United States v. General Dynamics Corp.

BRUNETTI, Circuit Judge:

I dissent both from the majority’s finding of appellate jurisdiction and the holding that primary jurisdiction is inapplicable.

I

Appellate Jurisdiction

The district court’s order is not a “final judgment” which is appealable at this time. The majority strains to find a final order where there is none by “reflection upon the rather convoluted course that this litigation could take” if further delayed. See Amended Opinion at 1360.

A. Finality Required

Under 28 U.S.C. § 1291 , this court may only review “final judgments” of the district court. A judgment is “final” only when it “terminates the litigation between the parties on the merits of the case, and leaves nothing to be done but to enforce by execution what has been determined.” United States v. Dior, 671 F.2d 351, 354 (9th Cir.1982). This court has previously concluded that a district court order granting a stay of a case pending a hearing by an administrative agency does not meet the finality requirements of § 1291. Fugate v. Morton, 510 F.2d 307 (9th Cir.1975) (per curiam). Subsequent Supreme Court authority requires a more extensive analysis.

B. Effectively Out of Court

A stay order is not ordinarily a final decision for purposes of § 1291, “unless it operates to put a party ‘effectively out of court’ or ‘required all or an essential part of the federal suit to be litigated’ in another forum.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 8-10 , 103 S.Ct. 927, 932-34 , text and n. 11, 74 L.Ed.2d 765 (1983).

In Cone Memorial, a hospital contracted with a building contractor to construct additions to the hospital. Contract disputes were to be referred to the architect overseeing the project. The contract provided that these disputes, whether or not decided by the architect, could then be submitted to binding arbitration. The hospital refused to pay the builder’s claims for additional costs. Rather than submit the dispute to an arbitrator, the hospital filed an action in state court seeking a declaratory judgment that there was no right to arbitration. A few days later, the hospital obtained an ex parte injunction from the state court forbidding the builder from taking steps toward arbitration. When the builder objected, the state court dissolved the injunction. The builder then filed a diversity suit in Federal District Court, seeking an order compelling arbitration under § 4 of the United States Arbitration Act. The District Court stayed the action pending resolution of the state court suit because the two suits involved the identical issue of arbitrability of respondent’s claims.

The Supreme Court held that the district court’s stay order was an appealable “final decision” under 28 U.S.C. § 1291 . Since the order was based on the conclusion that the federal and state actions involved the identical issue of arbitrability, and this issue was the only substantive issue present in the federal action, a stay of the federal action pending resolution of the state action meant that there would be no further litigation in the federal court:

Here, by contrast, the District Court predicated its stay order on its conclusion that the federal and state actions involved “the identical issue of arbitrability of the claims of Mercury Construction Corp. against the Moses H. Cone Memorial Hospital.” App. to Pet. for Cert. A-38. That issue of arbitrability was the only substantive issue present in the federal suit. Hence, a stay of the federal suit pending resolution of the state suit meant that there would be no *1368 further litigation in the federal forum; the state court’s judgment on the issue would be res judicata.

460 U.S. at 10 , 103 S.Ct. at 934 (emphasis added). Thus, the builder was “effectively out of court” because “this stay order amounts to a dismissal of the suit.” Id.

Judge Fernandez’s ruling in this case, on the other hand, does not amount to a dismissal of the indictment. First, as the government argued both in the district court and in this court, “referral would be futile, because the decision of the ASBCA will not bind this Court.” United States v. General Dynamics Corp., 644 F.Supp. 1497, 1506 (C.D.Cal.1986). It is true, as the district court recognized, that

if under the proper construction of the Contract and the regulations, it is clear that it was proper to charge the expenses here exactly the way they were charged, the effect on this indictment would be most devastating.

Id., 644 F.Supp. at 1497 , and that

[T]he decision of the ASBCA on the proper construction of the regulations and the proper meaning of the language of the Contract may well resolve issues that will allow this court to dispose of all or a major portion of the case.

