Amicus Curiae Brief — Hughes Aircraft Co. v. United States Ex Rel. Schumer
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OCTOBER TERM, 1996
No. 95-1340
HUGHES AIRCRAFT COMPANY
Petitioner,
Vv.
UNITED STATES EX REL. WILLIAM J. SCHUMER
Respondent.
On Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
BRIEF OF LOCKHEED MARTIN CORPORATION
AS AMICUS CURIAE IN SUPPORT OF THE
PETITIONER
LESTER W. SCHIEFELBEIN, JR. JAMES J. GALLAGHER,
STEPHEN A. WARREN Counsel of Record
LOCKHEED MARTIN MISSILES MARKR. TROY
& SPACE _ BARBARA J. BACON
1111 Lockheed Martin Way © MCKENNA & CuNEO,L.L.P.
Sunnyvale, CA 94089 444 South Flower Street, 8th Fl
(408) 743-0977 Los Angeles, California 90071
(213) 688-1000
Counsel for Amicus Curiae,
Lockheed Martin Corporation
ow
KNOWLEDGE" BAR CANNOT BE APPLIED TO
PRE-AMENDMENT CONDUCT. ........cccscccceeeseeeeeeeeeeceeeeee 5
A. Regardless Of Whether The
Amendment Is "Jurisdictional," It May
Not Be Applied To Cases Based On
Information The Government Possessed
Prior To October 27, 1986 Because
That Provision Affects Rights And
Obligations Of The Parties. .......cccsccccv-.c-s-sseoseee 6
. The Repeal Of The "Government
Knowledge” Bar The Legal
Consequences of Past Events. ......................0000. 8
. THE NINTH CIRCUIT'S DEFINITION OF
"PUBLIC DISCLOSURE” IS INCONSISTENT
WITH THE LANGUAGE OF THE AMENDED
FCA AND WITH CONGRESS’ INTENT TO BAR
PPARREITIS PTOI Sai ceciscsiccicbcbiercnciictrscsvscececee 14
A. The 1986 Amendment Preserved The
Bar Against Parasitic Qui Tam Actions
While Maintaining The Government's
Exclusive Right Of Enforcement In
TD 15
PP Peg Oo ee ee, Oe
The Ninth Circuit's Exemption Of
(iii)
TABLE OF AUTHORITIES
FEDERAL CASES PAGES
Andrus v. Charlestone Stone Products Co.., |
Se re eect 7
The Assessor v. Osborne,
76 U.S. (9 Wall) 567 (1870) ooo. ccccccccccsccesceeeeceoeeee. 7
Bradley v. School Board City of Richmond,
SESE 13
Bruner v. United States,
I i 7
Freytag v. Commissioner of Internal Revenue,
SS 19
Fullerton-Krueger Lumber Co. v. Northern Pac.
Ry. Co.,
ER le aE u
Hallowell v. Commons,
a 7
Landgraf v. US] Film Products,
114 S. Ct. 1483 (1994). 4,6,7,8,9,10,14
Stephens v. Cherokee Nation,
TR ea 7
United States ex rel. Anderson v. Northern Telecom,
Inc. , 52 F.3d 810 (9th Cir. 1995) cert.
116 S. Ct. 700 (1996)... epecninttiinaied 8
United States ex rel. Boisvert v. FMC
Corp.,
No. C-86-20613, 1987 U.S. Dist. LEXIS 13549
(N.D. Cal. Sept. 8, 1987) oo ccccccccccesseeenneeneeens 8,12
TABLE OF AUTHORITIES
United States ex rel. Doe v. John Doe Corp.,
960 F.2d 318 (2d Cir. 1992)............. 15,17,18,21,22,28
United States ex rel. Fine v. Chevron,
72 F.3d 740 (9th Cir. 1995) (en banc) ...........cccccc00 21
United States ex rel. Fine v. MK-Ferguson Co.,
Nos. 95-2011, 95-2021, 1996 WL 638479 (10th
Cis. BOSC. G, BEER cnciipsrepecternsatligt nrtitestinpnataviinns 17,18
United States ex rel. Hagood v. weenie ed
Water
929 F.2d 1416 (9th Cir. bE .28
United States ex rel. Haycock v. Hughes Aircraft
Company,
Nos. 94-55620, 94-55826, 1996 U.S. App.
LEXIS 27664 (9th Cir. Oct. 21, 1996).................0000. ll
United States ex rel. Hyatt v. Northrop Corp.,
CV-86-6437-KN (C.D. Cal.) acute 8,12
United States ex rel. Killingsworth v. Northrop,
25 F.3d 715 (9th Cir. 1994), cert. denied, 117 S.
CR, FS a isctcceninitinitstclidiettieteeisien 13
United States ex rel. Kreindler et al. v. United
Technologies Corp.,
Sie ee 113 S$. Ct.
2962 (1993).. a hee 2 weal 24
United States ex rel. Lindenthal v. General
Dynamics Corp.,
61 F.3d 1402 (9th Cir. 1995),
cert. denied, 116 S. Ct. 1319 (1996)..............5,9,11,12
United States ex rel. Newsham v. Lockheed
Missiles and Space Co., Inc., |
907 F. Supp. 1349 (N.D. Cal. 1995) . 2,3,5,8,10-13, 20
United States ex rel. Stinson v. Prudential Ins. Co.,
944 F.2d 1149 (3d Cir. 1991)... 17,24,25
United States ex rel. Williams v. NEC Corp., 931
F.2d 1493 (11th Cir. 1991) 2... cceceeeceeeeeeeee 27
United States v. Alabama,
362 U.S. 602 (1960), reh'g denied,
RR AE i a ee 7
United States v. St. Louis, SF. & T.R.. Co..
ERS ST el ee 4
Wang ex vel. United States v. FMC Corp.,
975 F.2d 1412 (9th Cir. 1992) 20 ccccccccccceeeeeee 26
Winfree v. Northern Pacific Railway Co.,
ge, EEE SF RSS ee 10,11
STATUTES
False Claims Act of March 2, 1863,
SE 2
False Claims Act Amendments of 1986, Pub. L. No.
99-562, 100 Stat. 3153,
pS a SF ee 2
5 United States Code
ES eT RE: 2 en a 25
th et EASA AL I AGO I 12
RULES AND REGULATIONS
32 Code of Federal Regulations
7 RRS ae eee 25
48 Code of Federal Regulations
SMT idiastehceiddichcedebatiiarenctuttincitaslingnsiiliititeiitisasistaalinis 12
0 RE Sa ee 12
| ES Aa we ee TSS 12
LEGISLATIVE MATERIALS
132 Cong. Rec. H6483 (daily ed. Sept. 9, 1986) ............ 16
H.R. Rep. No. 660, 99th Cong., 2d Sess. 22-23
1 Se ee ee 16
False Claims Act Amendments, 1986: Hearings
Before the Subcomm. on Admin. Law and
Government Relations of the House Comm. on
the Judiciary, 99th Cong., 2d Sess. (1986)...............16
S. Rep. No. Na. 345, 99th ments
Usee ang ee
Black's Law Dictionary (6th ed. 1990).........................25,26
DCAA Audit ro
10-2:12.2 (1996) ..... esumanbmesnpamnaaseneesia
10-213.3 (1 1983) - sstensmnsgrenenassmgeenntle
Department of Defense Voluntary Disclosure
Program, A a _
Inspector General April 1990) ... ——
Department of Jusuce Qui Tarn Statismes, 64 Fed.
ae bangin a
EE A 2
Voluntary Disclosure as the Source of Qui Tam
Litigation, 22 Pub.Cont.L_J. 764 (1993).................. 27
Webster's Ninth New
oe ees - lita
SS ee on
No. 95-1340
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1996
HUGHES AIRCRAFT COMPANY
Petitioner,
Vv.
UNITED STATES EX REL. WILLIAM J. SCHUMER
Respondent.
BRIEF OF LOCKHEED MARTIN CORPORATION AS
AMICUS CURIAE IN SUPPORT OF THE PETITIONER
Amicus curiae Lockheed Martin Corporation urges the
Court to reverse the Ninth Circuit on the questions
presented by the Petitioner. The written consent of the
parties to the filing of this amicus brief has been filed with
Dp tet tn od ————e —
2
contractor for the Departments of Defense and Energy, and
NASA. Its government contracts are subject to extensive
legal and regulatory requirements and, frequently,
government agencies audit and investigate whether the
corporation's operations are being conducted in accordance
with these requirements.
Lockheed Martin has been directly affected by the
False Claims Act ("FCA") Amendments of 1986 ("1986
amendments"), Pub. L. No. 99-562, 100 Stat. 3153, 31
U.S.C. §§ 3729, et seq., which have stimulated a substantial
increase in the number of qui tam actions brought by
individuals (or "relators"), on behalf of the government
against government contractors./ Lockheed Martin,
through Lockheed Missiles and Space Company, Inc., is
currently the defendant in a gui tam action entitled United
States ex rel. Newsham vy. Lockheed Missiles and Space
Co., Inc., No. C 88-20009 JW (N.D. Cal.) (hereafter
l/ While the FCA allows the government to intervene in the action
(31 U.S.C. § 3730(b\4) (1986)), in the vast majority of cases the
government has declined to intervene. See Department of Justice Qui
Tam Statistics, printed in 64 Fed. Contracts Rpt. 348-49, 362 (BNA
Oct. 23, 1995) (hereafter "Statistics") (From FY 1987 through FY
1995, 1,105 qui tam actions were filed. The government intervened in
only 189 cases, and declined 672 cases; the remainder, presumably,
were still under seal.) Historically, when the government declines to
intervene, the relator's action has been subject to certain limitations.
Prior to the 1986 amendments, the relator’s action was barred if it was
based on information already known to the government. 31 U.S.C.
§ 3730(b\4) (1982). Under the amended provision, government
knowledge, by itself, no longer bars a gui tam action. Rather, the
action is barred if it is based upon the “public disclosure” of allegations
or transactions in a criminal or civil action, administrative hearing,
report, audit or investigation, or in the news media, unless the relator is
an “original source” of the information, in which case that relator is
authorized to pursue the action. 31 U.S.C. § 3730(e)(4) (1986).
3
"Newsham"). That action turns on two of the questions
presented in Hughes’ petition concerning the right to
maintain a qui fam action: (a) whether applying the "public
disclosure" provision of the 1986 amendments to pre-
amendment conduct is an impermissible retroactive
application of that © staan and (b) how to define a
"public disclosure."
On both issues, Hughes asserted below a view shared
by Lockheed Martin. First, to allow a qui tam action based
on information the government possessed prior to the 1986
amendments would be an improper retroactive application
of the "public disclosure" provision because it would
increase a contractor's liability by requiring it to defend an
action that was barred under the pre-1986 FCA. Second, to
allow a qui tam action based on a government audit that
was publicly disclosed through its wide distribution within
2/ In Newsham, the relators allege false charging of labor hours on
government contracts. One of the relators disclosed virtually all of the
allegations to the government in 1984, well before the 1986
amendments were enacted. In addition, prior to 1986, the
government's Defense Contract Audit Agency audited those
allegations. The audit reports were distributed to Lockheed and
reviewed by the government's contracting officers, who determined
that no claim against Lockheed was appropriate. See Memorandum of
the United States As Amicus Curiae, United States ex rel. Newsham v.
Lockheed Missiles and Space Co. Inc., No. C 88-20009 JW (reprinted
in Appendix ("App.") (la-17a) at 4a-Sa). The qui tam action, filed in
1988, is based on the same allegations that the government had
investigated prior to 1986. After investigating the allegations for the
second time, the government declined to intervene. The court denied
Lockheed's motion to dismiss under the pre-1986 “government
knowledge" provision, holding that the amended “public disclosure”
provision applies to the case even though the alleged misconduct arose
prior to the 1986 amendments and had previously been investigated by
the government. Newsham, 907 F. Supp. 1349, 1358 (N.D. Cal. 1995).
4
a company is inconsistent with the FCA, as amended, and
could result in a qui tam action by a company employee
whenever an audit contained adverse findings.
The Ninth Circuit rejected both arguments. Therefore,
this Court's decision will have a significant effect on
current and possibly future litigation against Lockheed
Martin and other contractors.
SUMMARY OF ARGUMENTS
1. The 1986 FCA amendment repealing the
“government knowledge" bar cannot be applied
retroactively. The pre-1986 FCA provided a bright line
defense to qui tam actions based on information the
government possessed when the action was filed. 31
U.S.C. § 3730(b)(4) (1982). Under that rule, contractors
were secure in knowing that the government's knowledge
of relevant information freed them from the threat of qui
fam actions. Applying the "public disclosure" provision,
enacted in 1986, to pre-1986 conduct removes that security
and exposes contractors to expensive litigation and the risk
of substantial liability. Accordingly, under Landgraf v. USI
Film Products, 114 S. Ct. 1483 (1994), the public
disclosure provision cannot be applied retroactively
because it would "increase a party's liability for past
conduct" and "impose new duties with respect to
transactions already completed." 114 S. Ct at 1505.
2. The allegations, which were the subject of a
government audit and investigation, were "publicly
disclosed" in accordance with the plain meaning of that
term and Congress’ intent. The government, having
received information from one of Hughes’ customers
(Northrop Corporation) about allegations of wrongdoing at
Hughes (Joint Appendix ("J.A.") at 20), commenced an
audit and investigation. Its investigative findings and audit
reports were disclosed throughout Hughes and to Northrop
prior to Schumer filing his gui tam action which raised the
same allegations as those in the audit reports. J.A. at 37,
42, 45-47, 55, 64, 66. Under the amended FCA, a qui tam
5
action is subject to being barred if it is "based upon the
public disclosure of allegations or transactions in a{n] . . .
administrative . . . audit or investigation." 31 U.S.C.
