United States v. TDC Management Corp.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 8, 2002 Decided May 3, 2002

No. 01-5150

United States of America,

Appellee

v.

TDC Management Corporation, Inc. and

T. Conrad Monts,

Appellants

Appeal from the United States District Court

for the District of Columbia

(No. 89cv01533)

Stephen L. Braga argued the cause for appellants. With

him on the briefs was Mark A. Miller.

Michael D. Taxay, Attorney, U.S. Department of Justice,

argued the cause for appellee. With him on the brief were

Roscoe C. Howard, Jr., U.S. Attorney, Douglas N. Letter, and

Michael F. Hertz, Attorneys, U.S. Department of Justice.

Before: Ginsburg, Chief Judge, Rogers and Garland,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge: This case is before the court for a

second time. In the first appeal, the court reversed in part

the grant of summary judgment to TDC Management Corpo-

ration, Inc. and its president, Theodore Monts. The court

held that the decision of the Department of Transportation

Board of Contract Appeals ("the Board") on TDC's appeal

from cost disallowances collaterally estopped the government

from relitigating the accuracy of TDC's monthly progress and

expenditure reports, but did not estop the government from

bringing False Claims Act charges based on information that

was omitted from those reports. United States v. TDC

Mgmt. Corp., 24 F.3d 292 (D.C. Cir. 1994) ("TDC I"). In this

second appeal, from the grant of summary judgment to the

government, TDC contends correctly that the district court

erred by granting preclusive effect to factual findings by the

Board. This contention is waived, however, because TDC did

not raise it in the district court and no occasion is presented

for the exercise of our discretionary review in order to

prevent a manifest injustice. Accordingly, because TDC's

other challenges are unpersuasive, we affirm.

I.

The background to this appeal appears in TDC I. Suffice it

to say, the litigation arose in connection with a Demonstration

Bonding Program ("Program") of the Urban Mass Transit

Authority ("UMTA") of the Department of Transportation.

The Program was designed to assist minority enterprises in

securing bonding from sureties when bidding on large trans-

portation construction projects. TDC I, 24 F.3d at 294.

TDC agreed to identify private investors willing to provide

collateral and management assistance to the minority enter-

prises in return for a share of the profits; for its part, UMTA

agreed to match the collateral that investors provided. Id.

By the terms of the Program, TDC was to serve as ombuds-

man between the parties, with no financial interest in Pro-

gram operations. Id. On July 6, 1983, TDC and UMTA

entered into a cost-reimbursement contract in which TDC

was to use its "best efforts" to locate investors and sureties

and obtain their tentative agreement to participate in the

Program. Id. at 296.

When the Program failed to progress as expected, UMTA

terminated the contract for convenience and disallowed nearly

half of TDC's claimed contract-related expenses, which to-

taled $928,916. Id. at 296. TDC appealed to the Board.

Before the Board rendered its decision, the United States in

May 1989 sued TDC under the False Claims Act, 31 U.S.C.

s 3729 (1982), for misrepresenting its actual progress in its

monthly reports to UMTA and concealing deviations from the

Program terms. Id. The Board ruled in TDC's favor and

reversed the disallowances, finding that TDC had not breach-

ed the contract for nonperformance and that its monthly

reports had notified UMTA of the categories and types of

expenses that UMTA sought to disallow. Id. Viewing its

jurisdiction under the Contract Dispute Act, 41 U.S.C. s 605,

as limited to the costs that had been disallowed by the

contracting officer, the Board declined to consider UMTA's

claim that TDC was not entitled to any monies under the

contract due to fraudulent omissions. Id. at 295. The

Board's decision was affirmed by the United States Court of

Appeals for the Federal Circuit. Skinner v. TDC Mgmt.

Corp., 975 F.2d 869 (Fed. Cir. 1992) (unpublished order).

Based on the collateral estoppel effect of the Board's

findings, TDC moved on April 19, 1991, for summary judg-

ment on the False Claims Act charges. TDC I, 24 F.3d at

294. The district court granted the motion on August 17,

1992. Following a partial reversal by this court in TDC I on

June 3, 1994, the district court on remand granted the

government's motion for summary judgment on March 29,

2000, and on February 6, 2001, awarded the government

damages. On April 10, 2001, the district court denied TDC's

motion and granted the government's cross-motion, pursuant

to Fed. R. Civ. P. 60, to clarify or correct the judgment.