Id., 644 F.Supp. at 1497 . The judge’s recognition that the contract interpretation, if adopted, may make or break the indictment is not dispositive: the district court has not yet decided to dispose of the case. When the district court decides the case, its interpretation of the contract provisions and the applicability of the primary jurisdiction will be reviewable in this court.

The majority’s entire “effectively out of court” analysis depends on the assumption that res judicata or collateral estoppel would preclude the government from relitigating issues determined in the collateral contract dispute proceedings. Yet rather than conclusively determining that res judicata applies, the majority simply notes that such a result is a possibility. A mere possibility is insufficient to make the district court’s order final.

Even assuming that the ASBCA’s interpretation of the contract is reviewable only by the Federal Circuit and could lead to issue preclusion in some criminal cases pending in a district court in the Ninth Circuit, it could not have that effect in this case. The issues before the ASBCA (and possibly the Federal Circuit) simply are not identical to those before the district court in this case. Cone Memorial, 460 U.S. at 10 , 103 S.Ct. at 934 .

The district court’s referral was merely for questions of interpretation of this particular contract document. The referral did not request the ASBCA to determine the merits of General Dynamics’ claims, or to rule on General Dynamics’ actions or performance under the contract, or to address the criminal issues of conspiracy and fraud which are to be tried in a district court. Unlike the state court’s decision in Cone Memorial, the ASBCA’s response to the district court’s questions will not address the only substantive issue present in the district court action, and ASBCA’s answer will not be res judicata. Id., 460 U.S. at 10 , 103 S.Ct. at 934 . The district court referred questions to the ASBCA regarding the nature and type of contract involved here, whether the regulations permit charging the government for additional amounts expended, and the propriety of charging expenses to B & P or IR & D if the contract is ambiguous. The court did not ask for a determination of whether the contractor breached the contract, or if the contractor performed or failed to perform any specific acts or actions whether or not those actions were allowed under the contract. See General Dynamics, 644 F.Supp. at 1508 . At first glance, this may appear to be hair-splitting. But it is important to note that the district court did not refer to the ASBCA the ultimate questions at issue in the criminal prosecution. 1 The *1369 government lawyers confirmed this in oral arguments. They claimed, as they did in district court, that the referral would not bind the district court because the government could prosecute for a conspiracy or fraud even if General Dynamics’ interpretation of the contract was found to be “reasonable” by the ASBCA. Since the issues decided by the ASBCA (and possibly by the Federal Circuit) would not necessarily determine the outcome of the criminal case, we have a case very different from Cone Memorial, in which the Supreme Court determined that the litigants were “effectively out of court” because the state court proceedings would dispose of all issues in the federal court.

C. Temporary Stay

Unlike the stay in Moses, the stay in this case is only temporary. The district court discussed the possibility that delay by the ASBCA would prejudice the prosecution of the criminal case. The judge therefore expressly retained authority to terminate the referral. 644 F.Supp. at 1507 .

The majority contends that there is no discretion involved in a district court’s application of the primary jurisdiction doctrine. See Amended Opinion at note 15. The majority thus holds that the district court was not at liberty to “disinvoke” primary jurisdiction by lifting the stay. See Amended Opinion at note 4. The majority has mischaracterized the nature of the primary jurisdiction doctrine and disregards opinions of this court and others indicating that the application of the doctrine is discretionary. For example, the D.C. Circuit Court of Appeals has stated:

The doctrine of primary jurisdiction, despite what the term may imply, does not speak to the jurisdictional power of the federal courts. It simply structures the proceedings as a matter of judicial discretion, so as to engender an ‘orderly and sensible coordination of the work of agencies and courts.’ We may not now second guess whether the trial judge used his discretion wisely.