§ 3730(e)(4)(A). The disclosures in question are "public
disclosures" within the meaning of section 3730(e)(4)(A).
I. THe REPEAL OF THE "GOVERNMENT KNOWLEDGE"
BAR CANNOT BE APPLIED TO PRE-AMENDMENT
CONDUCT. ,
In Schumer and in Newsham, the government became
aware of the alleged wrongdoing prior to the enactment of
the 1986 FCA amendments. By virtue of that knowledge,
any qui tam lawsuit based on those allegations was barred
outright under the pre-1986 FCA. The companies were
secure in knowing that qui tam enforcement -- a statutory
scheme distinct from the investigatory and enforcement
mechanisms available to the government -- was absolutely
precluded. In both cases, the government undertook
enforcement efforts with the full cooperation of the
companies and eventually determined that neither an FCA
action mor an administrative contract action was
appropriate.
The 1986 amendments repealed the government
knowledge bar to qui tam actions. If that act of repeal is
held to apply retrospectively to Schumer's and to
Newsham's complaints -- each filed after 1986 -- the effect
would be to breathe new life into two lawsuits that should
have been absolutely precluded. The Ninth Circuit applied
the 1986 amendment to the Schumer action, finding that it
"did not alter [the contractor's] underlying liability; it only
altered the conditions under which a gui tam relator can
bring an action to enforce that liability." United States ex
rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512 (9th Cir.
1995), reprinted in the Appendix to the Petition for
Certiorari ("Pet. App.") (la-31a), at 7a (quoting United
States ex rel. Lindenthal v. General Dynamics Corp., 61
F.3d 1402 (9th Cir. 1995), cert. denied, 116 S. Ct. 1319
(1996)).
6
The effect of that decision is profoundly unfair to
Hughes (as well as to Lockheed Martin which, but for
retrospective application, would have avoided what has
become a complex, costly, and lengthy (eight-year) burden
of defending a lawsuit the government deemed to be
without merit). This Court has held that such an effect
cannot be imposed unless "Congress itself has affirmatively
considered the potential unfairness of retroactive
application and determined that it is an acceptable price to
pay for the countervailing benefits." Landgraf, 114 S. Ct.
at 1501.
A. Regardless Of Whether The Amendment Is
"Jurisdictional," It May Not Be Applied To
Cases Based On Information The Government
Possessed Prior To October 27, 1986 Because
That Provision Affects Rights And Obligations
Of The Parties.
This Court's decision in Landgraf reaffirmed that a
statute is presumed to operate only prospectively absent
clear congressional intent to the contrary. Landgraf, 114 S.
Ct. at 1501 (holding that “prospectivity remains the
appropriate default rule"). Because Congress did not state
whether § 3730(e)(4), or any of the other 1986 FCA
amendments, should be applied to cases based on
information the government possessed prior to October 27,
1986, the repeal of the government knowledge bar is
presumed to operate only prospectively.
Nevertheless, the Ninth Circuit found that there is "a
strong presumption that jurisdictional statutes apply
retrospectively." Pet. App. at 6a. That finding is not
supported by this Court's decisions which are bereft of any
language that excuses a jurisdictional provision from the
traditional default rule. In Landgraf, the Court noted that a
jurisdictional provision "usually ‘takes away no substantive ~
pregame g agp: open phar ss dre
that "[p]resent law normally governs in such situations
because jurisdictional statutes ‘speak to the power of the
court rather than to the rights or obligations of the
7
parties." 114 S. Ct. at 1502 (emphasis added; citations
omitted). The jurisdictional statutes at issue in the cases
cited in Landgraf fit that paradigm: they affected the
power of the court without extinguishing the rights of the
parties.3/
The repeal of the government knowledge bar, on the
other hand, affects the rights and obligations of the parties.
It gives relators a right to sue under circumstances in which
they previously could not sue and deprives contractors of a
previously available defense. Consequently, even if the
provision at issue is "jurisdictional," it cannot be applied
retroactively.
3/ See Bruner v. United States, 343 U.S. 112, 116-117 (1952)
(jurisdictional statute did not alter the validity of the rights and
liabilities at issue, but reduced the number of tribunals authorized to
determine such rights and liabilities); Hallowell v. Commons, 239 U.S.
506, 508 (1916) (new jurisdictional statute applied because it “takes
away no substantive right but simply changes the tribunal that is to
hear a case") (emphasis added); The Assessor v. Osborne, 76 U.S. (9
Wall) 567, 575 (1870) (dismissing case because diversity jurisdiction
was not alleged, and under new statute only state courts had
jurisdiction over the claim); Andrus v. Charlestone Stone Products Co.,
436 U.S. 604, 607-08 (1978) (in an agency review case, elimination of
the $10,000 amount-in-controversy requirement saved complaint that
failed to make such allegation); Stephens v. Cherokee Nation, 174 U.S.
445, 478 (1899) (granting right of appeal of decisions by the United
States court in the Indian Territory; by its terms, statute was to be
applied retrospectively); and United States v. Alabama, 362 U.S. 602
(1960) (statute conferring jurisdiction over new class of defendants
applied, but suit was for injunctive (ie., prospective) relief), reh'g
denied, 363 U.S. 857. Similarly, the jurisdictional cases cited in Justice
Scalia’s concurrence, Landgraf, 114 S. Ct. 1523, 1525, involved
statutes that merely modified the number of tribunals that could hear a
case and/or were expressly retroactive.
the pre-1986 FCA the government's acquisition of
information about alleged false claims barred Schumer's
action, the 1986 amendment, if retroactively applied, would
change the legal consequences of events that occurred
before its enactment.
The result is the same whether: (a) the government
acquired the information upon which the action was based
and the relator filed the complaint before the 1986
amendments were enacted (as in United States ex rel
v. Northrop Corp., CV-86-6437-KN (C.D. Cal.) and United
States ex rel. Boisvert v. FMC Corp., No. C-86-20613,
1987 U.S. Dist. LEXIS 13549 (N.D. Cal. Sept. 8, 1987)); or
Schumer). In either situation, the amendment changes the
consequences of pre-amendment events. Accordingly, the
amended FCA's public disclosure provision which repealed
relator disclosed the information to the government prior to 1986), cert
denied, 116 S. Ct. 700 (1996).
9
the government knowledge bar cannot be applied to actions
based on information the government possessed prior to its
enactment.
The application of the public disclosure provision to
facts such as those presented in Schumer would, like
retroactive application of an expanded statute of
limitations, revive a previously barred claim. Yet, this
Court has refused to apply a new statute of limitations
where it would bar an otherwise viable claim or revive a
previously barred claim. See, eg, United States v. St
Louis, S.F. & T.R.. Co., 270 U.S. 1, 3 (1926) (refusing to
apply a three-year statute of limitations retroactively to bar
a claim because such construction is not required by the
explicit of the statu’e or by necessary
implication);/ Fullerton-Krueger Lumber Co. v. Northern
Pac. Ry. Co., 266 U.S. 435, 437 (1925) (holding that a new
law that would toll the statute of limitations could not be
applied so as to revive stale claims). Hence, this rationale
leads to the obvious conclusion that the public disclosure
provision cannot be applied retroactively.
C. The Repeal Of The "Government Knowledge"
Bar Increases Contractors’ Liability And
imposes Additional Duties.
The Ninth Circuit found that, because the public
disclosure provision “did not alter [the contractor's]
underlying liability; it only altered the conditions under
which a qui tam relator can bring an action to enforce that
liability” it could be applied retroactively to Schumer's
action. Pet. App. at 7a (quoting Lindenthal, 61 F.3d at
1408). However, this Court's rule against the retroactive
y St Louis was cited in Landgraf for the proposition that a statute
should not be applied retroactively absent explicit language or a clear
purpose requiring such application, indicating the continued vitality of
the case. Landgraf, 114 S. Ct. at 1501 n.27.
10
ication of new laws is not limited to statutes that alter
the legality of prior conduct. In fact, in Landgraf, this
would impose “a ‘new disability’ in respect to past events.”
Id. at 1506-07 (citation omitted). Similarly, the public
disclosure provision would, if applied to conduct occurring
before its enactment, impose additional duties on
contractors.
A statute that confers rights on a new class of plaintiffs
cannot be applied retroactively because it imposes new
obligations on defendants. See Winfree v. Northern Pacific
Railway Co., 227 U.S. 296 (1913) (cited with approval in
Landgraf, 114 S. Ct. at 1507). In that case, an accident
resulting in the death of a minor occurred at a time when
the law allowed a wrongful death action only by the father
and only in state court. Congress subsequently passed a
law which enabled the administrator of the estate to bring a
wrongful death cause of action in federal court. Had the
statute merely permitted the father to move from state to
to give the administrator a right of action. Jd.
| The concerns expressed by the Winfree Court are more
significant in cases brought pursuant to the FCA, given the
reality that many contractors would not have been sued if
the relators’ action had been barred under the pre-1986
FCA. For example, in Newsham, the government, through
1]
its contracting officers, determined that no claim against the
contractor was appropriate. See App. at 4a-Sa2’ Thus,
permitting relators to bring actions that could not have been
brought under the pre-1986 FCA increases contractors’
liability by forcing them to defend these actions.
This is especially troublesome because gui tam actions
declined by the government but pursued by relators are
nearly always without merit./ Thus, the contractor's
liability is increased for benign acts. The scenario of a qui
tam relator purporting to "stand in the government's shoes”
while asserting a position completely at odds with the
government's own position is, regrettably, not uncommon.
See, eg, Lindenthal, 61 F.3d at 1411-12 (relator's
contention about the quality of engineering drawings which
defendant sold to the Air Force was undercut by the
government's testimony that the drawings were compliant
with the contract and did not give rise to any false claims);
United States ex rel. Haycock v. Hughes Aircraft Company,
Nos. 94-55620, 94-55826, 1996 U.S. App. LEXIS 27664
(9th Cir. Oct. 21, 1996) (Unpublished decision, reprinted at
App. 18a-21a) (affirming summary judgment in a gui tam
action that was based on accounting practices that were
known to and approved by the government).
6/ Like the amended FCA which assigned the government's rights to
relators, the statute in Winfree modified who may bring an action by
assigning Claims to the administrator of the estate. An “assignment” is
particularly anomalous in Newsham where the primary holder of the
right to sue for any alleged false claims, the government, determined
that there was no basis on which to bring such an action.
7/ From FY 1987 through FY 1995, recoveries had occurred in only
31 of the 672 cases in which the government declined intervention: the
$15.6 million recovered in these 31 cases is less than 1% of the
government's total recoveries under the FCA. Statistics, supra, n.1.
12
The government knowledge bar in the pre-1986 FCA
provided an automatic bar to cases like Lindenthal,
Newsham, Schumer, Boisvert and Hyatt that are based on
information that the government possessed before the case
was filed. Under the 1986 amendments, in the absence of a
public disclosure, those kinds of cases cannot be disposed
Furthermore, the realities of gui tam litigation show
that permitting a relator to sue in place of the government
is, itself, a new liability. Actions by relators impose several
duties, obligations and increased costs on contractors.
First, because a relator has only a single option for
attempting to resolve the matter -- litigation under the FCA
-- he forecloses the contractor's opportunity to resolve the
matter through other means available to the .
The government has a variety of enforcement mechanisms.
For example, it may bring a contract action (see 41 U.S.C.
§§ 601-613), make cost disallowances (48 C.F.R. 52.242-
1), withhold payment (48 C.F.R. 32.611-2), suspend the
contractor (48 C.F.R. 9.407), or bring an FCA action. In a
matter pursued by the government, the contractor faces an
"opponent" with discretion and flexibility to resolve the
matter in a more fair, appropriate and expeditious manner.
& This fact is highlighted by the Ninth Circuit's decision in
Lindenthal. Although the government knew of the information
forming the basis of the relators' claim prior to 1986, the district court
and the Ninth Circuit applied the amended provision to those claims
and allowed the action to proceed. Lindenthal, 61 F.3d at 1407-1408.
It was not until after the expenditure of a great deal of time and money
on discovery, a lengthy bench trial, and an appeal that General
Dynamics prevailed on the merits. See id. at 1405-1406, 1410-1412.
13
Second, a relator's quest for a bounty of up to 30% of
the government's recovery (§ 3730(d)(1)) gives rise to a
conflict of interest between appropriate enforcement of the
law and maximizing personal gain. In the course of
settlement discussions, the relator's bounty demands can
result in delay in the ultimate resolution of the case because
of disputes he may have with the government over the
division of proceeds.2/ The relator's bounty demands may
also effectively compel the contractor to pay a higher
amount to settle the case than would have been demanded
by the government if the government had brought the case
alone. Alternatively, the contractor may be compelled to
undertake the expense and risk of litigating a gui tam case
that may otherwise have been settled by the government.
Third, relators increase a contractor's potential liability
because contractors may be held liable (under § 3730(d))
for relator's attorneys’ fees, but not the government's. L0/
2 Arrelator's bounty demand may be an effort to obtain more than a
fair share of the government's proceeds, thereby delaying the ultimate
resolution of the matter. See, e.g, United States ex rel. Killingsworth v.
Northrop, 25 F.3d 715 (9th Cir. 1994), cert. denied, 117 S. Ct. 296
(1996) (the government, upon assertion that the relator had unfairly
allocated settlement proceeds to his personal claim and away from the
government, was entitled to a hearing to challenge the settlement).
did not exist prior to the 1986 amendments, cannot be applied
retroactively. Unlike the situation in Bradley v. School Board City of
Richmond, 416 U.S. 696 (1974), attorneys’ fees were not available in
FCA actions prior to the enactment of the 1986 amendments.
Nevertheless, at least one court has ruled that the attorneys’ fee
provision applies to a case based on pre-amendment conduct where the
fees were incurred after its enactment. See Newsham, 907 F. Supp. at
1360-1361.
