 In the United States Court of Federal Claims
                                        No. 04-1365 C
                               Filed under seal: May 16, 2014 *
                            Reissued for publication: May 16, 2014

****************************************
                                       *
                                       *
CHEVRON U.S.A., INC.,                  *
                                       *
      Plaintiff,                       *                Reliance Damages;
                                       *                Sanctions for “Bad Faith” Conduct
v.                                     *                   Relating to Privilege Assertions
                                       *                   During Discovery.
THE UNITED STATES,                     *
                                       *
      Defendant.                       *
                                       *
                                       *
****************************************

Donald B. Ayer, Lawrence D. Rosenberg, Michael S. Fried, Louis K. Fisher, Jones Day,
Washington, D.C., Counsel for the Plaintiff.

Stuart F. Delery, Assistant Attorney General, Robert E. Kirschman, Jr., Director of National
Courts, Donald E. Kinner, Assistant Director, Michael Damien Snyder, Carrie Dunsmore,
Benjamin Mark Moss, Trial Attorneys, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C., Counsel for the Government.

            MEMORANDUM OPINION AND FINAL JUDGMENT
  REGARDING PLAINTIFF’S ENTITLEMENT TO RELIANCE DAMAGES AND
SANCTIONS FOR THE GOVERNMENT’S “BAD FAITH” CONDUCT RELATING TO
             PRIVILEGE ASSERTIONS DURING DISCOVERY

BRADEN, Judge.

      This case arises from a commercial dispute between the Department of Energy (“DOE”)
and Chevron U.S.A., Inc. (“Chevron”) about the finalization of their respective equity interests in

       *
          On April 30, 2014, the court forwarded a sealed copy of this Memorandum Opinion and
Order to the parties, requesting suggested deletions from the public version of any confidential
and/or privileged information, and to note any citation or editorial errors requiring correction.
See Docket No. 412. The court has incorporated some of these comments and corrected or
clarified certain portions herein. The court has separately filed a new sealed Memorandum
Opinion and Final Judgment, which replaces the April 30, 2014 version.
oil and gas deposits, located in the Elk Hills Reserve of California. For the reasons discussed
herein, the court has determined that Chevron is entitled to $17,908,857 in reliance damages for
costs incurred, as a result of DOE’s repeated breach of contract and violation of the covenant of
good faith and fair dealing. In addition, the court has determined that Chevron is entitled to
$904,483, as a sanction for the Government’s “bad faith” conduct relating to privilege assertions
during discovery.

       The following outline is provided to facilitate a review of the court’s final rulings
regarding Chevron’s entitlement to reliance damages and sanctions, together with a list of Court
Exhibits.

I.     SUMMARY OF RELEVANT FACTS AND PROCEDURAL BACKGROUND. ........... 4

II.    DISCUSSION. .................................................................................................................... 8

       A.        The Relevant Burdens Of Proof Regarding Reliance Damages. ............................ 8

       B.        The Plaintiff’s Claim For Reliance Damages. ........................................................ 9

       C.        The Government’s Objections To Plaintiff’s Claim For Reliance Damages. ...... 14

                 1.         As To The Allocation Of Costs Claimed. ................................................. 14

                            a.         Summary Of The Government’s Argument. ................................ 14

                            b.         Summary Of The Plaintiff’s Response. ........................................ 16

                            c.         The Court’s Analysis And Resolution As To The Allocation Of
                                       Specific Costs................................................................................ 18

                                       i.         Company Payroll & Benefits. ........................................... 19

                                       ii.        Other Labor Related Costs. ............................................... 26

                                       iii.       External Non-Legal Professional And Labor. .................. 27

                                       iv.        In-House Technical Consultants. ...................................... 28

                                       v.         Miscellaneous Expenses. .................................................. 29

                                       vi.        Legal Costs........................................................................ 29

                 2.         As To Other Costs Claimed. ..................................................................... 30

                            a.         Summary Of The Government’s Argument. ................................ 30

                            b.         Summary Of The Plaintiff’s Response. ........................................ 32

                            c.         The Court’s Analysis And Resolution Of Other Specific Costs. .. 32


                                                                 2
                                         i.         Unsupported Transactions. ............................................... 32

                                         ii.        Improper Fixed Costs Not Related To Equity Finalization.
                                                    ........................................................................................... 33

                                         iii.       Accrued Benefit Costs Not Related To Equity Finalization.
                                                    ........................................................................................... 34

                                         iv.        Other Costs Not Related To Equity Finalization. ............. 35

III.      SUMMARY OF COSTS AWARDED AS RELIANCE DAMAGES. ............................ 36

          A.        The Stevens Zone Equity Finalization. ................................................................. 36

          B.        The Carneros Zone Equity Finalization. ............................................................... 37

          C.        The Freedom Of Information Act Request And Related Proceedings. ................ 38

IV.       SANCTIONS FOR THE GOVERNMENT’S “BAD FAITH” CONDUCT RELATING
          TO PRIVILEGE ASSERTIONS DURING DISCOVERY. ............................................. 38

V.        CONCLUSION. ................................................................................................................ 40

                                                                * * *

Court Exhibit 1: The Plaintiff’s Initial Claim As Of October 2010, Presented By Cost
                      Category. ................................................................................................... 10
Court Exhibit 2: Estimated Value Of Zones And Plaintiff’s Revised Claim, Presented By
                      Zone. ......................................................................................................... 11
Court Exhibit 3: Summary Of The Plaintiff’s Final Claim For Reliance Damages And
                      Sanctions, Based On The Court’s Prior Rulings....................................... 12
Court Exhibit 4: Summary Of The Plaintiff’s Claim For Costs Previously Rejected By
                      The Court. ................................................................................................. 13
Court Exhibit 5: The Government’s Estimate Of Time That DOE Spent To Prepare And
                      Present Equity Reports For The Independent Petroleum Engineer,
                      By Zone. .................................................................................................... 16
Court Exhibit 6: The Government’s Estimate Of Time Spent By The Independent
                      Petroleum Engineer To Prepare Final Recommendations, By Zone. ....... 16
Court Exhibit 7: Summary Of The Government’s Proposed Allocation Adjustments, By
                      Zone. ......................................................................................................... 19
Court Exhibit 8: The Plaintiff’s Proposed Allocation Of Employee Payroll And Benefits,
                      By Zone. .................................................................................................... 20
Court Exhibit 9: The Government’s Proposed Allocation Of Employee Payroll And
                      Benefits, By Zone. .................................................................................... 22



                                                                    3
Court Exhibit 10: The Court’s Resolution Of Allocation Of Employee Payroll And
                     Benefits, By Zone. .................................................................................... 26
Court Exhibit 11: Summary Of The Government’s Proposed Adjustments For Other
                     Specific Costs Claimed By Plaintiff. ........................................................ 31
Court Exhibit 12: The Government’s Proposed Adjustments For Unsupported
                     Transactions. ............................................................................................. 32
Court Exhibit 13: The Government’s Proposed Adjustment For Internal Technical
                     Consultants................................................................................................ 34
Court Exhibit 14: Summary Of The Court’s Resolution Of Allocation And Other
                     Specific Costs—The Stevens Zone. .......................................................... 36
Court Exhibit 15: Summary of The Court’s Resolution Of Allocation And Other Specific
                     Costs—The Carneros Zone. ...................................................................... 37


I.        SUMMARY OF RELEVANT FACTS AND PROCEDURAL BACKGROUND. 1

       On June 19, 1944, the Standard Oil Company, Chevron’s predecessor, and the United
States Navy (“Navy”) entered into a Unit Plan Contract (“the UPC”) to govern the joint
operation and production of the oil and gas deposits located in three initial “commercially
productive zones” of the Elk Hills Reserve. 2 In 1977, Congress decided that the Elk Hills
Reserve was no longer needed for defense and other strategic purposes and transferred the
Navy’s interests and management obligations to DOE.

        On February 10, 1996, Congress enacted a law that required DOE to retain a “mutually
acceptable” independent petroleum engineer (“IPE”) to finalize the owners’ equity interests in
the Elk Hills Reserve. On June 17, 1996, the Secretary of DOE delegated this task to the
Assistant Secretary for Fossil Energy (“ASFE”). On July 8, 1996, the ASFE issued
Administrative Order No. 96-01, “Protocol on Naval Petroleum Reserve Numbered 1 Equity
Finalization Implementation Process” (the “Equity IPE Protocol”), to establish a procedure by
which Chevron and DOE would present their respective positions to a “mutually acceptable

          1
          The relevant facts and procedural history in this case have been discussed in detail in
the following substantive decisions: Chevron U.S.A., Inc. v. United States, 71 Fed. Cl. 236,
239−55 (2006) (“Chevron I”) (jurisdiction); Chevron U.S.A., Inc. v. United States, 80 Fed. Cl.
342−54 (2008), reconsidered in part, 83 Fed. Cl. 195, 195−96 (privilege assertions) (“Chevron
II”); In Re United States, 421 F. App'x 953 (Fed. Cir. 2009) (per curiam); and Chevron
U.S.A. v. United States, 110 Fed. Cl. 747, 750, 753–75 (2013) (“Chevron III”) (finding the
Government in breach of contract and of the duty of good faith and fair dealing).
          2
          The UPC defined the term “commercially productive zones” as “[g]eologic strata
beneath the surface of the earth which . . . are capable of producing oil or gas in paying
quantities.” Chevron III, 110 Fed. Cl. at 753 n.2. In 1976, the Elk Hills Reserve included the
Dry Gas Zone, the Stevens Zone, and the Shallow Oil Zone. Id. at 753. In 1994, the Carneros
Zone was discovered and included in the Elk Hills Reserve. Id. at 754 n.5.



                                                                4
[IPE]” to finalize equity. Although the Equity IPE Protocol clearly prohibited Chevron and DOE
from having ex parte communications with the IPE, nevertheless, DOE’s Deputy General
Counsel for Technology Transfer and Procurement decided that she was authorized to provide
the IPE with ex parte advice about equity finalization, and did so without Chevron’s knowledge.

        When this prohibited conduct was discovered by Chevron, the equity finalization process
came to an abrupt impasse, but subsequently was renewed when the ASFE agreed to supplement
the Equity IPE Protocol, authorizing DOE to hire an Independent Legal Advisor acceptable to
Chevron and DOE to provide any legal advice requested by the IPE. In addition, DOE and
Chevron executed two additional documents that enabled the equity finalization process to
resume. The first was a May 19, 1997 Agreement Regarding Fixing of Equity Interest at Naval
Petroleum Reserve No. 1 for Purposes of Sale (the “Decoupling Agreement”). The Decoupling
Agreement estimated the parties’ interest in the four unitized zones in Elk Hills Reserve and
provided that when equity was finalized, one party would compensate the other for any
difference between the pre-sale equity estimate and the final equity determination. The second
agreement, also executed on May 19, 1997, regarding the equity redetermination was the “Equity
Process Agreement.” The purpose of the Equity Process Agreement was to establish an
impartial, unbiased, and transparent process governing the ASFE’s independent final equity
decision to avoid the ex parte communications that arose regarding the Equity IPE Protocol. 3

        After an eleven day trial in Washington, D.C. and Dallas, Texas, the court determined
that DOE not only violated the July 8, 1996 Equity IPE Protocol, as supplemented, to which
Chevron was a third-party beneficiary, but DOE also “repeatedly and materially” violated the
May 19, 1997 Equity Process Agreement. See Chevron III, 110 Fed. Cl. at 750, 803. The court
also determined that written assurances made on May 19, 1998 by DOE to Chevron that DOE
was no longer engaged in prohibited ex parte communications “were misleading at that time
and . . . not honored by the DOE thereafter—a classic breach of the implied covenant of good
faith and fair dealing.” Id. at 804.

         The court’s liability determination in this case, however, pre-dated the United States
Court of Appeals for the Federal Circuit’s decision in Metcalf Constr. Co. v. United States, 742
F.3d 984 (Fed. Cir. 2014). Therein, our appellate court held that the “duty of good faith and fair
dealing [is inherent in the contract] performance and enforcement,” and “[f]ailure to fulfill that
duty constitutes a breach of contract, as does failure to fulfill a duty ‘imposed by a promise stated
in the agreement.’” Id. at 990 (quoting RESTATEMENT (SECOND) OF CONTRACTS §§ 205, 235
(1981)). Therefore, breach of the duty of good faith and fair dealing is thus an independent
cause of action for which damages may be awarded. As such, even if the court’s breach of
contract rulings are erroneous, Chevron has established an independent cause of action for which
it is entitled to recover damages.

        The court has determined that Chevron is entitled to recover costs incurred to participate
in the equity finalization of: (1) the Stevens Zone, excluding all financing costs, from July 8,

       3
          The May 19, 1997 Equity Process Agreement also provided that if the ASFE overruled
a final recommendation of the IPE, that decision could be appealed by Chevron to DOE’s Office
of Hearings and Appeals.



                                                 5
1996 until June 17, 2010; (2) the Carneros Zone, excluding all financing costs, from May 19,
1997 until July 6, 2000; and (3) costs incurred to file a Freedom of Information Act request and
related proceedings. See Chevron III, 110 Fed. Cl. at 803−04; see also Metric Constructors,
Inc. v. NASA, 169 F.3d 747, 752 (Fed. Cir. 1999) (holding that an agreement must be construed,
pursuant to the “meaning that would be derived from the contract by a reasonably intelligent
person acquainted with the contemporaneous circumstances” (quoting Hol-Gar Mfg.
Corp. v. United States, 351 F.2d 972, 975 (Ct. Cl. 1965))). In addition, because of the
Government’s “bad faith” conduct relating to privilege assertions during discovery, the court
also determined that, the Government was required to pay Chevron 42% of the legal fees that
Chevron incurred from February 16, 2007 to March 5, 2009 as a sanction. See Chevron III, 110
Fed. Cl. at 807.