United States v. Bessemer and Lake Erie R. Co., 717 F.2d 593, 599 (D.C.Cir.1983) (primary jurisdiction question not “jurisdictional” so issue could not be raised on appeal after nolo contendré plea entered). The district court correctly exercised discretion to determine whether the stay pending a ruling from the ASBCA was appropriate. E.g. Northern California District Council of Hod Carriers v. Opinski, 673 F.2d 1074, 1075 (9th Cir.1982) (“district court must exercise its discretion to determine whether proceedings should be stayed” under primary jurisdiction doctrine); I.C.C. v. Big Sky Farmers & Ranchers Marketing Cooperative of Montana, 451 F.2d 511, 515 (9th Cir.1971) (district court did not abuse discretion by refusing to apply primary jurisdiction). 2

The Third Circuit has concluded in a civil case that a stay pending administrative action, where the district court determined to monitor the stay and reconsider its order periodically, was “merely a temporary sus *1370 pension of the proceedings” and not a final decision. Cheney State College Faculty v. Hufstedler, 703 F.2d 732 , 735-36 (3rd Cir. 1983). Since the stay was only temporary, it does not have the practical effect of a dismissal: “Nothing in the district court’s opinion or order intimates that the stay was intended to ‘deep six’ the suit. Plaintiffs have not been put ‘effectively out of court.’ ” Id. 703 F.2d at 735.

D. Collateral Order Exception to Finality Requirement

The main exception to the final order requirement is the Cohen collateral order doctrine. This exception may apply in criminal cases where the appellant can demonstrate satisfaction of the following prerequisites:

1. The pretrial order fully disposed of the appellants’ claim;

2. The appellants’ claim is collateral to, and separate from, the principal issue of guilt or innocence; and

3. The order involves an important right that would be lost if review had to await final judgment.

United States v. Yellow Freight System, Inc., 637 F.2d 1248, 1250-51 (9th Cir.1980) (citing Abney v. United States, 431 U.S. 651, 658-62 , 97 S.Ct. 2034, 2039-41 , 52 L.Ed.2d 651 (1977)). See also United States v. Harper, 729 F.2d 1216, 1219-20 (9th Cir.1984).

The application of this analysis to the present appeal demonstrates that it does not qualify as an appealable collateral order. The government here claims that the district court erred in staying the criminal trial and referring questions of contract interpretation to an administrative tribunal. Although this claim is separable from the principal issue of guilt or innocence, the district court’s pretrial order does not fully dispose of the claim, nor does the order preclude review of the district court’s decision if the government is forced to wait until final judgment. If the defendants are acquitted on legal rather than evidentiary grounds, the government can appeal. 3 While the government generally alleges that delay resulting from the district court’s stay will cause it “irreparable injury warranting review,” the government does not allege prejudice to any “important rights” that would be lost if review had to await final judgment. See Yellow Freight Systems, 637 F.2d at 1250-51 .

The district court in its order filed February 5, 1987 entitled “Order Re Scheduling in Light of Opinion in ASBCA Case No. 33633”, acknowledges that Case No. 33633 has been dismissed but notes there is another appeal still pending at ASBCA in Case No. 34051. Judge Fernandez notes that the ASBCA has not ruled on the issue of whether the questions he referred will be addressed in that appeal. He notes further that the Board has not declined to address the court’s questions although it could do so. If the Board should so decline, the district court is prepared to lift the stay. The district court’s stay order only deferred this matter until ASBCA acts on Case No. 34051 or until this court rules on this appeal.

Furthermore, the Supreme Court has admonished that the collateral order doctrine should be applied only with the “utmost strictness” in criminal cases. Flanagan v. United States, 465 U.S. 259, 265 , 104 S.Ct. 1051, 1055 , 79 L.Ed.2d 288 (1984). The Flanagan Court noted that it has found only three classes of pretrial criminal or *1371 ders to satisfy the Cohen requirements: orders involving claims of double jeopardy, excessive bail, and the Speech and Debate Clause of the Constitution. None of these orders involve appeals by the prosecutor.