14
Fourth, relators make it more difficult tc obtain
discovery. Contractors cannot obtain written discovery
frorr: the government when it declines to intervene because,
even though the government may be the real party in
interest, it is not a party to the action. Contractors musi
resort to the more limited discovery procedures available
against non-parties when they seek what is often the most
crucial discovery in the case -- information from the
government showing the validity of the questioned conduct.
In sum, gui fam actions pose financial and other
burdens and risks which are distinct from those faced when
the government pursues enforcement efforts on its own.
The Ninth Circuit was wrong in concluding that the pubiec
disclosure provision could be applied to Schumer’s action.
See Pet. App. at 7a. For the reasons stated above, the repeal
of the government knowledge bar “attaches new legal
consequences to events before its enactment,”
Landgraf, 114 S. Ct. at 1499, "impose[s] new duties with
respect to transactions already completed,” and “increase(s]
a [contractor]'s liability for past conduct.” /d. at 1505.
Consequently, the public disclosure provision cannot be
applied retroactively.
Il. THe NintH Circuit's DEFINITION OF “PUBLIC
DISCLOSURE" IS INCONSISTENT WITH THE
LANGUAGE OF THE AMENDED FCA AND WITH
CONGRESS' INTENT TO BAR PARASITIC ACTIONS.
Even assuming that the public disclosure provision
applies retroactively, Schumer’s action is barred. Construed
in accordance with its plain language, the provision barring
a qui tam action that is "based upon the public disclosure of
allegations or transactions in a{n] . . . administrative .
audit or investigation," bars this case where the government
conducted an audit and investigation and disclosed the
matter to members of the public who were unaware of the
alleged wrongdoing. To the extent that the ordinary
meaning of these terms cannot be derived within the
Statutory context, the Court may rely on congressional
intent as reflected in the FCA's legislative history.
15
The Ninth Circuit held that the government's
disclosures to Hughes and Northrop -- even to individuals
not engaged in or aware of the alleged wrongdoing --
should not be considered "public" disclosures. The court,
believing without foundation that defense contractors and
the government “operate within a closed loop of secrecy”
and in a “private sphere,” exempted defense contractor
employees from being considered members of the public.
Pet. App. at 9a. This exemption is neither expressed nor
implied in the statute. Further, it conflicts with the
legislative purpose of barring gui fam actions that duplicate
and interfere with actual enforcement efforts already
undertaken by the government.
A. The 1986 Amendment Preserved The Bar
Against Parasitic Qui Tam Actions While
Maintaining The Government's Exclusive
Right Of Enforcement In Certain
Circumstances.
The pre-1986 government knowledge bar afforded the
government complete deference to determine: (a) how to
act upon information in its possession, including whether to
proceed in a criminal, civil or administrative forum; (b)
when to act, or (c) whether to act at all. Unless the relator
filed his gui tam action prior to the government learning of
The 1986 amendment reduced to some extent the
deference afforded the government concerning FCA
enforcement and expanded the opportunities for qui tam
enforcement. Congress attempted “to strike a balance
between encouraging private citizens to expose fraud and
avoiding parasitic actions by opportunists who attempt to
capitalize on public information without seriously
contributing to the disclosure of the fraud." United States
ex rel. Doe v. John Doe Corp., 960 F.2d 318, 321 (2d Cir.
1992).
Congress believed that, too often, the government
failed to take any action on information in its possession.
16
[T]he Committee is concerned that there are
instances in which the Government knew of the
information that was the basis of the gui tam suit,
but in which the Government took no action.
H.R. Rep. No. 660, 99th Cong., 2d Sess. 22-23 (1986).
We must prevent suits from being dismissed
simply by the Government's assertion that the
Government already had the information brought
forward by the plaintiff in order to ensure that the
Government is indeed acting on __ that
informatior 11/
Weighing these concerns, Congress repealed the
governmer.t knowledge bar and replaced it with a rule that
bars qui tam actions "based upon the public disclosure of
allegations Or transactions in a criminal, civil or
administrative hearing, in a congressional, administrative,
or Government Accounting Office report, hearing, audit, or
investigation, or from the news media unless the action is
brought by the Attorney General or the person bringing the
Ll’ False Claims Act Amendments, 1986: Hearings Before the
Subcomm. on Admin. Law and Government Relations of the House
Comm. on the Judiciary, 99th Cong., 2d Sess. 95, ( 1986) (statement of
Rep. Berman). See also 132 Cong. Rec. H6483 (daily ed. Sept. 9,
1986) (statement of Rep. Bedell) ("there may be many cases where
evidence is somewhere in the hands of some Government official, even
if the Government does not have the evidence in organized form or
even knows it has the information"). Congress also believed that
inaction often was due to the government's “judgment that devoting
scarce resources to @ questionable case may not be efficient." S. Rep.
No. 345, 99th Cong., 2d Sess. 7, reprinted in 1986 U.S.C.C.A.N. 5266,
5272 (hereafter "Senate Report"). This concern has proved to be
unfounded, as less than 1% of the money recovered under the FCA
since 1986 has come from cases declined by the government and
prosecuted by gui tam relators. Statistics, supra, at n.1.
17
action is an original source of the information." 31 U.S.C.
§ 3730(e)(4)(A).
The amended provision preserves, in certain
circumstances, the government's exclusive enforcement
authority and unfettered right to decide how or whether to
enforce the law. The question presented by the amended
provision is: What event must occur in order for the
government to maintain its exclusive right of enforcement?
Because neither the statute nor the legislative history
defines the term "public disclosure," there has emerged a
range of interpretations:
e Two circuits have held that a public disclosure
occurs whenever the government undertakes one of the
enumerated enforcement efforts in a manner that is visible
(or "disclosed") to someone outside the government who
had no prior knowledge of the matter.12/
¢ Another circuit, which recognized the difficulty of
determining whether information was actually
disseminated, held that a public disclosure occurs when the
information is “available” or "potentially accessible" to a
member of the public with no previous knowledge.13/
e The statute can be reasonably interpreted as barring
qui tam enforcement whenever information about
wrongdoing is disclosed outside the private group of
alleged wrongdoers (i.e., “publicly") fo the government
during the course of a government audit or investigation.
In that regard, the "public" disclosure is the disclosure of
12/ United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 323
(2d Cir. 1992) (disclosure of subject matter of investigation); United
States ex rel. Fine v. MK-Ferguson Co., Nos. 95-2011, 95-2021, 1996
WL 638479 (10th Cir. Nov. 6, 1996) (disclosure of audit report).
13/ United States ex rel Stinson v. Prudential Ins. Co., 944 F.2d 1149,
1157-60 (3d Cir. 1991).
18
information beyond the confines of the wrongdoer fo the
government rather than by the government. The bar would
be applied, however, only when the government acted on
that information by commencing an audit, investigation or
one of the other enumerated enforcement mechanisms.
The decision below is inconsistent with other rulings,
with the statutory language and with Congress’ intent.
B. A “Public Disclosure’ Occurs When The
Government Discloses Its Audit Report To
Anyone Outside The Government, Including
Employees Of The Audited Contractor Who
Were Unaware Of The Alleged Wrongdoing.
1. The Ninth Circuit's Exemption Of Defense
Contractor Employees From _ Being
Considered Members Of The Public Is
Unfounded.
The Ninth Circuit held below thai the government's
disclosure of its audit report to employees of the audited
contractor who were not involved in the alleged fraud
(termed "innocent employees"), did not qualify as a public
disclosure. Pet. App. at 8a-lla (disagreeing with the
Second Circuit's holding in Doe, 960 F.2d at 323)44 The
14/ Ip Doe, the Second Circuit held that public disclosure occurs
when the government, in the course of an investigation, discloses the
subject matter to members of the public with no prior knowledge
thereof -- in that case, employees of the targeted company who did not
participate in the alleged fraud but whom the government interviewed
in connection with its investigation. 960 F.2d at 319-20 In United
States ex rel. Fine v. MK-Ferguson Co., Nos. 95-2011, 95-2021, 1996
WL 638479 (10th Cir. Nov. 6, 1996), the U.S. Department of Energy's
disclosure to the government of Oregon of a federal audit containing
allegations about a contractor located in Oregon was held to be a public
disclosure even though the state did not further disseminate the audit.
19
court believed it was unrealistic to consider these
individuals to be members of the public. Pet. App. at 9a.
This belief was premised upon a set of erroneous
assumptions about the motivations of defense contractor
employees and their relationship with the government's
oversight personnel. The record contained not one iota of
evidence to support these sweeping conclusions.
The first faulty assumption was that employees of
defense contractors are uniquely inclined to suppress fraud.
Because the employee has a strong economic
incentive to protect the information from
outsiders, revelation of information to an
empleyee does not trigger the potential for
corrective action presented by other forms of
disclosure.
Id. The court further commented:
[I]n the context of defense procurement, security
considerations generally require that the
government, contractors and subcontractors
operate within a closed loop of secrecy.
Id. Thus, the court held that the government's release of
information to a defense contractor is a disclosure "within a
private sphere." Jd. at 9a-10a.
The FCA does not expressly or impliedly exempt
defense contractor employees (or any other kinds of
employees) from status as members of the public; nor does
it identify certain forms of disclosure as "private."1L2/
LS5/ One could infer from the ruling that a disclosure of a government
audit to a business not engaged in defense contracting would constitute
a public disclosure. It is improper to single out “defense” contractors
for greater exposure to gui tam actions. “{CJourts are not at liberty to
create an exception where Congress has declined to do so." Freytag v.
Commissioner of Internal Revenue, 501 U.S. 868, 873 (1991).
20
Congress expressly identified a government audit as one
vehicle for the occurrence of a public disclosure.
§ 3730(e)(4)(A). Congress must have been aware of the
fact that such audits are routinely disclosed by the
government to the audited contractor (and to the prime
contractor when the audited company is a subcontractor).
The Defense Contract Audit Agency ("DCAA"), which
conducted several of the audits that preceded the filing of
Schumer's gui tam action (as well as the audits which
preceded the Newsham action against Lockheed Martin),
“routinely provides copies of draft reports for all audits . . .
to the contractor being audited for review and comment."
DCAA Audit Manual § 10-212.2 (1996)16/ Apart from
such disclosures, the government does not publish its audit
reports, mail them to reporters or other industry observers,
place them in the Congressional Record, or file them in
libraries or courthouses. Accordingly, the Ninth Circuit
strains the meaning of the statute by creating an exception
to the term “public disclosure" which, in turn, exempts the
most common way that government audits are disclosed
outside the government, i.e., by sending such audit reports
to the subject company.
Furthermore, the court's assumptions about contractor
employees and government oversight personnel being part
of a "closed loop of secrecy" are unfounded. There is
nothing peculiar about government contracting that fosters
keeping illegal conduct secret. The Ninth Circuit's
treatment of contractor employees disregards the key role
that Congress carved out for those individuals in its
enforcement scheme. Congress believed that in situations
16/ While the Audit Manual in effect in 1986 does not state that such
disclosures are “routine,” it notes that disclosure is subject to the
contracting officer's approval. § 10-213.3 (1983). In both Schumer
and Newsham, DCAA disclosed its audit reports to the contractors.
21
in which allegations of wrongdoing by a company
remained undisclosed and unaddressed by the government,
an employee of that company with knowledge of the
wrongdoing would step forward to enforce the law.1//
Had Congress shared the court's distrust of contractor
employees, it would have enacted a vastly different statute.
Doe's holding that qui tam enforcement is barred when the
wrongdoing is disclosed by the government to "innocent
employees” who were “strangers to the fraud" implements
the core rationale of the qui tam provisions and the bar
against parasitic actions. The Ninth Circuit, by adopting a
rule not contained within the text of the statute, ultimately
second-guesses and overrides Congress' rationale.
2. The Ninth Circuit Misinterpreted The
Purpose Of The 1986 Amendment.
The Ninth Circuit overlooked the legislative history
described above which shows that Congress repealed the
government knowledge bar in 1986 because it was
concerned about the government possessing information
but taking no action, ie., conducting no investigation and
taking no enforcement steps whatsoever. Had the court
correctly assessed Congress’ intent, it would have found
that the government's actions in this case justified barring
the qui tam action.
The Ninth Circuit stated that Doe's holding:
17’ See Senate Report at 5269 ("Detecting fraud is usually very
difficult without the cooperation of individuals who are either close
observers or otherwise involved in the fraudulent activity"). Thus,
Congress presumed that most gui tam actions would be filed by
contractors’ employees as, in fact, they have been. United States ex rel.
Fine v. Chevron, 72 F.3d 740, 742 (9th Cir. 1995) (en banc) (noting
that employee cases are the "paradigm qui tam case").
22
drastically curtails the ability of insiders to bring
suit once the government becomes involved in the
matter. . .. Contrary to Congress’ intentions for
the jurisdictional bar, the Doe rule "effectively
shifts the standard from ‘public disclosure’ back to
‘government investigation," so that government
possession of information relating to fraud
effectively forecloses gui tam suits.
Pet. App. at 10a (citing the dissent in Doe, 960 F.2d at
326).
The pre-1986 FCA barred qui tam enforcement on the
basis of "government knowledge." Thus, the Ninth Circuit
overlooked the fact that, under the pre-1986 law, gui tam
actions were barred well before the government
commenced an "investigation," or otherwise became
"involved in the matter." There is a vast difference
between: (a) government knowledge with no investi
and (b) government knowledge coupled with an
investigation. The legislative history suggests that
Congress intended to move the bar from (a) to (b). The
congressional statements quoted above strongly suggest
that if the pre-1986 FCA had ensured that the government
actually conduct an investigation or an audit before a qui
tam action could be barred, Congress would have been
satisfied with such government efforts and would not have
expanded qui tam enforcement.
