not. Tr. 144:18-145:7 (Peterson); Tr. 277:15-19 (McConville); Tr. 430:1419, 432:4-9, 432:13-22 (Lentych); Tr. 661:19-25 (Shawa-DeCook).
118.1 The actual cost data would show the true cost of building the door and are
easier to use in determining fair and reasonable pricing. Tr. 144:22-145:5
(Peterson); Tr. 430:20-431:3 (Lentych).
118.2 As of December 2010, AM General was not in a position to ignore
Demmer’s actual cost data. Tr. 145:8-13 (Peterson); Tr. 277:15-278:20,
279:14-22 (McConville). As McConville credibly explained at trial, AM
General had to certify its own cost or pricing data as “current, accurate,
and complete. We’re required to flow that [requirement] down to our
subcontractors, and we have no authority to waive that requirement.” Tr.
277:24-278:4; see also id. at 277:15-19 (McConville); Tr. 430:20-431:6
(Lentych); accord Tr. 974:10-975:1 (Plude). Because AM General was
5

“Definitize” is a term the parties used to mean settle or finalize the prices. See Tr. 121:1-5 (Peterson);
PTX-168-001 (handwritten notes of Demmer’s COO, under “AMG” “Definitization of 2010”); PTX-169001 (same); PTX-171-001 (handwritten notes of Demmer’s COO, “AMG—Definitization 2010”); Tr.
974:15-20 (Plude). The term is commonly used in the defense industry. See Tr. 532:11-13 (Bingham).

41

still attempting to finalize the 2010 prices, it had to consult Demmer’s
current—in this case, actual—cost data to finalize the prices. See also Tr.
538:1-5 (Bingham).

118.3 Internally, Demmer acknowledged that it had to provide the 2010 actual
cost data. On December 1, 2010, Sjoberg asked Shawa-DeCook, “Did we
reply to AMG on their request for cost information for 2010?” PTX-119002. Shawa-DeCook responded, “We have no room not to comply and
will have a hard negotiation now until next week . . . . We’ve got our
continued plan and also working on putting our efficiency gains into hours
to justify. We just need to sell/show that it’s not as simple as using actual
alone. There’s [sic] bigger risks longer term also that we need to end this
and not keep open.” PTX-119-001; see also PTX-128-001 (Sjoberg
handwritten notes dated 12/7/10, “We can justify the gap from 14.5 hrs 
7.1 due to efficiencies”).
119.

Using actual data was also consistent with government contracting practice.

McConville, for example, had always used up-to-date, actual costs in resolving not-to-exceed
pricing in the past. Tr. 279:3-7 (McConville); PTX-118-001 (11/30/10 McConville email to
Demmer, “In my experience, finalizing NTE prices has been straightforward as both parties have
the benefit of working with actuals.”).
120.

If AM General had not considered Demmer’s actual costs in 2010 in attempting

to finalize 2010 pricing, AM General faced the risk that the Government would not reimburse
AM General for any difference between the agreed-upon costs and the actual costs. Tr. 279:23280:6 (McConville).
121.

This risk applied even if the government cancelled the RFP to AM General for

2010-2013 and carried over 2009 HMMWV prices to 2010. Tr. 280:7-10 (McConville).
122.

This risk applied even if the Government was not seeking cost or pricing data

from AM General for 2010 HMMWV prices. Tr. 280:15-18 (McConville). At some point in the
future, the Government could require such a certification. Tr. 280:15-25 (McConville). Indeed,
as it turned out, down the road—in 2011—the Government did request, and AM General

42

submitted, certified cost or pricing data for 2010 Bi-Metal Door prices. PTX-175-001–002. AM
General did so in connection with the Bi-Metal Door Value Engineering Change Proposal
(“VECP”). PTX-175-002. See infra ¶185.4.
123.

Additionally, during the December 7, 2010 meeting, Demmer executive Heppler

gave a presentation about improvements and efficiencies that Demmer had made to the door
line; Heppler, however would not state expressly when those improvements had been made. Tr.
142:1-6, 142:20-143:18 (Peterson); Tr. 282:6-16 (McConville); Tr. 431:7-13 (Lentych). In the
middle of Heppler’s presentation, Demmer’s other representatives stopped the meeting. Tr.
143:19-144:1 (Peterson); Tr. 282:21-283:2 (McConville); Tr. 431:14-25 (Lentych). Heppler did
not return to the meeting, and Demmer’s remaining personnel claimed not to be able to answer
AM General’s outstanding questions about the labor improvements.

Tr. 143:19-144:14

(Peterson); Tr. 283:3-8 (McConville). This information was relevant to AM General’s audit
because if Demmer had put efficiencies in place before 2010, it meant that AM General had been
overpaying substantially for the Bi-Metal Doors.

Tr. 143:9-18 (Peterson); Tr. 282:13-20

(McConville).
124.

Heppler testified that the various process improvements he identified at the

December 2010 meeting were put in place before 2010. PTX-193 (Heppler Dep.) 194:21-25,
208:6-17, 209:5-13, 209:19-210:17, 219:12-220:8, 231:20-232:17.
Q.

Demmer’s 2011 Submission and Certification of Cost or Pricing Data

125.

On January 7, 2011, Demmer certified that the cost or pricing data it furnished to

AM General in support of Demmer’s price proposal for 2011 shipments of Bi-Metal Doors were
current, accurate, and complete.

Stip. ¶ 35; Tr. 271:19-272:17 (McConville); Tr. 678:3-7

(Shawa-DeCook); PTX-140-004.

43

126.

By contrast, Demmer never submitted a certificate of cost or pricing data for

2010. Tr. 272:20-22 (McConville); Tr. 355:21-24 (Hodge); Tr. 714:17-19 (Shawa-DeCook).
Demmer did not certify the cost or pricing data associated with the 2010 price proposal because
the parties never reached final agreement on prices for Bi-Metal Doors shipped in 2010. Tr.
272:23-24 (McConville); Tr. 355:25-356:5 (Hodge); Tr. 405:3-4, 403:10-18 (Lentych).
127.

On February 16, 2011, at AM General’s request, Demmer resubmitted its cost and

pricing data in support of its price proposal for 2011 shipments of Bi-Metal Doors in the format
prescribed by FAR 15-2. Stip. ¶ 36.
R.

The DCAA Audit Report and Demmer’s 2010 Actual Costs

128.

On May 27, 2011, the DCAA issued Audit Report No. 2261-2011F 2100 004,

PTX-6. The Audit Report summarized DCAA’s findings of its audit of Demmer’s January 7,
2011 price proposal for Bi-Metal Doors. Stip. ¶ 37.
129.

As part of the audit, the DCAA examined the actual costs that Demmer incurred

in producing Bi-Metal Doors in 2010. DTX-006-004, -005, -010, -011, -022; Tr. 536:18-537:2
(Bingham). Demmer’s retained witness, Stephen Kiraly, whom Demmer did not attempt to
qualify as an expert, suggested in response to questions from the Court that the DCAA was not
looking at Demmer’s actual costs. Tr. 761:19-21 (Kiraly). The plain language of the relevant
audit report confirms that Demmer’s 2010 actual costs were, in fact, evaluated. DTX-006-004, 005, -010, -011, -022; see also PTX-203 (Daniels Dep.) 248:2-11 (DCAA “audited Demmer’s
2010 actual costs”). Kiraly’s suggestion also contradicts Demmer’s own COO’s representation
about the DCAA Audit Report. See PTX-164-002 (“In addition, the DCAA audit report also
indicates that the auditors examined Demmer’s costs through December 2010.”). After being
asked to clarify his comments by Demmer’s counsel, moreover, Kiraly acknowledged that he

44

“would have expected” DCAA to review Demmer’s actual costs as part of the audit work. Tr.
761:23-25 (Kiraly).
130.

The DCAA questioned $545,462 of the costs Demmer proposed in connection

with the 2011 proposal. PTX-6-007.
131.

Demmer’s actual costs of producing the Bi-Metal Doors it shipped to AM

General in 2010 were $2,058.10 per door for the front doors and $2,107.22 per door for the rear
doors. PTX-145.
132.

Demmer’s actual costs of producing the Bi-Metal Doors shipped to AM General

in 2010 that were unquestioned by the DCAA were $2,017.58 per door for the front doors and
$2,067.00 per door for the rear doors.

Tr. 537:16-25 (Bingham); PTX-006-004 (stating

quantities); PTX-006-008; PTX-006-017–019.
S.

AM General’s Withholding and Pre-Litigation Negotiations

133.

Beginning in December 2010, AM General began withholding amounts from

payments to Demmer. AM General did so to begin to offset the amount it had overpaid Demmer
for Bi-Metal Doors delivered in 2010. PTX-177. The withholding began after the December 78, 2010 meeting. Tr. 146:5-14 (Peterson).
134.

In total, AM General withheld $19,366,810.09 from Demmer from payments for

parts sent to AM General’s production facility in late 2010 and early 2011. PTX-177-010.
135.

The DCAA Audit Report revealed that the 2010 actual cost data Demmer had

provided in support of its 2011 price proposal were inaccurate and incomplete, and had included
disallowed and unsupported costs. PTX-6.

45

136.

In late June 2011, AM General issued new Blanket Contracts to Demmer

lowering the price of Bi-Metal Doors, effective July 1, 2011. The new prices in the Blanket
Contracts were based on the results of the DCAA Audit Report. PTX-5.
137.

In 2011, AM General and Demmer exchanged letters in an attempt to resolve

their dispute over 2010 Bi-Metal Door pricing. One of those letters was a September 9, 2011
letter that AM General referred to as its “final decision.” Stip. ¶ 39.
138.

AM General issued the Final Decision letter (PTX-174) pursuant to Clause 24 of

the terms and conditions. In that letter, AM General advised that its interpretation of the contract
required the parties to negotiate final 2010 pricing using Demmer’s 2010 actual, allowable costs6
plus a reasonable profit rate for a total of $48,808,361.23 less than the amounts that Demmer had
invoiced AM General using the NTE pricing. This amount included refunds for parts other than
the Bi-Metal Doors. PTX-174.
139.

In response to the Final Decision letter, Demmer did not pay AM General any of

the requested funds or drop its request for reimbursement of the funds that AM General had
already withheld. See Stip. ¶ 39.
140.

AM General was never able to complete its audit of Demmer’s proposal for 2010

prices on Bi-Metal Doors. Tr. 114:24-115:4, 159:16-18 (Peterson); Tr. 355:25-356:2 (Hodge);
see also Tr. 903:18-20 (Tenlen) (“Q. And so nobody ever told you, between March and August
of 2010, that the AM General audit had been closed, correct? A. That is right.”).
141.

At no time have the parties agreed upon settled prices for 2010 shipments of Bi-

Metal Doors. Tr. 144:15-17 (Peterson); Tr. 272:20-24, 283:19-25 (McConville); Tr. 433:15-17
(Lentych); Tr. 358:1-11 (Hodge).
6

“Allowable” costs are the contractor’s costs that the government is permitted to reimburse. Tr. 264:23265:5 (McConville). The government is not permitted to reimburse unallowable costs, either to
contractors or subcontractors. Tr. 265:12-17 (McConville).

46

142.

As the parties’ dispute wore on, Demmer threatened to stop production if AM

General did not acquiesce to Demmer’s position on 2011 pricing. See PTX-172-009.
T.

Additional Course of Dealing and Course of Performance Evidence

143.

In addition to the evidence and findings set out above, other evidence about the

parties’ course of dealing and course of performance further supports AM General’s position.
144.

