Petitioners Reply Brief — United States ex rel. Sylvester v. Northrop Grumman Corp.
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Supreme Court, U.S
FILED
961138 DEC 23 19%
No.
Orig: Or ont UllnKR
In the Supreme Court
United States
OCTOBER TERM, 1996
UNITED STATES, ex rel., RICHARD R. SYLVESTER,
Petitioners,
V.
NORTHROP GRUMMAN CORPORATION,
Respondent.
On Petition for Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
PETITION FOR WRIT OF CERTIORARI
Richard R. Sylvester, Pro Se
11606 Charnock Road, Los Angeles, CA 90066
(213) 391-2080
RECEIVED
‘JAN 1 7 1997
OFFICE OF THE CLERK
SUPREME COURT, U.S.
$%
QUESTIONS PRESENTED
a
i. Do the decisions below nullify the express provisions of a
federal statute, 31 USC 3730(b), resulting in unconstitutional
interference with the prosecurtorial discretion of the executive
branch?
2. Do the decisions below effectively redraft the express
provisions of a federal statute, 31 USC 3730(b), resulting in an
unconstituional intrusion on exclusive legislative functions?
3. Is there an impermissible conflict with other circuits
regarding conditions necessary for for release of an important
federal right: dismissal of gui tam case without approval of the
U.S. Attorney?
4. Does gross and outrageous attorney misconduct, with
expressed intent to injure his client, produce an unconstitutional
deprivation of due process?
a
TABLE OF CONTENTS
Page
Questions presented for Review .......................0008 aumesiaeaen il
TORRE OF RTIOUIIOE 59 ois sicéntacsncceaeeeen eee iv
COPERIOU DOI oasis. ts'nssaisvncsntsasptecionnet een anaes 2
POI asic. 0 on: vs0cedsencinaindiiencunneleninle nee 2
Constitutional provisions, federal statutes.........................04. 2
Peeeeianeah WE Ta SG ain ie wie sca cccnnregncdeiinccmanennaeated scents 3
COMTI TIO a wos snc enteritis aan 3
Content walk (et COCO 06500. 4
Commer oF POR 05 06sciek sk bacaaeete renee 4
Statutory Purpose to Correct Fraud........................2000: 10
Northrop's Fraud on the Court .......................eeeee. cae
COCOMCIONINE TI eines. einencndniceaueuneeenieniaenianes 12
ViGiRIOm GE PING TN a niniins canscavceserevnsaseeereeennies 13
Critical Gpswes OF FIO Cat os ois iccssaveckcrertorworsceuiiess 14
REASONS FOR GRANTING THE PETITION................. 16
I. The decision raises significant Constitutional issues of
executi\ 2 branch discretion, due process,
freedom of speech, and supremacy .............................:. .. 16
EXOCULIVE DTANCN GISCTCHION ..........0..ccccccssecsccccccccscces 16
BE IE adv bdaswnsd ksnuscedcccsenccdeacoses peeeseaesrueexunys 16
Freedom of Speech................0.+ sPcbthack eiidessnks meres yj
I ar cele sian chincas iacncuasaweckisadensbvnrss cup lists 17
II. The decision conflicts with decisions of other Circuits.... 18
Killingsworth is not followed by other circuits............... 18
Strict scrutiny required for release of federal right .........19
II}. The decision nullifies an important federal statute ..... .19
The decision departs from settled principles of
ooo s cen gu nbarescshevbectensssadtuuesnss 19
Attorney General did not consent to dismissal................ 20
Killingsworth exception does not apply...................0008. 21
IV. The decision raises important questions of federal law .. 23
Decision conflicts with Congressional intent .................23
Unconscionable results void dismissal ............. peaeae 23
Outrageous attorney conduct voids dismissal ................. 25
V. The decision used an incorrect standard of review ........ 29
Appendix A, Ninth Circuit Decision........................ ae
Appendix B, Denial of Petition for Rehearing...................... 8a
Appendix C, District Court Dismissal ....................0..cceeeee 10a
Appendix D, Constitutional Provisions ....................0..0008. 12a
PDOIGIN Te, FOGOTRL SIMGS .... onc ccseccsccvcsevccsccccscesectecsess 13a
ll
SCAu
TABLE OF AUTHORITIES
Page
U.S. Constitution
First Amendment, freedom of speech ....................0000005 16, 17
Fifth AMOCNGMENt, GUS PIOCESS ......ccccscecccscccscecesesesesccesens 17
Article I, Section 8, legislative power.....................ceeeeee ee aca
ASTICED VE, CPURNEY CHIUIID oo ci cicnivcccccecessanerssdnsttgceecnaes .17
Cases
A&M Produce Co. v. FMC, 135 CA3d 473, 186 CR
Se CR es tata sh deca thcr rine e esis eupeedinareirecercne) 13, 24
Anderson v. United States,
PO Fe WUE EGE BPP Cece icsevcovendsedewarucesscoesnnsss 29
Appeal of General Dynamics,
Armed Services Board of Contract Appeals,
ASBCA No. 39,500, 40995, 92-1 B.C.A.(CCH)
fT Be, ) | 8
Appeal of Northrop Worldwide Aircraft,
Armed Services Board of Contract Appeals,
ASBCA No. 45216, 45877, 95-1 B.C.A.(CCH)
PLE ee. ME Faby COW hav caincwe denvecscavssdavsneicans 2
Bice v. Stevens, 160 CA2d 222, 325 P2d 244 (1958) ............ 15
Blankinheim v. E.F. Hutton & Co., 217 Cal.App.3d
I NE su aiescdc nce sencsek sean ekercapicAntenteke cer iadescaktoce ae
Blanton v. Womancare, Inc., 38 C3d 396, 212 CR 151
CHIE wcece scvsndosacscuuscvntadsssuereoeeroi een datesiaencaseviny) 26
Colby v. Title Ins. & Trust Co., 160 C 632, 117 P. 913
CREED Ks oicawnsdaawareacsedaterkiesqasdtinnkcecbescueeinssentels. 27
Cook v. King Manor & Convalescent Hospital, 40
CAS Fecy he ame FL Cee seth asin Ca casavn edie dcmenns 27
Daley v. County of Butte, 227 CA2d 380, 38 CR 693
PRMD vaadincaddesinie de dccksdecuecvinsk aiekcedincduaianeted 15, 25
iV
EEOC v. U. S. Steel,
583 F.Supp 1387 (WD Pa 1984) .........0. cece eee, 19, 30
EEOC v. Cosmair, Inc.,
Dak. Sele See COU CE DOT a vsevcivnscncccdsshecenavss 19, 30
Elbaor v. Smith, 845 SW 2d 240 (Tex 1992) .........0.0.ccc cece. 25
Fort Vancouver Plywood v. United States, 747 F.2d
et Ga BD aititsi tac dove ee 29
Gagnon Co. v. Nevada Desert Inn, Inc. , 45 Cal.2d 448,
Br ne CAR e i sickccs di esse aside alee 15
Gehl Bros. Mfg. Co. v. Superior Court, 183 CA3d 178,
PAE AE EP iis dias Assnisrdgialanee eee eee 24
Gideon v. Wainwright, 372 U.S. 335 (1963) .............0.05. 16, 26
Grimes v. Allen, 93 CA2d 653, 209 P2d 651 (1949)............. 27
Lancaster v. Buerkle Buick Honda Co., 809 F.2d 539
UR Se BST ian sicccscccananeeuan eae ee 19, 30
Linsk v. Linsk. 70 C2d 272, 74 CR 544, 449 P2d 760
CEI sain cavensviyayauaniocasn ee abe ane rena, 15
Miller v. Safeco Title Ins. Co., 758 F.2d 364 (9th Cir.