The Flanagan case was analyzed by this court in United States v. Harper, supra, 729 at 1220-21. The Harper decision rejected the criminal defendant’s claim that the court should review on appeal the district court’s pretrial order holding that the death penalty under the Espionage Act was constitutional. In deciding that the order was not appealable under the Cohen doctrine, the court focused on the effects of the pretrial order, not the merits of the claim:

Harper does not argue that the amendment protects him from having to endure a trial for a crime carrying a penalty that may be cruel and unusual. Rather, he asserts that the erroneous order will cause him to undergo much hardship that cannot be corrected on appeal. The Supreme Court precedents require us to focus on the nature of the right asserted by the defendant, not the hardships caused by the order. Thus we believe that this case falls outside the narrow class of criminal cases in which interlocutory appeals are available.

Harper, 729 F.2d at 1221 . Again, the government has not identified any extraordinary hardship or prejudice to its case that would result from waiting to appeal the primary jurisdiction issue only upon acquittal or other final judgment on the merits.

For all of these reasons, I must conclude that this court has no jurisdiction over the government’s appeal.

II

Primary Jurisdiction

If I thought it appropriate to address the merits of this case, I would still dissent from the majority opinion. Its conclusion that the district court erred in applying the doctrine of primary jurisdiction is contrary to United States v. Yellow Freight System, Inc., 762 F.2d 737 (9th Cir.1985), and other authorities which bind this court.

The majority sets forth two reasons why primary jurisdiction should not apply in this case. First, the ASBCA is not a “regulatory” agency. Second, deferral in a criminal case raises separation of powers issues that militate against the application of primary jurisdiction.

A. Quasi-legislative vs. Quasi-judicial Functions

As the majority notes, “[tjhere are four factors uniformly present in cases where the doctrine properly is invoked: (1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration.” Ricci v. Chicago Mercantile Exch., 409 U.S. 289 , 93 S.Ct. 573 , 34 L.Ed.2d 525 (1973). There is no doubt that the defense industry is heavily regulated and that there is a need for expertise or uniformity in the administration of defense contracts. But the majority is concerned that interpretation of the defense contract in this ease has not been placed by Congress within the jurisdiction of an administrative body having regulatory authority.

The majority reasons that the critical distinction between this case and cases in which primary jurisdiction applies is that the ASBCA is “quasi-judicial” rather than “regulatory.” See Amended Opinion at 1363, n. 13. To the majority, “regulatory” apparently means “quasi-legislative:” the majority attempts to distinguish the NLRB from the ASBCA because the NLRB has rule-making powers to implement policy but the ASBCA only has rule-applying powers. See Amended Opinion note 16.

While it is true that primary jurisdiction doctrine is designed to secure a place for administrative power within our legal system, it does not follow that the quasi-legislative function is all that is protected: “Typically, the creation of a new agency means the addition to the legal system of a new lawmaking and law applying authority____” 4 K. Davis, Administrative Law Treatise § 22:1 at 81 (1983).

*1372 The “law applying function” is just as important to the overall regulation of the defense industry as the promulgation of legislative regulations. As the district court pointed out:

[I]t is not amazing to find that the ASBCA plays a significant role in the military procurement process. One does not marvel to hear that the military agencies closely monitor the handling of disputes before the Board, and that “DOD makes changes to bring its acquisition system into compliance with Board decisions.” [authorities omitted] Thus, the interpretations of the hierophants who man the ASBCA do, indeed, form an important part of the whole scheme of regulation of the defense industry.

Therefore, while it is true that when taken by itself the ASBCA does not necessarily operate in the same fashion as the more traditional administrative agencies, it is certainly embedded in and even rather central to the operation of defense procurement. It performs traditional agency functions. It brings a highly honed and respected expertise to bear on this technical area, and makes authoritative determinations which have the effect of explaining and setting DOD policy for the defense industry.