In 2007, the parties used not-to-exceed pricing. The only difference between the

2007 NTE contract and the Note in the February 2010 Change Blanket Contracts is a slight,
immaterial change in wording. In particular, the 2007 contract used the phrase “Not To Exceed”
whereas the February 2010 Change Blanket Contracts used the phrase “will not exceed.” The
Court concludes that this is a distinction without a difference and that all parties to the contract
understood the meaning of the “not to exceed” term.
145.

Not one Demmer witness testified that he or she had even seen the 2007 not-to-

exceed purchase orders in assessing the meaning of the February 2010 Change Blanket
Contracts. Nor did any testimony or any document in evidence suggest that anyone at Demmer
compared the February 2010 Change Blanket Contracts to the 2007 purchase order to identify
differences, drew any different conclusion from one document to the next, or had the 2007
purchase order experience in mind when considering the February 2010 Change Blanket
Contracts. No testimony or document in evidence in any way suggests that Demmer personnel
viewed “NOT TO EXCEED” as a talisman that had to be invoked to establish not-to-exceed
pricing. The persuasive evidence shows the opposite. See FoF ¶¶13-14, 74-75, 81, 85-86.
146.

In 2007, after AM General and Demmer settled the prices that had initially been

established as not-to-exceed, AM General issued a revision to the blanket contract that removed
the not-to-exceed limitation. See PTX-007-008 (“EFFECTIVE 8/10/07, CHANGE PRICE ON

47

ORDER TO READ AS FOLLOWS. (NOT TO EXCEED REMOVED)”). In contrast, the Note
in the February 2010 Change Blanket Contracts was never removed. Instead, AM General
issued a reminder that the not-to-exceed prices remained open and undefinitized into 2011. In
early 2011, AM General added the following notation on the relevant blanket contracts: “NTE
prices for shipments from 01/01/10 to 01/01/11 are unchanged by this action and remain subject
to downward adjustment based on applicable cost or pricing data.” DTX-CB-005. Demmer
continued to ship Bi-Metal Doors to AM General after receiving the updated blanket contracts
with this notation. There is no record evidence that Demmer objected to this language.
147.

AM General typically issued change blanket contracts for all contractual changes,

including price changes. The parties changed prices on numerous occasions without including
any of the language in the Note. See, e.g., Tr. 269:4-6 (McConville); PTX-090-002; Tr. 410:113 (Lentych). The words in the Note reflected an approach to changing the price that differed
from simply replacing an old settled price with a new settled price. The Note reflected the
parties’ intent to keep the prices unsettled and open pending completion of AM General’s audit
and negotiations.
148.

Demmer’s internal, pre-litigation documents are replete with references to the

February 2010 Change Blanket Contracts as “NTEs.” See PTX-142-001 (“we are looking at the
contracts carefully to insure that the wording regarding the NTE pricing and the AMG/Demmer
negotiations has been removed or superseded”); PTX-162-002 (internal Demmer PowerPoint
presentation describing history with AM General, including the following entry for February
2010: “AMG amends Bi-Metal & Aluminum Stamping PO’s to add a NTE clause”); PTX-129001 (internal Demmer email explaining that the 2010 price “was submitted and accepted as
NTE”); PTX-160-004, -006, -008 (calculating the difference between Demmer’s actuals and the

48

“NTE Price” in internal accounting documents); PTX-161-004, -006 (same); see also supra ¶ 85
(collecting additional internal Demmer communications). These communications confirm
Demmer’s understanding of the Note’s meaning. Further, Ms. Shawa-DeCook confirmed at trial
that the “NTE note,” “NTE language,” “NTE clause,” in PTX-178, PTX-120, and PTX-162, all
referred to the additional Note in the February 2010 Change Blanket Contracts. See Tr. 728:25733:8 (Shawa-DeCook).
149.

At trial, both Heather Shawa-DeCook and Karl Tenlen suggested that these many

internal references to the Note in the February 2010 Change Blanket Contracts were applications
of a “label” or “shorthand reference” that AM General’s own correspondence referenced. Tr.
673:14-20 (Shawa-DeCook); Tr. 916:12-19 (Tenlen).

Shawa-DeCook testified that these

references did not mean that Demmer agreed with AM General’s position. Tr. 673:21-23
(Shawa-DeCook). Not one internal Demmer document supports this testimony. Moreover, none
of the communications in which Shawa-DeCook and Tenlen use this terminology
contemporaneously record that it was only AM General’s view of the contract. Furthermore,
neither of these individuals wrote—in any document in evidence, even those sent to AM General
in the run up to the litigation (see infra ¶¶154-155)—that they believed the prices were settled
and final, rather than open and “NTE.”
150. Additionally, none of the other Demmer executives involved in these
communications—such as Dargitz, Koch-McDonald, or Sjoberg—testified that they were merely
repeating something they had heard late-in-time from AM General. Most of Sjoberg’s many
references were in his handwritten notes, which he testified he did not share with anyone,
including within the company. PTX-197 (Sjoberg Dep.) 44:22-46:17.

49

151.

In addition to Demmer’s internal communications, Demmer had a number of

interactions with AM General in which Demmer did not object to AM General’s reference to the
February 2010 Change Blanket Contracts as not-to-exceed or NTE.
152.

In November 2010, for example, AM General wrote to Demmer on multiple

occasions and referred to the February 2010 Change Blanket Contracts explicitly as “NTE’s
which have not yet been finalized.” DTX-BE-001. Demmer wrote back in response, but did not
object to the NTE terminology or argue that the prices were firm and fixed. See PTX-118-003
(11/23/10 email from Dargitz); PTX-118-001 (11/30/10 email from Shawa-DeCook); Tr. 426:211 (Lentych); PTX-192 (Dargitz Dep.) 159:24-160:14. Rather, Demmer argued about what type
of information AM General should use in settling, or definitizing, the 2010 prices.
153.

On December 9, 2010, Tenlen wrote Hodge in response to an inquiry about 2011

pricing. Tenlen wrote, “Before I submit the updated pricing to AMG, I understand that we must
first close the pricing negotiations for 2010.” PTX-130-001. If Tenlen believed that 2010 prices
were closed and final, he would not have made this request. (The parties did not, however, close
such negotiations—as indicated by subsequent communications. See, e.g., PTX-137-002, PTX163-001.)
154.

On December 22, 2010, Sjoberg wrote Plude about a December 17, 2010 meeting

in which the participants, including Demmer’s President and CEO, “discuss[ed] ways to resolve
the issues between AM General and Demmer that have prevented realizing a final agreement on
pricing for 2010 under our HMMWV contract.” PTX-137-001. Nowhere in the letter does
Demmer contend that 2010 pricing was settled or closed; nor does Demmer dispute that the
parties had NTE prices for 2010. See also PTX-164-001 (6/16/11 letter from Demmer re:
“Definitization of 2010 Not To Exceed (NTE) Pricing” and taking the position that Demmer’s

50

various “definitization proposal[s]” were accepted “in practice” by AM General, but not arguing
that the February 2010 Change Blanket Contracts established final prices).
155.

In March 2011, AM General and Demmer resolved an accounting discrepancy on

the prices AM General had been paying for the Bi-Metal Doors. Lentych emailed Demmer
representatives, including Shawa-DeCook, about this issue and referred to the 2010 prices for
Bi-Metal Doors as “Not To Exceed (‘NTE’) prices.” PTX-150-001. Shawa-DeCook did not
dispute Lentych’s characterization of the prices as NTE in response. Tr. 423:11-14 (Lentych).
Several Demmer representatives reviewed and analyzed Lentych’s message; none of them
disputed the characterization of the 2010 prices as NTE, either. See PTX-151-001–002. ShawaDeCook also wrote in response to Lentych’s email and confirmed that the calculations AM
General had performed were correct; she did not dispute the NTE reference. PTX-152-001.
Demmer replied to AM General and identified the “credits and invoices for the 2010 contracted
not to exceed amount.” PTX-153-001. Those credit memos referenced the amounts owed as,
“2010 NOT TO EXCEED OVERPAYMENT.”

PTX-153-001; see also PTX-153-002–107

(describing “2010 NOT TO EXCEED OVERPAY”).
U.

Trade Usage Evidence

156.

Trade usage also supports AM General’s position. In the field of government

contracting and subcontracting it is customary for contracting parties to use open, non-settled,
temporary, placeholder, ceiling, not-to-exceed prices to permit performance while the parties
complete audits and negotiate final, settled prices. Tr. 263:22-264:4 (McConville); 527:14528:12 (Bingham).
157.

AM General has previously used not-to-exceed pricing with Demmer and other

suppliers. AM General previously used not-to-exceed pricing in purchase orders with BAE

51

Systems. See PTX-007-001, DTX-CY–DTX-DA. Those purchase orders used a variety of
different terms to establish not-to-exceed pricing: “NOT TO EXCEED,” PTX-007-001; “ALL
PRICES ARE ‘NOT TO EXCEED’, ‘SUBJECT TO AUDIT & NEGOTIATION,’” DTX-CY001; “EFFECTIVE 4-1-05, CHANGE PRICE FROM $.01 TO $38.75 AS A ‘NOT TO
EXCEED’,” DTX-CX-005; “REASON FOR CHANGE: TO ESTABLISH A ‘NOT TO
EXCEED’ PRICE,” id.; “ALL PRICES ARE ‘NOT TO EXCEED’ AND ARE ‘SUBJECT TO
AUDIT’ AND FINAL NEGOTIATIONS,” DTX-CZ-001; “NOTE: ALL PRICES ARE ‘NOT
TO EXCEED’ AND ‘SUBJECT TO AUDIT AND NEGOTIATIONS’,” DTX-DA-001, DTXDA-008; “1) PRICES ARE ‘NTE’ BASED ON SIMILAR PARTS. 2) PRICES WILL BE
CHANGED WHEN A FFP PRICE IS SUBMITTED TO AMG,” DTX-DA-018.
158.

Demmer has argued that a regulatory provision on undefinitized contract actions

from the DFARS should have been used if AM General sought to impose not-to-exceed pricing.
The Court disagrees.
158.1 AM General and Demmer did not incorporate the DFARS provision on
undefinitized contract actions into the February 2010 Change Blanket
Contracts. See generally PTX-3; Tr. 532:14-16 (Bingham); see also id. at
594:6-595:4 (Bingham) (confirming that limitations on the duration of an
undefinitized contract action, amounts that may be withheld, and profit
that may be in the DFARS provision on undefinitized contract actions are
not in the February 2010 Change Blanket Contracts). There was no
requirement that the parties incorporate that provision in their subcontract.
Tr. 532:17-19 (Bingham).
158.2 Similarly, in 2007, AM General and Demmer did not incorporate the
DFARS provision on undefinitized contract actions in the purchase order
that implemented what even Demmer agrees was “not-to-exceed” pricing.
See PTX-007-004 & PTX-190, PTX-191 (the terms and conditions
incorporated into PTX-7, which do not include the UCA provisions). The
parties’ decision not to incorporate that DFARS provision did not prevent
them from establishing not-to-exceed pricing in 2007 or in 2010. See Tr.
532:20-533:3 (Bingham).

52

158.3 Likewise, the terms and conditions that were incorporated into the AM
General-BAE purchase orders did not incorporate the DFARS provisions
on undefinitized contract actions. See generally PTX-189. The parties’
decision not to incorporate that particular procedure did not keep them
from entering into not-to-exceed prices—a point that Demmer concedes by
citing those other purchase orders as valid examples of not-to-exceed, open
pricing under UCC § 305. See Demmer Trial Br. (D.E. 156) (“Demmer
T.B.”) at 8-10.
159.