ROMER unis Vanes ten GRE aicnie ee a ee cel 29
National R. R. Passenger Corp. v. National Ass'n. of
R. R. Passengers, 414 U.S. 453 (1974) ...0.... ccc. 19
Pettis ex rel. United States v. Morrison Knudser Co,
SFT Fae ee TR Ga A cari OR ees . 20
Powell v. Aiabama, 287 U.S. 45 (1932)............cccceeeeeeeeees 16
Premier Wine & Spirits v. E. & J. Gallo Winery, 644 F.Supp
Bh Cae Qe BIN dip cnarisdceshd cade dokebs chao 24
Rock Island, Arkansas & Louisiana Railroad Company
vs. U.S., 254 U.S. 141, 65 LEd 1898, 41 SCt 55
OPIN sec teccedaasiptersncaaeiacaes ee 10
Ross v. Arcata Graphics Co,
788 F.Supp 788 (WD NY, 1992) ...............cccccsccsccsecs 19
Tech-Bilt, Inc. v. Woodward-Clyde & Assoc., 38 C3d 488, 213
Ae SO ins vince tne ecesdsdcede ata eee 24
U.S. v. Fern, 696 F.2d 1269 Ce Ride, PEE bicscainncosc mane 7
¥
U.S. ex rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir., 1993),
cert.den. 127 L.Ed 2d 433, 114 S.Ct 1125 (1994) .......3,16
U.S. ex rel. Killingsworth, 25 F.3d 715
to Le Bi) mn RO FG Ae ee
U. S. v. Silverman, 861 F.2d 571 (9th Cir. 1988)
U.S. ex rel. Taxpayers Against Fraud and Walsh v
General Electric, 41 F.3d 1032 (6th Cir., 1994)............ 16
U.S. ex rel. Milam v. Univ. of Texas M.D. Anderson
Cancer Ctr., 961 F.2d 46 (4th Cir. 1992).............. 25
Valenti v. International Mill Service, Inc..,
634 F.Supp 57 (ED Pa 1985)............... ‘sont ate Oe
Wetzstein v. Thomasson,
34 CA2d 554, 93 P2d 1028 (1939)........ 27
Wilshire Westwood Assoc. v.~Atlantic Richfield, 881
F.2d 801 (9th Cir. 1989) 2.0.0... c cece cece eee 23
Federal Statutes, Codes
The False Claims Act......................5. ea 10, 1]
The False Claim Amendments Act of 1986
CF is POPPED ss ascnseaciansnrces jeeseenes gees ... 10
The Major Fraud Act of 1988 (P.L. 100-700)............ 11,14
10 USC 2324(e)(AM(C)... 2. e eee e ees 9,12,13,14
10 USC 2324(e)(1)(D)..... 2... cece ccc cece eee eeeeees 13,24
10 USC 2324 (k)\(2)(E)........ 20... c cee eee. seeubseesnancnesss 14
18 USC 1001..............0. 000 cee eee. seuwensabepneenangenees .. 7,26
28 USC 1254(1).............. sinehesins psaeneusunessecsoansassundl
31 USC S729... cccccccccss jeneeee jassnntenksees Secaneae
31 USC 3730(b) ....... sececscccsescccseccccdeg ayy hy kp eUph kp hikgee
31 USC 3730(c)(3).......... ioeeessnesennsdesacpauecsaedaesuapacss 21,22
31 USC 3730(c)(2)(B)... jaseuqeeuesveneness seseee 24
31 USC 3730(d)(2).... 20
Vi
Federal Rules, Court Rules
Federal Rules of Civil Procedure (FRAP).
Rn NE oh ete oe re 5,12,15,28
California Statutes, Codes, Rules
California Civil Code 1567...........
California Civil Code 1572
California Civil Code 1567.
California Civil Code 1667.
California Civil Code 1668....
California Civil Code 1670.5
California Civil Code 1689(b)(5)
California Civil Code 1710
California Superior Court Cases
Curtis Dane, Eugene Ottaviano, and Richard Sylvester
v. Herbert Hafif and the Law Offices of Herbert
Hafif, California Superior Court, Central District,
Case BC 126973, Filed May 17, 1994...
Clyde W. Jones Jr. and Terrence F. Schielke v. Herbert
Hafif, et al. California Superior Court, Case No
BC 098080, third amended complaint filed Dec
District, BC 106737, filed June 13, 1994
Max Killingsworth v. Herbert Hafif, et al. California
Superior Court, No. BC 091845, complaint filed
October 26, 1993, dismissed Sept. 14, 1994...
Leo Barajas v. Herbert Hafif, et al., California
Superior Court, No. BC 086269, filed August 5,
1993
4
Legal Treatises, Other
Cibinic, John Jr. and Ralph C. Nash, Jr., Cost-
Reimbursement Contracting, Second Edition,
George Washington University, 1993 .................cceeeees 14
Cong. Globe, 37th Cong., 3rd sess. 952 (1863) ................5. 10
Criminal Defective Pricing and the Truth in
Negotiations Act, Inspector General, Department
OF EARN: TN BO iso ccnscnduhs cocnscssectcnccdcscntionses 1]
Phillips, John and Richard A. Sauber,
Qui Tam Litigation,
Prentice Hall Law and Business, 1991.....................05. 1]
PE Fe. II ssivcresche sia caccseacescceorces vets 13,24
Uniform Commercial Code (UCC) 2-302 ..........cccccecceeeeeeee 13
Witkin, B. E., Summary of California Law,
SE Mig, PTs bd kead cok itadsncnaul deessaevdetadtdvadhecesibeasbae 27
Witkin, B. E., Summary of California Law,
PUN Peg UIE Wadia a edcds eicn panded desdescdasadesinvedssaustunns 26
Witkin, B. E., Significant Developments in Calif.
Substantive Law, 1970-1990 .......ccccccccssccccccccccccccsces 13
Vill
No.
In the Supreme Court
United States
OCTOBER TERM, 1996
UNITED STATES ex rel. RICHARD R. SYLVESTER.
Petitioners,
V.
NORTHROP GRUMMAN CORPORATION.
Respondent.
On Petition for Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
PETITION FOR A WRIT OF CERTIORARI
Qui tam Plaintiff Richard R. Sylvester, both for the government
and for himself, respectfully pray that a writ of certiorari issue to
review the judgment and opinion of the United States Court of
Appeals for the Ninth Circuit entered for the subject proceeding.
CE eee
OPINIONS BELOW
The unreported opinion of the court of appeals is attached as
Appendix A, la-7a. The court of appeals' order denying the
petition for rehearing is attached as Appendix B, 8a-9a. The
unreported opinion and decision of the district court is attached
as Appendix C’, 10a-1 La.
JURISDICTION
The court of appeals entered its judgment on July 10, 1996,
and denied Sylvester's petition for rehearing on September 25,
1996. This Court has jurisdiction urder 28 U.S.C. 1254(1)
CONSTITUTIONAL PROVISIONS AND FEDERAL
STATUTES
U.S. Constitution,
Article I, section |]
Article I, section 8
Article il, section |
Amendment I
Amendment V
10 U.S.C. 2:
18 U.S.C. 1001
31 U.S.C. 3730
sic iia aeaialitallllllld”MN
STATEMENT OF THE CASE
Constitutional Issues
The fundamental issue is whether the Court's interpretation
of 31 U.S.C. 3730(b) interferes with the prosecutorial discretion
Of the executive branch. The District Court dismissed the gui
fam! action without the approval of the U.S. Attorney, which is
required by the plain meaning of statute. The District Court and
the Ninth Circuit relied on the Killingsworth case, which allows
dismissal when the qui tam plaintiff refuses to litigate, but the
Court dismissed this case when both the government and the qui
tam plaintiff opposed dismissal.
Dismissal of a qui tam case requires approval by the U.S.
Attorney, 31 U.S.C. 3730(b). Dismissal without this approval is
contrary to the plain wording of the statute and substantially
departs from fundamental principles of accepted Statutory
interpretation; thus, the plaintiff was denied substantive and ™
procedural]! due process.
The decision appears to intrude on exclusive legislative
functions. The Ninth Circuit interpretation of federal statute
conflicts with the clear meaning. This decision and the
Killingsworth decision are in direct conflict with the
unambiguous wording of 31 USC 3730(b). In effect, the Ninth
Circuit has effectively redrafted the statute. However, the
judiciary is not authorized to perform legislative functions. Only
Congress, not the Judiciary, has the power to write statutes: "
The Congress shall have Power... to make all Laws ._ " U.S.
Constitution, Article. I, Section 8. The Judiciary is authorized to
1"Qui tam" is short for the Latin phrase “qui tam pro domino rege
quam pro se imposo sequitur,” translated as "who brings the action as
weli for the king as for himself," U.S. ex rel Kelly v. Boeing Co., 9
F.3d 743 (9th Cir, 1993), footnote 3.
interpret the statutes, but the interpretation cannot depart so
Significantly from clear meaning and Congressional purpose that
the statute is effectively cancelled.
Conflict with Other Circuits
The Ninth Circuit approved of the release of an important
federal right without the strict scrutiny required to assure
informed consent. This approach clearly conflicts with decisions
in other federal circuits with give enhanced protection for release
of a federal right. Significantly, no other circuits have adopted
the Ninth Circuit's interpretation of 31 U.S.C. 3730(b); support
for the Killingsworth case is conspicuously absent from all other
circuits.
Course of Proceedings
In this action, appellant and qui tam plaintiff Richard R.
Sylvester, represented by attorney Herbert Hafif, sued defendant
Northrop Corporation. His claims, including statutory damages,
were $234 million for gui tam claims for defective flight control
electronics and $2.4 million for wrongful termination. Sylvester
prevailed against Northrop's summary judgment motion and the
case was ready for trial.
Sylvester signed a settlement agreement with detrimental
reliance on attorney Hafif's promise to protect Sylvester's
interests. However, Sylvester promptly rescinded the agreement
after detailed review, based on lack of informed consent and
fraud. Significantly, the settlement agreement allocated nothing
for qui tam claims, but merely abandoned the qui tam claims,
which allowed recovery by Northrop for ail litigation expenses.
Sylvester directed Hafif to oppose dismissal. Also, the U.S.
Attorney opposed the dismissal of qui tam claims. However,
Northrop and Hafif obtained a dismissal over the objection of
plaintiff Sylvester and the U.S. Attorney.
The District Court dismissed the case, based on the false
representations by Northrop and Hafif. Due to the dismissal and
without approval by the U.S. Attorney, the government lost the
$234 million claim against Northrop and the government became
obligated to pay Northrop an estimated $30 million in attorney
fees and costs.