644 F.Supp. at 1505 . The majority's conclusion that the ASBCA has “little in common with such bodies as the ICC and the SEC, which have quasi-legislative powers and are actively involved in the administration of regulatory statutes” is thus not compelling. In fact, the Supreme Court has pointed out that it was Congress’ intent to make the ASBCA and other Boards of Contract Appeals “the factfinders within their contract area of competence, just as the Interstate Commerce Commission, the Federal Trade Commission, and the National Labor Relations Board are the factfinders for other purposes.” United States v. Utah Construction and Mining Co., 384 U.S. 394 , 421 n. 18, 86 S.Ct. 1545 , 1559-60 n. 18, 16 L.Ed.2d 642 (1966) (quoting with approval Judge Davis' opinion in Utah Construction and Mining Co. v. United States, 168 Ct.Cl. 522, at 541-42 , 339 F.2d 606 at 618 (1964)) (emphasis in original).

For these reasons, I disagree with the majority’s conclusion that the ASBCA has not been “charged with primary responsibility for governmental supervision or control of the particular industry or activity involved.”

B. Policy vs. Administration

Perhaps the majority’s distinction between quasi-judicial and quasi-legislative administrative powers is really an attempt to articulate a difference between questions of policy from questions of interpretation or administration. Footnote 14 implies that only questions of policy need be referred to the appropriate agency: “However, if a claim brought in district court raised issues of transportation policy, the doctrine of primary jurisdiction requires the parties to air the claim first before the ICC.” I agree that this is a valid concern since the reason for deferring to the agencies is to preserve administrative power rather than to provide the district court with special masters for difficult questions involving regulatory agencies. But “administration” and “policy” in some cases become inextricably tied together:

Whether the doctrine requires the ICC to pass on the construction of a particular tariff’s requirements “depends on whether the question raises issues of transportation policy which ought to be considered by the Commission in the interests of a uniform and expert administration of the regulatory scheme laid down by the Act.” Western Pacific, 352 U.S. at 65, 77 S.Ct. at 166.

United States v. Yellow Freight System, Inc., 762 F.2d 737, 739 (9th Cir.1985).

C. Statutory Authority

The majority also argues that 41 U.S.C. §§ 601-613 , the statute authorizing establishment of the ASBCA, does not require primary jurisdiction deferral for issues of defense contract interpretation.

First, the Amended Opinion points out that the statute does not require establishment of the ASBCA. It is true that the statute states that the agency may establish a full-time agency board and that if the case load volume is too small for such a board, appeals can be referred to other *1373 Contract Boards of Appeals. But the statute also sets forth procedures for making the determination whether a full-time board is necessary:

[A]n agency board of contract appeals may be established within an executive agency when the agency head, after consultation with the Administrator, determines from a workload study that the volume of contract claims justifies the establishment of a full-time agency board of at least three members who shall have no other inconsistent duties. Workload studies will be updated at least once every three years and submitted to the Administrator.

41 U.S.C. § 607 (a)(1) (emphasis added). Workload studies are thus mandatory and a failure to create a board of appeals in light of a workload study recommending would seem to be an abuse of administrative discretion.

The fact that defense contract disputes may be referred to other boards of contract appeals if the caseload is insufficient to justify a full-time ASBCA does not support the majority’s conclusion that the ASBCA was not intended to “become expert in a particular genre of contract disputes.” See Amended Opinion at 1363-64. Although the majority impliedly trivializes the importance of the ASBCA by stating that defense disputes could be heard by other boards of contract appeals, the ASBCA actually has a large caseload and is an important model for the other boards. Utah Construction, 384 U.S. at 408 , 86 S.Ct. at 1553 .

D. Application to Criminal Cases

The majority’s suspicion of primary jurisdiction in this case is “heightened” by the fact that this is a criminal prosecution. Amended Opinion at 1365. I do not believe that staying proceedings under primary jurisdiction affects the prosecutor’s independence or discretion in bringing indictments. This court has once before addressed the propriety of applying primary jurisdiction in criminal cases:

The government argues that notwithstanding the reasons for deferring to the ICC on this issue, the court should not defer in this case because it is a criminal rather than a civil case. Although we recognize that care must be taken not to delay unnecessarily a criminal prosecution, this is not an ordinary criminal case. Whether the volume tariff applied to Yellow Freight’s deviations from the tariff’s technicalities is a threshold question of policy which must be decided before the criminal issues can be determined. Thus, it is an appropriate subject for ICC determination pursuant to the primary jurisdiction doctrine.