II.

On appeal, TDC challenges the grant of summary judg-

ment on several grounds, only one of which requires extended

discussion. That contention is that the district court relied on

an erroneous application of the doctrine of collateral estoppel.

A.

On remand, the district court ruled that collateral estoppel

prevented TDC from relitigating factual issues decided by the

Board with regard to omissions in TDC's monthly reports

because "the issue of omissions was squarely addressed by

the Board in its prior review of the contract termination."

Remand Opinion at 7. Relying on the Board's findings, the

district court concluded there were no genuine issues of fact

with regard to the alleged omissions. Id. at 14. The district

court recited at length the Board's findings that TDC had

departed from the terms of the Program by, inter alia: (1)

planning to use interest generated by short-term investment

of the UMTA contribution to underwrite the costs of provid-

ing services to disadvantaged business enterprises; (2) pro-

posing to investors that such businesses be charged a 3% fee

for management services; and (3) intentionally failing to

disclose to UMTA its plans to hold a financial stake in

Program operations in order to keep UMTA from learning of

activities that it would insist be terminated; and that with

such investment TDC could no longer act objectively as

ombudsman for the Program. On the basis of the Board's

findings, the district court concluded that the omissions were

either intentional or resulted from reckless disregard of the

Program terms, causing the monthly reports submitted by

TDC in support of its invoices for payment to be false. In

granting summary judgment to the government on liability,

the district court also relied on the unrebutted declarations of

UMTA officials, including that of UMTA Administrator Ralph

L. Stanley stating that had he known that TDC or Monts

tried to obtain an equity stake or other financial interest in

the Program, he would have directed that the contract be

immediately terminated for cause. The district court thus

found that the omissions were material because had UMTA

known of the omitted information, it would have either re-

quired TDC to cease those activities or terminated the con-

tract for cause. Id. at 15.

In TDC I, this court explained that a party is not collateral-

ly estopped from relitigating a disputed issue of fact unless

that issue "was actually litigated and necessarily decided by a

final disposition on the merits." 24 F.3d at 295; see also

Nasem v. Brown, 595 F.2d 801, 805 (D.C. Cir. 1979); 18

Charles Alan Wright & Arthur R. Miller, Federal Practice

and Procedure s 4421 (1981); id. s 4475 at 764-70. Or, as

stated in the Restatement (Second) of Judgments s 27 (1982),

a prior determination can only preclude relitigation of the

same issue if it was "essential to the [prior] judgment." TDC

prevailed before the Board and was awarded $778,613 for

expenses incurred under the contract. TDC I, 24 F.3d at 294.

The Board found that "[t]here [was] no evidence in the record

that the Program failed for any reason other than [UMTA]

electing not to fund the balance of the contract, but to

terminate TDC's performance." Board Opinion at 133.

Thus, TDC maintains, the Board's findings regarding the

omissions in TDC's progress reports were not necessary to

the result that the Board ultimately reached, and a factual

finding by the Board that is adverse to the prevailing party

cannot be "essential to the judgment" because by definition it

could not have affected the outcome of the case. TDC

contends, therefore, that in considering TDC to be bound by

the Board's findings regarding the omissions, the district

court plainly erred.

In TDC I, this court stated that the Board "expressly

reserved for the district court the legal determination of

whether TDC's failure to report its financial stake in Program

operations constituted fraud," and that "[i]n disposing of

TDC's contract claim, the Board made no necessary findings

about UMTA's reliance on TDC's reports." TDC I, 24 F.3d

at 296. Notwithstanding the instruction in TDC I and what

TDC now correctly contends is clear error by the district

court, TDC did not alert the district court to its error. On

remand, TDC never argued that it should not be precluded

from relitigating UMTA's reliance on the omissions because

those findings were not necessary to the Board's decision.