Thus, the Ninth Circuit's statement that the Doe case
bars qui fam enforcement upon the government's
commencement and disclosure of its investigation is
correct. However, the Ninth Circuit is wrong to equate
such enforcement with what Congress perceived in 1986 to
be complete inaction.
The enforcement efforts undertaken here by the
government are far from inaction, and the disclosures
23
between the government and the contractors did not occur
within a "closed loop of secrecy."18/ Indeed, the events
described in the record portray the government's efforts as a
model of efficient dispute resolution. The disclosures of
Tae aetaae Ok entteg bom So Greene
of the investigation and resulting government's
withholding of payment, enabled Hughes to demonstrate to
the government and to Northrop that the cost charging
practices in question not only were proper but actually
saved the government money. J.A. at 136. This process
enabled the government to avoid costly and time-
consuming litigation.
Unfortunately, however, much of the efficiency gained
by such resolution was lost to Hughes. Notwithstanding
the government's favorable determination, Hughes still had
to litigate the same matter against an individual who,
purporting to stand in the government's shoes, asserted that
the government had been defrauded. Because, in Schumer,
the government exercised enforcement and disclosed its
ions outside the government, gui tam enforcement is
barred.
18 The record reflects that, upon the request of Northrop (J.A. at 20),
a lengthy investigation and audit process was undertaken, involving
scores of people from Hughes, Northrop and the government, each of
whom disclosed and received information about the allegations and
transactions. Government personnel who participated in this dialogue
and disclosure of information (and who routinely participate in such
matters) included those responsible for awarding and supervising the
contracts, administering and monitoring the costs charged on the
contracts, auditing and investigating the contractor's business practices,
category of government personnel included the Administrative
Contracting Officer, who initially withheld payment of costs (J.A. at
45-47), and the Defense Procurement Fraud Unit of the Department of
Justice, which had prosecutorial discretion (J.A. at 31).
24
C. A "Public Disclosure" Occurs When Allega-
tions Disclosed To The Government Result In
A Government Audit Or Investigation.
The Ninth Circuits fear that disclosure of goverment
audits to company employees would “not trigger the
potential for corrective action presented by other forms of
disclosure" (Pet. App. at 9a) is misplaced. Section
3730(e)(4) and its history suggest that the government's
actual audit or investigation of allegations disclosed to the
government is sufficient corrective action to bar gui tam
enforcement. Under the statutory scheme, the Court can
properly apply a per se rule that whenever allegations are
disclosed to the government, and, as a result, the
government commences an audit or investigation of
allegations, no one other than the “original source” of the
allegations may bring a gui tam action.
Such a per se rule can be derived from the decisions of
courts which have held that a public disclosure occurs when
information is "available" or "potentially accessible” to the
public even if no one has actually sought to obtain the
document. See, e.g., United States ex rel. Kreindler et al. v.
United Technologies Corp., 985 F.2d 1148, 1158 (2d Cir.),
cert. denied, 113 S. Ct. 2962 (1993) (information ob‘ained
by an attorney from an opposing party during discovery in
a prior non-related civil action "was publicly disclosed
because it was available to anyone who wished to consult
the court file"); United States ex rel. Stinson v. Prudential.
944 F.2d at 1157-60 (same result on similar facts even
though the information obtained in discovery was not filed
in the courthouse). A government audit or investigation
certainly triggers a greater potential for enforcement than a
disclosure in a non-governmental civil “hearing”
(properly
defined as any civil proceeding) -- which is another form of
disclosure enumerated in § 3730(e)(4)(A).
25
Government audit reports are routinely available to
members of the c through the Freedom of Information
Act ("FOIA"). Therefore, if a public disclosure occurs
when information is potentially accessible, then an audit
A per se rule barring qui tam actions based on
government audits can also be derived from an examination
of the text of the provision. Section 3730(e)(4) does not
expressly require the government's disclosure of its audit
report outside the government. Rather, the “public
disclosure of allegations or transactions in a[n] . . . audit”
can be read entirely consistently with the statute to apply to
that are disclosed outside the “private” group of
wrongdoers when such disclosure leads to a government
audit or investigation. “Public,” as commonly used, is
contrasted with the “private” group of wrongdoers. See
Webster's Ninth New Collegiate Dictionary 952 (Merriam-
Webster 1991) ("public” defined as “of or relating to
business or community interests as opposed to private
affairs"). "Disclosure" is defined in Black's Law Dictionary
19 5US.C. § 552. The DCAA's FOIA regulations state an intent to
"[p}romote public trust by making the maximum amount of
information available to the public, upon request, pertaining to the
operation and activities of the Agency.” 32 C.F.R. § 290.4.
20/ The court below held that an audit report is publicly disclosed
under FOIA only when it is actually requested and released. Pet. App.
at 13a. The presumption that DCAA audit reports are accessible to the
public held true in this case; Schumer successfully obtained each of the
audits by submitting a FOIA request, though not until after he filed his
qui tam action. Id.
26
464 (6th ed. 1990) as "[t]o bring into view by uncovering;
to expose; to make known . . . to free from secrecy or
ignorance... ." Thus, when information is disclosed
outside the private group of wrongdoers, there has been a
public disclosure. When teas publie doclocare lends 2
government audit or investigation, the desired enforcement
mechanisms of the FCA are triggered.
"A ‘whistleblower’ sounds the alarm; he does not echo
it. The Act rewards those brave enough to speak in the face
of a ‘conspiracy of silence,’ not their mimics." Wang ex rel.
United States v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir.
1992). The disclosure of information to the government
about wrongdoing is what sounds the alarm. Such
disclosures occur when employees call the Department of
Defense's “hotline" and through DoD’s Voluntary
FCA action.2)/ As currently interpreted by most circuits,
§ 3730(eX4)(A) would permit a gui tam action by an
employee whose information was obtained solely from the
company's voluntary disclosure -- a result which
impedes the goals of this program.
2l/ See Department of Defense Voluntary Disclosure Program, A
Description of the Process, (DoD Inspector General April 1990)
(reprinted in App. at 20a-43a), App. at 29a (describing the purpose of
the program), App. at 40a ("Following receipt of the contractor's
internal report, the designated [investigative organization(s)] begins the
sufficiently high priority to allow for its expedited completion”).
27
is: Gest: wowt an eye © Se eee
statutory construction were applied.22/ Under this
construction, as soon as the government responds to such a
disclosure by commencing an audit or investigation, the
FCA bars a gui tam action by anyone other than the
“original source” of the disclosure. If, on the other hand,
the government fails to take any responsive action, and
none of the other forms of public disclosure occur, then
anyone may bring a qui fam action.
The government, in at least one case, has asserted a
similar view:
The section-by-section analysis [of the legislative
history] does not distinguish between information
in the possession of the government that has been
released to the public at large, and government
information that has been obtained in another
was based was not only developed by the
government, but also the government had an open
investigation of the facts alleged in the complaint
at the time the suit was brought. Under the
statutory language and the section-by-section
analysis, this action is barred because it is based
solely upon information developed by and
available to the government.23/
22/ See Ryland, The Government Contractor's Dilemma: Voluntary
Disclosure as the Source of Qui Tam Litigation, 22 Pub.Cont.L.J. 764,
800-802 (1993) (the Voluntary Disclosure Program “clearly should
qualify as an “administrative investigation,” "information submitted by
the contractor has actually been disclosed to ‘strangers to the fraud’).
23/ Brief for the United States, United States ex rel. Williams v. NEC
Corp., 931 F.2d 1493 (11th Cir. 1991) (emphasis added), attached to
Hughes’ Supplemental Brief On Petition for Writ (filed Sept. 25, 1996),
App. B, at 24a.
maintaining a qui fam action.
There is no basis for applying the bar only when the
government discloses the allegations outside
government. This misplaced focus stems, in part,
cases in which the government argued that a government
employee could not be a relator because his suit was based
upon allegations which he disclosed outside the
government to himself as a member of the public.24/ Also,
while Doe considered how far the allegations contained in
the government's investigation must seep into the "public
domain,” the court never considered whether the underlying
disclosure of allegations fo the government could have been
the public disclosure. 960 F.2d at 322. Thus, courts have
simply assumed that "public disclosure" in this context
means "government disclosure," and they have overlooked
the plain language of the text.
It is not apparent that Congress believed FCA
enforcement would be enhanced merely by the government
informing one or more members of the public about its
efforts. Congress was chiefly concerned that the
government take action, not necessarily disseminate
information to the public about its action. A ruling which
bars gui tam actions (other than by original sources) when
allegations are disclosed to the government which actually
result in the government commencing an audit or
investigation, would be consistent with the language and
24/ See, e.g, United States ex rel. Hagood v. Sonoma County Water
Agency, 929 F.2d 1416, 1419 (9th Cir. 1991).
29
purpose of § 3730(e)(4)(A), and would provide a necessary
bright line for determining when a qui tam action may be
brought. The FCA, with its potential for treble damages
and penalties (§ 3729(a)), justifies the application of bright
line rules.
CONCLUSION
For the foregoing reasons, Lockheed Martin urges the
Court to reverse the Ninth Circuit on the questions
presented by the Petitioner.
LESTER W. SCHIEFELBEIN, JR.
STEPHEN A. WARREN
LOCKHEED MARTIN MISSILES
& SPACE
1111 Lockheed Martin Way
Sunnyvale, CA 94089
(408) 743-0977
November 29, 1996
Respectfully submitted,
JAMES J. GALLAGHER,
Counsel of Record
MARK R. TROY
BARBARA J. BACON
MCKENNA & CuNEO, L.L.P.
444 South Flower Street, 8th F!
Los Angeles, California 90071
(213) 688-1000
Counsel for Amicus Curiae,
Lockheed Martin Corporation
APPENDICES
la
APPENDIX A
JOHN R. BOLTON
Assistant Attorney General
JOSEPH P. RUSSONIELLO
United States Attorney
JUDITH WHETSTINE
Chief, Civil Division
STEPHEN A. SHEFLER
Assistant United States Attorney
450 Golden Gate Avenue
San Francisco, California 94102
Telephone: (415) 556-8122
MICHAEL F. HERTZ
VINCENT B. TERLEP, JR.
United States Department of Justice
Post Office Box 261
Ben Franklin Station
Washington, D.C. 20044
Telephone: (202) 724-7433
Attorneys for the United States
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF Civil Act. No. C88-
AMERICA, ex rel. 20009 RPA
MARGARET A. NEWSHAM
and MARTIN
OVERBEEKBLOEM,
Plaintiff
v.
LOCKHEED MISSILES AND
SPACE COMPANY, INC.
Defendant.
2a
I. INTRODUCTION
This action was brought against Lockheed Missiles and
Space Co., Inc. on January 22, 1988, on: behalf of the
United States of America by two private citizens under the
qui tam provisions of the False Claims Act, 31 U.S.C.
§ 3730(b) et seq.l/ The private citizens, known as relators,
complain of fraudulent conduct they witnessed or learned
about while they were employed by Lockheed. One of the
relators, Margaret Newsham, makes various allegations of
labor mischarging connected with one or two specific
government contracts, which will be identified herein as
P285 and P377.
Pursuant to 31 U.S.C. §3730(b)(4)(B), on February 3,
1989, the United States notified the court of its election to
decline to intervene in this matter, leaving the prosecution
of this case to the relators.
Defendant Lockheed has filed a motion to dismiss that
portion of the complaint applying to Mrs. Newsham's
allegations, on the ground that the court lacks jurisdiction
over the subject matter of the action. Lockheed contends
that the court's jurisdiction in this case should be governed
by the law in existence at the time Mrs. Newsham first
informed the Government of her allegations. At that time
the False Claims Act contained a jurisdictional bar to
actions brought by relators where it was made to appear
that the action was based on information and evidence
ee Op LEE 0 Oe Oak Oe ee ee
On the other hand, Mrs. Newsham argues that her
standing or capacity to bring a qui tam action in 1988
should be governed by amendments to the False Claims
1/ “Qui tam” is from the Latin phrase, “Qui tam pro domino rege
quam pro sic ipso in hoc parte sequitur” -- "Who as well for the King as
for himself sues in this matter.”
3a
Act in 1986, by which Congress eliminated the
jurisdictional bar under prior law, and allowed “honest
informers" with direct knowledge of the fraud, who first
reported the information to the Government, to bring suit,
notwithstanding the Government's knowledge.
The United States has an obvious interest in the proper
interpretation of the False Claims Act. Many False Claims
Act suits are initiated by the Attorney General. Still others,
although initially filed by relators under the Act's gui tam
provisions, are taken over by the Attorney General. Even
where the Attorney General does not take over a gui tam
case, the United States is still the principal statutory
beneficiary. Because resolution of the issue presented to
this Court relates to the proper interpretation of the False
Claims Act and could effect the interests of the
Government, the United States files this amicus brief.
As demonstrated below, the relator's capacity or
standing to bring this action should be governed by the law
in existence at the time the suit was filed. By the 1986
amendments to the False Claims Act, Congress specifically
intended to allow relators such as Mrs. Newsham to bring
suit and not be barred by the prior law's jurisdictional bar.
Those amendments generally apply to suits pending in
Court after the date of the amendments. Application of the
1986 amendments to this action is not manifestly unjust.
The prior jurisdictional bar was never a bar to liability of
the defendant; it was only a device to protect the
Government from "parasitical suits" brought by know-
nothing informers. The Government could still have
brought an action based on the relator’s information.
Congress's decision in 1986, about who should be allowed
to prosecute the Government's fraud claims, after the
Government has an opportunity to investigate and consider
the matter on its own, does not infringe on any matured or
ll. FACTS
In the complaint Mrs. Newsham alleges:
4a
1. Employees awaiting security clearances to
work on project P285 and other projects were
placed in separate areas known as "ice boxes."