Northrop paid $825,000 for personal claims, with nothing
paid for the valuable gui tam claims. Hafif kept $723,841 and
gave Sylvester only $86,159.
Sylvester objected to the dismissal, and filed a Rule 60(b)
motion to vacate the dismissal based on fraud on the Court. The
Court declined to vacate the dismissal.
Sylvester appealed to the Ninth Circuit on the basis of lack
of consent from the Attorney General, fraud on the government,
and unconscionability The Ninth Circuit denied the appeal.
Background Facts. Qui tam plaintiff Sylvester was
employed for six years by Northrop Corporation as a senior
advisor to tup management at the B-2 Division, which developed
and manufactured the stealth bomber under Air Force contract.
Total cost to the government for the B-2 program was
approximately $45 billion. Northrop falsely claimed $78 million
payment for dangerously defective flight control electronics.
Sylvester was terminated shortly after documenting the defects
and warning top management of the necessity for disclosure and
correction.
Based on fraud on the Court by Northrop and Hafif that
resulted in dismissal, the government is now required to pay up
to $30 million to Northrop and Sylvester's recovery is de
minimus.
Sylvester is an economist, listed for over a decade in
Marquis' Who's Who in the World, Who's Who in Finance and
Industry, and Who's Who in the West. His education includes an
M.B.A. from USC, a Ph.D. from UCLA, a J.D. from Loyola
WN
Law School and postdoctoral studies in engineering at UCLA.
(CR 419 at 2, ER 36 at 2.)
From April 18, 1983 to April 3, 1989, Sylvester was
employed by Northrop as a Strategic Analysis Specialist in the
Management Offices of the B-2 Division. During this time,
Sylvester received favorable performance reviews. (CR 242 Ex
N, ER 1.) Sylvester was terminated from Northrop shortly after
writing a report to top management documenting critical flaws in
the flight control system for the B-2 aircraft and the continuing
cover-up. (CR 242 Ex A, ER 6; CR 242 Ex B, ER 3; CR 242 Ex
J, ER 2.)
Defective Electronics. The power electronics system,
designated the Actuator Remote Terminal (ARTS), is required to
handle high electrical power without overheating and failure.
The contract specification required an extremely low failure rate
for ARTS. However, the design did not meet the contract
specifications and {failed repeatedly in bench tests and flight tests.
(CR 242 Ex J, ER 2; CR 242 Ex A, ER 6.)
During his employment at Northrop, Sylvester wrote reports
that documented Northrop's cover-up of the dangerously
defective flight control electronics for the B-2 aircraft. The
electronics could not be fixed without a major redesign that
would delay first flight and would risk program cancellation.
For years, Northrop billed the Air Force for the defective flight
control system with full knowledge that the system did not meet
and could never meet contract specifications for safety and
reliability. (CR 242 Ex A, ER 6.)
False claims. The false claims by Northrop are knowing
requests to the federal government for payment for design and
fabrication of flight control electronics for the B-2 aircraft, the
Actuator Remote Terminals(ARTS), which Northrop knew were
defective, created unreasonable risk to the pilot's life, and failed
to meet government contract requirements and specifications for
6
ae a aR SIT UPR TEFL STE? SET AGIT T ES RT ET RT EL ee eee ee eee
safety and reliability. (CR 137 at pages 35-38, ER 5 at pages 35-
38; CR 242 Ex A, ER 6.)
Northrop failed to disclose to the government the fact that
the electronics design was fatally flawed. Northrop falsified test
results, took management action to prevent the government from
being correctly informed concerning the defects, directed cover-
up efforts to prevent employees from disclosing the defects to the
government, presented false information to the government, and
presented false claims for payment for the flight control systems
knowing that the systems did not meet contract requirements and
were defective. Damages to the government include $78 million
for replacement and repair of the defective electronics. (CR 419
Ex B, ER 9.) By statute, Northrop liability to the government is
treble the $78 million damages, or $234 million, 31 USC
3729%(a).
The $78 million repair expense for ARTS was the direct
result of failure to disclose to the government that the electronics
design was inherently defective and could not foreseeably meet
government specifications for safety and reliability. To prevent
funding delays and possible program cancellation, Northrop
prevented disclosure of these critical problems. Under the
standards of 18 USC 1001, Northrop's failure to disclose with
intent to induce belief was fraud, U.S. v. Fern, 696 F.2d 1269
(9th Cir. 1963). Northrop submitted claims for payment with
knowledge that the claims were false because the designs and
products did not meet contract requirements for safety and
reliability, in clear violation of the false claims act, 31 USC 3729
et seq. (CR 242 Ex A, ER 6.)
Litigation. Sylvester retained attorney Hafif to file a qui
tam suit, with statutory standing to represent the government.
Sylvester's qui tam claim and wrongful termination claim
prevailed against Northrop's motion for summary judgment and
were ready for trial. (CR 204, ER 8.)
However, as the suit neared trial, Northrop and Hafif
prepared a settlement agreement with unconscionable results.
The settlement agreement falsely stated that the gui tam claims
were undermined.
Sylvester was not given the document to read on June 23,
1994 prior to signing. Sylvester first received a copy to retain
and read only after a full week delay. (CR 419 at 6-7, ER 36 at
6-7.) Sylvester placed his trust in Hafif, acting in the role of
fiduciary, to protect government interests and Sylvester's
interests. (CR 419 at 8, ER 36 at 8.)
Promptly after receiving a copy of the settlement agreement
to read and discuss with several attorneys, Sylvester rescinded
the settlement agreement based on fraud, undue influence,
oppression, and lack of informed consent. (CR 419 at 9, ER 36
at 9; CR 419 Ex C, ER 19.)
Unconscionable settlement agreement terms. The effect of
the dismissal is unconscionable. Without government consent,
the $234 million Northrop liability to the government was
cancelled, and the government must pay Northrop full litigation
costs, estimated at $30 million. Northrop and Hafif failed to
disclose to the Court the true financial effect on the government.
Significantly, Northrop fails to disclose the actual costs that
would be reimbursed (Northrop brief, p. 22, footnote 12).
Northrop fees and costs are estimated from the $29.2 million in
attorney fees and costs for a similar fraud case, Appeal of
General Dynamics, Armed Services Board of Contract Appeals,
No. 39500 and 40995, 92-1 B.C.A.(CCH) P24,657, Dec. 16,
1991.
The Court dismissed the qui tam claims as abandoned.
Thus, the government loses the $234 million claim, including
treble damages, for payment of false claims for Northrop's
defective electronics, and Northrop's attorney fees to support the
fraud without government agreement and contrary to public
policy.
8
_
As fraud, Hafif and Northrop failed to inform Sylvester or
the Court of the unconscionable effect of the agreement. (CR
399 Ex. C, ER 15.)
(a) The Government would get nothing, but the
government would be obligated to pay Northrop an
estimated $30 million for all attorney fees, costs and
damages paid as allowable costs on the B-2 defense contract,
10 USC 2324(e)(1)(C).
(b) The settlement agreement falsely stated that "
Plaintiffs believe that further prosecution ... of ... gui tam
Claims is ... unlikely to succeed given that discovery ... has
shown that these allegations have been seriously undermined
...." (CR 399 Ex. C, ER 15, page 1.) This abandonment of
the gui tam claim, which results in the government
obligation to pay Northrop for litigation costs.
Outrageous attorney conduct. As attorney for a gui tam
relator, Hafif had an affirmative duty to protect government
interests. Furthermore, as an officer of the Court, Hafif has a
duty to prevent fraud on the Court. Hafif was obligated to
zealously protect client Sylvester's interests. However, Hafif's
wrongful intent is clearly shown by Hafif's admission to attorney
Melvin Belli prior tu the dismissal that he intended to work
against Sylvester's interests. Hafif's outrageous conduct toward
client Sylvester is shown by Hafif's words, witnessed by three
attorneys:
...I'm going after the (expletive deleted). I'm not
going to let him live...
(CR 399, ER 26 page 5 line 3.)
In Court, Hafif argued against the government's interests
and Sylvester's interests. At the August 29, 1994 hearing,
Northorp and Hafif failed to disclose that Sylvester had
rescinded, and that Sylvester had directed Hafif to oppose the
motion to dismiss. (RT 8/29/94, ER 23.)
9
nn
As the attorney for a qui tam relator, who stands in the
shoes of the government, Hafif was obligated to protect
government interests. However, Hafif worked against
government interests. Hafif's actions to dismiss the qui tam
claim are void due to gross misconduct. Overall, Hafif's failure
to represent the interests of the government and of Sylvester
invalidate the settlement agreement and the dismissal.
Northrop and Hafif prevented recovery of damages by
Sylvester. Now age 58, Sylvester faces retirement with minimal
assets and income due to Northrop's retaliatory termination, the
conspiracy by Northrop and Hafif to abandon the valuable qui
tam claims, and Hafif's misappropriation of 87 percent of the
$825,000 paid for settlement of personal claims.