Rather, as the district court noted, in opposing the govern-

ment's motion for summary judgment TDC "fail[ed] to ad-

dress, let alone dispute, the collateral estoppel effect of the

[Board's] opinion with regards to omissions from its monthly

reports to UMTA. Instead, TDC suggest[ed] that the False

Claims Act claim based on omissions [wa]s a new claim which

require[d] further discovery." Remand Opinion at 6. Nor

in its motion for clarification under Rule 60 did TDC argue

that the district court's collateral estoppel ruling as to the

omissions was erroneous. On appeal, TDC points to nothing

that would indicate that it presented an appropriate objection

in the district court. TDC suggests, for example, that in

opposing the government's motion for summary judgment,

TDC identified several factual issues relating to the omissions

that would be inconsistent with the application of collateral

estoppel; again, however, the record shows that TDC was

addressing the issue of whether TDC's omissions were mate-

rial, i.e., whether UMTA relied on TDC's monthly reports,

and not whether it was appropriate to afford collateral estop-

pel effect to the Board's findings. To the extent that TDC

now focuses on the salient error, it argues that the issue of

collateral estoppel vel non was placed squarely before the

district court in the government's motion for summary judg-

ment. But as the district court's opinion makes clear, this is

hardly the same as joining the government's argument on

collateral estoppel. TDC itself moved for summary judgment

on the basis of the collateral estoppel effect of the Board's

findings; further, it argued in opposing the government's

calculation of damages that collateral estoppel operated in

TDC's favor, on the ground that the Board had already

determined the government could not prove that TDC's ac-

tions were the proximate cause of the Program's demise.

Thus, far from challenging the district court's application of

collateral estoppel in its liability determination, TDC's argu-

ment reinforced the notion that the district court's invocation

of the doctrine was appropriate. TDC's reliance on Butera v.

District of Columbia, 235 F.3d 637, 645 n.6 (D.C. Cir. 2001),

and AFGE v. FLRA, 841 F.2d 1165, 1168 (D.C. Cir. 1988), is

misplaced; in Butera, the court addressed only those issues

raised in the district court, and in AFGE the court bound the

FLRA to the implicit premise of its argument in the district

court. Here, by contrast, TDC neither explicitly nor implicit-

ly raised a "necessity" argument in the district court. We

hold that TDC, therefore, has waived the contention that the

district court erred in ruling that TDC was precluded from

relitigating UMTA's reliance on the omissions in TDC's

monthly reports.

B.

The question remains whether this court should exercise its

discretion to consider TDC's contention notwithstanding its

waiver. In District of Columbia v. Air Florida, 750 F.2d

1077 (D.C. Cir. 1984), the court stated the general rule: "It is

well settled that issues and legal theories not asserted at the

District Court level ordinarily will not be heard on appeal."

Id. at 1084-85. The Supreme Court has long instructed,

however, that appellate courts must "not lose sight of the fact

that such appellate practice should not be applied where the

obvious result would be a plain miscarriage of justice." Hor-

mel v. Helvering, 312 U.S. 552, 558 (1941). In United States

v. Atkinson, 297 U.S. 157 (1936), the Supreme Court de-

scribed "exceptional circumstances" when appellate courts on

their own motion may, in the public interest, "notice errors to

which no exception has been taken, if the errors are obvious,

or if they otherwise seriously affect the fairness, integrity, or

public reputation of judicial proceedings." Id. at 160.

This court thus acknowledged in Air Florida that in "ex-

ceptional circumstances, where injustice might otherwise re-

sult, we have the discretion to consider questions of law that

were neither raised below nor passed upon by the District

Court." 750 F.2d at 1085. In that case, reviewing dismissal

of a complaint for failure to state a cause of action, the court

declined to exercise its discretion because to do so would have

engaged the court in deciding whether to create new federal

common law where the United States was not a party to the

case and Congress may have preempted some or all of the

field. Id. at 1085-86. On the other hand, in Mulligan v.

Andrews, 211 F.2d 28 (D.C. Cir. 1954), the court exercised its

discretion to depart from the general rule; in that case the

loss of the plaintiff's livelihood was at issue due to what he

claimed was his unlawful removal from the classified Civil

Service, and the court deemed that an "injustice might other-

wise result" if the court did not consider whether his employ-

er had failed to comply with the statutory requirement that

written reasons be given for his removal. Id. at 29.