Mrs. Newsham alleges that ice box employees
were under utilized, were given little or no work to
perform and constantly were idle or engaged in
personal business, but were instructed by their
supervisors to charge time to government projects
for a full work week.
2. Both ice box employees and regular Lockheed
employees with security clearances engaged in
personal activities during working hours, while
charging their time to government projects. One
result of this activity was to increase overtime
charges by the regular Lockheed employees.
3. Lockheed awarded numerous sole source
subcontracts to Intercon Systems Corporation for
employees holding United States Government top
secret security clearances without adequate
justification and at unreasonable cost to the
Government. She alleges that this special
treatment was the result of a personal relationship
between Lockheed's P285 manager and Intercon's
director of personnel.
4. Labor hours were charged to P285 for time
spent transferring computer documentation onto
P285 computers from a different type computer
system for a different government project.
5. On instructions from their supervisors,
Lockheed employees shifted their labor hours
from P285 to P377 because P285 had exhausted or
nearly exhausted its budget.
It is undisputed that in August, 1984 Mrs. Newsham
informed the Government, the Defense Contact
Audit Agency (DCAA) Hotline of the same allegations that
she ultimately pleaded in her complaint. DCAA conducted
separate audits of each of her allegations, except that
Sa
involving the mischarging between P285 and P377.
DCAA's audit reports were reviewed by the appropriate
government contracting officers, who discussed the
findings with Lockheed. In the end, the contracting officers
determined that no claim against Lockheed was appropriate
on any of the audit reports.
Ill. ARGUMENT
1. The Law At The Time Mrs. Newsham
Informed The Government
At the time Mrs. Newsham made her hotline complaint
to the DCAA in 1984, the False Claims Act, 31 U.S.C.
§ 3730(b)(4) provided2’:
Unless the Government proceeds with the action,
the court shall dismiss an action brought by the
person on discovering the action is based on
evidence or information the Government had when
the action was brought.
The language of the statute in force at the time made it
clear that a court had no jurisdiction over an action brought
by a relator at any time it was made to appear that the suit
2 Im 1982, title 31 of the United States Code, including the
provisions of the False Claims Act, was enacted into positive law. The
False Claims Act, which was formerly found at 3! U.S.C. 231-235,
was re-codified at 31 U.S.C. 3729-3731. Although some sections of
the Act were shifted from their prior positions, and simple language
was substituted for awkward and obsolete terms, Congress intended
that the re-codification make no substantive change in the law See.
H.R. Rep. No. 97-651, 97th Cong., 2nd Sess. 3, reprinted in 1982 U_S.
Code Cong & Ad News 1897.
6a
was brought based on evidence or information known to the
Government on the date the relator brought her action.3/
While the jurisdictional question turned on whether the
suit was based on information in the hands of the
Government at the time the suit was brought, the Courts
ruled that it was not necessary that the Government's
knowledge be the exact equivalent of that provided by the
relator. See ¢.g., United Stites
Oil Co,, 558 F.2d 43 (2d Cir.), cert. denied 434 U.S. 967
(1977). The evidence possessed by the United States did
not have to be the "mirror image” of the information in the
hands of the relator. United States ex rel. Joseph v.
Cannon, 642 F.2d 1373, 1377 (D.C. Cir. 1981), cert. denied
455 U.S. 999 (1982);
Florida, 615 F.2d 1370, 1371 (Sth Cir. 1980).
Rather, as stated by the Court in Pettis ex rel. United
States v. Morrison-Koudson Co,, 577 F.2d 668, (9th Cir.
1978), all that was necessary to invoke the jurisdictional
bar was that:
the evidence and information in possession of the
United States at the time the False Claims Act suit
was brought was sufficient to enable it to
adequately investigate the case and to make a
decision whether to prosecute.
577 F.2d at 674.4/
2/ However, because the Government could cure the jurisdictional
defect by taking over the action from the relator within sixty days after
the action was filed, the Court's jurisdiction had been referred to as
“conditional” in such circumstances. United States ex rel. Sacks v.
Philadelphia Health Management Corporation, 519 F. Supp. 818, 822
(E.D. Pa. 1981); United States ex rel. Shinn v. State of Tennessee, 74
F. Supp. 635 (E.D. Tenn. 1947), United States ex rel. Bavarsky vy.
Brooks, 110 F. Supp. 175 (D.NJ. 1953).
7a
The source of the Government's prior knowledge could
range from prior formal State government investigations
communicated to Federal officials, as in United States ex
rel. Wisconsin v. Dean, supra and United States ex rel.
McFarlane v. Hutchinson, 519 F. Supp. 563 (D. Co. 1981),
Moreover, recognizing Congress's refusal in 1943 to
adopt a specific provision to the contrary, Courts ruled that
the jurisdictional bar applied, even if the relator was the
original source of the information in the Government's
hands at the time the suit was brought. Safir v. Blackwell,
supra; Pettis ex rel. United States v. Morrison-Koudson
Co., supra; United States ex rel. Aloff v. Aster, 176 F.
Supp. 208 (E.D. Pa. 1959), affd, 275 F.2d 281 (3rd Cir.),
(Footnote cont'd from previous page )
4/ See also, United States ex rel. Joseph vy. Cannon, 642 F.2d 1373
(D.C. Cir. 1981); United States ex rel. State of Wisconsin v. Dean, 629
F.2d 1102 (7th Cir. 1980); United States ex rel. Weinberger v. State of
Florida, 615 F.2d 1370 (Sth Cir. 1980); Safir vy. Blackwell, 579 F.2d
742 (2nd Cir. 1978); United States ex rel. Weiss v. Schwartz, 546 F.
Supp. 422 (N.D. Cal. 1982); Umited States ex rel. McFarlane v.
Hutchinson, 519 F. Supp. 563 (D. Colo. 1981); United States ex rel.
Sacks v. Philadelphia Health Management Corp.. supra. United States
ex rel. Lapin v. International Business Machines Corp., 490 F. Supp.
244 (D. Hawaii 1980). Cf United States ex rel. Greenberg vy. Burmah
Oil Co.. Lid. 558 F.2d 43 (2nd Cir. 1977); United States ex rel, Aloff
yv.Aster, 275 F.2d 281 (3rd Cir. 1960); United States ex rel. Leslie v.
Potomac Electric Power Co., 208 F.2d 39 (D.C. Cir. 1953); United
States vy. Rippetoe, 178 F.2d 735 (4th Cir. 1949); United States ex rel.
Thompson v. Hays, 432 F. Supp. 253 (D.D.C. 1976), United States ex
rel. Vance v, Westinghouse, 363 F. Supp. 1038 (W.D. Pa. 1973).
8a
cert. denied 364 U.S. 894 (1960); United States ex rel.
McCans_v. Armour & Co., 146 F. Supp. 546 (D.D.C.
1956), affd 254 F.2d 90 (D.C. Cir.), cert. denied, 358 U.S.
834 (1958).
Therefore, there is no question that if this action were
governed by the law in existence in 1984, this court would
have no jurisdiction over Mrs. Newsham's complaint, and it
would have to be dismissed.
2. The 1986 Amendments
In 1986, Congress amended the False Claims Act. In
relevant part, the Act now provides that any person may
bring a gui tam action for violation of the substantive
provisions of the False Claims Act. The Act no longer
contains a provision barring suit if the material information
is known by the Government at the time the suit is brought.
Instead, the law now allows a person to bring a gui tam
case, even on any information already known to the
Government, as long as the Government has not previously
filed suit using the same information, or the information
has ase bean pubtiety Clestend7 31 U.S.C. § 3730(e) now
3’ = There has been no contention in this case that the Government's
investigation of Mrs. Newsham's hotline complaint was publicly
disclosed prior to the date this suit was filed.
9a
(B) For purpose of this paragraph, "original
source” means an individual who has direct and
independent knowledge of the information on
which the allegations are based and has voluntarily
provided the information to the Government
before filing an action under this section which is
based on the information.
allegations contained in a complaint is no longer a bar to an
action by the relator. Nonetheless, Congress still
determined to preserve the prohibition against parasitical
lawsuits. Therefore, a relator is barred from proceeding if
there has been a prior public disclosure of the allegations,
unless the relator can establish that she is an original
source. These provisions have the effect of allowing
someone like Mrs. Newsham, who was barred under the old
Act because she reported the allegations to the
Government, to proceed with the action under the new Act.
3. The New Law Is Presumed To Apply
Immediately
The Supreme Court has stated that, as a general
principle, "a court is to apply the law in effect at the time it
renders its decision, unless doing so would result in
manifest injustice or there is statutory direction or
legislative history to the contrary.” Bradles School
Board City of Richmond, supra at 711. See Thorpe v.
& See also Eikenberry v. Callahan, 653 F.2d 632, 633 (DC. Cir.
1981) (amendment to 28 U.S.C. § 1331 eliminating the $10,000
jurisdictional amount in Federal Question cases held to retroactively
apply to pending cases):
(Footnote cont'd on next page)
10a
ee ay 393 U.S. 268 (1969); see
also United States v. Schooner Peggy, 5 U.S. (1 Cranch)
103 (1801);
Campbell v. United States, 809 F.2d 563 (9th
Cir. 1987); In Re Reynolds, 726 F.2d 1240 (9th Cir. 1984).
The Bradley principle means that:
... it is unnecessary to find affirmative support in
a statute or its legislative history for applying it to
pending cases. A statute will be presumed to
apply to cases pending at the time of its passage
unless there is a "clear indication" that it is not to
apply.
731 F.2d 1546,
1553 (11th Cir. 1984).
presumption of immediate application to the 1986 False
United States v. Board of
Claims Act Amendments.
697 F. Supp. 167, 171
Education of City of Union City,
(D.N.J. 1988); United States v. Hill, 676 F. Supp. 1158,
1166 (N.D. Fla. 1987); United States v. Ettrick Wood
Products, 683 F. Supp. 1262, 1265 (W.D. Wis. 1988);
Cir.
No. 1-87-293 (E.D. Tenn. April 27, 1988) and United
(Footnote cont'd from previous page.)
In the absence of an express congressional statement on the
applicability of legislation to pending cases, retroactivity is the
rule. As the Supreme Court stated in Bradley, “[E]ven where the
intervening law does not explicitly recite that it is to be applied to
pending cases, it is to be given recognition and effect.” It must be
emphasized that it is for Congress to specifically provide for
nonretroactivity if that is its intent.
(footnote and citation omitted).
lla
States _v. Oakwood Downriver Medical Center, 687 F
Supp. 302, 306-307 (E.D. Mich. 1988).
Since Congress did not specifically provide for
prospective applicability in the 1986 Amendments, the
applicable presumption is that the Amendments are to be
applied to all cases pending on the date of enactment and to
all subsequently filed cases, regardless of whether those
cases involve pre-amendment conduct. Union City, supra.
at 171-172, Hill, supra at 1165-1172; Oakwood supra at
302-307.2/ Congress surely knows how to restrict
ication of the laws it enacts when it desires to do so.
Eikenberry, 653 F.2d at 633-634 & n.5. Indeed, in marked
contrast to the False Claims Act Amendments, two other
civil fraud remedies statutes passed by Congress in the
same legislative session contain specific provisions
prohibiting their application to any pre-enactment conduct:
7/ Normal canons of statutory construction support immediate
application of the Amendments to all pending and subsequently filed
cases involving pre-amendment activities. “There is no injustice in
allowing declaratory statutes to apply retroactively since they do not
change the prior state of law ... [These statutes] should be applied
retroactively without hesitation” 1A C. Sands, Sutherland's Statutory
Construction § 26.06 (4th ed. 1985) (emphasis added). Furthermore,
"{clourts have consistently upheld the retroactive application of
‘curative’ legislation which corrects defects subsequently discovered in
a statute and which restores what Congress had always believed the law
to be.” Long v. United States Internal Revenue Serv., 742 F.2d 1173,
1183 (9th Cir. 1984). Congress’ codifications of judicial decisions into
statutory law comporting with Congressional intent thus are presumed
to be immediately applicable. Stockdale v. Insurance Cos,, 87 U.S. (20
Wall.) 323, 331 (1874); Temple University v. United States, 769 F.2d
126, 134 (3d Cir. 1985), cert. denied 106 S. Ct. 2914 (1986);
Silverlight v. Huggins, 488 F.2d 107, 109 (3d Cir. 1973). See also 2 C.
Sands, Sutherland Statutory Construction § 41.11, at 290.
12a
A. In the Program Fraud Civil Remedies Act of 1986
Pub. L. 99-509, tit. VI(B), § 6101, 100 Stat. 1984 (Oct. 21,
1986)), Congress provided that the Act "was to apply to
any claim made, presented, or submitted after the statute's
effective date.” Id. § 6104.
B. In the Anti-Kickback Enforcement Act of 1986,
Pub. L. 99-632, 100 Stat. 3523 (Nov. 7, 1986), Congress
provided that the Act shall apply to prohibited conduct that
took place after the date of enactment. Id. § 3.
Similarly, in the previous session of Congress,
amendments to the False Claims Act relating solely to
Department of Defense contracts were specifically made
applicable only to claims submitted after the date of
enactment. Department of Defense Authorization Act of
1986, Pub. L. No. 99-145, 99 Stat. 583 (1985).
The absence of any similar language in the False
Claims Act Amendments of 1986 indicates that Congress
intended the Amendments to apply to virtually all pending
litigation.8/ See also Hastings v. Earth Satellite Corp,, 628
8/ Contemporaneous legislative history shows that the drafters of the
False Claims Amendments Act were fully aware of the provisions of
the other statutes considered at the same time. When first considered
by the House Judiciary Committee, the False Claims Act and the
Program Fraud Act were both part of the same bill, H.R. 4827.