       At the liability trial, Chevron presented several alternative damage scenarios, but none
conformed to the zones, precise periods, and specified costs that the court subsequently
determined was appropriate. Id. at 805. Therefore, Chevron was instructed to provide the court
with an itemized financial statement of the costs authorized by the court as reliance damages and
sanctions, verified by a certified public accountant. Id.

       In response, Chevron filed a July 2, 2013 Supplemental Brief, together with: a June 26,
2013 Declaration of Norman D. Stone 4 (Ex. A); a June 28, 2013 Declaration of Kimberly Anne
Melton 5 (Ex. B); a July 2, 2013 Declaration of Kenneth Metcalfe, CPA 6 (Ex. C); and Mr.
Metcalfe’s work papers (Ex. D). In response, the Government filed the December 6, 2013
Supplemental Response, together with the Declarations of Alan A. Burzlaff, P.E. 7 (Burzlaff Ex.
       4
           Mr. Stone was the Equity Team Manager for Chevron, responsible for overseeing
activities related to the Elk Hills Field equity finalization until mid-2012. 6/26/13 Stone Decl.
¶¶ 1–2. Mr. Stone previously executed a declaration on October 29, 2010 (JE 1718) and testified
at the liability trial (10/13/09 TR 142–671), and at the 2011 evidentiary hearing on damages.
6/1/11 TR 492–700.
       5
          Ms. Melton was the Finance Team Leader for a unit of Chevron in Bakersfield,
California. 6/28/13 Melton Decl. ¶ 1. Previously, Ms. Melton executed a declaration on October
14, 2010, JE 1717, and testified at the 2011 evidentiary hearing on damages. 6/1/11 TR 344–
464.
       6
         Mr. Metcalfe is a Certified Public Accountant, a Certified Valuation Analyst, and
President of The Kenrich Group LLC, a national consulting firm that specializes in the
evaluation of economic damages claims. 7/2/13 Metcalfe Decl. ¶ 1. Mr. Metcalfe submitted
Written Direct Testimony, JE 1877, and testified on cross examination at the evidentiary hearing
on damages. 6/2/11 TR 765–862; 6/3/11 TR 1215–48.
       7
           Mr. Burzlaff “was responsible for overseeing and leading the DOE’s technical team
activities for the finalization of equity at the Elk Hills field.” 12/6/13 Burzlaff Decl. ¶ 2. He is a
registered Professional Petroleum Engineer in the State of California, a member of the Society of
Petroleum Engineers, and a Managing Partner of a petroleum reservoir and geological
engineering consulting company. 12/6/13 Burzlaff Decl. ¶¶ 3–4. Mr. Burzlaff also testified at
the evidentiary hearing on damages. 12/6/13 Burzlaff Decl. ¶¶ 3–5.


                                                  6
A) and Michele M. Riley, CPA 8 (Riley Ex. B). On January 27, 2014, Chevron filed a
Supplemental Reply, together with Supplemental Declarations from Norman D. Stone (Stone Ex.
A) and Kenneth P. Metcalfe (Metcalfe Ex. B), and an “Appendix.” 9

        Between February 24, 2014 and March 5, 2014, the court and parties also exchanged a
series of email communications regarding clarifications to the parties’ supplemental briefing. On
March 10, 2014, the court placed these emails on the record (“3/10/14 Notice”). 10 On March 12,
2014, the Government filed a Response to the March 10, 2014 Notice.


       8
         Ms. Riley is a forensic accountant and Managing Director of Invotex. 12/6/13 Riley
Decl. ¶ 1. Mr. Musika, the founder of Invotex, testified at the evidentiary hearing on damages,
but died in December 2012. 12/6/13 Riley Decl. ¶¶ 3–5; see also JE 1776 (Musika Expert
Report); JE 1911 (6/1/11 Musika Decl.); 6/3/11 TR 1096–1215 (Musika cross examination).
       9
         This “Appendix” included fifty-two pages of excerpts from: the January 10, 2014
Deposition of Alan A. Burzlaff (Burzlaff Ex. 1); the January 22 Deposition of Michele M. Riley
(Riley Ex. 2); and an October 30, 2013 Deposition of Norman Stone (Stone Ex. 3).
       10
          On February 24, 2014, the court sent the Government an email, requesting clarification
of paragraph 23 of the December 6, 2013 Riley Declaration, i.e., for “[t]he summary of costs
originally allocated to each zone by Chevron that Ms. Riley relied upon” and citations or other
documentation to explain how Ms. Riley determined the amounts listed, therein, which the court
granted. 3/10/14 Notice Ex. 1, 4, 6.

        On March 3, 2014, the Government filed a Response that included a March 3, 2014
Supplemental Declaration from Ms. Riley and an explanation regarding paragraph 23 of the
12/6/13 Riley Declaration. Ms. Riley also “provide[d] updated figures” to account for a series of
corrections and adjustments that took place after the Government’s December 6, 2013
Supplemental Response. 3/3/14 Riley Suppl. Decl. ¶ 1 (listing five areas of updates or
adjustments); see also id. ¶¶ 3, 11, 14, 17, 19, 21 (describing updates to the Government’s
estimates in various cost categories). In the end, the proposed adjustments were, in the
Government’s words, “minor.” 3/3/14 Gov’t Resp. 2.

       Nevertheless, in a March 5, 2014 email, Chevron objected to the Government’s March 3,
2014 Response as unresponsive, untimely, and providing new information and corrections after
the supplemental briefing schedule. 3/10/14 Notice Ex. 7. In turn, the Government objected to
Chevron’s March 5, 2014 email, “as an improper sur-reply.” 3/10/14 Notice Ex. 8. Of course,
the Government’s March 3, 2014 Response well-exceeded the court’s inquiry, but it did not
escape the court’s attention that Chevron’s January 27, 2014 “Appendix” also did not comply
with the court’s instruction at a December 23, 2013 teleconference that Chevron limit its
Supplemental Reply to 30 pages. On March 10, 2014, the court placed these emails in the record
as a Notice.

       On April 30, 2014, the court filed a sealed version of this Memorandum Opinion and
Final Order, requesting proposed redactions and edits from the parties. In response, the parties
submitted a series of emails. The court has placed sealed copies of those emails in the record, at


                                                7
        On April 8, 2014, the court also issued an Order requesting that the parties calculate costs
for one category of Chevron’s estimated costs, based on certain assumptions. On April 14, 2014,
the parties filed a Joint Notice in response.

II.    DISCUSSION.

       A.      The Relevant Burdens Of Proof Regarding Reliance Damages.

        To demonstrate entitlement to reliance damages, a plaintiff must proffer evidence that:
“(1) the damages were reasonably foreseeable by the breaching party at the time of contracting;
(2) the breach is a substantial causal factor in the damages; and (3) the damages are shown with
reasonable certainty.” Sys. Fuels, Inc. v. United States, 666 F.3d 1306, 1311 (Fed. Cir. 2012)
(quoting Ind. Mich. Power Co. v. United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005)).
Although a plaintiff need not demonstrate the quantum of damages “with absolute exactness or
mathematical precision,” a plaintiff may not recover speculative damages. See Ind. Mich.
Power, 422 F.3d at 1373 (quoting San Carlos Irrigation & Drainage Dist. v. United States, 111
F.3d 1557, 1563 (Fed. Cir. 1997) (recognizing that “absolute exactness or mathematical
precision” need not be obtained in determining damages (internal quotations omitted))).

        Once a plaintiff has established entitlement to reliance damages, the defendant may seek
a reduction by “any loss the defendant can prove with reasonable certainty the plaintiff would
have suffered had the contract been performed.” RESTATEMENT (THIRD) OF RESTITUTION AND
UNJUST ENRICHMENT § 38(2)(a) (2011); see also RESTATEMENT (SECOND) OF CONTRACTS § 349
(1981); Westfed Holdings, Inc. v. United States, 407 F.3d 1352, 1370 (Fed. Cir. 2005) (affirming
a trial court’s finding that the Government did not meet its “burden to prove with reasonable
certainty the amount of offsetting benefit retained by [plaintiff]”). Where the Government has
elected to breach a contract, it bears the burden to prove that a plaintiff’s expenditures would not
have been lost despite the breach. See Am. Capital Corp. v. FDIC, 472 F.3d 859, 869 (Fed. Cir.
2006); see also id. (“Doubts are generally resolved against the party in breach.” (quoting
RESTATEMENT (SECOND) OF CONTRACTS § 352 cmt. a (1981))).




Docket No. 413. In those emails, the parties jointly proposed certain technical changes to the
court’s damage calculations, as set forth in the March 3, 2014 Riley Supplemental Declaration.
The court accepts these proposed changes; the updated calculations are reflected in Court Exhibit
14 and related references.

        The parties also jointly requested that the court modify the allocation for the External
Non-Legal Professional and Labor category (Techbase invoices), to reflect the court’s allocation
for the Company Payroll and Benefits category (Court Exhibit 10). The Government separately
requested, without Chevron’s consent, that the court modify the court’s adjustment to avoid
overlap in the Other Labor category, to also reflect the court’s allocation in the Company Payroll
and Benefits category. Because the calculations for both of these categories are based on ratios
in the Company Payroll and Benefits category, the court accepts both requested modifications.
Therefore, these updated modifications are reflected in Court Exhibit 14 and related references.



                                                 8
        Discretion lies with the trial court to determine proof of reliance damages. See Glendale
Fed. Bank, FSB v. United States, 378 F.3d 1308, 1313 (Fed. Cir. 2004) (“Given the complexities
of reconstructing the transactions and their consequences, absent a compelling showing of clear
error, [the trial court’s findings] should be the end of the matter.”); see also Dairyland Power
Coop. v. United States, 645 F.3d 1363, 1373 (Fed. Cir. 2011) (“As the primary finder of fact,
part of the trial court’s role is to fashion a fair assignment of responsibility—even where . . . the
solution departs from the specific relief requested by either party.”); Carolina Power & Light
Co. v. United States, 573 F.3d 1271, 1276 (Fed. Cir. 2009) (“[The United States Court of
Appeals for the Federal Circuit] affords the [United States] Court of Federal Claims wide
discretion in assessing an appropriate quantum of damages.”).

       B.      The Plaintiff’s Claim For Reliance Damages.

       In response to the court’s Order in Chevron III requiring that Chevron provide an
itemized financial statement of court-identified costs, Chevron stated that it “generally did not
record or track its equity finalization costs by zone. Equity finalization for all zones was viewed
and treated as a single project.” 6/26/13 Stone Decl. ¶ 7; see also 7/2/13 Metcalfe Decl. ¶ 12
(“There are no specific cost centers or designations in the Chevron accounting system
corresponding to the four categories of damages identified by the court.”); TR 1116 (6/3/11
Musika Testimony) (“[T]he [accounting] system is not maintained to provide us any guidance or
assurance that an expense was incurred in connection with Elk Hills finalization process.”).

        Instead, Chevron proposed an alternative methodology, by estimating all of its equity
finalization costs 11 and then allocating them to one of six major categories, as reflected in Court
Exhibit 1. 12




       11
          “Th[e]se costs are based on accounting entries in Chevron’s (current and previous)
computerized financial systems. . . . in accordance with Generally Accepted Accounting
Principles (GAAP).” 6/28/13 Melton Decl. ¶ 3.
       12
          “A relatively small portion of the invoices . . . , totaling approximately $1.4 million,
appear to be related, at least in part, to sale issues other than equity finalization.” 10/29/10 Stone
Decl. ¶ 18.



                                                  9
Court Exhibit 1: The Plaintiff’s Initial Claim As Of October 2010, Presented By Cost
Category.
Category                                      Cost                        Source:

                                                              10/29/10 Stone Decl. ¶ 7;
1. Company Payroll and Benefits                $9,353,646
                                                              10/14/10 Melton Decl. ¶ 27

                                                              10/29/10 Stone Decl. ¶¶ 8–9;
2. Internal Technical Consultants              $4,396,098
                                                              10/14/10 Melton Decl. ¶ 27

3. External Non-Legal                                         10/29/10 Stone Decl. ¶¶ 10–11;
                                               $7,979,411
   Professional and Labor                                     10/14/10 Melton Decl. ¶ 27

                                                              10/29/10 Stone Decl. ¶¶ 12–13;
4. Legal Costs                               $14,397,767
                                                              10/14/10 Melton Decl. ¶ 27

                                               $6,841,968
5. Miscellaneous Expenses and                    (includes    10/29/10 Stone Decl. ¶¶ 10−11,
   Letter of Credit                 $241,612.64 for 1998      15; 10/14/10 Melton Decl. ¶ 27
                                          letter of credit)

6. Other:

    Office Space                                 $800,000     10/29/10 Stone Decl. ¶ 14
    Employee Business
                                                 $775,000     10/29/10 Stone Decl. ¶ 14
    Expenses
    Computer Services and
                                                 $475,000     10/29/10 Stone Decl. ¶ 14
    Equipment
    Office Services and
                                                 $400,000     10/29/10 Stone Decl. ¶ 14
    Equipment
    Other Equipment, Services,
                                                 $250,000     10/29/10 Stone Decl. ¶ 14
    and Rentals
    Communications                               $200,000     10/29/10 Stone Decl. ¶ 14
TOTAL                                        $45,868,890

        Next, Chevron allocated each of these cost categories to one or more of the Elk Hills
Reserve zones or to an “Other” category. 6/26/13 Stone Decl. ¶¶ 8, 16; 10/29/10 Stone Decl.
¶¶ 9–19; 10/14/10 Melton Decl. ¶ 27. In other words, Chevron “estimated whether a portion of a
cost item to be allocated to one of these zones was approximately 10, 25, 50, 75, 90 or 100
percent.” 6/26/13 Stone Decl. ¶ 14. As a result, Chevron’s claim presented by zone, as of July
2, 2013, roughly approximated the estimated percentage value of the zone, as reflected in Court
Exhibit 2.