AM General also used not-to-exceed pricing with Armor Works (another supplier

to AM General’s HMMWV program). Tr. 214:7-13 (Mills). In that situation, after DCAA
audited Armor Works’ cost or pricing data, Armor Works agreed to re-negotiate the NTE price
down several thousand dollars. Tr. 214:14-22 (Mills). The downward adjustment in the NTE
price took place “over a year past the start date” of the contract. Tr. 214:23-24 (Mills).
160.

AM General’s McConville worked for the Department of the Navy, including as a

contract officer, for more than 25 years before joining AM General.

Tr. 256:23-258:14

(McConville). When McConville worked for NavAir, she used not-to-exceed pricing from time
to time. Tr. 264:5-10 (McConville). Based on her experience, she did not use the same wording
every time, but rather “would identify the price that is determined to be or identified as a not-toexceed price and then put language within the contract that indicated that we would not pay more
than that price when the final price is determined.” Tr. 264:17-22 (McConville).
161.

Likewise, the only witness qualified as an expert in the case, Bingham, credibly

testified that based on his 28 years in advising clients on government contract issues (Tr. 523:6-8
(Bingham)), government contractors can have not-to-exceed pricing without using the exact
words “not to exceed” or the exact notation “NTE.” Tr. 528:13-21 (Bingham). Bingham has
seen contracts with not-to-exceed pricing that did not say “NTE” or “not-to-exceed.”

Tr.

528:22-25 (Bingham). For this case, he evaluated the February 2010 Change Blanket Contracts
and determined that they have all of the characteristics of not-to-exceed pricing. Tr. 529:18-22,

53

530:17-531:7 (Bingham). Demmer offered no contrary expert testimony on this issue and the
Court finds Bingham’s testimony on this point to be credible, well-founded, and reliable.
162.

In the field of government contracting, “re-negotiate” means “to adjust a defense

contract price in order to eliminate or recover excessive profits” Websters Third New
International Dictionary 1922; see also Black’s Law Dictionary 1410 (9th ed. 2009)(defining
“renegotiation” to include “[t]he reexamination and adjustment of a government contract to
eliminate or recover excess profits by the contractor”).
V.

Findings Related to the Reasonable Prices at the Time for Delivery
1.

163.

Reasonable Prices at the Time for Delivery

AM General’s damages equal the difference between the price AM General

actually paid and the “reasonable price at the time for delivery” for Bi-Metal Doors shipped in
2010. Ind. Code § 26-1-2-305(1).
164.

After accounting for returns, in 2010 Demmer shipped 25,321 front Bi-Metal

Doors and 14,043 rear Bi-Metal Doors to AM General. Stip. ¶ 32.
165.

Demmer’s shipments of Bi-Metal Doors took place throughout 2010. Tr. 133:4-

10 (Peterson).
166.

Utilizing a reliable methodology which takes into account the unique facts of this

case, Bingham concluded that the reasonable price for Bi-Metal Doors Demmer shipped to AM
General in 2010 is the actual, allowable, and supported costs Demmer incurred in producing
those doors plus a profit of 12.25%. Tr. 536:11-17, 539:13-14 (Bingham). Using this formula,
Bingham concluded that the reasonable price for each front Bi-Metal Door shipped in 2010 is
$2,264.73 and the reasonable price for each rear Bi-Metal Door shipped in 2010 is $2,320.21.
Tr. 542:20-23 (Bingham). The Court accepts Bingham’s methodology and conclusion.

54

a.
167.

Demmer’s Actual, Allowable, and Supported Costs

The actual, allowable, and supported cost to produce each door in 2010 was

$2,017.58 for each front Bi-Metal Door and $2,067.00 for each rear Bi-Metal Door. Tr. 537:1625 (Bingham).
167.1 These actual, allowable and supported 2010 costs are based on Demmer’s
proposal and the certified data showing Demmer’s 2010 actual costs in
support thereof, as well as the May 27, 2011 DCAA audit report which
considered those costs and which questioned some of those costs as
unallowable and unsupported. Tr. 536:18-537:2 (Bingham); PTX-146
(Demmer’s submission of certified cost or pricing data to AM General in
February 2011).
167.2 Kiraly criticized Bingham for relying on the DCAA audit report to
determine the 2010 costs when that report was focused on Demmer’s 2011
proposed costs. Kiraly’s concerns are misplaced and the Court disregards
them.
167.3 Bingham relied on Demmer’s own certified data for 2010 incurred costs
(which it provided in support of its 2011 proposal). Tr. 536:18-537:2
(Bingham); PTX-146. Bingham relied on the DCAA audit report in
determining which of Demmer’s 2010 incurred costs were allowable and
supported, and thus should be included in the basis of the 2010 reasonable
price. Tr. 536:18-537:2 (Bingham). Kiraly overlooked the fact that
Bingham used Demmer’s certified 2010 incurred cost data (PTX-146),
which Kiraly himself did not believe he had ever reviewed. Tr. 787:9-16
(Kiraly).
167.4 Bingham’s partial reliance on the DCAA audit report is further supported
by the fact that the 2010 price for Bi-Metal Doors ultimately agreed upon
by AM General and TACOM were based on the allowable and supported
costs identified in the report. Tr. 539:15-540:3 (Bingham); PTX-203
(Daniels Dep.) 233:1-235:3, 247:12-17; DTX-CN-001. Given the context
that AM General is the prime contractor, and the fact that TACOM had the
DCAA audit report in hand when negotiating the 2010 prices, one cannot
reasonably ignore the DCAA Audit Report. See Tr. 575:24-576:4
(Bingham).
167.5 Demmer’s actual costs for producing the Bi-Metal Doors shipped in 2010
were $2,058.10 per front Bi-Metal Door and $2,107.22 per rear Bi-Metal
Door. PTX-146. PTX-146 contains the detailed data Demmer submitted
to AM General on February 16, 2011 in support of the “cost or price data
as submitted” on January 7, 2011 by Demmer for the “4 bi-metal part

55

numbers.” PTX-146-001; PTX-140-004. The actual costs contained in
Demmer’s certified cost or pricing data for 2010 incurred costs are
confirmed by documents in evidence. See PTX-023-001; PTX-025-002, 005; PTX-087-009–011 (breakdown of sub-component costs of each door);
PTX-139-001 (Mars 300 and aluminum costs); PTX-155-001 (DCMADemmer exchange about “actual for 2010” labor hours and material costs);
PTX-157-001 (providing DCAA information on Demmer’s actual material
costs for 2010); PTX-160.
167.6 PTX-146 contains a cost build-up for front Bi-Metal Doors of $2,058.10.
PTX-146-114. The components of this cost build-up are based on
Demmer’s incurred costs for 2010. See, e.g., PTX-146-131 (“The labor
rates are the actual labor hours and labor costs for 2010 Jan-Nov”, “The
labor hours are the actual labor hours posted to the program in 2010 JanNov”); PTX-146-135 (“Burden build up is based on 2010 financials
through November plus 1 month projection of December.”); PTX-146-158
(“Material Handling Buildup is based on the inventory shrinkage average
through November 2010.”); PTX-146-162 (“SG&A build up is based on
2010 financials through November plus 1 month projection of
December.”).
167.7 PTX-146 contains a cost build-up for rear Bi-Metal Doors of $2,107.22.
PTX-146-057. The components of this cost build-up are based on
Demmer’s incurred costs for 2010. See, e.g., PTX-146-074 (“The labor
rates are the actual labor hours and labor costs for 2010 Jan-Nov”, “The
labor hours are the actual labor hours posted to the program in 2010 JanNov”); PTX-146-078 (“Burden build up is based on 2010 financials
through November plus 1 month projection of December.”); PTX-146-101
(“Material Handling Buildup is based on the inventory shrinkage average
through November 2010.”); PTX-146-105 (“SG&A build up is based on
2010 financials through November plus 1 month projection of
December.”).
167.8 PTX-140 contains a January 7, 2011 certificate of “Demmer Corporation
Current Cost or Pricing Data” signed by Shawa-DeCook. PTX-140-004.
In the certification, Shawa-DeCook certified, on behalf of Demmer, that
“the cost or pricing data (as defined in section 2.101 of the Federal
Acquisition Regulation (FAR) . . . submitted, either actually or by specific
identification in writing, to the Contracting Officer . . . in support of 2011
Aluminum Program Pricing . . . are accurate, complete and current as of
January 7, 2011. . . . This certification includes the cost or pricing data . . .
.” Id. The certification clarifies “Current cost or pricing data supplied is
complete through November 2010 month end.” Id.
167.9 Record evidence confirms the reliability of the 2010 incurred costs to
which Demmer certified in PTX-140 and PTX-146. See PTX-23-001

56

(Mars 300 cost); PTX-025-002 (same); PTX-040-004 (glass cost);
087-009–011 (itemized cost breakdown of Bi-Metal Door
components); PTX-121, PTX-138, PTX-139, PTX-157 (material);
122 (material, SG&A, burden); PTX-155 (labor hours); PTX-160
costs in general).
168.

PTXsubPTX(2010

Demmer’s actual, allowable, and supported costs for producing Bi-Metal Doors in

2010 can be determined by taking Demmer’s actual costs incurred in 2010 and subtracting the
costs questioned by the DCAA. Tr. 536:23-537:2 (Bingham).
169.

The May 27, 2011 DCAA audit report provides the DCAA’s analysis of

Demmer’s proposal for 2011 Bi-Metal Doors. PTX-006-004. The proposed prices and costs
audited by the DCAA match those in Demmer’s certified cost or pricing data, which included
Demmer’s actual incurred costs of producing Bi-Metal Doors in 2010.7 The DCAA audit report
explains throughout that the prices in the subject proposal are based on Demmer’s 2010 incurred
costs. E.g., PTX-006-008 (“The proposed direct labor rates are based on the actual rates for the
individuals who worked on the prior HUMVEE door subcontract from January 1, 2010 through
November 2010.”). The DCAA audit report also contains and relies on a Defense Contract
Management Agency (“DCMA”) technical assist audit report which also examined Demmer’s
2010 actual cost data for labor and material costs. PTX-006-026.
170.

The DCAA questioned a total of $247,516 of the proposed cost for the front

doors, which translates to $40.52 per front door. PTX-006-008, PTX-006-017. The DCAA also
questioned a total of $25,215 of the proposed cost for the rear doors, which translates to $40.21
per rear door. PTX 006-018, PTX 006-019. The DCAA questioned these costs because of

7

The proposal being audited was for 6,108 of each of the two front doors and for 627 of each of the two
rear doors. DTX-006-004. Dividing the total proposed costs for the front and rear doors by the quantity
in the proposal yields a proposed price of $2,325.66 per front door and $2,381.16 per rear door, which
match the prices in Demmer’s certified cost or pricing data. PTX-006-007 (showing total costs per part
number in DCAA audit report); PTX-146-122 (showing a price of $2,325.66 for the front doors); PTX146-065 (showing a price of $2,381.16 for the rear doors).

57

calculation errors and double counting costs, PTX-006-013, lack of support for scrap rates PTX006-014, inconsistent calculations for direct and overhead costs, PTX-006-015, and the inclusion
of unallowable bad debts in the G & A rate, PTX-006-016. Demmer did not challenge any of
the DCAA’s findings, either at the time of the audit or at trial. See, e.g., PTX-006-016 (after
each category of questioned costs, the DCAA audit report contains the following language:
“Subcontractor’s Reaction. [Demmer] withheld comments pending negotiation but stated that
they have already negotiated with [AM General] based on actual cost or pricing data at the time
of their negotiation.”); Tr. 574:9-575:5 (Bingham).
b.
171.