TDC accordingly asserts in its brief that "[s]omething went

horribly wrong here to turn this case upside down from [the]

point" where TDC prevailed before the Board, and "it is up to

this Court to correct that wrong." Appellant's Br. at 16. In

support of its position, TDC makes two arguments why this

court should address its collateral estoppel contention: first,

the issue is purely a question of law subject to de novo

review; and second, "the district court's error was plain -- if

not egregious," as the overwhelming weight of authority

demonstrates that collateral estoppel operates in only one

direction. Reply Br. at 14. However, these reasons sweep

far too broadly and address only some of the relevant consid-

erations. Neither of TDC's arguments necessarily demon-

strates that a manifest injustice will occur unless this court

addresses the "necessity" of the Board's findings to its hold-

ing and remands the case for a trial. Although TDC's

counsel may have failed to alert the district court to an

obvious error, we decline to exercise our discretion for three

reasons.

First, culpability. The False Claims Act complaint alleged

that TDC's reports overstated its progress and failed to

disclose that, contrary to the Program terms, TDC sought to

obtain a financial interest in Program operations. See TDC I,

24 F.3d at 294. "The withholding of such information --

information critical to the decision to pay -- is the essence of

a false claim." Ab-Tech Constr., Inc. v. United States, 31

Fed. Cl. 429, 434 (1994). TDC does not contest that certain

information was not included in its progress reports and that

some of the omitted information would have revealed that

TDC was proposing to take an investor position in the

Program. TDC thus defrauded the government by present-

ing reports in support of payment that omitted information

indicating that it was acting in a manner that was contrary to

the core terms of the Program. Although TDC contends

there are material disputed issues regarding, for example,

UMTA's failure to make reasonable inquiries into TDC's

activities, changes that UMTA made to the Program mid-

stream, and the source of the proposals that TDC take equity

stakes in the joint ventures with private investors, the record

evidence remains dispositive. Likewise, TDC's contention

that it could not execute final agreements with investors or

sureties because only UMTA had that authority under the

terms of the Program is unavailing. TDC sought payment in

connection with its efforts to obtain agreements that were

contrary to Program terms. The undisputed evidence shows

there were omissions that UMTA officials deemed to be

material, and TDC presented no evidence to dispute UMTA

Administrator Stanley's declaration that he would have imme-

diately terminated the contract had he been aware of TDC's

unreported activities.

Second, prejudice to the government. The considerable

delay in this litigation creates problems with regard to wit-

nesses' memories and document retention regarding events

that occurred almost two decades ago. These problems

would presumably affect both parties at a trial. But they are

exacerbated for the government, for at oral argument the

parties informed the court of the death of Ralph L. Stanley.

Stanley's term as UMTA Administrator, from November 21,

1983 to May 31, 1987, spanned the period just after the

Program's inception in July 1983 until its termination in April

1985. He was directly in charge of what he described in his

April 1996 declaration as a "high priority project," and he

claimed in his declaration that he first learned at meetings

with Monts and TDC's legal consultant in December 1984 and

January 1985 that TDC was deviating from the Program in

significant ways. Although other UMTA officials were in-

volved in the management of the Program, Stanley was the

person in charge and, due to his death, there would be

obvious prejudice to the government at a trial.

Third, TDC recovered its contract costs. Pursuant to the

Board's decision, TDC recovered $778,613 of the $928,916

that it claimed over the life of the contract as "allowable,

allocable, and reasonable" costs associated with its work on

the Program. TDC I, 24 F.3d at 294; see Skinner, 975 F.2d

at 869. Our holding does not disturb this result. Rather,

any False Claims Act damages awarded to the government

"would merely offset the payments to which the Board ...

has already determined TDC is entitled under the terms of

its UMTA contract." TDC I, 24 F.3d at 298. Under the

version of the False Claims Act then in effect, the govern-

ment recovered as damages a civil penalty of $2,000 for each

false claim plus twice the amount of damages sustained as a

result of the false claim and costs. 31 U.S.C. s 3729 (1982);

see also TDC I, 24 F.3d at 298. The district court found that

TDC filed 18 false payment vouchers due to material omis-

sions from January 4, 1984, until the Program's termination,

and entered judgment against TDC in the amount of

$1,285,198.31: doubling the $621,466.11 in vouchers paid by

the government plus $36,000 in penalties and $6,266.09 in

costs. Hence, although TDC will owe money to the govern-

ment, it does not face an exacerbated "triple" penalty, i.e., the

loss of its contract costs over and above what it owes as

damages under the False Claims Act.