                                               10
Court Exhibit 2: Estimated Value Of Zones And Plaintiff’s Revised Claim, Presented By
                 Zone.

Elk Hills         Estimated         Estimated              Percentage of          Chevron’s Revised
Zone              Value of          Percentage             Claimed Costs          Claim
                  Zone              Value of Zone          Allocated By
                                                           Zone

Stevens               $18.4 bil.         73.15%                 74.092%                $21,365,377

Shallow Oil            $8.5 bil.         24.95%                 22.612%                 $6,520,418

Carneros              $200 mil.            0.50%                 2.734%                  $788,277

Dry Gas               $200 mil.            1.30%                 0.562%                  $162,102

TOTAL                 $27.3 bil.         99.90%               100.000%                 $28,836,174

Source: 7/2/13 Metcalfe Decl. ¶ 25; Chevron III, 110 Fed. Cl. at 760, 762, 763, 772.

         Chevron then further narrowed its claim based on the court’s rulings in Chevron III, 110
Fed. Cl. at 803−07. 13 As reflected in Court Exhibit 3, as of January 27, 2014, Chevron claimed
that it is entitled to recover $22,581,920 for costs incurred for reliance damages and discovery
sanctions. 14


        13
            Chevron reviewed the time period, personnel files, contractor and vendor
documentation and invoices, including all trial exhibits, to estimate its costs by zone and
categories per the court’s rulings in Chevron III. 7/2/13 Metcalfe Decl. ¶ 13. “External Non-
Legal Professionals, Letter Of Credit & Miscellaneous Expenses, and Legal Costs . . . were
generally supported by contractor and vendor invoices; Chevron Company Payroll And
Benefits . . . were generally supported by personnel names and financial accounting records;
Chevron Internal Technical Consultants . . . were supported by personnel names and work scope
authorizations; and Employee Business Expenses, Office Space, Computer Services &
Equipment, Other Equipment, Services, And Rentals, and Communications . . . were generally
supported by various financial accounting records.” 7/2/13 Metcalfe Decl. ¶ 14.
        14
         As of the July 2, 2013 Supplemental Brief, Chevron claimed $22,621,484 in damages.
7/2/13 Metcalfe Decl. ¶ 22; 12/6/13 Riley Decl. ¶ 7; 1/27/14 Metcalfe Suppl. Decl. Ex. A.
During the October 30, 2013 deposition of Mr. Stone, Chevron corrected its claim to
$22,588,566. 12/6/13 Riley Decl. ¶ 7 (noting the amount as $22,588,567); 1/27/14 Metcalfe
Suppl. Decl. Ex. A (identifying the 10/30/13 corrected amount as $22,588,566). Later, Chevron
also made other corrections, “result[ing] in a net increase of $941.29 to Chevron’s claim.” Gov’t
Suppl. Resp. 2; see also 12/6/13 Riley Decl. ¶ 7 n.2; 1/27/14 Metcalfe Suppl. Decl. Ex. A.
(These corrections were not incorporated into the Government’s analysis of Chevron’s damages
claim. 12/6/2013 Riley Decl. ¶ 7). In the January 27, 2014 Supplemental Reply, Chevron also
made “a relatively small number of minor changes . . . to the precise amounts in some damages


                                                   11
Court Exhibit 3: Summary Of The Plaintiff’s Final Claim For Reliance Damages And
                 Sanctions, Based On The Court’s Prior Rulings.

      Description                                                                       Amount

(1)   Stevens Zone costs from 7/8/1996 to 6/17/2010                                 $21,120,708

(2)   Carneros Zone costs from 5/19/1997 to 7/6/2000                                    $472,292

(3)   FOIA request and related costs incurred for preparation of 1/7/2003                $84,437
      FOIA request to 1/28/2004

(4)   Sanctions for 42% of the costs incurred by Chevron for the                        $904,483
      Government’s “Bad Faith” conduct during discovery from 2/16/2007 to
      3/5/2009

      TOTAL                                                                         $22,581,920

Source: 1/27/14 Metcalfe Suppl. Decl. Ex. 1; Pl. Suppl. Br. 2.

       At the evidentiary damages hearing and in subsequent briefing, however, Chevron
claimed entitlement, not only to the reliance damages and discovery sanctions identified in
Chevron III, but also eight other cost categories that the court previously rejected, as explained in
Court Exhibit 4.




categories,” reducing the total claim by $39,564. 1/27/14 Metcalfe Suppl. Decl. ¶ 5, Ex. 1.
Chevron asserts that the Government “was advised of all changes identified prior to the
submission of [the Government’s December 6, 2013 R]esponse.” 1/27/14 Metcalfe Suppl. Decl.
¶ 5 n.1; see also id. Ex. 1 (listing corrections related to letters sent to the Government on October
13, 2013, November 7, 2013, and November 25, 2013). As a result, the costs claimed,
$22,581,920, includes all of the corrections made by Chevron as of January 27, 2014. Pl. Suppl.
Br. 2 (footnotes omitted) and Pl. Supp. Br. Ex. D at INTERIM-2; 1/27/2014 Metcalfe Suppl.
Decl. Ex. 1.



                                                   12
Court Exhibit 4: Summary Of The Plaintiff’s Claim For Costs Previously Rejected By The
                 Court.

        Cost Categories                                                              Amount

(1)     Letter of credit costs                                                     $7,907,204 15

(2)     Costs before 7/8/1996 and after 6/17/2010                                  $3,075,646 16
        (all categories of costs and related legal costs incurred, except letter
        of credit)

3)      Other FOIA, pre-litigation, and United States Court of Federal             $7,197,343 17
        Claims costs from 1/29/2004 to 6/17/2010
        (excluding 42% of CFC costs from 2/16/2007 to 3/5/2009)

(4)     Carneros Zone costs from 7/8/1996 to 5/18/1997 and after 7/6/2000            $313,040 18



       15
          The court excluded letter of credit costs, as a subset of financing costs for the Carneros
and Stevens Zones. See Chevron III, 110 Fed. Cl. at 803 & n.43; id. at 804; see also
England v. Contel Advanced Sys., Inc., 384 F.3d 1372, 1379 (Fed. Cir. 2004) (“The [no-interest]
rule has been held not only to bar the recovery of interest on substantive claims against the
government, but also interest costs incurred on money borrowed as a result of the government’s
breach or delay in payment.” (citations omitted)).
       16
           This amount apparently includes: $2,852,363 and $223,283 in other costs for the
Stevens Zone outside the court-permitted date range. 7/2/13 Metcalfe Decl. ¶ 24 n.15 (“These
costs include (1) all categories of costs, except letter of credit, before 7/8/1996 and after
6/17/2010); (2) Carneros Zone costs from 7/8/1996 to 5/18/97 and after 7/6/2000; and (3) FOIA
costs after 1/28/2004.”); see also 3/10/14 Notice Ex. 5 (2/28/14 email from Chevron’s counsel,
clarifying the calculation of costs for this category); 1/27/14 Metcalfe Suppl. Decl. Ex. 1
(correcting the previous estimate of $211,894 for the Stevens Zone); Pl. Suppl. Br. Ex. D at
INTERIM-2 (“Transactions Outside Date Ranges”); Pl. Suppl. Br. 2 n.3 (itemizing additional
costs related to Chevron’s FOIA requests).
       17
           This category includes 58% of Chevron’s United States Court of Federal Claims costs
incurred from February 16, 2007 to March 5, 2009. See Chevron III, 110 Fed. Cl. at 806–07; see
also Pl. Suppl. Br. 2. In addition, Chevron incurred $21,480 in FOIA-related costs after the
court’s January 28, 2004 cutoff date. See Chevron III, 110 Fed. Cl. at 804; see also Pl. Suppl.
Br. 2 n.1; 1/27/14 Metcalfe Suppl. Decl. Ex. 1.
       18
           The court awarded Chevron’s costs to participate in the Carneros Zone equity
finalization between May 18, 1997 and July 6, 2000. See Chevron III, 110 Fed. Cl. at 803. After
the OHA issued a final decision regarding the Carneros Zone, Chevron claims that it incurred an
additional $9,495 “in costs.” Pl. Suppl. Br. 2 n.4. Chevron also claims other costs were incurred
to participate in the Carneros Zone, prior to May 19, 1997. Pl. Suppl. Br. 2.



                                                 13
(5)     Dry Gas Zone costs from 7/8/1996                                                $170,744 19

(6)     Shallow Oil Zone costs from 7/8/1996                                           $6,545,823 19

(7)     Post-trial mediation and settlement costs until 6/17/2010                       $235,363 20

(8)     Other costs from 7/8/1996 to 6/17/2010                                         $2,420,986
        (including sale-related costs)

        TOTAL                                                                         $27,866,149

Source: 1/27/14 Metcalfe Suppl. Decl. Ex. 1; Pl. Suppl. Br. 2 & Ex. D at INTERIM-2.

       C.      The Government’s Objections To Plaintiff’s Claim For Reliance Damages.

               1.      As To The Allocation Of Costs Claimed.

                       a.      Summary Of The Government’s Argument.

        The Government objected to Chevron’s allocation of costs, as described in Mr. Stone’s
June 26, 2013 Declaration, as “unsupported,” because Mr. Stone relied on a “speculative
assignment of costs to the Elk Hills zones.” Gov’t Suppl. Resp. 1–2; see also JE 1911 ¶ 12
(6/1/11 Musika Decl.) (“The key issue involving Chevron’s damage claim is whether the
Chevron expense was incurred in connection with the Elk Hills Equity Finalization
Process. . . . Chevron’s ordinary course accounting systems and controls do not provide stand-
alone support that the Chevron claim costs were incurred in connection with the Elk Hills Equity
Finalization Process.”). Moreover, the Government contended that Chevron’s allocation was
biased towards the Stevens Zone. 12/6/13 Burzlaff Decl. ¶¶ 2–4, 64–65. During the equity

       19
            The court previously determined that “DOE repeatedly and materially breached the
May 19, 1997 Equity Process Agreement as to the Carneros Zone and the Stevens
Zone. . . . [and] the July 8, 1996 contract with the Equity IPE, [as supplemented] . . . as to the
Stevens Zone.” See Chevron III, 110 Fed. Cl. at 803. The court, however, made no such finding
as to the Dry Gas or Shallow Oil Zones. Moreover, Chevron is not entitled to recover costs prior
to DOE’s breach of the July 8, 1996 Equity IPE Protocol, as supplemented. See Chevron III, 110
Fed. Cl. at 804. Similarly, the court did not award costs incurred after Chevron filed the final
OHA appeal brief, as to the Stevens Zone, on June 17, 2010. Id. at 803–04.
       20
           As previously explained, the court awarded Chevron only specific litigation costs,
related to Chevron’s FOIA request for DOE’s breach of the convenient of good faith and fair
dealing by continuing to breach the May 19, 1997 Equity Process Agreement, after providing
Chevron assurances that DOE ceased its prior ex parte communications. In addition, the court
awarded Chevron 42% of its litigation costs that were incurred as a result of the Government’s
“bad faith” conduct in connection with unwarranted privilege assertions during discovery. See
Chevron III, 110 Fed. Cl. at 804, 806–07. As such, Chevron is not entitled to other litigation,
mediation, settlement or “other” costs.



                                                 14
finalization, the DOE (unlike Chevron) contemporaneously tracked its costs by zone. 12/6/13
Burzlaff Decl. ¶ 12. Through 2010, DOE spent 29.0% of DOE’s aggregate equity finalization
costs on the Stevens Zone. 12/6/13 Burzlaff Decl. ¶ 13. The IPE spent 34.0% of its aggregate
equity finalization costs on the Stevens Zone. 12/6/13 Burzlaff Decl. ¶ 14. On the other hand,
Chevron claims that 72.1% of its total equity finalization costs were incurred for the Stevens
Zone. 21 12/6/13 Burzlaff Decl. ¶ 16 (citing Suppl. Br. Ex. D at INTERIM-2); see also id. ¶ 17
(“A difference of this significance [in the percentage allocations] . . . is unexpected, because
Chevron and DOE were engaged in essentially the same phases of work throughout the equity
finalization process, and the IPE followed essentially the same pattern of work.”).

        The Government explained that the disparity between DOE’s and Chevron’s costs by
zone, is in part the result of Chevron’s reliance on its declarants’ “memories of the equity
finalization process” and allocations of costs by zone “many years after-the-fact.” 12/6/13
Burzlaff Decl. ¶¶ 18–19; see also 12/6/13 Riley Decl. ¶ 12 (“Mr. Stone necessarily relied, in
large part, upon his memory and recollections to do much of the work of allocating the expenses
to different zones. . . . [but] was often unable to recall the specifics of the allocations he had done
in June of 2013[.]”). Chevron’s comparison to the relative equity value of each zone also “is
misplaced[,] because the equity value of each zone is not a reliable metric regarding the amount
a party spent in the effort to finalize equity for each zone.” 12/6/13 Burzlaff Decl. ¶ 57 (citing
7/2/13 Metcalfe Decl. ¶ 26 n.17 (“Although the Carneros Zone had less total value than the Dry
Gas Zone, a legal issue in the Carneros Zone was worth several equity points and more than $10
million[.]”); 10/30/13 Stone Dep. at 157, 266 (testifying that the parties spent more on the
Shallow Oil Zone than the Stevens Zone, because equity finalization for the Shallow Oil Zone
was complex, although it was not finished, until after the liability trial)).

        Other metrics also evidence Chevron’s “bias towards allocating costs to the Stevens
Zone.” 12/6/13 Burzlaff Decl. ¶ 64. For example, as Court Exhibit 5 shows, the Government
estimated the time spent by DOE to prepare and present equity reports for the IPE indicate that
the Stevens Zone took only 26% of total time expended.