12.25 Percent Is a Reasonable Profit Rate.

The Court specifically finds that a 12.25 percent profit rate is reasonable under

the circumstances.
171.1 A 12.25 percent profit is higher than the profit rate Demmer ordinarily
received on its contracts with defense contractors. Tr. 686:2-25 (ShawaDeCook) (12 percent is Demmer’s standard, default profit rate for defense
quotes and Demmer’s typical profit for defense quotes); PTX-194
(McDonald Dep.) 64:8-16 (12 percent profit rate is Demmer’s default);
PTX-195 (Roberts Dep.) 21:17-21 (same); DTX-N-001 (Shawa-DeCook
explaining that a 12 percent profit was “typical – high end of what’s
considered ‘fair and reasonable.’”); Tr. 688:14-16 (Shawa-DeCook) (“Q.
So a twelve percent profit rate is the high end of what’s considered fair
and reasonable, correct? A. Yes, twelve percent is typical, high end.”);
PTX-197 (Sjoberg Dep.) 156:22-157:3 (12 percent margin is generally
“what we believed that the government contract would allow”); DTX-DD
(Angell Dep.) 131:5-17 (12 percent profit rate is Demmer’s default).
171.2 In its December 2009 proposal, Demmer sought a 14 percent profit rate
based on the expectation of “drastically reduced volume.” DTX-N-001. In
2010, when the Bi-Metal Doors were delivered, that risk did not
materialize; Demmer’s justification for a higher-than-typical profit rate of
14% is not justified.
171.3 AM General and the Government agreed on a 12.25 percent profit for
Demmer in agreeing to the 2010 prices of Bi-Metal Doors. DTX-CM-003
(TACOM’s Ruzicka explains in a handwritten note that “12.25% on
Demmer Doors is consistent with what we gave in production K

58

[contract].”). TACOM is AM General’s customer; TACOM’s position on
the fair and reasonable profit is an important consideration.
171.4 Bingham also credibly testified that based on his experience, which
includes having advised on reasonable profit rates for government
procurement contracts, and the facts of this case, that 12.25 percent profit
is reasonable. Tr. 539:13-540:3 (Bingham). The Court specifically
concludes that Bingham’s testimony on this point is the sole convincing
evidence as to profit margin.
172.

Kiraly opined that AM General and TACOM were both incentivized to set a low

price for the 2010 Bi-Metal Doors because the refund would ultimately be paid by Demmer. Tr.
776:16-21 (Kiraly). This view is contradicted by the record evidence and the Court rejects it.
172.1 TACOM had already paid AM General for the 2010 Bi-Metal Doors at the
higher price for the predecessor door. PTX-203 (Daniels Dep.) 231:19-25.
As a result, the lower the price to which AM General agreed for the 2010
Bi-Metal Doors, the larger the refund AM General would have to pay to
TACOM. See PTX-203 (Daniels Dep.) 232:2-9; Tr. 549:25-550:14
(Bingham).
172.2 Additionally, AM General attempted to negotiate with TACOM a higher
price for the 2010 Bi-Metal Doors, but TACOM rejected the offers. Tr.
568:21-569: 18 (Bingham); PTX-200 (offering to resolve the VECP using
the NTE prices minus the $20 million offer that Demmer had proposed);
PTX-201 (rejecting that offer). Kiraly was not aware that AM General
sought higher prices for the Bi-Metal Doors or that TACOM rejected such
offers. Tr. 794:18-21, 794:25-796:19; 798:14-16 (Kiraly).
172.3 One of the exchanges with TACOM references taking “AMG’s cost
number for [D]emmer” and adding “our 12.25% profit rate on it.” DTXCM-001. AM General’s “cost number” was not the NTE pricing, which
TACOM had rejected. See PTX-200 & PTX-201. Rather, TACOM agreed
to take the approved costs for Demmer “based on the audit” and add 12.25
percent to those costs. PTX-203 (Daniels) Tr. 236:1-21; see also id. at
247:12-248:20 (discussing this exchange further, the DCAA’s audit, and
the fact that “the Government can use an audit for whatever they want,
once they have it”). Daniels, who worked as a contract specialist at
TACOM for seven years and has worked in AM General’s Contracts
Department for twenty-five years, reasonably understood that the DCAA
audit would control TACOM’s bargaining position. See PTX-203
(Daniels) Tr. 8:17-9:13, 253:3-8.

59

c.

173.

Demmer’s Equitable Arguments Do Not
Reasonable Prices at the Time for Delivery.

Change

the

Demmer raises a number of equitable arguments to justify finding a higher

“reasonable price at the time for delivery” for the 2010 Bi-Metal Doors. Even if these arguments
could alter the analysis, they are of no import here because Demmer has not proven the facts
related to its equity arguments.
174.

Demmer claimed to have invested $15 million towards producing Bi-Metal Doors

from 2006 forward. Tr. 621:17-21 (Shawa-DeCook). That figure covers several years. Demmer
did not introduce any evidence of any particular amount that it spent related to 2010 production.
Demmer’s CFO testified, however, that Demmer made “significant investment in 2007,” well
before the time at issue in this case.

Tr. 623:12-17 (Shawa-DeCook); see also PTX-193

(Heppler Dep.) 194:21-25, 208:6-17, 209:5-13, 209:19-210:17, 219:12-220:8, 231:20-232:17
(testifying that Demmer’s various process improvements were put in place before 2010).
Additionally, Demmer’s headcount dropped from 2008 forward. Tr. 625:6-18 (Shawa-DeCook).
The drop in headcount coincided with consistently high production volumes from 2007, 2008,
and 2009. Tr. 812:9-14 (Tenlen). The drop in headcount, despite high production volume
numbers, is attributable to Demmer achieving additional efficiencies in its production
capabilities.
175.

Demmer argues that it bore substantial performance risk during 2010 and should

be rewarded for that. But the Bi-Metal Doors were part of AM General’s aluminum program.
Tr. 200:25-201:4 (Mills); Tr. 384:16-22 (Lentych); Tr. 806:1-18 (Tenlen). For the aluminum
program, AM General took on most of the material risk, including the risk of instability in the
supply of the material and the cost. Tr. 384:23-385:5 (Lentych). Demmer had a lower risk on
the Bi-Metal Doors in 2010 because those doors were part of the aluminum program.

60

176.

Demmer also claims that the lower projected volumes in the June 2009 RFQ led

to another significant risk that Demmer had to bear (and for which it should be rewarded). The
weight of the persuasive evidence does not support this argument.
176.1 Demmer’s CFO testified that Demmer did not have any knowledge in
advance that the 2010 volumes would not, in fact, be considerably lower
than 2009. Tr. 662:18-20 (Shawa-DeCook). This view is contradicted by
the persuasive evidence.
176.2 AM General’s material group regularly informed Demmer of the expected
quantities of doors. Tr. 412:12-415:14 (Lentych); PTX-86; PTX-34.
Demmer learned actual volumes from “releases” issued by AM General’s
materials management or scheduling group. Tr. 662:21-23 (ShawaDeCook); Tr. 927:13-928:1 (Tenlen). On July 9, 2009—before Demmer
had even completed its response to the June 2009 RFQ—Tenlen expected
2010 door volumes to be 40,000. PTX-011-001; Tr. 912:5-20 (Tenlen). In
August 2009, AM General reiterated that the 2010 “schedule hasn’t
changed.” PTX-023-001.
176.3 On October 13, 2009, AM General advised Demmer to plan on producing
12,168 doors in the first quarter of 2010. PTX-034-003; Tr. 414:3-16
(Lentych).
Tenlen promptly alerted Demmer’s suppliers of that
requirement. PTX-035-001.
176.4 Similarly, on January 5, 2010, Demmer expected to make approximately
8,000 to 10,000 Bi-Metal Doors per quarter, and informed its suppliers
accordingly. PTX-057-001; Tr. 913:16-19 (Tenlen).
176.5 On January 20, 2010, AM General sent Demmer a schedule release that
anticipated building 11,538 HMMWVs, each of which have two or four
doors. Tr. 415:17-417:10 (Lentych); PTX-062-004. Tenlen shared a
similar, high volume forecast with Shawa-DeCook and others at Demmer
in early February 2010. PTX-072-001, -004.
176.6 As of late March 2010, Tenlen, Heppler, and Dargitz all expected Demmer
to make 38,000 doors for the year. PTX-085-001; Tr. 914:5-20 (Tenlen);
see also PTX-086-003 (anticipating 18,948 Bi-Metal Doors required for
six months of 2010).
176.7 Thus, whether the Court evaluates the risk of diminished volumes ex ante
or ex post, Demmer never shouldered that risk for 2010. Moreover, there
is no record evidence that Demmer spent one dollar more than it would
have on 2010 Bi-Metal Door production based on the lower projected
volumes in the June 2009 RFQ. As Shawa-DeCook explained internally in

61

December 2010 about supplier costs in connection with the “AMG Price
Audit,” “Since 2010 volumes remained/did not decrease as expected—we
may have not been impacted [by increased supplier costs]—yet.” PTX121-001.
d.

177.

Jackson’s Hypothetical Negotiation Is Not Based on a Reliable
Methodology.

Demmer argues that the reasonable prices at the time for delivery should be the

NTE prices. Demmer attempts to justify this position through its retained witness, Jackson,
whom Demmer did not attempt to qualify as an expert. The Court rejects this analysis as
unreliable, unpersuasive, and inconsistent with the record evidence.
178. First, Jackson postulated a “hypothetical negotiation” between the parties as of
December 2009 or January 2010—before the time for delivery (or, at most, at the very beginning
of that time). See, e.g., Tr. 133:4-10 (Peterson) (Demmer delivered doors throughout 2010).
Jackson therefore did not answer the question that UCC § 305 requires the Court to answer—the
“reasonable price at the time for delivery” for 2010 shipments of Bi-Metal Doors. Ind. Code
§ 26-1-2-305(1).
179.

Second, Jackson’s hypothetical negotiation relies on a legal regime (the Georgia-

Pacific factors) that is not suited for this type of case. There is no patent, trademark, or other
intellectual property “reasonable royalty” to be determined in this case. (Indeed, the only other
case identified by Jackson in which he apparently used the Georgia-Pacific factors involved the
alleged misappropriation of intellectual property. Tr. 1003:24-1004:3 (Jackson).) Moreover, the
methodology employed does not take into account the role of TACOM in the negotiation process
and the requirement that prices flowing up from the subcontractor, to the prime contractor and
ultimately to the Government must be fair and reasonable.

62

180.

Third, Jackson’s hypothetical negotiation fails to consider what AM General

would have done with the information it specifically requested but Demmer refused to provide.
Apparently to avoid this issue, the question—as posed by Jackson—is to what price the parties
might have agreed no later than February 3, 2010. Tr. 1043:3-7 (Jackson).
180.1 That date, not coincidentally, falls just before the parties had a meeting at
which AM General requested substantial, additional labor hours data from
Demmer. See Stip. ¶ 25. Mr. Jackson’s analysis thus assumes that AM
General did not have, and would not get, the 12 months of actual 2009
labor hours data that were requested at the February 4, 2010 meeting.
Jackson testified that “the February 4th meeting could just as easily have
occurred in January of 2010,” Tr. 1007:4-12, but his analysis nevertheless
failed to consider the information that AM General requested at that
meeting but that Demmer refused to provide. This approach contradicts
the Georgia Pacific requirement, which assumes “that the parties were
privy to all pertinent information.” TP Orthodontics, Inc. v. Prof’l
Positioners, Inc., No. 72-C-697, 1991 WL 187189, at *11 (E.D. Wis. July
2, 1991) (citing Georgia-Pacific Corp. v. United States Plywood Corp.,
318 F. Supp. 1116, 1121 (S.D.N.Y. 1970)). Jackson also did not identify
the specific Georgia-Pacific factors, if any, that he applied.
180.2 As Bingham, whose methodology and conclusions the Court finds not
only convincing but applicable to this case, credibly pointed out, if AM
General had learned about Demmer’s combining of Frag 5 and Bi-Metal
Door labor hour data and disagreed with it, that one new fact would have
led to the parties being more than $500 apart, per door—a significant
delta. Tr. 560:9-561:6 (Bingham). Given the disparity in the information
in Demmer’s December 2009 price proposal and the actual data for items
such as labor hours, it would be too speculative to imagine how AM
General might have reacted to it. See Tr. 562:10-563:4 (Bingham).
181.