Yellow Freight Systems, 762 F.2d 737 . The case before this panel, like that in Yellow Freight Systems , is not an ordinary criminal case. Whether the defense contractor’s accounting and claims practices are proper under the DIVAD contract and defense procurement regulations is a threshold question of policy and uniform administration that must be decided before criminal liability may be determined. The majority has determined that the district court must make these initial determinations. The authority of Yellow Freight Systems supports the district court’s referral to the ASBCA. I would dismiss the appeal.

. The seven count indictment alleges a conspiracy to defraud the government of money and making false statements to the government in violation of 18 U.S.C. §§ 2 and 1001 for the purpose of obtaining the money for General Dynamics. E.R. at 1-31. While Judge Fernandez referred the question of whether General Dynamics' claim for payment was proper under the DIVAD contract, he did not refer questions *1369 of fraud, conspiracy, falsification of statements, or criminal intent.

. Other jurisdictions agree. See Columbia Gas Transmission v. Allied Chemical Corp., 652 F.2d 503 , 519, n. 14 (5th Cir.1981) (primary jurisdiction is "discretionary tool of the courts”); Curran v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 622 F.2d 216, 235, n. 30 (6th Cir.1980) (primary jurisdiction permits a court, in the exercise of its sound discretion, to defer to an administrative agency for the initial resolution of certain disputes); Lodge 1858, American Federation of Government Employees v. Webb, 580 F.2d 496, 508-09 (D.C.Cir.1978) (primary jurisdiction exercised in district court’s discretion); Deaktor v. Schreiber & Co., 479 F.2d 529, 535 (7th Cir.1973) (concurrence) (issue is whether district court abused its discretion by refusing to defer questions under primary jurisdiction doctrine); Outboard Marine Corp. v. Pezetel, 535 F.Supp. 248, 256 (D.Delaware 1982) (court may, in its discretion, deny stay when primary jurisdiction is otherwise available); Atlantic Coast Line Railroad Co. v. Riss & Co., 267 F.2d 659, 660 (D.C.Cir.), cert. denied, 361 U.S. 804 , 80 S.Ct. 108 , 4 L.Ed.2d 57 (1959) (primary jurisdiction determination requires "exercise of discretion” of court); International Telephone and Telegraph Corp. v. General Telephone & Electronics Corp., 449 F.Supp. 1158, 1169 (D.Hawaii 1978) (question is whether court should, in its discretion, defer a factual question to the FCC under the primary jurisdiction doctrine); Shearson Hayden Stone, Inc. v. Lumber Merchants, Inc., 423 F.Supp. 559, 560-61 (S.D.Florida 1976) (primary jurisdiction discretionary).

. 18 U.S.C. § 3731 lists specific instances in which the government can appeal in criminal cases. The courts have uniformly construed § 373l’s list of appealable orders as nonexclusive. Thus, the "government may appeal under the authority of Section 3731, except when doing so would be prohibited by the Constitution.” United States v. Edmonson, 792 F.2d 1492, 1496 (9th Cir.1986). The Constitution's Double Jeopardy Clause bars appeals from an acquittal only if the court "evaluated the Government's evidence and determined that it was legally insufficient to sustain a conviction.” United States v. Schwartz, 785 F.2d 673, 677 (9th Cir.1986) (citing United States v. Martin Linen Supply Co., 430 U.S. 564, 572 , 97 S.Ct. 1349, 1355 , 51 L.Ed.2d 642 (1977)). Interpretation of contracts would be a legal question from which the government could appeal: any "acquittal” based on an erroneous legal interpretation would in effect be a dismissal from which the government may appeal. See Schwartz, 785 F.2d at 677 .