       21
         The Government’s comparison of Chevron’s allocation by zone to that of the DOE and
the IPE omits Chevron’s legal costs “for the sake of consistency,” because DOE’s estimate of
costs and those of the IPE do not include legal costs. 12/6/13 Burzlaff Decl. ¶ 16 n.4. If
Chevron’s legal costs were included, however, the percentage allocated to the Stevens Zone
equity would increase from 72.1% to 74.1%. 12/6/13 Burzlaff Decl. ¶ 16 n.4.



                                                  15
Court Exhibit 5: The Government’s Estimate Of Time That DOE Spent To Prepare And
                 Present Equity Reports For The Independent Petroleum Engineer, By
                 Zone.

Zone                           Time Spent     Percentage Of       Time Period
                                              Total Time Spent

Stevens Zone                    12 months            26%          July 1996 to June 1997

Shallow Oil Zone                30 months            65%          November 1997 to April 2000

Dry Gas and
                                 4 months             9%          July 1996 to October 1996
Carneros Zones

TOTAL                           46 months           100%

Source: 12/6/13 Burzlaff Decl. ¶ 61.

         Similarly, the time that the IPE spent to prepare the Final Recommendation for each zone
suggests that the costs that Chevron allocated to the Stevens Zone should be less than 50% of the
total, as Court Exhibit 6 indicates.

Court Exhibit 6:       The Government’s Estimate Of Time Spent By The Independent
                       Petroleum Engineer To Prepare Final Recommendations, By Zone.

Zone                           Time Spent     Percentage of       Time Span
                                              Total Time Spent

Stevens Zone                      34 months          31%          June 1997 to March 2000

Shallow Oil Zone
                                  69 months          63%          April 2000 to December 2005
(not completed)

Dry Gas and
                                   6 months           6%          October 1996 to March 1997
Carneros Zones

TOTAL                            109 months         100%

Source: 12/6/13 Burzlaff Decl. ¶ 62.

                       b.      Summary Of The Plaintiff’s Response.

        Chevron responded that the Government’s proposed adjustments “contravene[] this
[c]ourt’s opinion” ordering Chevron “to provide the court with an itemized financial statement of
the aforementioned costs, verified by a certified public accountant.” Pl. Suppl. Reply 1 (quoting
Chevron III, 110 Fed. Cl. at 805). Instead, the Government now seeks to “unilaterally reopen the
record, reargue issues that were fully litigated in the damages trial, and introduce new evidence


                                               16
and arguments.” Pl. Suppl. Reply 2. By reviewing “thousands of specific Chevron costs,” Mr.
Stone estimated allocations by zone using supporting evidence and personal knowledge. Pl.
Suppl. Reply 1–2. Mr. Stone’s process followed “standard practices” and was a “reasonable”
and “thorough” means to quantify categories of costs that were “inherently less than absolutely
certain given the nature of the task.” Pl. Suppl. Reply 2. In any event, the Government “does
not challenge the overall reasonableness of the process. . . . [n]or . . . Mr. Metcalfe’s certification
of the amounts[.]” Pl. Suppl. Reply 2; see also id. 5 (pointing out that Ms. Riley does not dispute
the soundness of Mr. Metcalfe’s methodology).

         Chevron further complains that the Government deductions previously were rejected by
the court. Pl. Suppl. Reply 3 (“By not ordering Chevron to make the deductions, the [c]ourt
implicitly rejected the Government’s position, and the Government should not be permitted to
relitigate those issues now.”) (citing Smith Int’l, Inc. v. Hughes Tool Co., 759 F.2d 1572, 1578
(Fed. Cir. 1985) (holding that law of the case applied to the implied rejection of challenger’s
arguments to patent validity); see also Aydin Corp. (W.) v. Widnall, No. 96-1267, 121 F.3d 726,
1997 WL 413329, at *3 (Fed. Cir. July 24, 1997) (applying the law of the case to issues
“explicitly or implicitly decided”)).

        As for the Government’s comparisons of Chevron and DOE’s cost allocations to the
Stevens and Shallow Oil Zones, these comparisons are irrelevant “since nothing required the
parties to devote the same resources to the same parts of the process, and they did not do
so. . . The IPE’s costs are also an inappropriate benchmark[,] because the IPE also did not need
to devote the same resources as Chevron[.]” Pl. Suppl. Reply 6; see also 1/27/14 Metcalfe
Suppl. Decl. ¶ 14 (“The DOE and IPE costs relied upon by the Government correspond to only a
portion of Chevron’s equity finalization costs.”). 22

        Nor can the Government’s experts’ speculation, according to Chevron, be considered to
be superior to Mr. Stone’s estimates, as Mr. Stone’s estimates were based on his personal
knowledge and Chevron’s business records. Pl. Suppl. Reply 5–6 (citing 1/10/14 Burzlaff Dep.
43, 45–46, 47, 51–52 (discussing Mr. Burzlaff’s lack of contemporary personal experience with
Chevron’s equity finalization); 1/22/14 Riley Dep. 93, 98–99, 100, 160–61 (same)); see also
1/27/14 Metcalfe Suppl. Decl. ¶ 11 (“[G]iven his project management position and his
contemporaneous knowledge of Chevron’s equity finalization process, only Mr. Stone, not the
Government or its representatives, is in a position to know how these employees and consultants
participated in the internal work of Chevron’s equity finalization team.”).




       22
           Chevron noted, for example, that “the amount that DOE paid to Mr. Burzlaff for
[Shallow Oil Zone] work was more than Chevron’s total non-legal costs . . . for all four zones.”
Pl. Suppl. Reply 6 (citing 12/6/13 Burzlaff Decl. Ex. G).



                                                  17
                      c.      The Court’s Analysis And Resolution As To The Allocation Of
                              Specific Costs.

         As a threshold matter, although the court rejected the Government’s damage theory, it did
not preclude the Government from proffering evidence to rebut Chevron’s claim. See Chevron
III, 110 Fed. Cl. at 805 (“The relevant legal inquiry . . . is not what Chevron would have spent in
a non-breach world, but what Chevron would have lost [because of the Government’s conduct].”
(emphasis in original)). This is so, because the purpose of reliance damages is to compensate an
aggrieved party for “uncompensated expenditures made in reasonable reliance on the contract,
including expenditures made in preparation for performance or in performance.” RESTATEMENT
(THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 38(2)(a) (2011); see also RESTATEMENT
(SECOND) OF CONTRACTS § 349 (1981). As such, Chevron’s contention that the Government’s
proposed adjustments “contravene[] this [c]ourt’s opinion,” (Pl. Suppl. Reply 1), is misplaced,
particularly since none of Chevron’s initial damage scenarios “conform[ed] to the zones, precise
periods, and specified costs for which the court has determined that Chevron is entitled to
damages.” Chevron III, 110 Fed. Cl. at 805. Of more import, is the fact that Chevron’s post-
liability allocation clearly appears to have been influenced by the court’s decision to award costs
for only two of the four Elk Hills zones.

       Therefore, to determine the reliance damages to which Chevron is entitled, the court first
examined Chevron’s claim in each of the six cost categories where the Government proposed
adjustments, as Court Exhibit 7 shows.




                                                18
Court Exhibit 7: Summary Of The Government’s Proposed Allocation Adjustments, By
                 Zone.

                              Stevens Zone                                Carneros Zone

                                 Gov’t                                        Gov’t
                Chevron’s      Proposed                       Chevron’s     Proposed
Cost             10/30/13     Adjustments                      10/30/13    Adjustments
Category          Claim       per Burzlaff       Subtotal       Claim      per Burzlaff    Subtotal

Company          $7,986,729    ($3,582,909)      $4,403,820          $0          $23,838    $23,838
Payroll &
Benefits

Other Labor      $2,272,599        ($893,144)    $1,379,455          $0           $6,350     $6,350
Related

External Non-    $2,935,430        ($353,733)    $2,581,697     $28,522           $6,830    $35,352
Legal
Professional
and Labor

In-House         $3,747,712        ($789,451)    $2,958,261          $0              $0          $0
Technical
Consultants

Miscellaneous      $57,674           ($2,827)      $54,847         $185              $1       $186

Legal Costs      $4,121,021        ($126,420)    $3,994,601    $443,585              $0    $443,585

TOTAL           $21,121,165    ($5,748,484)     $15,372,681    $472,292          $37,019   $509,311

Source: 12/6/13 Riley Decl. Exs. 3.1, 3.3; 12/6/13 Burzlaff Decl. ¶¶ 20, 33–34, 42, 49, 54–55
(summarizing the Government’s proposed adjustments by cost category).

                              i.        Company Payroll & Benefits.

        Chevron allocated almost all of its costs for the Company Payroll and Benefits category
to the Stevens Zone, as Court Exhibit 8 shows:




                                                  19
Court Exhibit 8: The Plaintiff’s Proposed Allocation Of Employee Payroll And Benefits,
                 By Zone.

Employee                         Stevens        Carneros         Dry Gas        Shallow Oil      Other 23

[...]                            $[...]                      -              -              -                -

[...]                            $[...]                      -              -              -                -

[...]                            $[...]                      -              -              -                -

[...]                            $[...]                      -              -              -                -

[...]                            $[...]                      -              -              -                -

Other Indirect Labor             $1,580,949                  -              -      $147,138       $140,890

Unchallenged Allocation 24       $1,473,491                  -              -              -                -

Total                            $3,054,440                  -              -      $147,138       $140,890

Source: 12/6/13 Riley Decl. ¶ 17, Exs. 3.3, 3.3.1–3.3.6, 4.3, 4.4; INTERIM 75–82, 95–98, 103–106.

       To recap, Chevron first allocated 100% of Mark Wilson’s 25 payroll and benefits between
January 1998 and February 1999 to the Stevens Zone, despite previously indicating that only
50% of Mr. Wilson’s time was spent on equity finalization for the Elk Hills field. 10/30/13
Stone Dep. 249; see also 12/6/13 Riley Decl. Ex. 3.3.3 (listing payroll and benefits allocations by
month). Therefore, the Government proposed that Mr. Wilson’s 1998 payroll and benefits
should be allocated 50% to the Stevens Zone and 50% to non-equity finalization activities.
12/6/13 Burzlaff Decl. ¶ 23 (citing JE 1764).

        Second, Chevron allocated 100% of Fernando Cardenosa’s 26 payroll and benefits
between July 1996 and December 1997 to the Stevens Zone, but proffered virtually no evidence
of his role in equity finalization. 12/6/13 Burzlaff Decl. ¶ 24; see also 12/6/13 Riley Decl. Ex.
3.3.4 (listing payroll and benefits allocations by month). Even Mr. Stone was unable to recall

        23
             “Other” represents work not related to equity finalization for a particular zone.
        24
          The Government recommended adjustments for five employees and “Other Indirect
Labor,” totaling $6,513,238. 12/6/13 Riley Ex. 3.3. Chevron’s total claim for Payroll &
Benefits is $7,986,729. Pl. Suppl. Resp. Ex. D at INTERIM-3. The “Unchallenged Allocation”
represents the difference.
        25
             Mark Wilson was the Senior Geologist at Chevron. JE 1755-006.
        26
         Fernando Cardenosa was not listed in the table identifying relevant Chevron
employees. JE 1755-006.



                                                   20
Mr. Cardenosa’s role. The evidence is that Mr. Cardenosa attended one presentation of the IPE
about the Dry Gas Zone. 12/6/13 Burzlaff Decl. ¶ 24 (citing 10/30/13 Stone Dep. 255 (“All I can
tell you is [Mr. Cardenosa] wasn’t there very long.”)); 12/6/13 Burzlaff Decl. Ex. J (Attendees
List at Oct. 21, 1996 Dry Gas Zone Presentation). Therefore, the Government recommended that
Mr. Cardenosa’s payroll and benefits for 1996 and 1997 be “comparable to Mark Wilson’s
time,” i.e. allocated 50% to the Stevens Zone and 50% to non-equity finalization activities.
12/6/13 Burzlaff Decl. ¶ 24.

        Third, Chevron allocated 100% of Kevin Maneffa’s 27 payroll and benefits between June
1998 and February 1999 to the Stevens Zone, although he was “a primary point of contact for the
[Shallow Oil Zone].” 12/6/13 Burzlaff Decl. ¶ 25 (citing JE 1660 (7/15/97 Project Work Order);
JE 1661 (8/1/97 Project Work Order)); 12/6/13 Burzlaff Decl. Ex. L at 1 (11/6/97 Attendees List
at Shallow Oil Zone Meeting); see also 12/6/13 Riley Decl. Ex. 3.3.5 (listing monthly payroll
and benefits allocations). Therefore, the Government recommended that Mr. Manefffa’s
allocation be the same as Pat Alexander, another Chevron employee who was a primary contact
for the Shallow Oil Zone. 12/6/13 Burzlaff Decl. ¶ 25 n.7 (citing JE 1660 (7/15/97 Project Work
Order GO-113-4) (listing Kevin Maneffa and Pat Alexander as primary Shallow Oil Zone
contacts); JE 1661 (8/1/1997 Project Work Order GO-113-4) (same)).