Further, the report of the Senate Judiciary Committee on the
Amendments to the False Claims Act states that "language was added
to further define the constructive knowledge definition so that it
paralleled that found in S.1134, the Program Fraud and Civil
Remedies Act as reported favorably from the Governmental Affairs
Committee.... [T]he Committee thought it unwise to allow the
possibility of confusion and the lack of a uniformly applied standard in
administrative and judicial false claims actions." S. Rep. No. 345, 99th
Cong., 2d Sess. 17 (1986); see also id, at 20-21. The same Committee
report comments that it adopted the treble damages provisions "to
(Footnote cont'd on next page)
13a
F.2d at 85 at 92-93 (D.C. Cir.), cert. denied 449 U.S. 905
(1980) (where prior amendments to D.C. Workmen's
Compensation Act specifically prohibited application to
pre-amendment conduct, the absence of any similai
prohibition in the 1972 amendments shows that Congress
intended that those amendments be applied to all pending
and subsequently filed cases).
4. Immediate Application Of The
Amendments Will Not Result In Manifest
Injustice
The 1986 Amendments introduced no “substantive”
changes — — Le¢., creation of new liabilities —— into the False
Claims Act. The Amendments clarify Congressional
intent, resolve conflicts among the circuits, and provide for
a more effective remedy without changing underlying
liability. Under the Supreme Court's decision in Bradley,
the Amendments are to be applied to a!] pending and future
cases “unless doing so would result in manifest injustice.”
416 U.S. at 711. As more fully discussed below, the
Amendments are curative and remedial in nature.
Therefore, it cannot be said that their immediate application
would result in any “manifest injustice." Indeed,
"{a}pplication of the 1986 amendments to all pending cases
would further the remedial purpose" of the Amendments.
Hill, supra at 1168.
In passing the new gui tam provision, Congress sought
to encourage the filing of new lawsuits based on preexisting
liabilities. Congress's goal in amending the qui tam
provisions was to provide more effective means for
recovering monies taken from the Treasury by fraud, and
that goal will be effectuated by application of the
(Footnote cont'd from previous page.)
comport with legislation passed earlier in the 99th Congress (Pub. L.
99-145, Department of Defense Authorization Act, 1986)." Id, at 17.
tt tt
l4a
amendments to gui tam cases filed after enactment of the
amendments. The clear intent of the legislation was
curative, remedial and procedural, and such changes in the
law are entitled under Bradley to immediate application.
Defendant argues that they are entitled to rely on the
"government knowledge” jurisdictional bar of 31 U.S.C.
§ 3730(b)(4) as an affirmative defense and, therefore, the
qui tam Amendment provision should not be retroactively
applied to preamendment conduct.2/ Defendant cites as
authority for this proposition the District Court decision in
United States ex rel, Henry Boisvert v. FMC Corp..
No. C-86-20613-WAI (N.D. Cal. Sept. 9, 1987), which was
expressly adopted in Uni
Corp., Case No. CV 86-6457 (C.D. Cal. March 31, 1988).
Such reliance is misplaced since both cases cited by
the defendant are inapposite to the case now before the
court. Both cases involved suits filed under the gui tam
provisions in effect before Congress amended the Act: the
question before those courts was whether the old law or
new law applied in determining the standing or capacity of
the relator to sue in an action which was filed before the
new law had been passed.
The EMC decision reached the correct result on the
facts of that case — — the prior False Claims Act gui tam
provisions were applicable to a suit filed prior to the 1986
9/ A defense based on the jurisdictional bar under prior law is not an
“affirmative defense” in the traditional sense. The affirmative defenses
listed in Rule 8(c) of the Federal Rules of Civil Procedure deal mainly
with the avoidance of underlying liability, and lead to dismissal of the
case on the merits. Rather, Lockheed's arguments in this case really go
to the issue of the relator’s capacity or standing to sue, a defense having
nothing to do with underlying liability, and which is dealt with
separately under Rule 9(a) of the F.R.C.P.
15a
amendments to the Act.l2/ However, the FMC conclusion
that the new gui tam provisions affect "vested" or
"antecedent" rights of defendants (and by implication,
cannot be applied to cases filed after the date of enactment
involving acts that occurred prior to the date of the
amendments) conflicts both with Congressional intent and
with applicable law, and should be rejected by this court.
The jurisdictional bar under prior law depriving a
relator of standing if the Government was in possession of
the information forming the basis for the relator’s action,
was a provision created entirely for the benefit of the
Government; the fact that a defendant could move to
dismiss a relator's case for lack of standing on this basis is
incidental and did not create any "vested right” in
defendants to such a defense 11/
10/ The United States submitted an amicus curiae memorandum in
both cases in support of the proposition that the facts relating to a
citizen's standing as a proper relator should be fixed as of the date he
brings his suit. The need for this narrow exception to the Bradley
presumption is attributable to the unique nature of the gui tam
provisions — in many, and perhaps most gui tam cases, it would be
impossible to apply the gui tam provisions of the new amendments (eg.
the sealing provisions) to cases filed prior to the date of the
amendments. Likewise, to the extent that Congress amended the qui
tam provisions to encourage the filing of gui tam suits by relators, that
Congressional purpose is not served with respect to suits already filed
by the relators prior to the amendment.
ll/ The statute specifically gave the district courts the responsibility,
sua sponte, to dismiss any action brought based upon knowledge in the
government's possession, 31 U.S.C. § 3730(b)(3), and did not convey
any fight to dismissal to a defendant. Further, governmental
knowledge of the facts underlying a pre-amendment qui tam suit did
not relieve the defendant of liability in the event that the United States
either proceeded with the action or subsequently instituted a new action
based on the same allegations.
16a
Further, potential False Claims Act defendants, like
Lockheed, have no vested right or expectation to any
particular plaintiff or in any other change in law that affects
only "the form of the action to be commenced." Terry v.
Anderson, 95 U.S. 628, 633 (1877). As the Supreme Court
has made clear, "as to the forms of action or modes of
remedy it is well settled that the legislature may change
them at its discretion.” Id. See Meller v. Heil, 745 F.2d at
1305 (_ ) ("a defendant does not have a vested right in
application of a given remedial scheme"); see also Crane v.
Hahlo, 258 U.S. 142 (1922) (transfer of eminent domain
proceedings from court to administrative body did not
impair vested rights).
Moreover, even if defendants could show a "vested
right," which they cannot, the immediate application of the
Qui tam provision to this case, based on the defendants’ pre-
amendment conduct, works no "manifest injustice." In
order for Lockheed's arguments to succeed, they must show
that they actually relied upon some vested right in order for
it be unjust for the right to be denied them now. Clearly,
they cannot argue that they relied upon the former gui tam
provision in this matter. See e.g.. Hill, supra, at 1169.
Furthermore, Lockheed's arguments that the time of
filing suit is not relevant to the court's determination are
without merit. Both the prior law and the 1986
amendments refer to the time the complaint is filed in
determining the capacity of a relator to bring an action. In
similar circumstances, in cases in which a court must
decide if it possesses diversity jurisdiction, the court's
determination is restricted to the facts that existed on the
date the complaint was filed. Smith v. Sperling, 354 U.S.
91, 93 n.1 (1957); Topp v. Compair Inc., 814 F.2d 830, 832
(Ist Cir. 1987); Hawes v. Clum Ecuestre E] Comandante,
598 F.2d 698 (ist Cir. 1979); Lugo-Vina v. Pueblo
International, Inc., 574 F.2d 41, 42 n.1 (1st Cir. 1978). See
also Wright, Federal Courts, §28 at 107 (3rd Edition
1976).
17a
IV. CONCLUSION
Therefore, for the above reasons, the United States
respectfully submits that the False Claims Act
Amendments of 1986, particularly those removing the
jurisdictional bar against those who had previously
informed the Government of fraud by a potentially culpable
defendant, should be held applicable to all cases filed after
their enactment, and that, as a result, the court should deny
defendant's motion to dismiss.
_s/Vincent B. Terlep _
VINCENT B. TERLEP, JR.
Attorney for the United States
Dated: February 15, 1989
18a
APPENDIX B
NOT FOR PUBLICATION
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF No. 94-55620
AMERICA, ex rel. DON H. 94-55826
HAYCOCK,
Plaini-Appetiam, | D.C: No. CV-90-01977-
Vv.
HUGHES AIRCRAFT .
COMPANY. MEMORANDUM
Defendant-
Appellee.
Appeal from the United States District Court
for the Central District of California
David V. Kenyon, District Judge Presiding
Argued and Submitted September 15, 1995
Pasadena, California
Before: T.G. NELSON and KLEINFELD, Circuit Judges,
and WILKEN, District Judge.”
This disposition is not appropriate for publication and may not be
cited to or by the courts of this circuit except as provided by Ninth
Circuit Rule 36-3.
19a
After reviewing the record de novo, Jesinger v. Nevada
Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994),
we conclude that Haycock presented no evidence of fraud
or false statement. We are unable to identify, in the
evidence submitted, fraudulent allocations of employees to
the direct as opposed to the indirect categories, double
billing, or fraudulent accounting practices. Nor can we
identify a cost accounting standard which Appellee was
required to follow and did not follow. There is no evidence
in the record which we have been able to find to show that
Appellee improperly classified any indirect costs as direct
costs, or overcharged for any of the fringe benefits and
other entitlements associated with waiver costs. Whatever
may have been arguable was disclosed to and approved by
the government, so far as the evidence in the record shows.
Nor is there any evidence in the record to show a false
certification under the Truth in Negotiations Act, 10 U.S.C.
§ 2306a(a), or false statement of cost or pricing data. 10
U.S.C. § 2306a(a)(2).
The district judge had discretion to award attorney's
fees if it found that the relator's claim was "clearly
frivolous,” 31 U.S.C. § 3730(d)(4), and it did. This
standard is met if "the plaintiff continued to litigate after”
his claim “clearly became” groundless or without
foundation. Hughes v. Rowe, 449 U.S. 5, 15 (1980). Our
review of the attorneys’ fees award is limited by the abuse
of discretion standard. [pn re Washington Public Power
Supply System, 19 F.3d 1291, 1296-97 (9th Cir. 1994).
The district court was within its discretion in awarding
attorneys’ fees, as it did, for the period after Hughes served
on the relator declarations of the relevant government
(Footnote cont'd from previous page )
** The Honrable Claudia Wilken, United States District Judge for
the Northern District of California, sitting by designation.
20a 2la
officials showing that the cost allocation system was known Tue Oct 15, 1996 8:38am mailbox
to, and approved by, the government. memclerk/mail/standard Page 1
The district court's denial of his ‘motion for a
reconsideration of the attorneys’ fees award is reviewed for DATE __ FROM SUBJECT _ CODES
abuse of discretion. Barber v. Hawaii, 42 F.3d 1185, 1198 10/11/96 Judge Haycock v.Hughes 94-55620
(9th Cir. 1994). The court was within its discretion in Kleinfeld
concluding the expert witness declaration filed by Haycock inconded:
a oe new on the er a ae eae Sent: 10/11/96 at 5:16 p.m.
mans yw poor. fe Delivered: 10/11/96 at 5:12 pm
showed absence statement. To: Memoranda Clerk, Arms Unit, Memoranda
Appellee’s request for attorneys’ fees on appeal is Clerk, Opinions Clerk
denied. See Fed. R. App. P. 38; Amwest Mortg. Corp. v. CC: Judge T. Nelson, Judge Wilken via Fax,
Grady, 925 F.2d 1162, 1165 (9th Cir. 1991) (attorneys fees’ ARMS, Opinions Clerk
not awarded where appeal not "clearly meritless"). Ref: 961011171632-0700
From: Judge Kleinfeld Auth by:
AFFIRMED. Subject: Haycock v. Hughes 94-55620
Test [09/15/95 - Pasadena] 94-55826
[ajk/docs/septemb95/hay .md.fil]
I certify that all judges concerned concur
2 eae
disposition. Please file it simultaneously with
just previously sent ing.
Thank you.
Priority: Urgent SEEPAGE Attachments {| ]
Reply Request [ ] View Acknowledge[ ] Codes[{ ]
APPENDIX C
THE DEPARTMENT OF DEFENSE
VOLUNTARY DISCLOSURE
PROGRAM
A DESCRIPTION OF THE PROCESS
INSPECTOR GENERAL
DEPARTMENT OF DEFENSE
FOREWARD
The Voluntary Disclosure Program is considered by
the Department of Defense to be a cornerstone of self-
governance by Defense contractors and a manifestation of
cooperative relations between Government and industry.
The commitment to the Voluntary Disclosure Program by
Defense management remains strong. This is evidenced by
the recent Defense Management Report to the President
which emphasized the continued need for voluntary
disclosure.
The Voluntary Disclosure Program is not an amnesty
or immunity program, but rather a means by which Defense
contractors can bring to light potential civil or criminal
fraud matters. Those matters of a purely administrative
nature, of course, shall not be included in the Program. In
return for disclosing potential fraud and cooperating in any
Government audit and investigation of the matter, the
Government generally allows the contractor the opportunity
to conduct an internal investigation which the Government
then attempts to verify in an expedited manner. The
Department of Defense further agrees generally not to
initiate administrative actions until its verification process
is completed.
Coordination of information is essential to the effective
and expeditious resolution of the matter. By keeping all
responsible Government parties informed of the status of
the matter, problems identified may be more quickly
resolved. Government representatives are then better
24a
equipped to determine what, if any, criminal, civil, and
administrative remedies are appropriate.
The pamphlet "The Department of Defense Voluntary
Disclosure Program — A Description of the Process"
describes general guidelines, policy, and processes used by
Department of Defense and Department of Justice
personnel who share the responsibility in the resolution of
fraud matters. The process described in the pamphlet is
intended to allow for flexibility, when needed, in the audit,
investigations, and verification of matters brought into the
Voluntary Disclosure Program.