Statutory Purpose to Correct Fraud
The qui tam statute is intended to correct rampant waste,
fraud, and abuse in the defense industry. Since public funds are
involved, government contractors must adhere to formalities and
requirements of law. The obligation to deal truthfully with the
government has been stated by the Supreme Court: "Men must
turn square corners when they deal with the Government," Rock
Island, Arkansas & Louisiana Railroad Company vs. U.S., 254
U.S. 141, 143, 65 LEd 1898, 41 SCt 55 (1920). By contrast,
Northorp has failed to turn square corners. Through deception,
mischaracterization, and fraud, Northrop seeks to evade the
provisions of the False Claims Act and the Major Fraud Act.
The False Claims Act was established by Congress during
the Civil War in response to reports of widespread fraud,
corruption and abuse. The False Claim Amendments Act of
1986 (P.L. 99-562) was enacted to enhance the Government's
2Cong. Globe, 37th Cong., 3rd Sess. 952 (1863)
10
Re eee
ability to recover losses sustained as a result of fraud.3 Congress
passed the 1986 amendments due to increasing frustration with
the inability of the Department of Justice to control defense
industry fraud.4 To prevent reimbursement of attorney fees,
costs, and settlement payments, Congress passed the Major Fraud
Act of 1988 (P.L. 100-700), applicable to contracts awarded after
November 19, 1988.
Northrop's Fraud on the Court
Fraud by Northrop included false claims for defective
goods, cover-up of the defects, and failure to disclose to the court
the financial effect on the government caused by the deceptive
settlement agreement and dismissal.
Northrop made false claims for defective goods, resulting in
a $78 million fraud on the U.S. due to dangerously defective
flight control electronics on the B-2 aircraft. Under the False
Claims Act the government has valid claims of $234 million,
including statutory treble damages.
Due to failure to disclose, Northrop deceived the District
Court. Due to deceptive wording in the settlement agreement,
the government got nothing and Northrop evaded the provisions
of the False Claims Act and the Major Fraud Act which were
intended to prevent payments for fraud.
The false wording in the settlement agreement
mischaracterizes the gui tam action as abandoned, instead of as
compromised. For an abandoned and dismissed claim, the
government must reimburse Northrop attorney fees as an
allowable cost under the cost-plus government contract.
3Criminal Defective Pricing and the Truth in Negotiations Act,
Inspector General, Dept. of Defense, March 1988, page 7, note 11.
4John Phillips and Richard A. Sauber, Qui Tam Litigation,
Prentice Hall Law and Business, 1991, p. 3.
11
sn
The unconscionable effect is that without government
consent the government must abandon their $234 million claim
and Northrop will obtain complete recovery for all costs
associated with defense of their fraud.
Northorp and Hafif failed to disclose the full text of the
agreement to Sylvester until after signature. The full text of the
agreement was not given to Sylvester until one week after
signature of the final page. Promptly upon reading the full
agreement, Sylvester rescinded based on fraud and lack of
informed consent and demanded that Hafif oppose the dismissal.
Northorp was fully aware of the rescission and demand for
opposition.
In fraud on the Court, Northrop and Hafif failed to disclose
to the Court that Sylvester opposed dismissal. After dismissal,
the District Court declined to issue an opinion on a Rule 60(b)
motion to correct the error due to fraud on the Court.
In fraud, Northrop failed to disclose in the terms of the
settlement agreement the unconscionable results that the
government would be obligated to pay Northorp for all litigation
costs, estimated at $30 million, to defend the fraud claim.
The full costs for defense for a fraud case are allowed as an
indirect expense on a defense contract, if the fraud case is
abandoned, 10 U.S.C. 2324(e)(1)(C). By contrast, if the case is
settled by payment of damages for fraud, the litigation costs are
not reimbursed by the government.
Thus, the terms of the settlement agreement resulted in
continued fraud, by requiring government payment for
Northrop's legal fees and costs.
Unconscionable Result
The settlement agreement and resulting dismissal has an
unconscionable effect. An agreement with unconscionable effect
is void ab initio. A void agreement cannot be ratified by any act.
The false settlement agreement and resulting dismissal of the qui
tam action is unconscionable and a violation of public policy.
The unconscionable effect of the setthement agreement is
demonstrated by the results. Without consent, the government
was forced to abandon $234 million in valid gui tam claims.
Without consent, the government must pay Northrop litigation
costs. (CR 419 at 12, ER 36 at 12)
Unconscionability is recognized as a justification for the
Court make the entire contract void or to enforce any part of a
contract, Restatement 2d, Contracts, sec. 208. Gross disparities
in the values exchanged may be an important factor in
determination that a contract is unconscionable, Restatement 2d,
Contracts, comment c. Also see: UCC 2-302 which is reflected
in Cal. Civ. Code 1670.5, and B. E. Witkin, Significant
Developments in California Substantive Law, 1970-1990, pp. 10-
17.
The total circumstances indicate unconscionability, such as
hidden terms, unfair surprise, and lack of justification for a one-
sided result, A&M Produce Co. v. FMC, 135 CA3d 473, 186 CR
114 (1982).
Violation of Public Policy
Public policy discourages government payment for attorney
fees and costs for settled fraud cases. An agreement contrary to
public policy is void. The settlement agreement and dismissal
are void due to violation of public policy. Public policy prevents
payment for attorney fees to defend contractor fraud.
Furthermore, the wording of recent statutes and regulations
is designed to prevent allowability under deceptive terms in
settlement agreements. Under statute applicable before
November 26, 1988, payment for costs in defense of fraud are
prohibited if the contractor is found liable, 10 USC
2324(e)(1)(C),(D).
Because payment for fraud is unconscionable, Congress
passed a new statute to prevent legal fees and costs from being an
allowable costs for dismissed cases. The Major Fraud Act of
i988 (P.L. 100-700) included a key provision designed to
prevent unconscionable settlements that would result in recovery
of contractor attorney fees and damages paid as an allowable cost
under a defense contract:
Costs incurred ... are not allowable as
reimbursable cost ... if ... a disposition of the
proceeding by consent or compromise ... could have
resulted in a disposition described... , 10 USC
2324(e)(1)(C), (k)(2)(E), emphasis added.
The present regulations governing legals fees and costs were
prompted by this new statute. Unallowability was extended to
legal proceedings and to in house personnel costs to defend
fraud. See: John Cibinic Jr. and Ralph C. Nash, Jr., Cost-
Reimbursement Contracting, Second Edition, George Washington
University, 1993, pp. 823-828. S
Critical issues of federal! law
The primary issue is whether a qui tam claim may be
dismissed without the consent of the government, when qui tam
plaintiff Sylvester is also opposed. Relevant statute prevents
dismissal of a qui tam claim without approval of the U.S.
Attorney, 31 USC 3730(b). The Ninth Circuit cites U.S. ex rel
Killingsworth v. Northrop, 25 F.3d 723 (9th Cir 1994), as
allowing dismissal if the plaintiff refuses to litigate, but the case
is not followed by any other circuit and Killingsworth does not
give authority to dismiss when both plaintiff Sylvester and the
government opposed dismissal.
The secondary issue is whether client Sylvester is bound by
unauthorized acts by attorney Hafif. Hafif acted to dismiss the
qui tam case contrary to Sylvester's written substantive direction.
Prior to the dismissal, Sylvester directed attorney Hafif to oppose
dismissal. However, as fraud on the Court, Hafif failed to
14
disclose Sylvester's opposition to the Court. By Rule 60(b)
motion, Sylvester informed the Court of fraud on the Court by
Northrop and Hafif, but the Court declined to vacate the
dismissal .>
In fraud on the Court at the dismissal hearing, Northrop
falsely represented " .. counsel has the authority ... to settle the
case on behalf of their clients." (Northrop ER Ex C). Northrop
failed to disclose to the Court their knowledge that Sylvester had
rescinded and opposed dismissal.
Attorney authority to settle is rebuttable, Gagnon Co. v.
Nevada Desert Inn, Inc., 45 Cal.2d 448, 289 P.2d 466 (1955).
The client has control over substantive matters including the right
to control the terms of a settlement. The attorney cannot bind his
client by an act that gives up the client's substantive right unless
the attorney acts under actual authority, Linsk v. Linsk, 70 C2d
272. 74 CR 544, 449 P2d 760 (1969). Informed client approval
is necessary to compromise or dismiss a case, Bice v. Stevens,
160 CA2d 222, 231, 325 P2d 244,250 (1958). Hafif's authority
was clearly rebutted by Sylvester's clear written direction
requiring Hafif to oppose the dismissal. A client is not held
responsible for acts by an attorney that are grossly irresponsible.
These unauthorized acts are deemed void. These acts of positive
misconduct are not imputed to the client, Daley v. County of
Butte, 227 CA2d 380, 38 CR 693 (1964).
SThe Court may take judicial notice that the attorney-client issues
of malpractice by Hafif are being litigated in state Court: Dane,
Ottaviano and Sylvester vs. Hafif, California Superior Court, Central
District, Case No. 127973, scheduled for trial January 15, 1997.
As evidence of Hafif's questionable modus operandi, the Court
may take judicial notice of several cases in California Superior Court
concerning Hafif's claimed misappropriation of proceeds. See: Jones
and Schielke v. Hafif No. BC 098080, Shielke v. Hafif BC 106737,
Killingsworth v. Hafif BC 091845, Barajas v. Hafif BC 086269.