        Fourth, Chevron allocated 100% of Norman Stone’s 28 payroll and benefits between July
1996 and June 2010 to the Stevens Zone, even though he worked on all four zones over the
entire period. 12/6/13 Burzlaff Decl. ¶¶ 27–28, 31 (citing 10/30/13 Stone Dep. 246); see also
12/6/13 Riley Decl. Ex. 3.3.1 (listing monthly payroll and benefits); 12/6/13 Burzlaff Decl. ¶ 28
(“Mr. Stone . . . spent significant time on the equity finalization for the other three zones,
especially the [Shallow Oil Zone].”); 12/6/13 Burzlaff Decl. Ex. J (minutes of Dry Gas and
Carneros Zone equity presentations); 12/6/13 Burzlaff Decl. Ex. L (minutes of Shallow Oil Zone
equity meetings); 12/6/13 Burzlaff Decl. Ex. M (conference call log of participants to the
Shallow Oil Zone); 12/6/13 Burzlaff Decl. Ex. N (showing Mr. Holtzclaw’s approval on maps
for the Shallow Oil Zone). Mr. Stone, however, received “sizeable bonuses” for the total project,
but allocated 100% to the Stevens Zone. 12/6/13 Burzlaff Decl. ¶ 29 (citing 10/30/13 Stone Dep.
289). In addition, the Shallow Oil Zone was more important than the Stevens Zone, because of
the large difference in the respective equity positions of DOE and Chevron. See 12/6/13 Burzlaff
Decl. ¶ 31 (“That difference was 12.7 equity percentage points or $760 billion given that each
equity point in the [Shallow Oil Zone] was worth about $60 million (not including interest). JE
1316 and JE 1084.”). Since Mr. Burzlaff “was the DOE counterpart to Mr. Stone,” the
Government contends that Mr. Burzlaff’s well-documented allocation of labor by zone “should
be used to more accurately allocate the time of Mr. Stone and Mr. Holtzclaw.” 12/6/13 Burzlaff
Decl. ¶ 32.

       Fifth, Chevron allocated 100% of Mark Holtzclaw’s 29 payroll and benefits between July
1996 and June 2010 to the Stevens Zone, although he worked on all four zones. 12/6/13 Burzlaff
       27
            Kevin Maneffa was a Chevron Senior Petroleum Engineer. JE 1755-006.
       28
            Norman Stone was the Equity Team Leader at Chevron. JE 1755-006.
       29
            Mark Holtzclaw was a Chevron Senior Staff Geologist. JE 1755-006.


                                               21
Decl. ¶ 27; see also 12/6/13 Riley Decl. Ex. 3.3.2 (listing monthly payroll and benefits
allocations). Mr. Holtzclaw attended almost all the meetings that Mr. Stone attended for all four
zones. 12/6/13 Burzlaff Decl. ¶ 28 (citing 10/30/13 Stone Dep. at 262 (“I will speak for Mark
Holtzclaw. He went nearly to all these things [meetings for the equity zones] with me.”)). Mr.
Stone also testified that he allocated all of his and Mr. Holtzclaw’s payroll and benefits to the
Stevens Zone, because they both worked more than 40 hours a week on the Stevens Zone, out of
a typical 80 to 100 hour workweek. 12/6/13 Burzlaff Decl. ¶ 29 (citing 10/30/13 Stone Dep. at
259–64).

       In sum, the Government proposed the following allocation of payroll and benefits, by
zone, as shown in Court Exhibit 9.

Court Exhibit 9:        The Government’s Proposed Allocation Of Employee Payroll And
                        Benefits, By Zone.

Employee               Stevens         Carneros            Dry Gas           Shallow Oil           Other

[...]

[...]

[...]

[...]

[...]

Other Indirect     $     793,139      $       3,331        $          529    $    911,260      $ 160,719
Labor

Unchallenged       $ 1,473,491        $            0       $            0    $             0   $           0
Allocation

Total                  $2,266,630            $3,331                  $ 529       $911,260       $160,719

Source: 12/6/13 Riley Decl. ¶ 17, Exs. 3.3, 3.3.1–3.3.6, 4.3, 4.4.

       In sum, the Government argued that Chevron’s claim should be reduced by $3,559,071
from its October 30, 2013 claim of $7,986,729 for the Payroll & Benefits Category. 30 12/6/13
Burzlaff Decl. ¶ 33; 12/6/13 Riley Decl. ¶ 17 and Ex. 3. The Government’s proposed adjustment
represents a $3,582,909 reduction from Chevron’s allocation of $7,986,729 to the Stevens Zone
and a $23,838 addition to Chevron’s allocation of $0 to the Carneros Zone in the Payroll &

        30
           Chevron’s 10/30/13 claim ($7,986,729) minus the Government’s allocation to the
Steven’s Zone ($4,403,820), minus the Government’s allocation to the Carneros Zone ($23,838),
equals a total reduction of $3,559,071.



                                                    22
Benefits Category. Compare Court Exhibit 8 (The Plaintiff’s Proposed Allocation Of Employee
Payroll And Benefits, By Zone.), with Court Exhibit 9 (The Government’s Proposed Allocation
Of Employee Payroll And Benefits, By Zone.).

        Chevron replied that, although Mr. Stone and Mr. Holtzclaw worked on other zones,
“they averaged more than 40 hours per week on the Stevens Zone alone, and they would have
been assigned full-time to the equity finalization effort even if [the Stevens Zone] had been the
only zone to undergo equity finalization.” Pl. Suppl. Reply 7 (citing 1/27/14 Stone Suppl. Decl.
¶¶ 8–9). “[T]he [court’s May, 2013 Memorandum Opinion] does not authorize a deduction
based on the fact that these employees did some work—at no incremental cost to Chevron—on
other zones.” Pl. Suppl. Reply 8. 31 Moreover, any benefit to Chevron for work performed by
the Government on other zones was “nullified by the Government’s misconduct.” Pl. Suppl.
Reply 7 n.5; see also 1/27/14 Stone Suppl. Decl. ¶ 11 (“[T]he work that Mr. Holtzclaw and I
performed on the Dry Gas Zone, Carneros Zone, and Shallow Oil Zone ultimately did not benefit
Chevron due to the Government’s misconduct. Because of that misconduct, the work on equity
finalization was nullified, and the process never was completed.”). In addition, because of the
delay in the Shallow Oil Zone equity finalization, Mr. Maneffa worked only on the Stevens Zone
before leaving the equity finalization team. 1/27/14 Stone Suppl. Decl. ¶ 19.

        Next, Chevron argued that, because “the Stevens Zone’s value was nearly triple the value
of the other three zones combined,” it was logical to allocate most of the resources to that zone’s
equity finalization. 1/27/14 Stone Suppl. Decl. ¶ 8. In addition, the work of Mr. Stone and Mr.
Holtzclaw on other zones “was over and above [their] full-time work on the Stevens Zone” and
these two employees “would have been assigned to equity finalization for the Stevens Zone alone
on a full-time basis, even if [they] had spent no time on the other zones.” 1/27/14 Stone Suppl.
Decl. ¶ 9 (emphasis added); see also 1/27/14 Metcalfe Suppl. Decl. ¶ 8 (“Chevron’s costs would
have been the same[,] even if equity finalization had been undertaken only for the Stevens
Zone.”). As Mr. Metcalf advised:

       In calculating a project’s costs, it is standard practice to include all of the costs
       needed to undertake the project. Where the same costs also contribute to a
       separate project, only the incremental costs (if any) attributable to the separate
       project should be excluded, while including all costs that would have been
       incurred if the separate project had not been undertaken.

1/27/14 Metcalfe Suppl. Decl. ¶ 9.

        Therefore, Chevron contends that, even if some employee time should be allocated by
zone, Mr. Burzlaff’s proposed methodology was “entirely baseless.” 1/27/14 Stone Suppl. Decl.
¶ 14. Mr. Stone’s role “went far beyond” that of Mr. Burzlaff, who was an outside contractor
supervised by DOE. 1/27/14 Stone Suppl. Decl. ¶ 15. In contrast, Mr. Stone “was required to
supervise at all times the work in the Stevens and other zones.” 1/27/14 Stone Suppl. Decl. ¶ 15.
In fact, at Mr. Stone’s October 30, 2013 deposition, the Government’s counsel undercut Mr.

       31
          Mr. Stone and Mr. Holtzclaw also worked on the Shallow Oil Zone and the issues that
arose there also “overlapped” the Stevens Zone. 1/27/14 Stone Suppl. Decl. ¶ 13.



                                                23
Burzlaff’s proposed allocation of 44% to the Stevens and Carneros Zones, by suggesting that a
more accurate allocation must be based on percentages of costs estimated by Mr. Metcalfe, i.e.,
allocating 77% of Chevron’s costs to the Stevens and Carneros Zones. 1/27/14 Stone Suppl.
Decl. ¶ 16 (citing 10/30/13 Stone Dep. 281–82; see also 7/2/13 Metcalfe Decl. ¶ 25 (attributing
74.1% of costs to the Stevens Zone and 2.7% to the Carneros Zone).

        Chevron admitted that “Mr. Wilson spent 50 percent of his time on equity finalization
and 50 percent of his time on unrelated projects,” but insisted that 100% of the costs of his
employment charged to equity finalization in Chevron’s accounting system should be allocated
to the Stevens Zone. 1/27/14 Stone Suppl. Decl. ¶ 19. 32 Chevron also argued that even though
Mr. Cardenosa attended the first presentation to the IPE concerning the Dry Gas Zone, that fact
is not relevant to the allocation of his time. 1/27/14 Stone Suppl. Decl. ¶ 19. Furthermore,
Chevron allocated no payroll costs to the Carneros Zone, because equity finalization for that
zone “was handled by outside contractors and lawyers.” 1/27/14 Stone Suppl. Decl. ¶ 19 n.2.

        The United States Court of Appeals for the Federal Circuit has considered salaried
employees, working on multiple projects, as an indirect overhead cost. See Charles G. Williams
Constr., Inc. v. White, 326 F.3d 1376, 1379 (Fed. Cir. 2003) (“Indirect costs are usually those
costs that are incurred despite . . . inactivity on a project, such as home office overhead including
accounting and payroll services, general insurance, salaries of upper level management, heat,
electricity, taxes, depreciation. A contractor recovers its indirect costs by allocating them on a
proportionate basis among all of its contracts.” (quoting Charles G. Williams Constr.,
Inc. v. White, 271 F.3d 1055, 1057–58 (Fed. Cir. 2001)). But, that does not mean such employee
costs must be allocated equally among those projects. For this reason, our appellate court has
endorsed using an internal accounting system to establish “overhead costs with reasonable
certainty,” to allocate costs to particular projects. See Kan. Gas & Elec. Co. v. United States,
685 F.3d 1361, 1369–71 (Fed. Cir. 2012) (“This court upholds an internal accounting system as
showing overhead costs with reasonable certainty when it allocates a portion of the expenses to a
particular project using codes[.]”) (citing Carolina Power & Light v. United States, 573 F.3d
1271, 1276–77 (Fed. Cir. 2009) (“[Plaintiff’s] internal accounting system uses specific codes to
allocate . . . indirect overhead expenses to particular projects, including the breach-related
projects.”))); see also Energy Nw. v. United States, 641 F.3d 1300, 1309 (Fed. Cir. 2011)
(agreeing that “the award of damages for overhead costs is a factual question of the damages
amount, not a legal question of causation” and affirming a damage award for overhead costs
supported by “generally accepted accounting practices”); Sys. Fuels, 666 F.3d at 1312–13
(accepting use of generally accepted accounting procedures, mandated by the Federal Energy
Regulatory Commission, to allocate overhead costs to specific projects).



       32
          During his deposition, Mr. Stone suggested “that 50 percent of [Mr. Wilson’s] time
was not charged to Elk Hills equity[.]” 10/30/13 Stone Dep. at 249. In his supplemental
declaration, Mr. Stone stated that “At my deposition, the Government’s counsel represented to
me the amounts for Mr. Wilson that were included in Chevron’s damages claim. As I testified,
those amounts seem consistent with inclusion of 50 percent of Mr. Wilson’s payroll and
benefits.” 1/27/14 Stone Suppl. Decl. ¶ 19.



                                                 24
        Since Chevron previously represented that Mr. Wilson spent only 50% of his time on
equity finalization (JE 1764), the court has determined that 50% of Mr. Wilson’s payroll and
benefits should be deducted from Chevron’s damages claim. 33 In addition, because the evidence
presented by Chevron indicated that Mr. Cardenosa and Mr. Maneffa did de minimis work on the
Stevens and Carneros Zones, the court has determined that all of those costs may not be claimed
by Chevron.

        Of course, Mr. Stone and Mr. Holtzclaw devoted many hours to finalize equity on the
Stevens Zone, but the fact remains that, Mr. Stone and Mr. Holtzclaw were salaried employees
that worked on equity finalization for all zones, as reflected in Mr. Stone’s overall performance
bonus. 10/30/13 Stone Dep. at 260 (“At the time we [Mr. Stone and Mr. Holtzclaw] were
putting in 80 to 100 hours a week. And I guarantee that we both worked 40 hours a week plus on
the Stevens, plus we did, in addition to that, other zones. And that’s the way equity always
was.”). The court is aware that Mr. Stone and Mr. Holtzclaw’s responsibilities were different
than those of Mr. Burzlaff, despite the Government’s statement that he was “the DOE
counterpart to Mr. Stone.” 12/6/13 Burzlaff Decl. ¶ 32.

        In the court’s judgment, Mr. Metcalfe’s approach was an accurate and reasonable
estimate of Chevron’s total costs by zone, because it considered different costs factors and is
“generally similar to the relative percentage value of each zone.” 7/2/13 Metcalfe Decl.
¶¶ 25−26 (“The results of this comparison provide a level of independent confirmation that the
relative costs . . . are reasonable, as it is reasonable that Chevron would have utilized its
resources on the four zones generally consistent with the expected values of each of these
zones.”). Therefore, the court has determined that 23.2% of the salary and benefits for Mr. Stone
and Mr. Holtzclaw should be deducted from Chevron’s damages claim.