Fourth, Jackson’s analysis assumes—erroneously—that the parties had to reach

agreement on price and could not, for example, use NTE pricing until they completed the audit
and negotiated final prices. See Tr. 563:9-18 (Bingham).
181.1 Georgia Pacific typically is used when the factfinder must establish a
final price at the time of infringement of the intellectual property. See,
e.g., Innogenetics, N.V. v. Abbott Labs., 578 F. Supp. 2d 1079, 1094
(W.D. Wisc. 2007) (“Unlike a real negotiation, this hypothetical
negotiation assumes that the infringer must agree to some amount of
royalty payment; it does not have the option of walking away from the

63

table.”), aff’d in part and rev’d in part on other grounds, 512 F.3d 1363
(Fed. Cir. 2008).
181.2 In this case, there was no requirement that the parties finalize prices in
December 2009 or January or February 2010. (Indeed, Demmer has
emphasized that the 2009 price could have been carried over.)
Accordingly, there is no need to engage in a hypothetical negotiation or
impose an artificial deadline like February 3, 2010.
182.

Fifth, Jackson’s analysis rejected every concern that AM General had raised,

assumes that AM General would have acquiesced to Demmer’s position, and conveniently (for
Demmer) arrives at the NTE price as the price the parties would have agreed upon.
182.1 Jackson took as AM General’s opening negotiation position the issues
raised in Lentych’s January 25, 2010 email, PTX-65. See Tr. 1008:11-17
(Jackson). But Lentych credibly testified that PTX-65 did not state AM
General’s negotiation position at that time. Tr. 394:17-24 (Lentych).
Lentych further credibly testified that AM General had not developed a
negotiating position on the 2010 Bi-Metal door prices when he sent PTX65 on January 25, 2010. Tr. 395:19-21 (Lentych). There likewise is no
document in evidence that suggests AM General had such a position at
that point in time. Jackson acknowledged Lentych’s trial testimony, but
nevertheless adhered to his position that PTX-65 is the appropriate starting
point for AM General’s negotiation position. Tr. 1008:18-1009:2
(Jackson).
182.2 Jackson dismissed Lentych’s statements in PTX-65 about Demmer’s
overhead rate as a “red herring.” Tr. 1010:7-1011:15 (Jackson). Jackson
claimed, “No AMG witness was able to cite any document or any
objective foundation for this so-called industry average or standard”
overhead rate. Tr. 1010:24-1011:3 (Jackson). Based on this analysis,
Jackson inferred that AM General therefore would have capitulated on the
issue of overhead cost and agreed to the amounts included in Demmer’s
December 2009 price proposal. Tr. 1020:3-6 (Jackson). But both trial
testimony and record evidence indicated that the overhead rates of other
armor suppliers were lower. Tr. 446:17-21 (Lentych); PTX-187. Lentych
had substantial experience with this issue at the time he sent PTX-65.
182.3 Jackson likewise claimed that “there is no objective evidence supporting
AMG’s position that [the profit rate] should have been 10 percent” and
“no objective evidence supporting AMG’s position that that [10 percent]
was some sort of industry standard or industry average.” Tr. 1019:6-12
(Jackson). Jackson therefore determined that AM General would have
capitulated to Demmer’s request for a 14 percent profit rate. Tr. 1019:13-

64

17, 1020:3-6 (Jackson). But again, Jackson’s view of the record was
mistaken: AM General’s contemporaneous business records objectively
showed that the typical profit rate for other armor suppliers responding to
the June 2009 RFQ was approximately 8 percent. Tr. 399:18-22
(Lentych); PTX-187. Moreover, in adopting Demmer’s proposed profit
rate of 14 percent, Jackson overlooked the fact that Demmer’s own CFO
at the time, Heather Shawa-DeCook, testified that a 12 percent profit rate
was “typical, high end.” Tr. 688:14-16 (Shawa-DeCook); see also supra
¶171.
2.
183.

Quantities of Bi-Metal Doors Shipped in 2010

After accounting for returns, in 2010, Demmer shipped 25,321 front Bi-Metal

Doors and 14,043 rear Bi-Metal Doors to AM General. Stip. ¶ 32.
3.
184.

Calculation of AM General’s Overpayment

AM General’s damages equal the amount it overpaid for Bi-Metal Doors in 2010.

The amount AM General overpaid for each Bi-Metal Door shipped in 2010 is the difference
between the NTE price that AM General actually paid and the reasonable price at the time for
delivery.8 Multiplying the overpayment per door by the quantities of Bi-Metal Doors shipped in
2010, AM General’s total overpayment to Demmer was $47,333,309.
(Bingham).

Tr. 543:22-544:5

After subtracting the $19,366,811 AM General withheld from Demmer in

December 2010 and January 2011, PTX-177, DTX-CR, AM General is still owed $27,966,498.
Tr. 564:4-22 (Bingham).
By contrast, if Demmer were permitted to keep the payments that AM General made to
Demmer based on the NTE prices, Demmer’s profit rate would be approximately 71 percent. Tr.
544:15-22 (Bingham). This figure far exceeds the 14 percent Demmer claimed to be seeking in

8

Although AM General did not pay a consistent price for each front Bi-Metal Door or a consistent price
for each rear Bi-Metal Door shipped in 2010 (because of a small price adjustment for a change in
insulation in the door), the parties “trued-up” the effective price AM General paid in 2011. PTX-150;
PTX-151; PTX-152; PTX-153; PTX-154. As a result of a series of credit memos Demmer issued in
March 2011, AM General effectively paid $3,470.00 for each front Bi-Metal Door shipped in 2010 and
$3,517.58 for each rear Bi-Metal Door shipped in 2010. Tr. 424:24-425:6 (Lentych).

65

its 2009 proposal. This figure also far exceeds the 12 percent profit rate that Demmer’s CFO
described as “typical, high end.” Tr. 688:14-16 (Shawa-DeCook); see also supra ¶171. It also
would be many times the 15 to 16 percent maximum profit Demmer has ever achieved on any
contract. DTX-DD (Angell Dep.) 132:16-20.
4.
185.

AM General’s Out-of-Pocket Loss Totals $27,413,238

Of the $47,333,309 AM General overpaid to Demmer, AM General was not

reimbursed a total of $27,413,238. Tr. 547:3-19 (Bingham).
185.1 In 2010, AM General and TACOM had an outstanding engineering change
proposal (ECP) for the Bi-Metal Doors. In 2007, AM General developed
the Bi-Metal Doors as a “lighter weight door than the Standard Threat
Door.” PTX-202-001; Tr. 955:5-11 (Castelluccio). The Bi-Metal Door
turned out to be less expensive than the predecessor door. From 2007 until
early 2011, AM General’s contract price with TACOM was based on the
more expensive predecessor door. As a result, AM General and TACOM
had to determine the refund to which TACOM was entitled as a result of
the Bi-Metal Door.
185.2 After several attempts over a period of months, AM General convinced
TACOM to accept the Bi-Metal Door change proposal as a VECP. Tr.
953:21-954:15 (Castelluccio); PTX-203 (Daniels Dep.) 209:3-9, 210:1925. Under a VECP, the contractor (AM General) and the government
share the cost savings whereas under an ECP, the government receives all
of the cost savings. PTX-203 (Daniels Dep.) 206:4-13. The contractor is
entitled to share in the cost savings in a VECP because the contractor has,
at its sole expense, initiated and developed an engineering change that
reduces the cost of the end-product. PTX-203 (Daniels Dep.) 207:16208:4. AM General historically was not very successful in persuading
TACOM to treat engineering changes as VECPs. Tr. 952:23-953:2
(Castelluccio). To get TACOM to treat the Bi-Metal Door engineering
change proposal as a VECP, AM General had to forfeit its right to
challenge TACOM’s unilateral price determination on the 2011-2013
production contract. PTX-203 (Daniels Dep.) 211:1-9. AM General
valued that claim at about $50 million. PTX-203 (Daniels Dep.) 222:21223:8.
185.3 As a result of the Bi-Metal Door change proposal being a VECP, AM
General did not have to refund to TACOM the entire difference between
the fair and reasonable price and the NTE price. AM General did,
however, have to refund TACOM $57,398,031 for Bi-Metal Doors
delivered in 2010 alone. Tr. 548:4-10, 17-24, 549:13-16 (Bingham).

66

185.4 Once TACOM accepted the VECP, AM General and TACOM
incorporated the VECP into AM General’s prime contract. See generally
PTX-173, PTX-179, PTX-180. AM General then had to certify as current,
accurate, and complete its cost or pricing data associated with the VECP.
PTX-175-001–002.
W.

Demmer’s Counterclaim Related to 2010 Pricing.

186.

Demmer seeks a refund of the amounts that AM General withheld for

overpayments on the 2010 price dispute. For the reasons stated above, Demmer failed to
introduce persuasive evidence that AM General breached the parties’ contract when it withheld
funds based on 2010 overpayments.
187.

Additionally, Demmer failed to prove causation or damages for this claim.

Demmer claims that a Demmer accounting report, DTX-CQ, shows that, “For 2010 and 2011
deliveries of bi-metal doors, AMG wrongfully withheld a total of $19,861,345.15.” Demmer
T.B. at 24.

Demmer’s only proffered evidence of the damages for its counterclaim for amounts

AM General withheld for 2010 prices is DTX-CQ. But this document is not reliable evidence to
prove any damage to Demmer caused by AM General concerning 2010 Bi-Metal Door prices
because: (1) it does not segregate the amounts withheld by AM General relating to the 2010
pricing dispute from amounts not paid because of the 2011 pricing dispute; (2) it includes
invoices for all parts AM General purchased from Demmer and is thus not limited to Bi-Metal
Doors; and (3) the report includes entries that are unrelated to AM General’s withholding.
187.1 DTX-CQ does not segregate Demmer’s claim for 2010 from its claim for
2011 underpayments. See DTX-CQ-021 (providing a single total for all
entries in 2010-2011).
187.2 DTX-CQ is not limited to unpaid invoices for Bi-Metal Doors, but includes
other parts, such as cross members. Tr. 710:2-9 (Shawa-DeCook). The
report provides no way to determine which invoices relate to Bi-Metal
Doors.

67

187.3 DTX-CQ is a report that includes all “unpaid amounts from AM General
between 2010 and 2011.” Tr. 680:23-25 (Shawa-DeCook). The only
sponsor of the document, Shawa-DeCook, did not know, for any entry in
DTX-CQ, the reason AM General did not pay the invoice. Tr. 708:22709:22 (Shawa-DeCook). Thus, the report is not limited to amounts AM
General withheld over either the 2010 or the 2011 pricing dispute, but also
includes balances on invoices AM General refused to pay for other
reasons, such as quality or quantity problems. Tr. 709:12-15, 711:11-15
(Shawa-DeCook). This is not a hypothetical concern—AM General raised
quality issues about separate parts (cross-members) that Demmer was
supplying during this same time period, and the parties discussed a “debit”
or “charge-back” to AM General over the issue. Tr. 710:5-711:10 (ShawaDeCook). The report provides no way to determine the reason why AM
General did not pay any given entry listed in DTX-CQ.
188.