15
REASONS FOR GRANTING THE PETITION
I
The decision raises significant Constitutional issues of
executive branch discretion, due process, freedom of speech,
and supremacy.
Executive branch discretion. The Ninth Circuit's
interpretation of 31 USC 3730(b) allows dismissal when both the
government and the qui tam plaintiff oppose, although counsel
for the plaintiff and defendant seek dismissal. This interpretation
is contrary to the wording of the statute and is not authorized by
Killingsworth. Furthermore, this liberal ground for dismissal
appears to violate fundamental constitutional requirements. The
constitutional foundation of the False Claims Act requires that
there is no undue interference with the prosecutorial discretion of
the executive branch, U.S. ex rel. Taxpayers Against Fraud and
Walsh v. General Electric, 41 F3d 1032, 1041 (6th Cir. 1994);
U.S. ex rel. Kelly v. Boeing Co., 9 F3d 743, 754 (9th Cir. 1993),
cert. den. 127 L.Ed 2d 433, 114 S.Ct 1125 (1994).
Although the qui tam claim was valuable, with $245 million
damages due to the government and the case ready for trial, the
case was dismissed over the objection of the U.S. Attorney. This
dismissal impermissibly intrudes on the prosecutorial discretion
of the executive branch by removing the safeguard provided by
statute, 31 USC 3730(b). Thus, the Ninth Circuit's
interpretation appears to violate Constitutiona! requiremerits by
removing executive discretion.
Due process. It is fundamental that due process requires
representation by counsel, Gideon v. Wainright, 372 U.S. 336
(1963). This basic right was stated in an early case: "... the right
to the aid of counsel is of this fundamental character...," Powell
16
v. Alabama, 287 U.S. 45, 68 (1932). Gross malpractice, breach
of the duty of loyalty, or dismissal contrary to client interests
results in denial of due process. Hafif refused to follow
Sylvester's directions and argued against client Sylvester's
interests in Court. Thus, due to Hafif's intentional misconduct,
Sylvester was denied effective counsel necessary for due process.
The dismissal reflects lack of due process. In fraud, both
Northrop and Hafif intentionally failed to disclose that Sylvester
opposed dismissal; Northrop and Hafif falsely claimed that Hafif
was authorized to dismiss the case. The dismissal was based on
fraud upon the Court, but the Court declined to correct the error
despite Sylvester's Rule 60(b) motion.
The decision below sanctioned outrageous conduct by an
attorney, which prevents due process. Hafif refused to follow
Sylvester's directions to oppose dismissal. Hafif argued against
client interests in Court. Hafif structured the settlement terms to
misappropriate 87 percent of the proceeds. Thus, fraud on the
Court by Northrop and Hafif prevented due process.
Freedom of Speech. Sylvester was denied freedom of
speech because the qui tam statute is designed to allow freedom
to report fraud without retaliation. However, the Court chilled
freedom of speech by preventing recovery of Sylvester's damages
incurred due to his reporting of fraud.
Supremacy. In case of conflict, federal law is supreme to
state law, U.S. Constitution, Article VI. However, the Ninth
Circuit applied state contract law to the settlement of a federal
claim, wherein federal law requires a higher level of scrutiny.
The Ninth Circuit failed to apply supreme federal law by
holding that settlement agreements are governed by state contract
law, which provides that rescission is possible only if the
signature is fraudulently induced by the other contracting party.
However, relevant federal law demonstrates that when a
settlement agreement concerius a federal right, there is a higher
level of scrutiny. Under state law, rescission may be based on
fraud exercised with connivance of the opposing party or any
other party jointly interested.
Il
The decision conflicts with decisions of other Circuits
The Killingsworth decision is not followed by other circuits
Significantly, only the Ninth Circuit allows dismissal of a
qui tam case when the government objects to dismissal. By
contrast, other circuits require strict scrutiny for release of a
federal right.
The literal wording of 31 USC 3730(b) requires government
approval for dismissal. The Killingsworth exception applies only
if the gui tam plaintiff requests dismissal.
The Killingsworth case allows dismissal without the
approval of the U.S. Attorney, if the plaintiff refuses to litigate.
The Ninth Circuit held that lack of government consent required
by 31 USC 3730(b) does not bar dismissal, due to the exception
noted in Killingsworth v. Northrop, 25 F.3d 715, 723 (9th Cir.
1994).
At the time of the hearing, both the government and the qui
tam plaintiff Sylvester opposed dismissal. The Court was misled
due to failure to disclose by Northrop and Hafif.
Significantly, the Killingsworth exception does not apply
because plaintiff Sylvester opposed dismissal and gave clear
written directions to attorney Hafif to oppose dismissal. The
dismissal was based on fraud upon the Court because Northrop
and attorney Hafif failed to disclose Sylvester's opposition. Prior
case law shows no other circuit allowing dismissal under these
circumstances. No other circuit relies on the Killingsworth
18
exception to force dismissal contrary to specific government
request.
Strict scrutiny is required for release of a federal right.
Decisions from other circuits hold that signature to release a
federal claim is void without several days of detached reflection,
sufficient time to consider release terms, the plaintiff
participation in the wording of the release, Ross v. Arcata
Graphics Co, 788 F.Supp 788 (WD NY, 1992). Sufficient time
for detached reflection is defined as several days, not promptly
after initial document preparation, Lancaster v. Buerkle Buick
Honda Co., 809 F.2d 539 (8th Cir. 1987).
By contrast, the Ninth Circuit held that because Sylvester
had signed the settlement agreement, disavowal was prevented,
and that fraud merely results in an attorney-client claim.
Mere signature is insufficient to release claims provided by
federal statute. A purported waiver of a federal remedial right is
not to be taken lightly; mere signature does not establish a
knowing, voluntary relinquishment of rights, EEOC v. U. S.
Steel, 583 F.Supp 1387 (WD Pa 1984); Valenti v. International
Mill Service, Inc., 634 F.Supp 57 (ED Pa 1985). Unless
authorized by federal rule, a purported release or waiver of rights
granted under federal statute is deemed void as against public
policy, EEOC v. Cosmair, Inc., 821 F.2d 1085 (Sth Cir. 1987).
iil
The Decision Nullifies an Important Federal Statute
The decision departs from settled principles of statutory
construction
It has long been settled that "[t]he most basic general
principles of statutory construction must yield to clear contrary
evidence of legislative intent," National R.R. Passenger Corp. v.
National Ass'n. of R.R. Passengers, 414 U.S. 453, 458 (1974).
19
Statutes should not be construed so as to make
mere surplusage of any of the provisions...
Pettis ex rel. United States v. Morrison Knudsen
Co, 477 F.2d 588, 673 (9th Cir. 1978)
In this case, the legislative intent is to allow recovery of
damages to the government due to fraud and to make the qui tam
plaintiff whole. The Ninth Circuit's decision fails to support the
legislative purpose and the decision produces an unconscionable
result.
The Attorney General opposed dismissal
By statute, formal approval of the Attorney General is
required to dismiss qui tam claims, 31 USC 3730(b). The record
clearly shows that the U.S. Attorney opposed abandonment of the
qui tam claims. The hearing to overcome government objection
failed to meet Killingsworth standards of an evidentiary hearing
to consider the value of the abandoned claim.
Under Killingsworth, the Court is authorized to bar a qui
tam settlement which is artificially structured to deny the
government its proper share of the settlement proceeds; the
Government retains the right to object even if the Government
does not intervene in the action, U.S. ex rel. Killingsworth v.
Northrop, 25 F3d 715 (9th Cir. 1994). As a qui tam relator,
Sylvester has standing and an affirmative duty to protect
government interests. As attorney for Sylvester, Hafif cannot
undermine this obligation to the government.
Abandonment of the qui tam cause of action is void ab initio
due to lack of written consent by the Attorney General and
improper allocation of proceeds in violation of 31 USC
3730(d)(2). The dismissal is void by statute because the action
cannot be dismissed without written consent of the Attorney
General, 31 USC 3730(b).
However, under Killingsworth, if the parties agree to settle,
the government does not have an absolute right to block the
20
TP aos Rl
settlement, but the government has a right to a hearing to object
to a proposed settlement, so that the district Court can determine
if the settlement is fair and reasonable, U.S. ex rel.
Killingsworth, 25 F.3d 715, 725 (9th Cir 1994), interpreting 31
USC 3730(c)(2)(B).
In Killingsworth, only the government objected. By
contrast. in this case both the government and plaintiff Sylvester
objected. Sylvester objects for himself and for th: government.
Hafif's actions as agent for Sylvester are void; Hafif clearly
failed to represent Sylvester's substantive directions.
The qui tam plaintiff has authority to prosecute the claim
and oppose dismissal. Sylvester has statutory authority as a qui
tam plaintiff representing the government to require that the case
go to trial, 31 USC 3730(c)(3). Under terms of the settlement
agreement, the valuable qui tam claims are abandoned without
consideration. The abandonment of the valuable qui tam claims
is void by public policy. Sylvester stands in the shoes of the
government to prosecute the qui tam claim.
By statute, dismissal requires formal written approval by the
government.
The action may be dismissed only if the
court and the Attorney General give written
consent to the dismissal and their reasons for
consenting, 31 USC 3730(b).