Susan J. Crawford
Inspector General
25a
THE DEPARTMENT OF DEFENSE
VOLUNTARY DISCLOSURE
A DESCRIPTION OF THE PROCESS
The purpose of this pamphlet is solely to describe the
process used by the Department of Defense and the
Department of Justice in the Administration of the
Department of Defense Voluntary Disclosure Program.
The pamphlet does not, nor should be relied on, to create,
confer, or grant any rights, benefits, privileges, or
protections enforceable at law or in equity by any person,
business, or entity in either civil, criminal
INSPECTOR GENERAL
DEPARTMENT OF DEFENSE
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TABLE OF CONTENTS
1. Office of Assistant Inspector
General for Criminal ome, oy
Policy and Oversight (AIG
Defense Criminal Investigative
te
Organizations (DCIOs)...............0ce0
3. Defense Contract Audit Agency...........
4. DoD Suspension and Debarment
PET scacuncenmmnenateonsetneee
5. The Department of Justice...................
. DESCRIPTION OF PROCESG...............:++
1. The Initial Disclosure ................:c0000+00+
Case Control Number......................00++
-
E.
5
S
5
Notification Requirements Relating
to Defective Products and Testing........
6. Inquiry for Prior Government
ES CE See
IPO).......
PAGE
27a
| ETE ALT 37
ef I Re 38
10. Failure to Sign XYZ Agreement............... 38
11. Notification of Admission into the
Voluntary Disclosure Program.................. 38
12. Contractor Internal Report
ND Rishabh tks ics vescomcesecous 39
13. Government Actions Pending
Contractor Internal Investigation............... 39
i a 40
15. Contractor's Cooperation During
i cca 4]
i |. i ra 4]
17. Defense Criminal Investigative
Organizations (DCIOs) Case
Management and Progress Reports........... 42
18. Payments by Contractors........0..0.0.0.0.ccc0000. 43
19. Removal of a Matter from the DoD
Voluntary Disclosure Program.................. 44
BO CR I sind cibitsecectrscnctcsceriteccsvcind 45
=> —_ _.-
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TABLE OF APPENDICES
[APPENDICES ARE NOT REPRODUCED]
Deputy Secretary of Defense Letters Dated July
24, 1986 & August 10, 1987.........ccccccsesceesneeeenenenenensnenenens
Voluntary Disclosure Flowchatt ...............c:s-sssssesseeeeseeeeens
Standard XYZ Agreement .........-.--s-ccesseeseeneneenenenenenrenanes
Letter Preliminarily Accepting a Matter into the
Voluntary Disclosure Program. .............-..:-ssssssseneeseeseneeesees
Standard XYZ AgreemMe>#tt .............cccceccssescssererserenrensseseesees
Report of Investigation ............-cssesessensnensensneneenenenenserenens
DC10 90-Day Investigative Progress Repott................+: ~—
Letter Removing a Matter From the Voluntary
Letter Closing a Matter Following Completion of
Goverment ACTVIRY .......0c0crserserrseerssecsevrersorseonseseoescessssssoees .
A. PURPOSE
1. The Department of Defense (DoD) encourages
Defense contractors to adopt a policy of voluntarily
disclosing potential civil or criminal fraud matters affecting
their corporate contractual relationships with the DoD as a
central part of their corporate self-governance and to
enhance contractor responsibility under the Federal
Acquisition Regulations. The policy is described in letters
from the Deputy Secretary of Defense to Defense
contractors, dated July 24, 1986, and August 10, 1987
(Appendix A). The Assistant Inspector General for
Criminal Investigations Policy and Oversight (AIG-CIPO),
Office of the Inspector General, DoD, is the designated
point of contact for voluntary disclosures of potential
criminal or civil fraud issues. Matters not involving fraud
should be presented to the appropriate contracting officer or
Defense Contract Audit Agency (DCAA) auditor.
2. The disclosures are made with no advance
agreement regarding possible DoD resolution of the matter
and with no promises regarding potential civil or criminal
actions by the Department of Justice (DOJ). Prompt
voluntary disclosure, full cooperation, complete access to
necessary records, restitution, and adequate corrective
actions are key indicators of an attitude of contractor
integrity even in the wake of disclosures of potential
iminal liability.
3. The DoD Voluntary Disclosure Program is intended
to afford contractors the means to report self-policing
activities. It provides a framework for Government
verification of the matters voluntarily disclosed and an
additional for a coordinated evaluation of
iendndoteative. civil, and celenieal acti Sn Dette
situation.
4. This pamphlet identifies the participating DoD and
DOJ organizations and describes the process by which
voluntary disclosures are reported, verified, and acted on.
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The complete process for managing voluntary disclosures is
depicted in a flowchart (Appendix B).
B. ORGANIZATIONAL FUNCTIONS —
The organizations listed below have the following
functions under the DoD Voluntary Disclosure Program:
1. Office of Assistant Inspector General for
Criminal Investigations Policy and
Oversight (AIG-CIPO)
The AIG-CIPO receives the initial disclosure, makes a
preliminary determination as to whether the disclosure
satisfies the requirements of the DoD Voluntary Disclosure
Program, coordinates the execution of the standard
Voluntary Disclosure Agreement, assigns the matter to a
Defense criminal investigative organization (DCIO) for
verification, assigns the matter to a suspension and
debarment authority, and coordinates the matter with the
DOJ for potential civil and criminal action. The AIG-CIPO
also serves as the focal point for the dissemination of
general information concerning the Voluntary Disclosure
Program, is responsible for administering the Program, and
coordinates administrative action within the DoD.
2. Defense Criminal Investigative
Organizations (DCIOs)
The U.S. Army Criminal Investigation Command
(USACIDC), the Naval Investigative Service (NIS), the Air
Force Office of Special Investigations (AFOSI), and the
Defense Criminal Investigative Service (DCIS) are the
Defense criminal investigative organizations (DCIOs) that
conduct investigations under the Program. One DCIO will
serve as the lead investigative agency. Following
admission into the DoD Voluntary Disclosure Program, the
lead DCIO in coordination with other DCIOs when
appropriate, conducts an investigation to verify the
accuracy and completeness of the matter(s) disclosed. The
lead DCIO, may request the Defense Contract Audit
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Agency (DCAA) to conduct a verification audit that will
generally be based on the contractor's internal report of
investigation. The lead DCIO coordinates its activities
with the AIG-CIPO, the DOJ, the DCAA, and the
cognizant suspension and debarment authority.
3. Defense Contract Audit Agency
The DCAA will, in most instances, be requested by the
lead DCIO to conduct a verification audit of the matter(s)
disclosed. The audit normally begins following receipt of
the contractor's internal report of investigation and focuses
on those matter(s) disclosed in the internal report of
investigation not covered by a previous audit.
4. DoD Suspension and Debarment
Authorities
A Military Department or Defense Agency has lead
agency responsibility for any suspension or debarment
determination resulting from the matter(s) disclosed. The
decision whether or not to initiate suspension or debarment
action takes into consideration, among other things, the
Government verification of the contractor's disclosure, the
contractor's cooperation, the adequacy of corrective action,
and restitution.
5. The Department of Justice
a. The Department of Justice Guidelines
regarding the Voluntary Disclosure Program set forth
complete guidance for the Department of Justice on
referral, investigation and prosecution of voluntary
disclosure matters.
b. The Defense Procurement Fraud Unit (Unit)
in the Fraud Section, Criminal Division, DOJ, is the point
of contact within the DOJ to oversee voluntary disclosure
matters. The Unit reviews all voluntary disclosure matters.
(1) The Unit conducts, or refers to the
appropriate U.S. Attorney's Office to conduct, whatever
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preliminary inquiry is deemed necessary to determine
whether there is specific credible evidence suggesting
prosecutable violations of Federal laws. If such evidence
exists, the matter will be investigated. :
(2) The United States Attorney's Office
notifies and obtains the concurrence of the Unit prior to any
decision to prosecute or decline prosecution of a volunteer
corporation.
ce. (1) In deciding whether to prosecute,
where the law and evidence is otherwise sufficient to
initiate prosecutive action, the prosecutor considers among
other factors, the truthfulness, completeness, and timeliness
of the disclosure; the quality and quantity of the
information provided therein; whether a compliance
program, including preventive measures, was in place prior
to the illegal activity; the extent of the fraud; the
pervasiveness of the fraud; the level of the corporate
officials involved in the fraud; the degree, extent, quality,
and timeliness of the contractor's cooperation in the
verification of the disclosure; and the remedial action taken
by the contractor.
(2) The determination of whether to
initiate or decline prosecution is the sole responsibility of
the Department of Justice in accordance with the
recommended criteria set forth in the DOJ Voluntary
Disclosure Guidelines.
d. The Civil Division, Department of Justice, is
responsible for determining whether to seek civil fraud
damages in voluntary disclosure matters.
C. DESCRIPTION OF PROCESS
1. The Initial Disclosure
a. The AJG-CIPO - Defense contractors
wishing to make a disclosure as part of the DoD Voluntary
Disclosure Program should be directed to the Assistant
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Inspector General for Criminal Investigations Policy and
Oversight (AIG-CIPO), telephone (703) 604-8710.
b. Confirmation Letter - When the initial
contact with the AIG-CIPO is made by telephone, the
contractor will be asked to send a letter confirming the
information presented.
2. Case Control Number
Control Number — A control number is assigned to
each voluntary disclosure (e.g., CIPO 012). The control
number is reflected on all communications between the
AIG-CIPO, the Military Departments, the Defense
Agencies, and the DOJ. The control number is not
intended to replace any internal DCIO or DOJ assigned
3. Preliminary Acceptance
a. Criteria - A matter will be preliminarily
accepted into the DoD Voluntary Disclosure Program if the
AIG-CIPO determines that:
/ (1) the contractor disclosed sufficient
information as defined in paragraph C.3.b. below, and
(2) the disclosure was not triggered by
the contractor's recognition that the potential criminal or
civil fraud matter or the underlying facts were about to be
discovered by the Government through audit, investigation,
contract administration efforts, or reported to the
Government by third parties. One factor in ini
— > ao ent has been met is whether the
Government f the
yt prior knowledge o matter(s)
b. Sufficient Information
3 (1) Information sufficient for
preliminary acceptance into the DoD Voluntary Disclosure
Program requires the contractor to disclose, at a minimum,
the contractor's name, the corporate division(s) affected, the
a
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location of the affected division(s), the Defense
Agency(ies) and Military Department(s) affected if known,
and the nature and description of the potential fraud. The
contractor should also provide, if known, ‘the DoD
component with contract administration
along with the contract number and type, and the estimated
financial impact to the Government. Sufficient information
should include the nature, effect, time period, and any
proposed remedy for the defect, as well as the identification
of all end users if the matter disclosed involves defective
products or testing.
(2) Since the DoD recognition of a
contractor as a “volunteer” depends on the disclosure not
being triggered by the contractor's recognition that the
potential civil or criminal fraud matter or the underlying
facts were about to be discovered by or disclosed to the
Government, the AIG-CIPO must have sufficient
information regarding the disclosure to do the following:
(a) Conduct an inquiry to learn if
the Government had prior knowledge of the matter
oe oad tn mandtan toms aes ta Oe
investigations and audits with the new disclosure (see
paragraph C.6. below).
(b) Determine whether to delay
the audit and investigation until the contractor's report of
investigation has been received (see paragraph C.13.
below).
(c) Determine whether later
identified matters are within the scope of the original
disclosure.
c. Date of Preliminary Acceptance - The date
on which the contractor discloses sufficient information in
accordance with paragraphs C.3.a. and b. above, is the date
on which the matter is determined to have been
preliminarily accepted into the DoD Voluntary Disclosure
Program. When the standard Voluntary Disclosure
Agreement (hereafter referred to as the "XYZ Agreement,”
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Appendix C) is executed, the date of admission into the
DoD Voluntary Disclosure Program relates back to the date
of preliminary acceptance.
4. Failure to Disclose Information
The AIG-CIPO may refuse to admit a matter into the
DoD Voluntary Disclosure Program if the AIG-CIPO
determines that the contractor knowingly failed to disclose
relevant available information, and such information is
obtained through other sources.
5. Notification Requirements Relating to
Defective Products and Testing
When a disclosure concerns defective products or
testing, the lead DCIO promptly notifies the affected
Military Department(s) and Defense Agency(ies) of any
potential safety or operational hazards. This notification is
required by DoD Directive 7050.5, “Coordination of
Remedies for Fraud and Corruption Related to Procurement
Activities," June 7, 1989.
6. Inquiry for Prior Government Knowledge
: a. Initiation of Inquiry - Based on the
information supplied by the contractor, the AIG-CIPO
conducts an inquiry to det-rmine whether the Government
had prior knowledge of the imatter disclosed. The inquiry is
mee me ge re nh gun Arar we
was triggered contractor's recognition that the
underlying facts of the potential fraud were about to be
discovered by the Government, or as to whether the matter
should be admitted into the DoD Voluntary Disclosure
Program. Rather, it is one factor considered in making a
preliminary determination whether to admit the matter.
b. Inquiry Assignment - Once sufficient
information is provided by the contractor, the AIG-CIPO
conducts an initial inquiry to determine whether the
Government had prior knowledge of the matter disclosed.
In most instances, the following inquiries are made:
- ~ nme: ome apa
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(1) DCIO Inquiry - A DCIO is
requested to conduct a Defense of
Investigations (DCII) check for open cases that could
incorporate the matter(s) disclosed. When appropriate, the
DCIO may be requested to make further inquiries to DCIO
field offices as to the matter(s) disclosed.
(2) | DCAA Inquiry — The DCAA
(a) a matter presently proposed
for audit by DCAA where notification has been given to the
company,
(b) a matter that is presently or
has been the subject of a DCAA audit; or
(c) amatter in which the DCAA
has issued an audit report or report of suspected
irregularity. The DCAA is also asked to provide
information regarding the nature and scope of the audit to
incorporate the matter(s) disclosed.