The only record evidence of the amount AM General withheld in December 2010

to January 2011 related to the 2010 pricing dispute is PTX-177, which calculates the withholding
to be $19,366,810.09.

PTX-177-010; see also DTX-CR (11/13/13 Declaration from AM

General’s Manager of Accounts Payable explaining PTX-177). This figure is corroborated by
AM General’s September 9, 2011 final decision letter to Demmer. PTX-174-004.

68

X.

Demmer’s Counterclaim Related to 2011 Pricing.

189.

Demmer did not introduce persuasive evidence that AM General breached the

parties’ contract when it reduced the prices that it paid to Demmer for Bi-Metal Doors in the
second half of 2011. See PTX-166-002. Demmer fully expected that AM General would not
agree to pay Demmer’s costs if DCAA questioned or otherwise objected to them. See PTX-148001 (3/7/11 Shawa-DeCook internal email, “We have a meeting with DCAA/TACOM/AMG
tomorrow and I need to make sure I know the concerns on rates. AMG may not agree with them
until after DCAA has audited.”); PTX-149-001 (3/9/11 internal Demmer email to Tenlen
identifying various Bi-Metal Door part numbers: “So are they finally coming back and asking us
for a change in their price?” Tenlen: “ Si Senorita. . . ”); PTX-158-001 (5/20/11 Tenlen
email, “It is apparent that AMG is in [sic] the belief that the outcome of our DCAA audit is
going to have some influence on the pricing of the parts that we are looking for increases on.”);
PTX-167-001 (7/5/11 Tenlen email to Koch re: “Price Change on Doors” asking for help “to
make adjustments to bring the pricing to the new ‘lower’ prices based on the DCAA
adjustments”); PTX-169-001 (8/2/11 handwritten notes of Demmer’s COO referencing “2011
Pricing Change (Post-Audit)”).
190.

Additionally, Demmer failed to prove causation or damages for its 2011 pricing

counterclaim. Demmer claims that AM General underpaid Demmer for Bi-Metal Doors shipped
in the second half of 2011. Counterclaim ¶ 63. Demmer has offered no evidence from which to
calculate this alleged underpayment.
191.

Demmer again relies on DTX-CQ as proof of its damages for its 2011

Counterclaim. In addition to the flaws with this document shown above, DTX-CQ does not
provide a basis for Demmer’s claimed damages for the alleged 2011 underpayment.

69

192.

DTX-CQ does not document a single unpaid amount for goods shipped after

March 28, 2011. DTX-CQ-020 (containing 11 entries for goods shipped on March 28, 2011);
Tr. 708:10-19 (Shawa-DeCook) (confirming that the “DOC date” column reflects the date on
which the parts were shipped and the invoice was issued).

DTX-CQ thus provides no

information about the magnitude of AM General’s alleged underpayment in the latter half of
2011. See PTX-166-002 (6/30/11 correspondence form AM General reducing the 2011 prices
“effective for shipments subsequent to 07/01/11”). Nor could DTX-CQ reflect any damage to
Demmer caused by AM General’s alleged underpayments, which did not begin until months
later, in July 2011.
CONCLUSIONS OF LAW9
I.

AM General Prevails on the Claim for Breach of the February 2010 Change
Blanket Contracts.

Indiana law governs this contract dispute. PTX-003-013, cl. 29 (A)(1). “The essential
elements of a breach of contract action are the existence of a contract, the defendant’s breach
thereof, and damages.” Bachman v. AMCO Ins. Co., 897 F. Supp. 2d 780, 785 (N.D. Ind. 2012)
(citing Rice v. Hulsey, 829 N.E.2d 87, 89 (Ind. Ct. App. 2005)). The contract in this case
governs the sale of goods and is governed by Indiana’s Uniform Commercial Code (“UCC”),
Ind. Code §§ 26-1-1-101, et seq.
The parties agree that: (1) a contract between them existed for the sale of Bi-Metal
Doors delivered in 2010, Stip. ¶¶ 6, 9; (2) the relevant contract language governing the dispute is
contained in the Note (PTX-4) and AM General’s Terms & Conditions (PTX-3), Stip. ¶¶ 14-15,
26-27; (3) regardless of the final prices for Bi-Metal Doors to be shipped in 2010 (which the

9

Any proposed conclusion of law included herein that is deemed to be a finding of fact is hereby
incorporated into the findings of fact.

70

parties dispute), those prices are retroactive to January 1, 2010 of the year (PTX-78, PTX-150,
PTX-153); and (4) Demmer accepted and performed under the contract, Stip. ¶¶ 28-29.
At the time Demmer received the February 2010 Change Blanket Contracts, Demmer’s
Program Manager responsible for the Bi-Metal Doors reviewed the contracts, including the
Note. Tenlen reviewed and approved the contracts at the time. Tr. 911:4-10 (Tenlen); PTX-080001. Demmer accepted the contracts and put them into the Demmer system. Tr. 911:11-14
(Tenlen).
The Court previously ruled that the Note in the February 2010 Change Blanket Contracts
is ambiguous. See Op. & Order (D.E. 136) at 16. After reviewing the law, the contract
language, and hearing the extrinsic evidence, the Court agrees with AM General that the plain
language of the February 2010 Change Blanket Contracts reflects that the parties agreed that the
2009 prices would not carry over to 2010 deliveries, and to set open, not-to-exceed prices for
2010 that would be negotiated after AM General’s audit of Demmer’s price proposal.

See FoF

¶¶ 69-92.
A.

The Contract Language Supports AM General’s Position.

The language of the Note supports AM General’s position. The use of the mandatory
phrases “will be re-negotiated” and “will not exceed” in the Note established open, not-toexceed prices that the parties left to be settled in the future. Applying the grammar rules, use of
the word “will” before a verb (such as “be re-negotiated”) indicates a future commitment to do
something—here, to re-negotiate.

See Webster’s Third New International Dictionary 2616

(2002) (“will . . . used to express simple futurity”). The phrase “will be re-negotiated” imposed
a requirement to negotiate further in the future. See id. (“will . . . used to express a command,
exhortation, or injunction”).

71

The term “re-negotiated” in the Note also supports AM General’s reading. Re-negotiate
means not only “to negotiate anew” but also “to adjust a defense contract price in order to
eliminate or recover excessive profits.” Webster’s Third New International Dictionary 1922 (3d
ed. 2002) (emphasis added); see also Black’s Law Dictionary 1410 (9th ed. 2009) (defining
“renegotiation” to include “[t]he reexamination and adjustment of a government contract to
eliminate or recover excess profits by the contractor”). Here, the Court is interpreting a defense
subcontract for a non-commercial item to be sold to the government, for which excessive profits
could not properly be earned or retained. Under these circumstances, the defense contractoriented definition of “re-negotiate” governs.
As of February 2010, the parties had exchanged some correspondence and had a meeting
about the potential prices, but had not agreed to settled prices. See FoF ¶¶54, 61-65. This
factual context further justifies the use of the word “re-negotiated” rather than “negotiated.” The
parties had exchanged some information that could be characterized as negotiations; use of the
word “re-negotiated” made clear that further negotiations were required after Demmer provided
the appropriate data. See FoF ¶¶54, 69-70, 82. AM General had requested additional data from
Demmer, but Demmer had not yet provided those data. See FoF ¶¶64-66. Demmer’s accurate
and complete data would have revealed excessive profits (either shown explicitly or masked as
inflated costs). See FoF ¶¶30-33, 38-45. As a defense contractor, AM General is required to
ensure that its prices, including prices quoted by AM General’s subcontractors, are fair and
reasonable and do not include excessive profits. FoF ¶21. Receiving and analyzing these data
was, therefore, necessary before AM General could complete its audit of Demmer’s price
proposal and negotiate settled prices that did not include excessive profits. Demmer knew of
this obligation at the time of contracting. FoF ¶21.

72

The second half of the first sentence of the Note establishes the intended time for the renegotiation: “following completion of the Oct, 2009 AMG-Demmer Finance Audit results in
cost breakdown changes.” This, too, makes sense in context: the purpose of the audit was to
evaluate Demmer’s accurate and complete cost data and price proposal to determine fair and
reasonable prices, and thus avoid overcharging the Government and awarding Demmer
excessive profits.

The particular items mentioned in this half of the sentence were well

understood by the parties, then and now: Demmer stipulated that, “On October 19, 2009, AM
General representatives Steve Hodge, Todd Lentych, and Dean Fiess travelled to Demmer to
begin auditing Demmer’s proposal for 2010 prices for Bi-Metal Doors.” FoF ¶34 (Stip. ¶ 19).
Demmer also stipulated, “After the October 19, 2009 meeting, Demmer re-submitted its 2010
Bi-Metal Door proposal with lower pricing reflecting cost breakdown changes that Demmer
described at the October 19, 2009 meeting.” FoF ¶37 (Stip. ¶ 21). AM General needed to
complete the audit of the cost breakdown changes that Demmer supplied in October 2009 and
make adjustments to eliminate excessive profits before the 2010 Bi-Metal Door prices could be
settled.
Demmer has suggested that the word “if” should be added to the Note before the phrase
“results in cost breakdown changes . . . .” PTX-078-001. Adding words to the contract is
impermissible. See Winterton, LLC v. Winterton Investors, LLC, 900 N.E.2d 754, 759 (Ind. Ct.
App. 2009) (prohibiting courts from “add[ing] provisions not agreed upon by the parties” to
contracts when interpreting them). At the time AM General drafted the Note, Demmer had
already provided cost breakdown changes, which were the subject of the audit. See FoF ¶¶3536, 54-55, 69-70, 82. The entire second half of the relevant sentence (“completion of the Oct,
2009 AMG-Demmer Finance Audit results in cost breakdown changes,” PTX-078-001)

73

establishes when (“following completion . . . ” id.) the parties would conduct the requisite renegotiation. See FoF ¶82.
The second sentence of the Note limits the scope of the re-negotiation. The word
“However” indicates that the sentence will limit or otherwise qualify the scope of the renegotiation set out in the first sentence. See Webster’s Third New International Dictionary,
supra, at 1097 (defining “however” to include “in spite of that: on the other hand: but”). That
qualification is not ambiguous: “any price re-negotiated will not exceed the Dec, 2009 pricing
set within this contract revision.” PTX-078-001; see also Op. & Order (D.E. 136) at 15 (“This
language supports AMG’s contention that the price was a ‘not to exceed’ price with the final
price being settled after the renegotiation that was to occur at the conclusion of the AMGDemmer Finance Audit.”). As drafted, the intended re-negotiation would result in prices that
would not be greater than the placeholder price in the change blanket contracts—$3,482.34 for
each front door and $3,513.53 for each rear door. In other words, the re-negotiation following
the audit could not increase the prices.10 See FoF ¶¶69, 79, 83-86.
B.

The Extrinsic Evidence Supports AM General’s Position.

The evidence of the parties’ course of dealing and course of performance further support
AM General’s reading.11 See FoF ¶¶85-92, 99, 104-107, 114-115, 117-118, 126, 143-155.
Demmer concedes that not-to-exceed pricing is “an example of parties expressing a mutual,
10

The Court previously rejected Demmer’s invocation of contra proferentem as the way to resolve the
dispute. See Op. & Order (D.E. 136) at 17 n.15; see also Bradley v. W. & S. Fin. Grp., No. 2:05 CV 39,
2005 U.S. Dist. LEXIS 26003, at *20 (N.D. Ind. Oct. 20, 2005) (“[T]he application of contra proferentem
is ‘premature’ in situations where ‘there has not yet been any attempt to resolve the ambiguity through the
‘ordinary interpretive guides’—namely, a consideration of the extrinsic evidence.’” (citation omitted)).
Because the extrinsic evidence resolves any remaining doubts about the meaning of the Note, there is no
basis to construe the Note against AM General.