The Killingsworth exception does not apply
There are only two conditions that allow abandonment of the
qui tam claim: (1) with written permission of the U.S. Attorney
(2) if the plaintiff seeks dismissal, after a hearing to establish fair
value.
However, this case, gui tam plaintiff Sylvester opposed
dismissal at the time of the hearing, and directed his attorney to
oppose the dismissal. As blatant malpractice, Attorney Hafif
refused to follow directions. Northrop and Hafif failed to inform
21
_ TTI
the court that dismissal was not possible because Sylvester
opposed dismissal.
The Killingsworth exception requires that the plaintiff seeks
to dismiss; by contrast, Syivester opposed dismissal. Although a
qui tam plaintiff cannot be forced to continue to litigate, he has
the right to conduct the action until the government elects to
intervene, 31 USC 3730(c)(3).
Under Killingsworth, a hearing is required if the qui tam
plaintiff seeks to dismiss but the government objects. The
hearing must be based on whether the compensation to the
government is: "fair, adequate, and reasonable" based on a "fair
appraisal of the value of his case," U.S. ex rel. Killingsworth, 25
F.3d 715, 725 (9th Cir. 1994).
... We construe the Act as authorizing the
district court to bar_a qui tam plaintiff and
defendant from artificially _structuring a
settlement _to deny the government its proper
share of the settlement proceeds .... U.S. ex rel.
Killingsworth, 25 F.3d 715, 724 (9th Cir. 1994),
(emphasis added).
The Killingsworth exception does not apply because
Sylvester opposed the dismissal at the time of the dismissal
hearing. Prior to the dismissal hearing, Sylvester rescinded the
settlement agreement and directed Hafif to oppose dismissal. At
the dismissal hearing, in fraud upon the Court, Northrop and
Hafif failed to disclose Sylvester's rescission and opposition to
the Court (CR 399 Ex O, ER 44).
Although there was a hearing after government objection,
the hearing failed to meet Killingsworth requirements. The
"hearing" did not include any required evidence regarding the
adequacy of the settlement in comparison with the $234 million
qui tam claim (CR 388, ER 25). The "hearing" failed to consider
the critical issue of adequate value for the abandoned claim, and
therefore violated even the relaxed standards of Killingsworth.
22
nena ac ceemmmearnaa aaa
IV
The decision below raises important questions of federal law.
The decision conflicts with Congressional intent
The Congressional intent for the False Claims Act was to
prevent fraud for government contracts. However, this decision
actually rewards a contractor for fraud by paying all legal fees
for defense, if the settlement agreement abandons the claims.
The Ninth Circuit's opinion, if allowed to stand, will impair
the Congressional intent to prevent major fraud in government
contracts and to make whole the gui tam plaintiff. Furthermore,
the Ninth Circuit's opinion contravenes well-settled principles of
statutory construction, Wilshire Westwood Assoc. V. Atlantic
Richfield, 881 F.2d 801, 804 (9th Cir. 1989).
As a result of the dismissal without government approval,
Northrop escapes all penalty for their $78 million false claim for
defective electronics, and the government must pay an estimated
$30 million for Northrop to defend the fraud. The objectives of
the False Claim Act to make the relator whole are not met. After
reporting Northrop's fraud, Sylvester was terminated and lost
substantial future income and benefits. Sylvester was not made
whole; Sylvester received only $86,159 from the $825,000
settlement. This unconscionable result is clearly contrary to the
Congressional intent.
Thus, based on this case, a government contractor would
have a financial incentive to defraud the government, because a
settlement agreement and dismissal could be designed to require
the government to pay for all costs for legal defense, even for
criminal fraud.
Unconscionable results void dismissal
Public policy prevents unconscionable results. An
agreement is void if unconscionable or in violation of public
policy. By law, an agreement that is grossly unfair to the
government is unconscionable and void.
A settlement agreement is void ab initio if the terms are
contrary to the public interest. A settlement agreement that is not
in good faith is void. A dismissal based on the void settlement
agreement is void.
To determine good faith, the court must look to whether the
settlement figure is out of proportion to the plaintiff's probable
recovery, Tech-Bilt, Inc. v. Woodward-Clyde & Assoc., 38 C3d
488, 213 CR 256. Minimal or zero compensation is evidence of
bad faith, Gehl Bros. Mfg. Co. v. Superior Court, 183 CA3d
178, 228 CR 19.
Substantive unconscionability occurs when the contract
terms result in overly harsh, one-sided results, unreasonable, or
unexpected, A&M Produce Co. v. FMC Corp. 186 CR 114, 121-
22; Premier Wine & Spirits v. E. & J. Gallo Winery, 644 F.Supp
1431, 1440 (ED Cal 1986). A court may refuse to enforce that
portion of a contract that is unconscionable, Rest.2nd, Contracts
208, Cal Civ Code 1670.5. "...Contracts which have for their
object ... to exempt anyone from responsibility for his own fraud
are against the policy of the law," Cal Civ Code 1668. "A
party to a contract may rescind the contract ... if the public
interest will be prejudiced by permitting the contract to stand,"
Cal Civ Code 1689(b)(5). This decision results in loss to the
government of a $234 million government claim, plus the hidden
obligation of the government to reimburse Northrop for litigation
costs.
By law, an agreement that is grossly unfair to the
government is unconscionable and void. Under terms of the
settlement agreement, the qui tam claim is abandoned. As a
result, the government fails to recover the valid $234 million qui
tam claim and the government is required to pay to Northrop an
estimated $30 million for defense of Northrop's fraud, as an
allowable cost under a defense contract, 10 USC 2324(e)(1). The
result is overly harsh, one-sided, contrary to statute, contrary to
public policy, and is clearly unconscionable.
However, in this decision, contrary to dominant federal law,
the Ninth Circuit held in this case that public policy does not
prevent enforcement of a settlement agreement even if the
agreement is unfair to the government.
The government policy against cost allowability for fraud
has been clearly stated in a recent pending Northrop case, Appeal
of Northrop Worldwide Aircraft, Armed Services Board of
Contract Appeals, ASBCA Nos. 45216, 45877, 95-1 B.C.A.
(CCH) P27,503 at page 14, (February 15, 1995).
The government is the real party of interest even if the qui
tam plaintiff prosecutes the action for the government, U.S. ex
rel. Milam v. Univ. of Texas M.D. Anderson Cancer Ctr.. 961
F.2d 46, 50 (4th Cir. 1992), cited in Killingsworth, at p. 720.
The government is not required to intervene to prevent dismissal,
31 USC 3730(b).
Agreement terms that violate public policy are void. A
contract that has for its object to exempt anyone from
responsibility for his fraud is against public policy, Blankinheim
v. E.F. Hutton & Co., 217 CA3d 1463, 1472-1473 (1990).
Public policy against fraud takes precedence over case
law favoring settlements. The fundamental public policy of
substantial fairness, due process, and avoidance of fraud take
Clear precedence over case law favoring settlements, Elbaor v.
Smith, 845 SW 2d 240, 250 (Tex 1992).
Outrageous attorney misconduct voids dismissal
Acts by an attorney that are so grossly irresponsible that
they constitute positive misconduct are not imputed to the client,
Daley v. County of Butte, 227 CA2d 380, 38 CR 693 (1964).
Sylvester directed Hafif to oppose the dismissal: Hafif
tefused (CR 399 Ex G, ER 46; RT 8/29/94, ER 23). Plaintiff's
attorney has no inherent or implied authority to dismiss the
nN
WN
action without the client's consent, Blanton v. Womancare, Inc..,
38 C3d 396, 212 CR 151 (1985). Because attorney Hafif refused
to follow written directions by Sylvester to object to the
dismissal, the dismissal is void by operation of law, due to lack
of due process.
Due process is impossible when the attorney actively works
against client interests. Even if the party is sophisticated and
capable, fair hearings are impossible without a lawyer to assist,
Gideon v. Wainwright, 372 U.S. 335 (1963). As grossly
irresponsible and outrageous conduct, Hafif actually worked
against client Sylvester's interest, boasting to Melvin Belli before
the dismissal hearing that he intended to injure Sylvester (CR
399 ER 26 p. 5).
As outrageous attorney misconduct, the dismissal was based
on fraud-on the court. Northrop and Hafif failed to disclose to
the court that Sylvester opposed the dismissal, voiding the
Killingsworth exception to dismissal without Attorney Genera!
approval. The underlying settlement agreement, based on fraud,
was promptly rescinded. Rescission may be based on fraud
exercised with connivance of the opposing party or any other
party jointly interested.
Fraud is an obvious exception to the rule that signature
prevents escape from liability under contractual terms, Witkin,
Summary of Calif. Law, 1973, p. 93. Apparent consent is not
real when obtained through fraud or mistake, Cal Civ Code
1567. Fraud includes a failure to disclose, 18 USC 1001, Cal
Civ Code 1572, 1710.
Informed consent was required. In fraud, Northorp and
Hafif failed to disclose the unconscionable effect of the contract
terms. Thus, the contract was void ab initio, from inception,
even without rescission. Sylvester's signature was obtained by
connivance of Northrop and Hafif. Hafif was jointly interested
with Northrop because the settlement agreement allowed grossly
disproportionate payments to Hafif.