        The Government also proposed an “Other Indirect Labor” reduction of $784,479 from
Chevron’s 10/30/13 claim. 12/6/13 Riley Decl. Ex. 3.3, 3.3.6. Although the Government
indicated that these “[a]djusted allocations [are] based on the [12/6/13] Declaration of Alan A.
Burzlaff” (12/6/13 Riley Decl. Ex. 3.3.6 n.2), Mr. Burzlaff never explained his methodology to
justify this reduction. 12/6/13 Burzlaff Decl. ¶ 33 (describing proposed allocations for specific
employees, but not Other Indirect Labor). 34

       For this reason, the court has determined that $6,582,634 should be allocated to the
Stevens Zone and $126,690 to the Carneros Zone for payroll and benefits costs, as reflected in
Court Exhibit 10.


       33
          Mr. Stone appears to agree with the Government’s allocation of Mr. Wilson’s payroll
and benefits. 1/27/14 Stone Suppl. Decl. ¶ 19 (stating that the amounts represented by the
Government counsel at Mr. Stone’s 10/30/13 deposition “seem consistent with inclusion of 50
percent of Mr. Wilson’s payroll and benefits”).
       34
           The Government’s proposed reductions for the “Other” category are distinct from
“Other Indirect Labor.” 12/6/13 Burzlaff Decl. ¶ 34 (describing the calculation for the “Other”
category).



                                               25
Court Exhibit 10:      The Court’s Resolution Of Allocation Of Employee Payroll And
                       Benefits, By Zone.

             Employee                           Stevens Zone       Carneros Zone

             [...]                                        $[...]               $[...]

             [...]                                        $[...]               $[...]

             [...]                                        $[...]               $[...]

             [...]                                        $[...]               $[...]

             [...]                                        $[...]               $[...]

             Other Indirect Labor                   $1,580,949                   $0

             Unchallenged Allocation                $1,473,491                   $0

             Total                                  $3,054,440                  $ 0

                              ii.    Other Labor Related Costs.

        As of January 27, 2014, Chevron allocated $2,272,529 35 to “Other” labor related costs.
1/27/14 Metcalfe Decl. Ex. 1. This category includes costs related to employee labor, including
“Employee Business Expenses; Office Space; Computer Services & Equipment; Office Services
& Equipment; Other Equipment, Services, And Rentals; and Communications.” 7/2/13 Metcalfe
Decl. ¶ 20. Costs allocated to this category used only the proportion of Payroll and Benefits
costs incurred for the respective zone by month. 7/2/13 Metcalfe Decl. ¶ 20.

        The Government and Chevron agree that Mr. Metcalfe’s allocation method for the
“Other” category is reasonable. 7/2/13 Metcalfe Decl. ¶ 20; 12/6/13 Riley Decl. ¶ 17. On April
8, 2014, the parties were asked to provide an estimated allocation of costs for the “Other”
category, based on Mr. Metcalfe’s methodology, adjusted to incorporate the Payroll and Benefits
allocations reflected in Court Exhibit 10.

         On April 14, 2014, the parties advised the court that of the $2,272,529 Chevron claimed
in the “Other” category, both parties estimated that $1,930,565 should be allocated to the Stevens
Zone if the Payroll and Benefits allocations in Court Exhibit 10 are used. 4/14/14 Joint Notice 1.
In addition, Chevron proposed allocating $28,614 to the Carneros Zone. 4/14/14 Joint Notice 1.
The Government, however, argued that the court instead should allocate $7,427 to the Carneros
Zone and criticized Chevron for failing to account for the date limitations imposed by the court,
i.e., the exclusion of amounts incurred prior to May 19, 1997 or after July 6, 2000. 4/14/14 Joint
Notice 1, 2 n.*. Chevron responded that “most of the Carneros payroll and ‘other’ costs were

       35
          As of October 30, 2013, Chevron had claimed $2,272,599 for costs for the “Other”
category. 1/27/14 Metcalfe Decl. Ex. 1; 12/6/13 Riley Decl. ¶ 17 and Ex. 3.



                                               26
incurred after the OHA appeal was decided and work on the Carneros Zone ended” and “that
limiting the Carneros amount to the 1997–2000 timeframe would require a more complicated
methodology.” 4/14/14 Joint Notice 1.

         As the court previously ruled, Chevron may recover costs incurred for the Carneros Zone
equity finalization “until July 6, 2000, the date that Chevron’s appeal to OHA was denied.”
Chevron III, 110 Fed. Cl. at 803. Therefore, Chevron’s damages claim is reduced by $334,537,
i.e., the difference between Chevron’s initial claim of $2,272,529 and the revised allocation of
$1,930,565 for the Stevens Zone plus $7,427 for the Carneros Zone.

                               iii.   External Non-Legal Professional And Labor.

        As to cost allocations for external non-legal professional and labor, Chevron allocated
100% of the software vendor Techbase International (“Techbase”) costs to the Stevens Zone,
although “the software . . . was used by Chevron throughout the equity finalization process for
all four zones.” 12/6/13 Burzlaff Decl. ¶ 39 (emphasis omitted).

        Instead, the Government contended that Chevron should “apply the monthly allocation
ratio from the Payroll and Benefits category to the monthly costs incurred by Chevron for using
the Techbase software, because the monthly payroll cost allocations are a reliable metric of the
relative work performed by Chevron on each zone, month-to-month.” 12/6/13 Burzlaff Decl.
¶ 41. Doing so, however, would reduce Chevron’s damages claim in this category by $346,903:
a reduction of $353,733 for the Stevens Zone, but an increase of $6,830 for the Carneros Zone.
12/6/13 Burzlaff Decl. ¶ 42; 12/6/13 Riley Decl. ¶ 18 and Ex. 3. 36

        Chevron responded that, because “Techbase later was used for [the Shallow Oil Zone]
data as well, at no incremental cost, does not justify splitting the Techbase costs [among the]
zones.” Pl. Suppl. Reply 7 n.6 (citing 1/27/14 Metcalfe Suppl. Decl. ¶ 8; 1/27/14 Stone Suppl.
Decl. ¶ 19). That is so, because the Stevens Zone equity finalization was the reason that
Techbase was retained. 10/30/13 Stone Dep. 134–35 (testifying that the Stevens Zone equity
finalization would not have proceeded without the Techbase system).

          Chevron conceded that it used Techbase’s software in more than just the Stevens Zone.
Pl. Suppl. Reply 7 n.6 (“Techbase later was used for [Shallow Oil Zone] data as well[.]”); JE
1755 at 8 (describing Techbase International as a “[s]oftware vendor . . . that provided Techbase
software for use in equity finalization”); JE 1755 at 65 (listing an “interactive demonstration
of . . . Techbase” as part of a 3/28/00 Shallow Oil Zone presentation); see also 12/6/13 Burzlaff
Decl. ¶ 39 (“[T]he [Techbase] software . . . was used by Chevron . . . for all four zones.”
(emphasis in original)). Of course, Chevron may be correct that it would not have undertaken
equity finalization of the Stevens Zone, but for Techbase’s software. But that is irrelevant. See
Glendale Fed. Bank, 378 F.3d at 1311 (“[T]he focus of a recovery based on the reliance interest
is the real costs incurred for capital and services that . . . would not have [been] incurred but for

       36
          Exhibit 3 to the 12/6/13 Riley Declaration identifies the reduction as $346,902,
presumably due to differences attributable to rounding. Compare 12/6/13 Burzlaff Decl. ¶ 42
and 12/6/13 Riley Decl. ¶ 18 ($346,903), with 12/6/13 Riley Decl. Ex. 3 ($346,902).



                                                 27
the contract and its subsequent breach.”). The proper inquiry is whether the Techbase software
costs were made in reliance on the procedures promised by May 19, 1997 Equity Process
Agreement. See RESTATEMENT (SECOND) OF CONTRACTS § 344(b) (1981) (Damages may be
awarded to protect the “reliance interest” of a promisee, i.e., the “interest in being reimbursed for
loss caused by reliance on the contract by being put in as good a position as [it] would have been
in had the contract not been made.”).

       Therefore, allowing Chevron to allocate 100% of the Techbase software costs, without
consideration of the benefits that Chevron received in other zones would over-compensate
Chevron. Because the Government’s allocation depends on the monthly allocation ratio from the
Payroll and Benefits category, the parties agree that, using the Payroll and Benefit allocations in
Court Exhibit 10, the amount allocated to the Stevens Zone for the Techbase software should be
reduced by $203,180, and the amount allocated to the Carneros Zone should be reduced by $0.
Docket No. 413. Thus, Chevron’s claim for this category will be reduced by $203,180.

                               iv.    In-House Technical Consultants.

         The Government argued that Chevron’s 75.4% allocation of costs for in-house technical
consultants to the Stevens Zone is “is inconsistent with [Chevron’s] own supporting
documentation.” 12/6/13 Burzlaff Decl. ¶ 46. The Manager of Chevron’s consultant team
testified that they “kept track of their hours very accurately and . . . they would know exactly to
which zone each charge would apply.” 12/6/13 Burzlaff Decl. ¶ 44 (citing 5/3/11 Thakur Dep.
101–02 (stating that Chevron’s in-house consultants recorded this information on GO-113 Work
Orders). By examining the titles and work described, the Government argued that only 57% of
the total cost for the GO-113 Work Orders should be allocated to the Stevens Zone. 12/6/13
Burzlaff Decl. ¶ 45, Ex. K. In addition, “99 percent of the line items [in Chevron’s Native File]
for the work performed by consultants in 1999 are identified, in the ‘title’ field, as being incurred
in connection with the [Shallow Oil Zone].” 12/6/13 Burzlaff Decl. ¶ 47 (citing JE 1868
(5/26/11 Native File 3B)). Accordingly, the Government would allocate Chevron’s in-house
consultant costs for the Stevens Zone as follows: 50% for work from August 1997 through
October 1997; 100% for work from November 1997 through March 1998; and 10% for work
from April 1998 onward. 12/6/13 Burzlaff Decl. ¶ 48. In sum, the Government proposed that
Chevron’s claim for this category should be reduced by $789,451. 12/6/13 Burzlaff Decl. ¶ 49;
12/6/13 Riley Decl. ¶ 19, Ex. 3.

        Chevron responded that the GO-113 Work Orders “are unsigned drafts” that do not
necessarily reflect actual charges. 1/27/14 Stone Suppl. Decl. ¶ 19. In fact, the Work Orders “do
not show work being done in any zone after September 1998.” 1/27/14 Stone Suppl. Decl. ¶ 19
n.5. Although Chevron’s initial Shallow Oil Zone “kickoff” meeting was in November 1997,
Chevron postponed this work when the IPE’s November 4, 1997 Provisional Recommendation
for the Stevens Zone issued. 1/27/14 Stone Suppl. Decl. ¶ 19. Consequently, “Chevron’s
internal technical consultants were not able to begin substantial work on the [Shallow Oil Zone]
until after the first . . . interim meeting in September 1998.” 1/27/14 Stone Suppl. Decl. ¶ 19. 37


       37
        Chevron estimated that work by Chevron’s in-house consultants on the Shallow Oil
Zone was 50% in July 1998, increasing to 75% by January 1999, and 90% by January 2000.


                                                 28
Therefore, Chevron argues that it properly allocated these costs between the Stevens Zone and
the Shallow Oil Zone; and is entitled to $3,747,712 for technical work on the Stevens Zone.

       Although the GO-113 Work Orders may not accurately reflect Chevron’s costs for in-
house consultants, Chevron has the burden to establish these costs with reasonable certainty. See
RESTATEMENT (SECOND) OF CONTRACTS § 352 (1981) illus. 3 (“[Plaintiff] can recover the
[amount] that he has spent in reliance. He must, however, then prove that amount with
reasonable certainty.”). Mr. Stone’s post-hoc explanation, however, failed to do so. 12/6/13
Riley Decl. ¶ 13 (noting that allocating costs based on Mr. Stone’s chronology was
“inconsistent” with Mr. Thakur’s explanation of the GO-113 Work Orders) (citing 5/3/11 Thakur
Dep. 14, 59–60). For this reason, Chevron’s claim will be reduced by $789,451 for this
category.

                              v.     Miscellaneous Expenses.

        Chevron’s claim included $57,859 in miscellaneous expenses for the Stevens and
Carneros Zones. 1/27/14 Metcalfe Ex. 1; 12/6/13 Riley Decl. Ex. 4.1. Because Chevron
allocated these expenses based on an average allocation of other categories, the Government’s
recommended adjustments to those other categories would necessitate a reduction of $2,826 to
Chevron’s Miscellaneous Expenses claim. 12/6/13 Riley Decl. ¶ 20 and Ex. 3. Chevron did not
object, other than to dispute that “cost items of less than $10,000 each” does not overcome the
assumption “that the process for making the assignments was reasonable and resulted in
reasonably certain amounts for the categories identified by the [c]ourt.” 1/27/14 Stone Suppl.
Decl. ¶ 18.

       The court has determined Chevron is entitled to $55,033 for this category, reflecting a
$2,826 reduction. 38

                              vi.    Legal Costs.

        The Government argued that Chevron’s allocation of legal costs also is biased in favor of
the Stevens Zone. 39 12/6/13 Burzlaff Decl. ¶ 53. Specifically, four invoices from the law firm
of Fried Frank, in the amount of $282,171, “should, but do not, include allocations to the [other
three zones],” because during the relevant time period Chevron’s lawyers were working on legal
issues applicable to all four zones. 12/6/13 Burzlaff Decl. ¶¶ 51–52. In addition, the Fried Frank
invoices do not provide any chronology or itemized description of services performed. 12/6/13

1/27/14 Stone Suppl. Decl. ¶ 19. But, these costs are not recoverable. See Chevron III, 110 Fed.
Cl. at 803.
       38
          Exhibit 3.1 to the 12/6/13 Riley Declaration allocated $55,034 to the Miscellaneous
Expenses category, presumably due to differences attributable to rounding. See 12/6/13 Riley
Decl. Ex. 3.1 (combining $54,847 for the Stevens Zone with $186 for the Carneros Zone).
       39
          The Government pointed out that several invoices also were misallocated during Mr.
Stone’s deposition; but Chevron subsequently corrected these “insignificant” amounts. 12/6/13
Burzlaff Decl. ¶ 53.