11

Because the Court has held that the Note is ambiguous, Op. & Order (D.E. 136) at 16, it may consider
extrinsic evidence, including with respect to the parties’ intent, when the Note was drafted, their course of
dealing and course of performance, and trade usage. Id.

74

objective intent to have an open-price term contract” of the kind that “UCC Section 305 is
talking about.” Feb. 25, 2014 Hr’g Tr. 37:10-18. Therefore, if AM General proves that the
parties agreed to not-to-exceed pricing in the February 2010 Change Blanket Contracts, then
UCC § 305 applies. The greater weight of the persuasive evidence confirms that Demmer
understood from the outset that the February 2010 Change Blanket Contracts established open,
not-to-exceed pricing. Therefore, UCC § 305 applies.
Demmer’s pre-litigation, internal documents repeatedly refer to the February 2010
Change Blanket Contracts as not to exceed. See FoF ¶¶85, 148. Trade usage also supports AM
General’s position. See FoF ¶¶156-161.
C.

Demmer’s Alternative Reading of the Note, To Impose a Condition
Precedent, Results in the Same Outcome.

Demmer argues that the Court should read two conditions precedent into the Note:
completion of the “Oct, 2009 AMG-Demmer Finance Audit” and generating “cost breakdown
changes” from that audit. Demmer T.B. at 10. Demmer further contends that “re-negotiation
was not triggered” because AM General either completed its audit and found no basis to change
Demmer’s cost breakdown, or “never bothered to complete its audit.” Id. at 10-11. Even if the
Court were to adopt this impermissible reading of the Note, however, Demmer would still lose
because it frustrated the completion of such conditions precedent. See FoF ¶¶59-60, 65-68, 9397, 100, 102-104, 108, 118, 140.
For more than 150 years, Indiana courts have recognized that, “The law is settled that
where a precedent condition was to have been performed by the plaintiff, but its performance has
been prevented by the defendant, such prevention may be averred as an excuse for the nonperformance.” Ruble v. Massey, 2 Ind. 636, 637-38 (1851) (per curiam); accord Hawley v.

75

Smith, 45 Ind. 183, 202 (1873). That law applies to negotiation obligations such as the one
imposed by the Note.
In Niezer v. Todd Realty, Inc., for example, the court affirmed judgment in favor of a real
estate company because the defendant, who had retained the real estate company to assist in
selling property on his behalf, “thwart[ed] the negotiating process” after receiving two offers at
or above his asking price. 913 N.E.2d 211, 214, 217 (Ind. Ct. App. 2009). Because the
defendant impeded the real estate company’s ability to fulfill a condition precedent in the listing
agreement—finding a satisfactory buyer for consummation of a final sale—the condition was
excused and the real estate company was entitled to its commission. Id. at 218; accord Rogier v.
Am. Testing & Eng’g Corp., 734 N.E.2d 606, 621 (Ind. Ct. App. 2000) (recognizing “the rule
that a party may not rely on the failure of a condition precedent to excuse performance where
that party’s own action or inaction caused the failure”).
Additionally, § 305 likewise gives AM General the authority to “fix a reasonable price”
on its own if the price “fails to be fixed through fault of one (1) party.” Ind. Code § 26-1-2305(3). Under either the common law or the UCC, even if the Court were to adopt Demmer’s
reading of conditions precedent, into the Note, AM General would prevail. This alternative
holding is based on the Court’s finding that Demmer frustrated and delayed AM General from
completing the audit or the required re-negotiation established in the Note. FoF ¶¶59-60, 65-68,
93-97, 100, 102-104, 108, 118, 140.12
12

The Wisconsin case on which Demmer relies imposed a “definite price subject to revision” and is
inapposite. The contract in that case “specifically provide[d] for the possibility that the parties may fail to
reach an agreement.” Dairyland Power Coop. v. Amax, Inc., 700 F. Supp. 979, 991 (W.D. Wis. 1986)
(cited in Demmer T.B. at 4). The court observed that “[u]nder normal circumstances, a contract that sets
prices according to a detailed price adjustment mechanism tied to specific cost factors does not implicate
the open price provisions of UCC § 2-305.” Dairyland Power Coop., 700 F. Supp. at 990. By contrast,
the Note imposed a mandatory re-negotiation and did not contemplate the parties maintaining the open,
ceiling price without negotiating; nor did the Note include a detailed price adjustment mechanism. See
PTX-078-001 (“2010 Pricing will be re-negotiated” and “any price re-negotiated will not exceed”
(emphases added)).

76

D.

The Reasonable Prices at the “Time for Delivery.”

Under the UCC, parties can agree to open prices. The UCC provides that if the parties
are unable to agree on a settled price after performance, the Court must establish “a reasonable
price at the time for delivery.” Ind. Code § 26-1-2-305(1); see also Allen v. Clarian Health
Partners, Inc., 980 N.E.2d 306, 309 (Ind. 2012) (“We agree that if a contract is uncertain as to a
material term such as price then Indiana courts may impute a reasonable price.”).
A little more than one year ago, Indiana Superior Court Judge Michael J. Scopelitis
presided over a bench trial that addressed a separate dispute with another AM General supplier.
In entering Findings of Fact and Conclusions of law, the Court used UCC § 305 to resolve open
prices. In that case, BAE Systems, Inc. (“BAE”) entered into contracts that provided, in relevant
part, “These revised prices are subject to: A) Audit by AMG and/or TACOM” and “All prices
are ‘not to exceed’ and ‘subject to audit & negotiations.’” AM Gen. LLC v. BAE Sys., Inc., No.
71D07-0907-PL00195, Findings of Fact & Conclusions of Law (St. Joseph Sup. Ct. Apr. 2,
2013) (“AM General v. BAE”), ¶ 13. After a government audit of BAE’s data revealed inflated
prices, BAE refused to lower its prices voluntarily. Id. ¶¶ 144-148. Ultimately, the parties could
not agree on the terms of the new, reduced prices in the contract. Id. ¶ 151. In resolving the
parties’ dispute, in which BAE (like Demmer here) claimed that it had no requirement to
negotiate, the court determined that the contract language “subject to audit” and “subject to audit
and negotiation” “indicate[d] that BAE’s armor prices were subject to further negotiation and not
final[.]” Id. ¶ 208. Accordingly, relying on Ind. Code § 26-1-2-305(1), the Court set the
reasonable prices at the time for delivery at “the price TACOM finally agreed to pay for BAE’s
parts.” Id. ¶ 210. Those prices were based on BAE’s actual costs incurred during the production
year. See id. ¶¶ 160, 162.

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Here, as memorialized in the Note, the parties intended to settle 2010 pricing following
completion of AM General’s audit. The parties did not do so, and the Court therefore must set
“reasonable price[s] at the time for delivery.”13 Ind. Code § 26-1-2-305(1).
Demmer has suggested (through its sponsorship of Jackson’s hypothetical negotiation,
based in December 2009 or January 2010, FoF ¶¶177-182) that in establishing the reasonable
price, the Court should look to the time of contracting, rather than “the time for delivery.” Ind.
Code § 26-1-2-305(1). Demmer is mistaken. “When interpreting the words of a single section
of a statute, [courts] must construe them with due regard for all other sections of the act and with
regard for the legislative intent to carry out the spirit and purpose of the act. We presume words
appearing in the statute were intended to have meaning, and we endeavor to give those words
their plain and ordinary meaning absent a clearly manifested purpose to do otherwise.” City of
Muncie v. Lowe, 705 N.E.2d 528, 531 (Ind. Ct. App. 1999) (citation omitted); see also George v.
NCAA, 945 N.E.2d 150, 154-55 (Ind. 2011). In the Indiana UCC, the legislature uses the term
“time of contracting” in several other places. See Ind. Code §§ 26-1-2-107(2), 26-1-2-308(b),
26-1-2-312(b), 26-1-2-315, 26-1-2-401(3)(b).

The use of a different term with a different

meaning in § 26-1-2-305(1)(b) confirms that “time for delivery” means what it says.
The Court determines that settling the prices in the February 2010 Change Blanket
Contracts results in a price of $2,264.73 per front Bi-Metal Door and $2,320.21 per rear BiMetal Door. This reflects Demmer’s actual, allowable costs, plus a reasonable profit of 12.25
percent. Using these costs and profit margin accord with the parties’ mutual understanding of
13

In the alternative, even if Demmer were correct that the re-negotiation was optional or could have been
ignored because AM General did not complete its audit, given Demmer’s efforts to thwart the ongoing
audit, AM General is permitted to fix a reasonable price itself under subsection (3) of the same UCC
provision. Subsection (3) provides, “When a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one (1) party the other may at his option treat the contract as
canceled or himself fix a reasonable price.” Ind. Code § 26-1-2-305(3). Under either approach, AM
General prevails on its breach of contract claim and is entitled to recover the same damages.

78

“fair and reasonable” pricing, the obligation to use current, accurate, and complete information
when setting a price, and the persuasive record evidence about how to settle not-to-exceed
pricing. See FoF ¶¶166-67, 171.
E.

AM General’s Damages

AM General was damaged by paying far in excess of the reasonable prices at the time for
delivery. In 2010, AM General’s total overpayment to Demmer was $47,333,309. FoF ¶184.
AM General subsequently offset $19,366,811 for overpayments. Id. AM General is permitted to
retain this amount. Accordingly, Demmer owes AM General $27,966,498 in damages beyond
the amount AM General is permitted to retain, plus pre-judgment interest, costs of court, and
attorneys’ fees and expenses (as described in further detail below). See FoF ¶184.
II.

Claim for Breach of Clause 16.

In the alternative, AM General is entitled to recover under Clause 16 of the terms and
conditions. The relevant terms and conditions applied to AM General’s 2010 purchases of BiMetal Doors from Demmer. FoF ¶8.
Clause 16 of AM General’s terms and conditions permits AM General to require
submission of cost or pricing data. PTX-3-009, cl. 16(B); D.E. 136, at 18. Clause 16 also allows
AM General to reduce overcharges revealed by those data. Clause 16(B) provides, “Submission
of cost or pricing data may be requested in situations where submission of such data is not
otherwise required if the Government contracting officer or Buyer [AM General14] determines,
in writing, that such data are necessary for the evaluation of the reasonableness of the price of
the contract or subcontract or for an evaluation of cost realism.” PTX-003-009. AM General

14

Applying the “Definitions” from Clause 2 of the terms and conditions (PTX-003-001), Demmer is the
“Seller” and AM General is the “Buyer.”