26
Mere signature is insufficient for a valid contract. If the
plaintiff did not fully comprehend the effect, a contract is deemed
void from inception, Wetzstein v. Thomasson, 34 CA2d 554,
559, 93 P2d 1028 (1939). A void contract cannot be ratified by
any act, Colby v. Title Ins. & Trust Co, 160 C 632, 644. 117 P.
913 (1911), Cook v. King Manor & Convalescent Hosp, 40 CA3d
782, 792, 115 CR 471 (1974). See: 17 Am.Jur Contracts sec.
218, 232. Even if the contract were not void ab initio. the
contract is voidable because assent was obtained by fraud,
Witkin, Summary of Calif. Law, 1973, p. 270.
The settlement agreement was void. Contracts are illegal,
as against public policy, which have as their object to exempt
anyone from responsibility for his own fraud or violation of law.
Calif. Civ. Code 1668. Illegality may be found on principles of
public policy, even without statutory provision or directly
relevant case law, Grimes v. Allen, 93 CA2d 653, 656. 209 P2d
651 (1949). Since an illegal contract is void, ratification is not
possible by operation of law.
A contract is illegal if contrary to exnress statutes, contrary
to the policy of express statutes, or contrary to good morals,
Calif. Civ. Code 1667. A contract whose object is unlawful is
void, 12 CalJur2d 269. Also see: Witkin Summary, Contracts,
sec 436, 461.
Fraud Voids the Dismissal. The dismissal was the result of
fraud upon the Court. In fraud, Northrop and attorney Hafif
failed to disclose Sylvester's Opposition to the Court. The
Killingsworth exception for required government approval does
not apply, because Sylvester opposed the dismissal at the time of
the dismissal hearing, although Northrop and Hafif misled the
Court by asserting authorization to dismiss. Sylvester promptly
rescinded and directed Hafif to oppose dismissal, but Northrop
fraudulently failed to disclose this to the Court. (CR 419 Ex ad
ER 19; CR 399 Ex G, ER 46; CR 399 Ex O, ER 44: CR 385.
Northrop ER Ex. C.)
Sylvester formally rescinded his signature promptly after
reading the settlement agreement (CR 419 Ex C, ER 19). and
directed Hafif to oppose the dismissal. Thus, Hafif lacked
authority to proceed with the dismissal, but Hafif failed to
disclose his lack of authority to the Court. Thus, the dismissal is
the result of fraud upon the Court.
Northorp was informed that Hafif did not have the authority
to settle on behalf of his clients; Northrop knew that Sylvester
had rescinded (Northorp ER Ex C). Northrop's failure to
inform the Court was fraud. After the dismissal hearing,
Sylvester moved to void abandonment of the qui tam claim,
under Rule 60(b), but the court declined (CR 398, ER 49).
An agreement based on fraud is void. A dismissal based on
a fraudulent settlement agreement is void. A void agreement
cannot be ratified. Nortircep and Hafif deceptively worded the
settlement agreement to defraud the government and to
wrongfully obtain government funds for themselves. The
dismissal was based on fraud on the Court. Northrop and Hafif
misrepresented to the Court that the qui tam claims were
meritless, contrary to the fact that the claims had substantial
value.
Northrop and Hafif were jointly interested in specific terms
that would be advantageous to them and contrary to the interests
of the government and Sylvester. Through connivance with
Hafif and failure to disclose the full meaning of the settlement
agreement, Northrop obtained Sylvester's signature through
fraud. In fraud, Northrop failed to disclose, either in the
settlement agreement or in any document filed with the court,
that the government would be obligated to reimburse Northrop
for the full cost of litigation due to abandonment of the qui tam
claim.
In fraud, Northrop failed to disclose in the settlement
agreement the specific amount for each plaintiff, with the
surprising and unconscionable result that Hafif received
28
$723,841 from the $825,000 settlement. or 88 percent of the
proceeds. Therefore, Northrop's failure to disclose essential
terms in the settlement agreement is fraud. and result in a
voidable contract subject to rescission.
V
The Decision was Based on an incorrect Standard of Review
The de novo standard of review is required. The de novo
Standard is applicable to motions to dismiss qui tam actions, U.S.
ex rel. Killingsworth, 25 F.3d 715, 723 (9th Cir. 1994). This
case turns on interpretation of statute, 31 USC 3730(b), resulting
in the requirement for a de novo standard of review. Anderson v.
United States, 966 F.2d 487, 489 (9th Cir. 1992).
Mixed questions of law and fact are reviewed de novo,
Miller v. Safeco Title Ins. Co., 758 F.2d 364. 367 (9th Cir.
1985). Review of a motion to dismiss is a legal determination
reviewed de novo, Fort Vancouver Plywood v. United States, 747
F.2d 547, 552 (9th Cir. 1984). Appellate review should have
independently considered the matter anew. as if no decision had
been rendered on the matter below, United States y. Silverman,
861 F.2d 5712, 576 (9th Cir. 1988).
iii is BE Se
CONCLUSION
The Ninth Circuit decision raises _ significant
Constitutional issues. The decision impermissibly intrudes on
the executive function. Sylvester was denied procedural due
process due to deception and gross malpractice by his attorney
Hafif. Sylvester was denied freedom of speech because the
dismissal prevented full recovery of damages from retaliation for
his reporting of Northrop's fraud. in violation of federal
supremacy, the Ninth Circuit applied state court decision rules,
when conflicting federal law would produce a different result.
The Ninth Circuit decision conflicts with relevant
decisions of other circuits. The Ninth Circuit stands
conspicuously alone in the Killingsworth decision; no other
circuit has relied on the Killingsworth holdings. By contrasi, the
Fifth Circuit holds that a purported release of rights granted
under federal statute is void as against public policy, EEOC v.
Cosmair, Inc., 821 F.2d 1085 (Sth Cir 1987). Similarly, the
Eighth Circuit requires strict scrutiny of a release of a federal
claim, with requirements including several days to review the
words and clear, unambiguous terms, Lancaster v. Buerkle Buick
Honda Co, 809 F.2d 539 (8th Cir 1987).
For the reasons stated, this petition for writ of certiorari
should be granted. Based on the relevant law, the Supreme Court
should REMAND the case to the District Court for trial on the
qui tam claim.
Respectfully submitted,
RICHARD R. SYLVESTER, Pro Se
11606 Charnock Road
Los Angeles, CA 90066
(310) 391-2080
APPENDIX A
NOT FOR PUBLICATION
C.A. No. 95-55220
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RICHARD R. SYLVESTER,
Plaintiff-Appellant,
UNITED STATES, ex rel.,
JEAN-FRANCOIS TRUONG; CURTIS DANE; TERRENCE F
SCHIELKE; EUGENE OTTAVIANO; RICHARD P.
CROSWELL,
Plaintiffs
Vv.
NORTHROP GRUMMAN CORPORATION,
a California corporation,
Defendant-Appellee.
UNITED STATES, ex rel., JEAN FRANCOIS TRUONG,
Plaintiff,
and
RICHARD CROSWELL,
Plaintiff-Appellant,
V.
NORTHROP GRUMMAN CORPORATION,
a California corporation,
Defendant-Appellee.
D.C. No. CV-88-0967-MRP
Filed July 10, 1996
Cathy A. Catterson, Clerk
U.S. Court of Appeals
i sis, sestrrnlineainacais eae
.
MEMORANDUM
Appeal from the United States District Court
for the Central District of California
Mariana R. Pfaelzer, District Judge, Presiding
Argued and Submitted June 3, 1996
Pasadena, California
Before: FARRIS, FERNANDEZ, and THOMAS, Circuit Judges
INTRODUCTION
Richard Sylvester and Richard Croswell brought claims
against Northrop Grumman Corporation for wrongful discharge
and as qui tam relators under the False Claims Act. Their
appeals have been consolidated. Sylvester appeals (1) the
dismissal of his qui tam claim, (2) the denial of his motion for
post-dismissal relief, and (3) the denial his motion for post-
judgment relief. Croswell appeals the summary judgment for
Northrop on his qui tam claim and the judgment as a matter of
law for Northrop on his federal wrongful discharge claim. We
affirm.
SYLVESTER DISCUSSION
I. The Dismissal Order
A. Fraud in the Inducement
Sylvester contends that there was collusion between
Northrop and Hafif and that Sylvester signed the settlement
agreement under the misguided assumption that he was only
releasing his wrongful discharge claims. He argues that the
* . . .
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.
ee eee ll eeeeeeeeSVO7_7E—— ee
settlement agreement was induced by fraud, and therefore we
should vacate the district court's dismissal of his qui tam claim.
Even when the underlying cause of action is federal, the
construction and enforcement of settlement agreements are
governed by principles of state contract law. United Commercial
Ins. v. Paymaster Corp., 962 F.2d 853, 857 (9th Cir. 1992).
California law provides that "recision is available for a unilateral
mistake, when the unilateral mistake is known to the other
contracting party and is encouraged or fostered by that party."