                                               29
Burzlaff Decl. ¶ 51 (noting that the only chronology available was identification of “legal-related
activities” from the Equity Finalization Chronology (JE 17)). As a result, Chevron’s costs for
this category should be reduced by $126,420. 12/6/13 Burzlaff Decl. ¶ 54; 12/6/13 Riley Decl.
¶ 20 and Ex. 3.
        Chevron responded that, because “[t]he value of the Stevens Zone was about 98 percent
of the combined value of the [other three zones],” it was reasonable to assign all of Chevron’s
legal costs to the Stevens Zone, because “Chevron would have incurred the same costs on these
issues for the Stevens Zone alone.” 1/27/14 Stone Suppl. Decl. ¶ 19. In addition, Mr. Burzlaff
had no basis for assigning 60% of these legal costs to the Shallow Oil Zone. 1/27/14 Stone
Suppl. Decl. ¶ 19.
        Furthermore, Chevron allocated all legal costs to the Stevens Zone, because the May 19,
1997 Decoupling and Equity Process Agreements were required before Chevron would resume
equity finalization for the Stevens Zone. 1/27/14 Stone Suppl. Decl. ¶ 19. Both of these
agreements, however, applied to all four zones. See 12/6/13 Riley Decl. ¶ 21 and Ex. 3
(allocating legal costs); 1/27/14 Stone Suppl. Decl. ¶ 19 (acknowledging that the May 19, 1997
Decoupling and Equity Process Agreements “applied to all four zones”).
       Moreover, as a matter of law, the United States Court of Appeals for the Federal Circuit
has held that speculative damages are not recoverable; in this instance, an invoice, without any
description of services, is insufficient to meet Plaintiff’s burden. See Ind. Mich. Power, 422 F.3d
at 1373 (precluding recovery of “speculative damages”); see also Glendale Fed. Bank, 378 F.3d
at 1311–12 (holding that establishing damages “is a matter of proof; if too speculative, it can and
should be denied as the burden lies with the plaintiff to establish its damages”).
       For these reasons, the court has determined that Chevron’s claim will be reduced by
$126,420.

               2.     As To Other Costs Claimed.
                      a.      Summary Of The Government’s Argument.
        At trial, one of the Government’s expert damage witnesses initially proposed a $24
million offset, reasoning that is the amount that Chevron would have spent “but for” the
Government’s breaches. Chevron III, 110 Fed. Cl. at 805. The court rejected that approach,
because it was based on a misperception of the relevant theory underlying reliance damages. See
id. (“[E]stablishing that Chevron retained some benefit is not a sufficient basis to establish an
offset in a sum certain, a fact that the Government’s damage expert recognized.” (emphasis in
original)); see also 12/6/13 Riley Decl. ¶ 29 n.8. Post-trial, the Government took a different
approach and advised the court that the following other costs claimed by Chevron should be
excluded or reduced:
       (1) Unsupported transactions, acknowledged by Chevron and Mr. Metcalfe;
       (2) Improper inclusion of fixed costs unrelated to equity finalization in the CVX Internal
           Technical Consultants category;
       (3) Improper inclusion of accrued benefit costs unrelated to equity finalization; and


                                                30
        (4) Improper inclusion of costs related to sale.

12/6/13 Riley Decl. ¶ 28. 40

        Court Exhibit 11 summarizes these proposed adjustments: 41

Court Exhibit 11: Summary Of The Government’s Proposed Adjustments For Other
                   Specific Costs Claimed By Plaintiff.

                                                        Improper           Improper
                  Unsupported          Improper      Inclusion Of        Inclusion Of
                   Transaction      Inclusion Of         Accrued        Costs Related
Category                 Costs       Fixed Costs     Benefit Costs            To Sale           Total
Company                        $0              $0        ($1,102,362)              $0    ($1,102,362)
Payroll &
Benefits
Other Labor          ($964,138)                $0                 $0            ($70)      ($964,208)
Related
External Non-        ($209,433)                $0                 $0        ($10,951)      ($220,384)
Legal
Professional
and Labor
In-House                       $0   ($1,615,264)                  $0               $0    ($1,615,264)
Technical
Consultants
Miscellaneous                  $0              $0                 $0               $0               $0
Legal Costs           ($20,900)                $0                 $0               $0       ($20,900)
Total              ($1,194,471)     ($1,615,264)         ($1,102,362)       ($11,021)    ($3,923,118)
Source: 12/6/13 Riley Decl. Ex. 4.2 ¶ 28, Riley, 6/3/11 TR 1110−34; see also 6/3/11 TR 1110–34
(describing Mr. Musika’s two-part analysis); 6/3/11 TR 1121–31 (describing the five categories); 3/3/14
Riley Suppl. Decl. Ex. 3 n.1.

        40
           Mr. Musika’s “Systems Analysis” and “Transaction Analysis” were not addressed by
Chevron’s final damages claim, because Chevron did not produce the necessary itemized
financial information. 12/6/13 Riley Decl. ¶ 26. “Deficiencies in Chevron’s claimed support”
originally identified by Mr. Musika, however, were corrected by Chevron. 12/6/13 Riley Decl.
¶ 29 n.8; see also 12/6/13 Riley Decl. Ex. 1 (itemizing corrections Chevron made in response to
Mr. Musika’s analysis).
        41
           All but $1 of the adjustments recommended by Mr. Musika are deductions to
Chevron’s allocated costs for the Stevens Zone. Compare 12/6/13 Riley Decl. Ex. 4.3
(quantifying $3,938,177 in deductions for the Stevens Zone), with id. Ex. 4.4 (identifying $1 in
additions for the Carneros Zone).


                                                    31
                        b.      Summary Of The Plaintiff’s Response.

       Chevron’s general response to these proposed adjustments previously has been discussed
and objections to specific categories are discussed in the court’s analysis that follows.

                        c.      The Court’s Analysis And Resolution Of Other Specific Costs.

                                i.      Unsupported Transactions.

      The Government argued that many of the costs claimed by Chevron had no supporting
documentation, as Court Exhibit 12 shows.

Court Exhibit 12:            The Government’s Proposed Adjustments For Unsupported
                             Transactions.

                                              Stevens Zone          Carneros Zone              Total
Legal Costs
 Total                                    $        4,121,021 $               443,585 $         4,564,606
 Supported                                         4,100,121                 443,585           4,543,706
   Not Supported                          $             20,900 $                0       $         20,900

External Non-Legal Prof & Labor
 Total                                    $        2,935,430 $                28,522 $         2,963,952
 Supported                                         2,725,996                  28,523           2,754,519
   Not Supported                          $          209,434 $                  (1)     $        209,433

 Other
   Total                                  $        1,627,683 $                  0       $      1,627,683
   Supported                                         663,545                    0                663,545
    Not Supported                         $          964,138 $                  0       $        964,138

Total
 Total                                    $        8,684,134 $               472,107 $         9,156,241
 Supported                                         7,489,662                 472,108           7,961,770
   Not Supported                          $        1,194,472 $                  (1)     $      1,194,471
Source: 12/6/13 Riley Decl. ¶ 30 & n.9 (citing JE 1871), ¶ 31, Exs. 4.2 and 4.5; 3/3/14 Riley Suppl. Decl.
Ex. 3 n.1.




                                                   32
       Chevron countered that Ms. Riley’s approach was “flawed in that[,] rather than analyzing
the overall support provided by all of the available information, she proposes to reduce
Chevron’s claimed costs based on individual transactions that she deems as imperfectly
supported.” 1/27/14 Metcalfe Suppl. Decl. ¶ 18. Deducting costs for intercompany or small-
dollar transactions for lack of support is unreasonable, because, “it would simply be too
burdensome to retrieve all of the related supporting documentation” or where “one would not
expect to find the type of ‘support’ she demands.” 1/27/14 Metcalfe Suppl. Decl. ¶ 18.
Secondary documentation supports 86% of Chevron’s claim, which is higher than that of many
spent nuclear fuel cases. 1/27/14 Metcalfe Suppl. Decl. ¶¶ 19–20.

        It is well established that all costs claimed must have supporting documentation. See Ind.
Mich. Power, 422 F.3d at 1373 (precluding recovery of “speculative damages”). Moreover,
these transaction costs are not, as Chevron suggests, simply small-dollar or de minimis amounts.
For these reasons, the court has determined that Chevron’s claim will be reduced by $1,194,471.

                              ii.    Improper Fixed        Costs   Not    Related    To   Equity
                                     Finalization.

        The Government also argued that, but for the Elk Hills equity finalization, Chevron
nevertheless would have incurred a portion of the fixed costs of the Energy Technology Group. 42
12/6/13 Riley Decl. ¶¶ 33–34. According to Chevron’s internal policies and procedures, “key
cost components included in the standard rates developed by the [Energy Technology Group] to
be charged to other Chevron programs included payroll costs, office rent, computers and
software, telecommunications and network connectivity, material and supplies, general travel
costs, the president, planning, human resources, and finance.” 12/6/13 Riley Decl. ¶ 33 (citing
CVXD5238–CVXD5247 (6/6/05 Chevron ETC Labor Rates); 6/3/11 TR 1124–26. In addition,
but for the Elk Hills equity finalization, Chevron would have re-tasked the Energy Technology
Group to other projects. 12/6/13 Riley Decl. ¶ 33 (citing 5/3/11 Thakur Dep. 60–62).

         The Government calculated that 43.1% of the fixed costs of Chevron’s Energy
Technology Group “would have existed even without the Elk Hills equity finalization process.”
12/6/13 Riley Decl. ¶ 34. This amount was ascertained by comparing the rate of the most senior
Chevron employee assigned directly to the Elk Hills project (Mr. Stone at $91 per hour) with the
rate of the highest Energy Technology Group employee (approximately $55 per hour). 43 12/6/13
Riley Decl. ¶ 34 (citing JE 1911 ¶ 18 (6/1/11 Musika Decl.)).

       As Court Exhibit 13 shows, the Government proposed that Chevron’s claim for Internal
Technical Consultants be reduced by 43.1% or $1,615,264.

       42
         The Energy Technology Group is also referred to as the Chevron Petroleum
Technology Company or the CVX Internal Technical Consultants. 12/6/13 Riley Decl. ¶ 33.
       43
           Mr. Stone’s $91 per hour rate represents 56.9% of the services rendered by the Energy
Technology Group, so that the inverse percentage, 43.1%, represents the fixed costs, or the
“[Group’s] costs over and above the employee’s salary and benefit costs.” 12/6/13 Riley Decl.
¶ 34 (citing JE 1911 ¶ 18 (6/1/11 Musika Decl.)).



                                               33
Court Exhibit 13:        The Government’s Proposed Adjustment For Internal Technical
                         Consultants.
                                                                 Stevens Zone       Carneros Zone
Total CVX Internal Technical Costs                                $   3,747,712 $           -
Adjustment of Labor Rate for Removal of Resources Costs                     43.1%           43.1%
Adjustment to Claimed Costs                                       $   1,615,264 $           -
Source: 12/6/13 Riley Decl. ¶ 34, Exs. 4.2 and 4.6.

        Chevron responded that, in spent nuclear fuel cases, “it is typical for an internal group to
include overhead in its charging process, in exactly the way that [Chevron’s Energy Technology
Group] [is] billing here.” 1/27/14 Metcalfe Suppl. Decl. ¶ 22 (citing Bos. Edison Co. v. United
States, 658 F.3d 1361, 1370 (Fed. Cir. 2011) (affirming the award of “overhead costs associated
with the procurement of materials and capital expenditures” related to the Government’s breach
of its contractual obligation to collect nuclear waste)). For this same reason, these overhead
costs were billed to DOE by Mr. Burzlaff’s firm. 1/27/14 Metcalfe Suppl. Decl. ¶ 23.
Therefore, as part of Chevron’s award, it should receive $3,747,712 for the amount that Chevron
saved not hiring outside consultants. 1/27/14 Metcalfe Suppl. Decl. ¶ 24.

        In the court’s judgment, it was foreseeable that Chevron’s Energy Technology Group
would be required to conduct equity finalization. If the Group had been assigned to other
projects, presumably it would have contributed to profitable work and Chevron would have
received a reasonable a return for this work product. See Cyberchron Corp. v. Calldata Sys.
Dev., Inc., 47 F.3d 39, 46 (2d Cir. 1995) (allowing plaintiff to recover “reasonable overhead
costs when it is shown that there is a demonstrable past history of ongoing business operations,
without requiring proof that a specific alternative project would have absorbed the overhead
costs at issue” (footnote omitted)); see also Autotrol Corp. v. Cont’l Water Sys. Corp., 918 F.2d
689, 694–95 (7th Cir. 1990) (allowing plaintiff to recover overhead costs on a reliance theory,
where the plaintiff established “a reasonable probability” that the overhead costs would have
been covered with another contract if the breached contract never occurred).

        Since Chevron would have incurred these overhead costs to avoid the more expensive
alternative of retaining outside consultants, Chevron is entitled to recover internal technical
consultant costs.

                                iii.    Accrued Benefit     Costs     Not    Related   To       Equity
                                        Finalization.

       In addition, the Government argued that four categories of employee benefits paid by
Chevron, stock plan, savings plus plan, OPEB [Other Post-Employment Benefits] Cash, and
OPEB non-cash, should not be allocated to all employees who worked on the Stevens Zone.
12/6/13 Riley Decl. ¶ 37 (citing JE 1911 ¶ 20 (6/1/11 Musika Decl.)).