79

requested Demmer’s cost or pricing data in writing. See FoF ¶¶9-11. In response to that written
request, Demmer provided (some) cost or pricing data to AM General. See FoF ¶22.
Demmer previously argued that Clause 16 is triggered only if AM General’s prime
contract requires submission of such data, but the Court rejected that argument. See Op. &
Order (D.E. 136) at 18 (“Demmer’s argument that it was only required to submit cost or pricing
data to AMG if AMG was required to submit ‘cost or pricing data’ to the Government is simply
incorrect.”). Moreover, the evidence adduced at trial confirms that AM General was required to
certify cost or pricing data for 2010 Bi-Metal Door purchases. See FoF ¶185.4. Accordingly,
even if Demmer’s obligation to submit cost or pricing data was triggered only when AM
General’s prime contract required such a submission, AM General has fulfilled that requirement.
Clause 16(A) provides:
Should Buyer [AM General] or the Government determine
that any price including profit, or fee, negotiated with Seller
[Demmer] in connection with Order or any modification thereof
was increased because the Seller or any of its subcontractors or
prospective subcontractors furnished incomplete, inaccurate, or
non-exempt cost or pricing data as required by the Truth In
Negotiations Act or its implementing regulations or contract
clauses, then such price shall be reduced accordingly by Buyer
[AM General] and the Purchase Order shall be modified in writing
by Buyer [AM General] to reflect such adjustment.
PTX-003-009. By its terms, this provision gives AM General the authority to reduce Demmer’s
prices unilaterally if AM General determines that Demmer’s prices—including Demmer’s
profit—were increased because Demmer furnished incomplete or inaccurate cost or pricing data
(as that term is defined by TINA, its implementing regulations (the FAR), or contract clauses).
Clause 16 broadly protects AM General from overcharges by its suppliers—it provides
both a right and a remedy. The Court must interpret the clause and the contractual requirements
in a way that “harmonizes its provisions as opposed to one which causes the provisions to be

80

conflicting.” S.C. Nestel, Inc. v. Future Constr., Inc., 836 N.E.2d 445, 450 (Ind. Ct. App. 2005)
(internal quotation omitted). Demmer suggests that Clause 16(B) should be divorced from
Clause 16(A). But there is no basis to decouple the two parts of Clause 16. If AM General
could merely request cost or pricing data under Clause 16(B), but could do nothing with those
data or protect itself from being overcharged, the contractual provision would make no
commercial sense. Additionally, if—as Demmer has repeatedly urged—Clause 16 were read to
do nothing more than flow down TINA’s requirements in the event of a “defective pricing”
claim, then Clauses 39(A)(3) and 48,15 which apply to such cases, would improperly be rendered
surplusage.
Moreover, AM General is entitled to reimbursement if “any price including profit, or
fee . . . was increased because the Seller . . . furnished incomplete, inaccurate, or non-exempt
cost or pricing data as required by the Truth in Negotiations Act or its implementing regulations
or contract clauses.” PTX-003-009, cl. 16(A). There is no requirement that the cost or pricing
data deemed to be incomplete or inaccurate be certified, that AM General be required to submit
such data, or that those data be required by TINA or the FAR. Incomplete or inaccurate data
required by “contract clauses” is sufficient to trigger liability. See id. AM General requested
cost or pricing data from Demmer, pursuant to contract Clause 16(B)—one of the “contract
clauses.” See FoF ¶¶9-11. Thus, at the very least, the data were provided pursuant to a
requirement of the parties’ “contract clause” and thus the incomplete and inaccurate status of
those data triggered Demmer’s liability under Clause 16(A).
Like the TINA and the FAR, Clause 16 protects AM General and the Government from
overpaying for non-commercial items. The Court previously recognized, moreover, that in
15

Clause 48 incorporates by reference a number of FAR provisions, including FAR 52.215-11, “Price
Reduction and Defective Cost o[r] Pricing Data—Modifications.” PTX-003-020.

81

Clause 16, AM General reserved the right to acquire such data from Demmer even if the
Government did not demand it from AM General. See Op. & Order (D.E. 136) at 18. Similarly,
although Demmer has argued that in the absence of a certification of the data, or in the absence
of a final price agreement, AM General is not entitled to recover, Clause 16 makes no mention of
a certification. The data that inflated the price need not be certified. See also AM General v.
BAE, ¶¶ 137-138 (rejecting a defense to AM General’s terms and conditions based on language
imported from TINA and the FAR, including a claim that “data can only be found to be defective
on or after the date of price agreement”).
Previously, Demmer also argued that it did not violate Clause 16 because the parties
failed to settle 2010 prices. The Court rejected this argument, ruling that Clause “16(A) refers to
‘any price . . . negotiated with Seller’ and does not restrict its applicability to final prices.”
Order (D.E. 74) at 8. Nothing in the evidence introduced at trial warrants revisiting that
decision.
The Court concludes that Demmer furnished AM General cost or pricing data that were
incomplete and inaccurate. See FoF ¶¶30-46. In so doing, Demmer breached Clause 16.
Assuming arguendo that AM General is required to demonstrate reliance on Demmer’s
inaccurate and incomplete cost or pricing data to establish a breach of Clause 16, the Court
concludes that AM General used and relied upon the inaccurate and incomplete data furnished
by Demmer to establish the not-to-exceed prices in the February 2010 Change Blanket
Contracts.16
Because Demmer furnished AM General inaccurate and incomplete data, AM General
overpaid for the Bi-Metal Doors when it paid the not-to-exceed prices in the February 2010
16

As noted above, even if Demmer had prevailed on its argument that the February 2010 Blanket Change
Contracts established final, settled prices (which it did not), it would nevertheless be liable to AM General
under Clause 16.

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Change Blanket Contracts (which, in turn, were based on Demmer’s December 2009 price
proposal, see FoF ¶79). Therefore, Demmer’s prices “shall be reduced accordingly.” PTX-003009, cl. 16(A). Based on the evidence adduced at trial, the Court concludes that AM General
suffered the same damages in connection with the Clause 16 breach as it did in connection with
the breach of the February 2010 Change Blanket Contracts. Had Demmer provided accurate and
complete data to AM General, AM General would have refused to pay the prices that Demmer
had proposed. See FoF ¶¶42.5, 180.2. By the time that AM General had complete and accurate
information from Demmer, the DCAA had issued its audit report on Demmer’s 2010 actual
costs.

See FoF ¶¶167-170.

At that point, despite AM General’s efforts to persuade the

Government to pay higher prices for the Bi-Metal Doors in 2010, TACOM insisted on paying no
more than Demmer’s actual, allowable costs plus a 12.25 percent profit. See FoF ¶172.1.
Therefore, and in the alternative, AM General is entitled to recover the same amounts
under the Clause 16 claim as the Court ordered under the February 2010 Change Blanket
Contracts. See FoF ¶184.17

17

Demmer argued that because Bingham did not generate a separate damages calculation, AM General
did not prove its damages. See Tr. 1083:10-19 (Demmer Closing). But Bingham already generated a
damages calculation that AM General had shown applies under Clause 16. In any event, Demmer, which
created this problem by furnishing inaccurate and incomplete data, has the burden of showing an
alternative, justifiable damages number. See, e.g., Boone Cnty. Rural Elec. Membership Corp. v. Layton,
664 N.E.2d 735, 741 (Ind. Ct. App. 1996) (“[A]ll doubts and uncertainties as to the proof of the exact
measure of damages must be resolved against the defendant because the most elementary conception of
justice and public policy requires that the wrongdoer bear the risk of uncertainty which his own wrong
has created.”). Demmer never offered a number to support an alternative amount.

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III.

AM General Prevails on the Claim for Breach of Clause 24.

The terms and conditions include a dispute resolution mechanism that provides for, inter
alia, AM General issuing a final written decision on the proposed resolution of the dispute
before litigating. See PTX-003-011, cl. 24(A). The terms and conditions also provide, “Pending
final decision of any dispute hereunder, the Seller shall proceed with performance of the Order.
If the dispute arises out of a difference in interpretation between the parties as to the
performance requirements of the Order, then Seller shall continue performance in accordance
with the interpretation of performance as determined by” AM General. Id. cl. 24(B); see also
Order (D.E. 74) at 9.
The Court concludes Demmer failed to comply with AM General’s Final Decision letter.
See FoF ¶¶138-139. In so doing, Demmer breached Clause 24.
Demmer’s breach of Clause 24 resulted in the following damages to AM General: (1)
the damages from other breaches of the relevant terms of the contract, which have already been
addressed above; and (2) the lost value of the funds that should have been paid. The second type
of damages may be recovered through prejudgment interest, to which AM General is entitled
from the date of the Final Decision, September 9, 2011, forward.
IV.

AM General Prevails on the Claim for Attorneys’ Fees, Expenses, and Costs.

Clause 29 of the terms and conditions includes, inter alia, a fee-shifting provision in AM
General’s favor. Specifically, Clause 29(B) provides, in relevant part, “Seller shall indemnify
and hold Buyer harmless to the full extent of any loss, damage or expense, including lost profit,
attorney’s fees and court costs, for any failure or alleged failure of Seller to comply with the
requirements of this Purchase Order.” “It is well established that parties are permitted to enter
into agreements containing fee-shifting provisions as long as the provision does not violate

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public policy.” Gerstbauer v. Styers, 898 N.E.2d 369, 379 (Ind. Ct. App. 2008) (internal
quotation marks omitted); see also Wilcox Lumber Co. v. Andersons, Inc., 848 N.E.2d 1169,
1172 (Ind. Ct. App. 2006) (explaining that “the purpose of allowing an award of attorney fees in
this type of case is to more fully compensate a party who has successfully enforced his legal
rights in court” (internal quotation marks omitted)).
The Court has previously ruled that Clause 29 “necessarily covers first-party claims,” and
thus is not limited to situations in which AM General is seeking indemnification from a supplier
for amounts owed to another party. Order (D.E. 74) at 10. Furthermore, AM General proved
that Demmer’s breaches have cost AM General tens of millions of dollars in out-of-pocket losses
to the Government. See FoF ¶185.
Because AM General has prevailed on its breach-of-contract claims, in addition to
recovering damages, by the terms of Clause 29(B), AM General also is entitled to recover its
attorneys’ fees, expenses, and court costs.18 Pursuant to the Amended Pretrial Order (D.E. 147),
the Court will rule on the quantum of fees and costs to be awarded through post-trial
submissions on the schedule set forth below.
V.

Demmer Failed To Prove Both Remaining Counts of Its Counterclaim.

As explained in the Findings of Fact, the Court concludes that Demmer failed to meet its
burden of proving liability (breach), causation, or damages on either remaining count of
Demmer’s Counterclaim. See FoF ¶¶186-191.

18

“Expenses” in the context of the parties’ contract includes not only attorneys’ fees and taxable costs
under 28 U.S.C. § 1920, but also expert witness fees, travel expenses, paralegal fees, computer assisted
research costs, mediation costs, and related litigation expenditures. See, e.g., Branham v. Snow, No. 1:01cv-0152-JDT-TWL, 2006 WL 1750443, at *12-*16 (S.D. Ind. June 19, 2006); Allied Enters., Inc. v.
Exide Corp., No. IP 99-1211-C H/K, 2002 WL 424996, at *8 (S.D. Ind. Jan. 15, 2002).

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CONCLUSION
1.

For the foregoing reasons, the Court concludes that AM General prevails on its

breach of contract claim in its entirety, enters judgment in AM General’s favor and against
Demmer, and awards AM General $27,966,498, plus prejudgment interest from September 9,
2011 to the date of this judgment, plus attorneys’ fees and costs. AM General also is entitled to
post-judgment interest.
2.

The Court further holds that AM General properly withheld the excessive

payments made to Demmer and need not return them. Additionally, the Court holds that
Demmer has not met its burden of proving liability (breach), causation, or damages on either
remaining count of Demmer’s Counterclaim. Counts I and II of Demmer’s Counterclaim are
dismissed with prejudice and Demmer shall take nothing for its Counterclaim.
3.

The parties are directed to meet and confer within 14 days on the amounts to be

added to the judgment for prejudgment interest, costs, and attorneys’ fees. To the extent the
parties cannot reach agreement on the amounts to be added to the judgment, AM General is
directed to file post-judgment briefing setting out its position on any outstanding disputes within
28 days of the judgment; Demmer must file any objections or response within 14 days of AM
General’s submission; and AM General may reply within 14 days after Demmer’s response.
Pursuant to N.D. Ind. L.R. 54-1, AM General’s deadlines for submissions for Costs and
Attorneys’ Fees under Fed. R. Civ. P. 54 are hereby extended as set forth herein.

Entered: This 6th day of October 2014.
s/ William C. Lee
United States District Court

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