In sum, in light of the undisputed record evidence of TDC's

culpability, the prejudice to the government, and TDC's re-

covery of its contract costs, remanding for a trial would

simply prolong the closure date of this litigation without, in

all likelihood, advancing the interests of either party. Ac-

cordingly, we decline to exercise our discretion to address the

collateral estoppel contention that TDC waived.

III.

We address briefly TDC's two other contentions, regarding

damages and Monts' liability.

A.

TDC contends that in light of the Board's ruling, the

government's net damages were zero because it "got what it

paid for" under the "best efforts" agreement. TDC further

contends that the government failed to prove that TDC

proximately caused its damages because it may have termi-

nated the contract for reasons unrelated to the omissions in

the progress reports, and that at the very least, an evidentia-

ry hearing into the causation issue was required. These

claims are meritless.

The Supreme Court pointed out long ago that "the chief

purpose of the statutes [which formed the basis for the False

Claims Act] ... was to provide for restitution to the govern-

ment of the money taken from it by fraud, and that the device

of double damages plus a specific sum was chosen to make

sure that the government would be made completely whole."

United States ex rel. Marcus v. Hess, 317 U.S. 537, 551-52

(1943). In United States ex rel. Schwedt v. Planning Re-

search Corp., 59 F.3d 196, 200 (D.C. Cir. 1995), this court

stated that if the government can show it relied on represen-

tations in a contractor's progress reports in deciding to make

payments, "those payments may constitute damages under

the Act." TDC relies on United States v. Bornstein, 423 U.S.

303, 317 n.13 (1976), holding that the government is entitled

to receive damages "equal to the difference between the

market value [of the item] it received and retained, and the

market value it would have received if they had been of the

specified quality." The Program at issue, however, did not

call for TDC to produce a tangible structure or asset of

ascertainable value, as occurred in Ab-Tech Construction, Inc.

v. United States, 31 Fed. Cl. 429 (1994), and United States v.

Woodbury, 359 F.2d 370, 379 (9th Cir. 1966). Rather, the

evidence allowed the district court to find that the value of

the "best efforts" provided by TDC was vitiated by TDC's

fraudulent concealment of its rent-seeking behavior. Once

TDC deviated from its contracted role as impartial ombuds-

man by seeking a financial stake in joint ventures with

private investors and by charging fees for the provision of

material assistance to minority entrepreneurs, the district

court then could properly find that the Program no longer

had any value to the government. Cf. United States ex rel.

Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (6th

Cir. 1998).

TDC's contention that the government terminated the con-

tract for convenience and failed to prove that TDC's omis-

sions proximately caused its damages is also unavailing.

UMTA initially terminated the contract for convenience but

changed this to a termination for cause after learning about

the omissions in TDC's progress reports. No court has ever

found the termination for cause to be unwarranted. Further,

TDC failed to rebut the declarations of UMTA officials that

UMTA relied on TDC's monthly reports and would not have

continued to make payments on TDC's vouchers but for the

omissions. TDC's alternative contention that the district

court erroneously characterized the question of materiality by

failing to ask whether UMTA officials would have acted

differently if the omitted information had been included in the

reports, as opposed to whether they knew of such informa-

tion, was not raised in the district court and is not properly

before this court. See Air Florida, 750 F.2d at 1084-85.

Under the circumstances, there was no genuine issue of fact

regarding causation and reliance, nor any need for an eviden-

tiary hearing. Thus, TDC fails to show that the district court

erred in adopting a "but for" measure of damages, based on

what the government would have paid out had it known of the

information that TDC omitted from its monthly progress

reports.

B.

Finally, TDC's contention that the district court improperly

extended the judgment to include Monts as a defendant is

frivolous. The government sued both TDC and Monts as

named defendants. TDC I, 24 F.3d at 294. In granting the

government's motion for summary judgment as to liability,

the district court in its March 2000 memorandum opinion and

order referred only to TDC and neglected to mention Monts

by name. However, in its February 2001 memorandum

opinion awarding damages, the district court referenced its

March 2000 memorandum and order on liability as granting

summary judgment "against defendants TDC Management

Corporation ('TDC') and T. Conrad Monts." Further, in

granting the government's cross-motion in response to TDC's

Rule 60 motion, the district court stated that the final judg-

ment applied to both TDC and Monts, "each of whom shall be

jointly and severally liable to the United States."

Accordingly, we affirm the grant of summary judgment to

the government.