       Chevron responded that its Stevens Zone payroll reflected accrued benefits paid. 1/27/14
Metcalfe Suppl. Decl. ¶ 26 (“Chevron’s method to apply payroll burdens to its personnel is


                                                      34
consistent with that of many organizations I have seen throughout my career.”). As to the
specific benefits contested by the Government, Mr. Metcalfe confirmed that Chevron’s personnel
“actually do receive” these benefits. 1/27/14 Metcalfe Suppl. Decl. ¶ 27 (“[S]tock options are
not included in that benefit burden, and are not included in the amounts in total, and therefore
should not be deducted.”) (citing 6/1/11 TR 403–07 (Melton); 6/3/11 TR 1227–30 (Metcalfe)).

        The court has determined that the $1,102,362 in accrued benefit costs claimed by
Chevron and contested by the Government are typical and appropriate costs that have been
identified with reasonable certainty. See Sys. Fuels, Inc. v. United States, 79 Fed. Cl. 37, 65–66
(2007) (“The payroll loader associated with employee benefit costs is for the most part a proper,
directly allocable component of the internal labor costs for the mitigation activities, as the
[G]overnment concedes.”), aff’d in part and rev’d in part, 457 F. App’x 930 (Fed. Cir. Jan. 19,
2012). Therefore, Chevron is entitled to recover these accrued benefit costs.

                              iv.    Other Costs Not Related To Equity Finalization.

        At the liability trial, the Government proposed to deduct other costs claimed by Chevron
that were not related to equity finalization. 6/11/11 Musika Decl. ¶ 21 (JE 1911). After
reviewing Chevron’s revised damages claim, the Government found that Chevron still claimed
$15,094 that should be excluded. 12/6/13 Riley Decl. ¶ 38 (citing JE 1718 ¶ 18 (10/29/10 Stone
Decl.)).

       Chevron responded that it has accounted for all appropriate adjustments. 1/27/14
Metcalfe Suppl. Decl. Ex. 1 (reallocating $15,094 in costs for “Invotex Adjustment for Sales-
Related Costs” from the Stevens Zone to “Other”). Of this $15,094, Chevron subtracted $11,021
from its claim, but indicated that $4,073 was attributable to invoices outside the date court’s
allowable time period, and thus had not been included in Chevron’s original claim and did not
need to be deducted from Chevron’s claim. 1/27/14 Metcalfe Suppl. Decl. Ex. 1 (decreasing the
“Stevens Out of Date Range” category by $4,073). The Government agreed with this analysis.
3/3/14 Riley Suppl. Decl. Ex. 3 n.4; Docket No. 413.

       Accordingly, $0 will be deducted from Chevron’s claim.




                                               35
III.   SUMMARY OF COSTS AWARDED AS RELIANCE DAMAGES.

       A.       The Stevens Zone Equity Finalization.

       Court Exhibit 14 is a summary of Chevron’s January 27, 2014 revised Stevens Zone
claim and the court’s allocation and other specific cost adjustments.

Court Exhibit 14: Summary Of The Court’s Resolution Of Allocation And Other Specific
                  Costs—The Stevens Zone.

Cost             Chevron’s       The Court’s       The Court’s      The Court’s      Total Award
Category         1/27/14         “Allocation       “Other           Adjustments
                 Revised         Adjustments”      Adjustments”     To Avoid
                 Claim                                              Overlap 44

Company            $7,986,729     ($1,404,095)           $0              $0            $6,582,634
Payroll &
Benefits

Other Labor        $2,272,529       ($341,964)       ($964,138)         $161,082       $1,127,509

External Non-      $2,924,479       ($203,180)       ($209,434)          $1            $2,511,866
Legal
Professional
and Labor

Internal           $3,747,712       ($789,451)           $0              $0            $2,958,261
Technical
Consultants

Miscellaneous         $57,674         ($2,827)            -               -               $54,847
Expenses

Legal Costs        $4,131,585       ($126,420)          ($20,900)         $1,323       $3,985,588

TOTAL             $21,120,708     ($2,867,937)      ($1,194,472)        $162,406     $17,220,705

       For the above-stated reasons, the court has determined that Chevron is entitled to
$17,220,705 as reliance damages. It was foreseeable to the Government that these costs would
need to be incurred by Chevron to participate in the equity finalization of the Stevens Zone and
that Chevron would not have incurred these costs, if it had known that DOE would “repeatedly
and materially” violate the May 19, 1997 Equity Process Agreement, the July 8, 1996 contract

       44
         The court also made adjustments suggested by the Government to avoid any overlap
between the “allocation” and “other” adjustments. See 12/6/13 Riley Decl. ¶ 41 (explaining the
adjustments to avoid overlap); Docket No. 413.



                                              36
with the Equity IPE, as supplemented, to which Chevron was the direct and intended beneficiary,
and would continue to engage in ex parte communications to Chevron’s financial detriment in
violation of the covenant of good faith and fair dealing. In addition, the court is satisfied that
these costs have been verified to a reasonable degree of certainty,

       B.       The Carneros Zone Equity Finalization.

        Court Exhibit 15 is a summary of Chevron’s revised Carneros Zone claim and the court’s
allocation of cost adjustments and overlap adjustments.

Court Exhibit 15: Summary of The Court’s Resolution Of Allocation And Other Specific
                  Costs—The Carneros Zone.

Cost Category      Chevron’s     The Court’s  The Court’s           The Court’s      Total
                   1/27/14       “Allocation  “Other                Adjustments      Award
                   Revised       Adjustments” Adjustments”          To Avoid
                   Claim                                            Overlap

Company                  $0         $126,690                 $0               $0      $126,690
Payroll &
Benefits

Other Labor              $0           $7,427                 $0         ($2,696)         $4,731

External Non-       $28,522                $0                $1               $0        $28,523
Legal
Professional and
Labor

Internal                 $0                $0                $0               $0             $0
Technical
Consultants

Miscellaneous          $185                $1                 -                -           $186
Expenses

Legal Costs        $443,585                $0                $0               $0      $443,585

TOTAL              $472,292         $134,118                 $1         ($2,696)      $603,715

        For the above stated reasons, the court has determined that Chevron is entitled to
$603,175 as reliance damages. It was foreseeable to the Government that these costs would need
to be incurred by Chevron to participate in the equity finalization of the Carneros Zone and that
Chevron would not have incurred these costs if it had known that DOE would “repeatedly and
materially” violate the May 19, 1997 Equity Process Agreement, the July 8, 1996 contract with
the Equity IPE, as supplemented, to which Chevron was the direct and intended beneficiary, and
would continue to engage in ex parte communications to Chevron’s financial detriment in


                                                37
violation of the covenant of good faith and fair dealing. In addition, the court is satisfied that
these costs have been verified to a reasonable degree of certainty.

       C.      The Freedom Of Information Act Request And Related Proceedings.

       On January 7, 2003, Chevron sent DOE a Freedom of Information Act (“FOIA”) request
to obtain documents related to potential ex parte communications between DOE and the IPE.
Chevron III, 110 Fed. Cl. at 772, 804. On April 17, 2003, DOE released one redacted document.
Id. On December 23, 2003, DOE provided additional documents to Chevron. Id. On January
28, 2004, Chevron advised the ASFE that the disclosed documents evidenced DOE’s breach of
the May 19, 1997 Equity Process Agreement. Id. at 804. On February 19, 2004, Chevron filed a
second FOIA request for documents relating to the ASFE’s preparation of the Preliminary and
Final Decisions of the Dry Gas and Carneros Zones and any records discussing the involvement
of Ms. Egger. Id. at 772–73.

         Chevron has claimed $84,437 to prepare a January 7, 2013 FOIA request and related
proceedings. These costs were incurred from January 1, 2003, i.e.¸ six days prior to Chevron’s
January 7, 2003 FOIA request to DOE until January 28, 2004, i.e., the date of Chevron’s notice
letter to the ASFE. Pl. Suppl. Br. 2; 1/27/14 Metcalfe Suppl. Decl. Ex. 1. The Government did
not object to the costs incurred by Chevron to file and pursue its FOIA request, but reserved the
right to appeal. Gov’t Suppl. Resp. 4 n.1.

        For the above stated reasons, the court has determined that Chevron is entitled to $84,437
in costs incurred related to Chevron’s FOIA request.

IV.    SANCTIONS FOR THE GOVERNMENT’S “BAD FAITH” CONDUCT
       RELATING TO PRIVILEGE ASSERTIONS DURING DISCOVERY.

       After this case was filed, in response to Chevron’s document requests in this case, the
Government designated 35,919 pages as privileged. See Chevron III, 110 Fed. Cl. at 806. After
an extensive in camera review, issuance of twenty-two Orders, and review by the United States
Court of Appeals for the Federal Circuit, the court has determined that at least 42% of the folders
analyzed contained an improper assertion of privilege.

        Chevron has claimed $2,153,533 in legal costs from February 16, 2007, i.e., the date of
Chevron’s initial document request, to March 5, 2009, i.e., the date of the United States Court of
Appeals for the Federal Circuit’s decision in In re United States, 321 F. App’x 953. Pl. Suppl.
Br. 2; 1/27/14 Metcalfe Suppl. Decl. Ex. 1; see also 7/2/13 Metcalfe Suppl. Decl. ¶ 24 (itemizing
58% of Chevron’s legal costs during the relevant period). Forty-two percent of these legal costs
would be $904,483. The Government did not object to these legal costs incurred by Chevron,
but reserved the right to appeal. Gov’t Suppl. Resp. 4 n.1.

         The United States Court of Appeals for the Federal Circuit has held a court has “the
ability to ‘fashion an appropriate sanction for conduct which abuses the judicial process.’” Nat’l
Org. of Veterans Advocates, Inc. v. Sec’y of Veterans Affairs, 710 F.3d 1328, 1335 (Fed. Cir.
2013) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 44–45 (1991)). Moreover, the United
States Supreme Court historically has held that a federal trial court has the inherent power to
award attorneys’ fees as a sanction. See Chambers, 501 U.S. at 45. Although a federal trial


                                                38
court has discretion to impose sanctions in its court’s inherent powers, it may not circumvent the
Federal Rules of Civil Procedure. See Bank of Nova Scotia v. United States, 487 U.S. 250, 254
(1988) (holding that a trial court may not circumvent a clear mandate of applicable federal rules).

        Rule 37 of the United States Rules of the Court of Federal Claims (“RCFC”) provides for
sanctions, if a party fails to make a required disclosure. See RCFC 37(a)(3)(A), (a)(5); see also
Ingalls Shipbuilding, Inc. v. United States, 857 F.2d 1448, 1450 (Fed. Cir. 1988) (“[Rule 37]
provides the . . . [c]ourt with an arsenal of discovery sanctions designed to discourage dilatory
practices and encourage full disclosure of relevant information prior to trial.”). In addition,
RCFC 37(a)(5) authorizes the court to require a party to pay reasonable expenses incurred to
compel disclosure from another party. 45 See Ingalls Shipbuilding, 857 F.2d at 1450 (“The
decision whether to impose discovery sanctions rests within the sound discretion of the trial
court.”); see also Willhite v. Collins, 459 F.3d 866, 870 (8th Cir. 2006) (“[A]n award of
attorneys’ fees is permissible under a court’s inherent powers as long as the person being
sanctioned has demonstrated bad faith.”); Harlan v. Lewis, 982 F.2d 1255, 1260 (8th Cir. 1993)
(holding that bad faith implicitly was established where a party engaged in intentional disruption
of discovery process).

       As the court previously stated:

       Although Chevron was able to fund the costs to ascertain whether the
       Government’s privilege assertions were legitimate in this case, most litigants
       cannot afford such protracted discovery battles. In addition, the collateral
       discovery proceedings delayed the trial in this case by four years and imposed
       significant, unnecessary costs on Chevron, as well as the court. . . . [T]he United
       States Court of Appeals for the Federal Circuit described “bad faith” conduct in
       words that express the court's view about this case:

                 Indeed, to say that the counsel’s conduct during discovery raises
                 the collective eyebrow of this court would be to understate the
                 severity of their transgressions. Counsel’s tactics during discovery
       45
            RCFC 37(a)(5)(A) states, in part, provides:

       [T]he court must, after giving an opportunity to be heard, require the party or
       deponent whose conduct necessitated the motion [to compel disclosure], the party
       or attorney advising the client, or both to pay the movant’s reasonable expenses
       incurred in making the motion, including attorney’s fees. But the court must not
       order this payment if:

       (i) the movant filed the motion before attempting in good faith to obtain the
       disclosure or discovery without court action;

       (ii) the opposing party’s nondisclosure . . . was substantially justified; or

       (iii) other circumstances make an award of expenses unjust.

RCFC 37(a)(5)(A).


                                                 39
              evinced a brazen disregard for the legal process. Throughout
              discovery, counsel’s strategy consisted of efforts to obfuscate,
              cover-up, and subvert evidence that was properly discoverable and
              responsive to [plaintiff’s discovery] requests.

       Federal trial courts necessarily tend to trust the parties’ counsels’ assertion of
       privilege, as officers of the court. But, when that trust is misplaced, appropriate
       consequences should follow. The court has determined that DOE and
       Government discovery tactics as to privileged documents in this case constitute
       “bad faith” conduct.

Chevron III, 110 Fed. Cl. at 807 (alteration in original) (quoting Advanced Display Sys.,
Inc. v. Kent State Univ., 212 F.3d 1272, 1288 (Fed. Cir. 2000)).

       For the aforementioned reasons, the court has determined that Chevron is entitled to
$904,483, as a sanction for the Government’s “bad faith” conduct related to privilege assertions
during discovery.

V.     CONCLUSION.

        For the reasons discussed in Chevron III and herein, the Clerk of the Court is ordered to
enter judgment in favor of Chevron in the amount of $18,813,340.

       IT IS SO ORDERED.
                                                    s/ Susan G. Braden
                                                    SUSAN G. BRADEN
                                                    Judge




                                               40