(3) Federal Bureau of Investigation
(FBI) Inquiry — The FBI representative to the DPFU is
requested to determine whether there is an ongoing or
previously conducted FBI investigation that could
incorporate the matter(s) disclosed.
(4) Defense Procurement Fraud Unit
(DPFU) Inquiry — The DPFU is requested to determine
whether there are any ongoing or previously conducted
the matter(s) disclosed. If the matter(s) disclosed suggest
possible antitrust implications, the DPFU is asked to
determine whether there are any ongoing or previously
heated antl leatiean on Withation tum ead
impact on the disclosure.
(5) Civil Division, DOJ, Inquiry - The
Civil Division, DOJ, is requested to determine whether
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there are any ongoing or previously conducted civil
eat or litigation, including False Claims Act gui
tam suits (31 U.S.C. 3729 et seq.), in which the matter(s)
disclosed could be incorporated.
the matter(s) disclosed.
(7) Other Inquiries - When appropriate,
other Inspectors General and investigative agencies may be
contacted to inform them of matters that may impact on
a Senae er epeeiens, 6 Setasins whetiar Gary eve
aware of any investigations or litigation that impact
the matter(s) disclosed. ie rH
7. Notification of Preliminary Acceptance
When a decision is made to preliminarily accept a
matter into the DoD Voluntary Disclosure Program, the
contractor is advised in writing (Appendix D). The letter
explains that the contractor's continued participation in the
program is contingent on prompt execution of the standard
XYZ Agreement, compliance with the terms of the XYZ
Agreement, and compliance with the requirements set forth
in the Deputy Secretary of Defense letter of July 24, 1986.
The standard XYZ Agreement is enclosed with the letter.
Copies of the letter are forwarded to the DPFU; the Civil
Division, DOJ; the assigned DCIO(s); the DCAA; and the
8. Matters Rejected
_ The contractor is advised in writing if the matter is
rejected from inclusion in the Voluntary Disclosure
Program (Appendix E). The letter, however, encourages
the contractor to cooperate in the Government audit and
investigation. Copies of the letter are forwarded to the
DPFU; the Civil Division, DOJ; the DCIO(s); the DCAA;
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9. XYZ Agreement
The standard XYZ Agreement is used in all disclosure
matters absent compelling circumstances * requiring
deviation. The XYZ Agreement should be signed promptly
by an authorized director or officer of the contractor,
preferably within two weeks of receipt, and returned to the
AIG-CIPO. When signed by all required signatories,
copies are sent to the DPFU; the Civil Division, DOJ; the
assigned DCIO(s); the DCAA; and the cognizant
suspension and debarment authority.
10. Failure to Sign XYZ Agreement
The AIG-CIPO will attempt to resolve any outstanding
issues concerning the XYZ Agreement. In the event the
contractor refuses to sign the XYZ Agreement or makes
demands that are unacceptable to the Government, the
AIG-CIPO will advise the contractor in writing of the
removal of the matter from the DoD Voluntary Disclosure
Program (Appendix F). Copies of the letter are forwarded
to the DPFU; the Civil Division, DOJ; the DCIO(s); the
DCAA; and the suspension and debarment authorities.
11. Notification of Admission into the
Voluntary Disclosure Program
Following execution of the XYZ Agreement, the AIG-
CIPO notifies the contractor in writing confirming the
admission of the matter into the DoD Voluntary Disclosure
Program (Appendix G). The contractor, if it has not
already done so, will be asked to inform the AIG-CIPO
within ten days of the execution of the XYZ Agreement
whether a written report will be provided describing the
results of the contractor's internal investigation. In
addition, the contractor is informed that any written report
should be submitted within 60 days of the initial disclosure.
The AIG-CIPO's confirmation letter will identify the
responsible DCIO(s), the cognizant suspension and
debarment authority, and the points of contact within each.
Copies of the letter are sent to the DPFU; the Civil
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Division, DOJ; the responsible DCIO(s); the DCAA; and
the cognizant suspension and debarment authority.
12. Contractor Internal Report Investigation
_ @ Internal Investigation - The contractor
determines whether an internal investigation will be
investigation, it generally is in the best interest of the
contractor to conduct their own investigation and submit a
_ b. Timely Completion of Report - Contractors
choosing to provide CIPO with a written report describing
the results of their internal investigation are requested to
submit their report within 60 days of the initial disclosure.
If the contractor is unable to complete the report within 60
days, the contractor should request an extension of time.
The AIG-CIPO will determine if and on what basis an
interim report(s) should be provided.
c. Distribution of Report - The AIG-CIPO
disclosure relates to contract fraud); and the assigned
the DPFU distributes a copy to a U.S. Attorney for
prosecutive review. The Civil Division, DOJ, forwards a
copy to any U.S. Attorney involved in related civil
litigation. .
13. Government Actions Pending Contractor
Internal Investigation
a. Timing of Government Investigation - As a
general rule, the Government does not begin the
verification process or conduct its own audit or
investigation until it has received the contractor's internal
report of investigation. The Government, however,
2 ee
ieee
40a
reserves the right to begin its own audit or investigation at
any time. Under certain circumstances, the contractor may
be asked to discontinue or limit its internal investigation.
b. Statute of Limitations - During completion
of the contractor's internal investigation, if the Government
determines that the criminal or civil statute of limitations
will expire as to the matter disclosed, or any part thereof,
within one year after submission of the contractor's report,
the Government, at its option, may request the contractor to
waive the statute of limitations for a period it deems
appropriate. Refusal to waive the statute of limitations will
be considered in evaluating the cooperation of the
contractor.
14. Verification
a. Investigative Plan — Following receipt of the
contractor's internal report, the designated DCIO(s) begins
the verification process. The verification audit and
investigation are given sufficiently high priority to allow
for its expedited completion. The DCIO prepares a written
investigative plan and coordinates it with the criminal
prosecutor assigned to the matter, and the Civil Division,
DOJ. The plan focuses the investigation, serves as a
roadmap for the DCIO(s), and provide a means for the
DCIO(s) to track the progress and ensure timely completion
of the verification process.
b. DCAA Verification Audit - The DCIO(s), in
most instances, request the DCAA to conduct a verification
audit. The DCAA auditor assigned to the matter is briefed
on the investigative plan to ensure a coordinated effort. If
sufficient information is available and the circumstances
warrant, the DCIO(s) may begin its own investigation prior
to completion or in conjunction with the audit.
<a € Verifi Audit and } ,
tion — The scope of the verification audit and investigation
focus specifically on the matters disclosed by the
contractor, and include the quantification of the
Government losses and potential civil forfeitures under the
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False Claims Act. Unrelated fraud allegations developed
during the verification process are pursued by the initiation
of an independent audit or investigation in accordance with
normal procedures unless their relationship to the matter
disclosed is so commingled as to prevent their severance.
Such allegations are not treated as part of the Voluntary
Disclosure Program without prior coordination with the
AIG-CIPO.
15. Contractor's Cooperation During the
Verification
The contractor's cooperation is essential to the
verification audit and investigation. Problems
the contractor's cooperation that cannot be readily resolved
by the DCIO field agent and the DCAA auditor (e.g.,
refusal to supply records or allow interviews), are promptly
brought to the attention of the respective headquarters of
the DCIO(s) and the DCAA for resolution. Where the
contractor's cooperation is unsatisfactory, the headquarters
of the DCIO and/or the DCAA promptly notify the AIG-
CIPO in an attempt to resolve the issue. The AGI-CIPO
will, in turn, notify the DPFU of the unsatisfactory
cooperation. When appropriate, the AIG-CIPO, with the
assistance of the Office of the General Counsel, DoD, will
attempt to resolve the problem with counsel representing
the contractor.
16. Use of Subpoenas
The DoD Voluntary Disclosure Program assumes
contractor cooperation. Should subpoenas for documents
be necessary, it is standard procedure to use Inspector
General subpoenas rather than grand jury subpoenas. Prior
to the issuance of a grand jury subpoena in a voluntary
disclosure matter, the assigned DCIO agent promptly
notifies the DCIO headquarters, which in turn, notifies the
AIG-CIPO.
ee ae Se ee
_— :
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17. Defense Criminal Investigative
Organizations (DCIOs) Case Management
and Progress Reports
a. Progress Report - The DCIO headquarters
monitor all voluntary disclosure matters assigned to their
organization to ensure adequate progress and expeditious
completion. The Didils Greed 0 deulents eal Bioeth
voluntary disclosure investigation every 90 days to the
AIG-CIPO (Appendix I). On receipt of the 90-day progress
report, the AIG-CIPO forwards a copy to the DPFU; the
Civil Division, DOJ; and the DCAA. The progress reports
separately summarize each ongoing investigation,
incorporating the following information:
(1) subject(s), including corporate name,
affected division(s), and affected location(s);
(2) the investigative | organization
assigned case number, the CIPO assigned disclosure
control number, and the DCIO(s) field office assigned to
conduct the investigation;
(3) an initial summary, including
allegations, Military Departments and Defense Agencies
affected, the time frame in which the allegation occurred,
the identification of contracts under investigation, the status
of the contracts, and the contractor's estimated cost impact
to the Government;
(4) matters involving defective products
or testing include a description of the defect, the effect on
health or safety, the time period involved, notice to the
users, and corrective action taken;
(5) updates include all newly acquired
information including prosecutive status (both civil and
criminal), new cost impact figures calculated by either the
contractor or the DCAA, changes in the scope of the
investigation, new allegations raised, or allegations
determined to be unfounded;
43a
(6) other significant information to be
reported includes declination of prosecution, criminal
indictment, use of subpoenas, and any problems arising
during the audit and investigation such as poor cooperation
or need for subpoenas;
(7) date audit was completed and date
the investigation was closed; and
(8) monies offered by the corporation,
accepted by the Government, including checks, credits, or
other offsets.
b. Progress Report Reviews - Each DCIO
schedules a meeting at a location of its choice within 14
days of the progress report to review the status and planned
actions of each open investigation. Attendees at the
meeting may include a representative from the OAIG-
CIPO; the DCIO; Office of General Counsel, DoD; the
DPFU; and Civil Division, DOJ.
18. Payments by Contractors
a. Required Coordination with the Civil
Division, DOJ — Collection of any civil damages for all
DoD voluntary disclosure matters is the responsibility of
the Civil Division, DOJ. Unsolicited payments, restitution,
or any other funds representing the contractor's estimate of
the cost impact of the matters disclosed are coordinated
with the Civil Division, DOJ, and the DPFU prior to
acceptance. While it should be determined if the contractor
is willing to make restitution, specific requests for payment
are coordinated with the Civil Division, DOJ, and the
DPFU. When it is agreed that payment is appropriate,
contractors desiring to pay restitution or make good faith
reimbursements are instructed to provide a check to the
AIG-CIPO made payable to “the Treasurer of the United
States."
b. Other Required Coordination - The Civil
Division, DOJ consults with the criminal prosecutor
assigned to the matter, the AIG-CIPO, and the suspension
44a
and debarment official, and determines whether immediate
payment by the contractor would be in the Government's
best interests with respect to its potential civil remedies.
—- A ffecti Good _ Faiti
Reimbursements - When determined that an unsolicited
payment will be accepted or a payment will be solicited and
accepted, the acceptance is conditioned on a written
agreement with the contractor that provides:
(1) acceptance of the payment does not
constitute the Government's agreement as to the
contractor's ultimate civil or criminal liability for the
matter(s) disclosed, and
(2) acceptance shall not prejudice the
Government's right to obtain additional damages, fines, and
penalties for the matter(s) disclosed.
19. Removal of a Matter from the DoD
Voluntary Disclosure Program
a. Reason for Removal - The AIG-CIPO may
remove a matter from the DoD Voluntary Disclosure
Program at any time during the verification process if:
(1) the disclosure is determined not to
meet the Program requirements as set forth in the Deputy
Secretary of Defense letter of July 24, 1986, or
(2) the contractor has violated the terms
of the signed XYZ Agreement.
b. Notice of Removal — Prior to removing a
matter from the Voluntary Disclosure Program, the AIG-
CIPO will notify the contractor in writing of the proposed
decision to remove the matter, and may provide the
contractor an opportunity to respond (Appendix J). A copy
of the letter is sent to all DCIOs, suspension and debarment
authorities, the DPFU, the Civil Division, DOJ, and the
DCAA. The decision to remove is at the sole discretion of
the AIG-CIPO.
45a
20. Case Completion
a. Records Required - A matter administered
under the DoD Voluntary Disclosure Program is closed
when the following documents have been provided to the
AIG-CIPO.
(1) Notification by the designated
DCIO(s) that both the audit and investigation are completed
and the matter is closed. The notification identifies the
DCAA final dollar impact determination to the
Government, the final settlement, and the manner in which
the losses were recovered or otherwise resolved.
(2) A letter from the DPFU either
confirming the declination of criminal prosecution or
indicating the results of any prosecutive actions taken.
(3) A letter from the Civil Division,
DOJ, declining civil litigation or indicating the results of
civil litigation or settlements.
(4) A letter from the DPFU indicating
the results of any prosecutive actions or settlements if the
Antitrust Division, DOJ, is involved in the investigation, or
a U.S. Attorney has reviewed the matter for potential
antitrust violations.
(5) A letter from the designated
suspension and debarment authority advising the AIG-
CIPO in writing of any action taken or to be taken as to
suspension or debarment of the contractor or persons within
the contractor's organization.
b. Notification that the Matter is Closed — The
AIG-CIPO notifies the DoD contractor in writing that the
matter(s) administered under the Voluntary Disclosure
Program is closed when the appropriate documents
mentioned in paragraph C.20.a.(1) through (5) are received
(Appendix K).
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.