Merced County Mut. Fire Ins. v. State, 284 Cal.Rptr. 680, 684
(Cal.App. 1991). The implication of this rule is that a party who
signs an agreement "generally is bound by its terms, even though
he neither reads it nor considers the legal consequences of
signing it," Operating Eng'rs Pension Trust v. Gilliam, 737 F.2d
1501, 1504 (9th Cir. 1984) (applying California law), but if the
other contracting party induces the signature by fraud, the
signatory can rescind. See id. (citing Chandler v. Aero
Mayflower Transit Co., 374 F.2d 129, 136 (4th Cir. 1967)).
Nothing in the record suggests that Northrop induced
Sylvester's signature by fraud or had any idea that Sylvester had
not read the settlement agreement. Since Hafif was Sylvester's
lawyer and not the other contracting party, Sylvester's allegations
that Hafif tricked him are unavailing. If Hafif lied to Sylvester
about the contents of the settlement agreement, then Sylvester
may have a state claim against Hafif but nothing more.
B. Void as against Public Policy
Sylvester contends that dismissal of his qui tam claim
violated public policy because it was unfair to the government.
But a party "'can no more repudiate a [settlement agreement]
than he could disown any other binding contractual
relationship."' Jn re Springpark Assoc., 623 F.2d 1377, 1380
(9th Cir. 1980) (quoting Dacanay v. Mendoza, 573 F.2d 1075,
1078 (9th Cir. 1978)). Once a party enters a settlement
3a
agreement, “'the actual merits of the controversy become
inconsequential"' to its enforcement. /d. The district court was
not obligated to rescind the settlement agreement simply because
Sylvester may have made a bad deal.
C. Government Consent
Sylvester contends that the district court erred in dismissing
his qui tam claim because the government objected to the
settlement agreement. The Federal Claims Act provides that a
qui tam action "may be dismissed only if the court and the
Attorney General give written consent to the dismissal .. . . It 31
U.S.C. § 3730(b)(1). We have held, however, that unless there
is intervention, the government doe not have an "absolute right"
to bar dismissal. See Killingsworth v. Northrop Corp., 25 F.3d
715, 723 (9th Cir. 1994). Congress intended "to place full
responsibility for False Claims Act litigation on private parties,
absent early intervention by the government or later intervention
for good cause[.],, Jd. The government did not try to intervene.
Sylvester had full authority to agree to dismiss the government's
claims with prejudice.
II. The Post-Dismissal Order
Sylvester filed a post-dismissal motion seeking to vacate the
dismissal order. In his supporting declaration, Sylvester alleged
that Hafif had misled him into signing the settlement agreement
and that Hafif had failed to give him the money he was owed
under the settlement agreement. The order signed by the district
court held that Sylvester was bound by the settlement agreement,
but it also found that Hafif had provided exemplary service and
had not cheated Sylvester out of settlement proceeds. Sylvester
contends that we should vacate the order; *t seems his concern is
that the district court's findings will have an estoppel effect on
his state claims against Hafif. We decline to vacate the order.
There is no question that the district court had jurisdiction to
4a
determine whether the settlement agreement had been induced by
fraud, and the district court made clear that it was not deciding
Sylvester's attorney-client claims:
MR. SYLVESTER: Okay. But then we say are
each of those expenses valid and I say that is a
matter not for this tribunal. That is a state court
matter or a matter for arbitrators for the state bar
to which this matter has been referred.
THE COURT: But that is not my problem here.
MR. SYLVESTER: Your problem is only
whether or not --
THE COURT: You are bound.
It is for the state court to determine the possible estoppel
effect of the district court's findings.
Ill. The Order Denying Post-Judgment Relief
Sylvester filed a post-judgment motion seeking to vacate
the dismissal order. F.R.C.P. 60(b) provides:
. the court may relieve a party or a party's
legal representative from a final judgment, order,
or proceeding for . . . newly discovered evidence
which by due diligence could not have been
discovered in time to move for a new trial under
Rule 5%b)..... (or] fraud (whether heretorfore
denominated intrinsic or extrinsic),
misrepresentation, or other misconduct of an
adverse party ....
In his F.R.C.P. 60(b) motion, Sylvester did not introduce
any new evidence or raise any new arguments supporting his
theory that Northrop had induced him to sign the settlement
agreement by fraud. The district court did not abuse its
discretion in refusing to vacate the dismissal order or in denying
any the other relief Sylvester requested.
5a
CROSWELL DISCUSSION
I. False Claims Act
A. Summary Judgment
To defeat a motion for summary judgment, the nonmoving
party may not rely on "mere allegations.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). It must raise "significant
probative evidence" that is "sufficient" for the jury "to return a
verdict for that party"; summary judgment may be granted if the
evidence is "merely colorable.” Jd. at 249.
The False Claims Act provides that "[any person who... .
knowingly presents, or causes to be presented, to an officer of
the United States Government or a member of the Armed Forces
of the United States a false or fraudulent claim for payment or
approval . . . is liable to the United States Government... . ." 31
U.S.C. § 3729(a)(1). The district court did not err in holding
that there was no genuine issue of material fact. Croswell fails to
identify a block of engineer time billed to the government, state
the nature of the work performed by the engineer, and explain
why the charge was improper. There is no significant probative
evidence from which a jury could infer that Northrop knowingly
presented a false or fraudulent claim for payment.
Il. Conflicting Interrogatories
Croswell contends that the district court erred in resolving
conflicting answeres to special verdict interrogatories. F.R.C.P.
49(a) authorizes the district court to submit special verdict
interrogatories to the jury. The Supreme Court held in Gallick v.
Baltimore & Ohio R. Co. that when the jury answers
interrogatories inconsistently, the judge has a duty under the
Seventh Amendment to "harmonize" or "reconcile" them. 372
U.S. 108, 119 (1962). We applied Gallick in Floyd v. Lewis and
held that although it would be a violation of the Seventh
Amendment to disregard a jury's finding of fact, if the district
6a
court ""has correctly found that the jury's answer to a question
that was supposed to terminate further inquiry is clear and
disposes of the legal issues, on review we must ignore the jury's
necessarily conflicting answers to any other questions."' 929
F.2d 1390, 1398 (9th Cir. 1991) (quoting White v. Grinfas, 809
F.2d 1157, 1161 (Sth Cir. 1987)). Floyd held that an inconsistent
answer was "surplusage" because "the district court expressly
stated on the special verdict form that the jury should not proceed
to question 14 if it answered 'No' to question 13." Jd. The
special verdict interrogatories did not expressly state that the jury
was not to proceed if it found that Northrop did not fire Croswell
because of his "activities in furtherance of Mr.Troung's" lawsuit.
But that fact is not dispositive. Question II.B. addressed in
precise terms a necessary element of Croswell's federal wrongful
discharge claim. A negative answer was meant to terminate
further inquiry; the jury's answers to the remaining questions
were surplusage.
AFFIRMED.
7a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
C.A. No. 95-55220
RICHARD R. SYLVESTER,
Plaintiff-Appellant,
UNITED STATES, ex rel.,
JEAN-FRANCOIS TRUONG; CURTIS DANE; TERRENCE F.
SCHIELKE; EUGENE OTTAVIANO; RICHARD P.
CROSWELL,
Plaintiffs,
V.
NORTHROP GRUMMAN CORPORATION,
a California corporation,
Defendant-Appellee.
UNITED STATES, ex rel., JEAN FRANCOIS TRUONG,
Plaintiff,
and
RICHARD CROSWELL,
Plaintiff-Appellant,
v.
NORTHROP GRUMMAN CORPORATION,
a California corporation,
Defendant-Appellee.
D.C. No. CV-88-0967-MRP
Filed Sept. 25, 1996
Cathy A. Catterson, Clerk
U.S. Court of Appeals
8a
Before: FARRIS, FERNANDEZ, and THOMAS, Circuit
Judges.
The panel has voted to deny appellant's petition for
rehearing; Judges Fernandez and Thomas have voted to reject the
suggestion for rehearing en banc, and Judge Farris so
recommends.
The full court has been advised of the suggestion for
rehearing en banc and no active judge has requested a vote on
whether to rehear the matter en banc. Fed.R.App.P. 35.
The petition for rehearing is denied and the suggestion for
rehearing en banc is rejected.
9a
APPENDIX C
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
No. CV-88-0967-MRP (JRx)
UNITED STATES, ex rel.,
JEAN-FRANCOIS TRUONG, et al.,
Plaintiff,
v.
NORTHROP CORPORATION,
Defendant
Filed August 30, 1994
Clerk, U.S. District Court
Central District of Claifornia
By s/TY Deputy
ORDER GRANTING PARTIAL DISMISSAL PURSUANT TO
SETTLEMENT
This matter having come before the Court at a hearing on
August 29, 1994, on the Motion of Defendant Northrop
Grumman Corporation for Partial Dismissal Pursuant to
Settlement, and this Court having considered the Motion and
Memorandum, the Exhibits and declaration filed in support, the
Notice of Opposition of the United States to Proposed Settlement
and the defendant's; response thereto, and the record in the case;
and the court having determined that the settlement is fair, just
and reasonable under all the circumstances, it is hereby
ORDERED, that the Motion for Partial Dismissal Pursuant
to settlement be, and hereby is, granted, and it is further.
ORDERED, that, pursuant to Rule 41(a) and (b) and 31
U.S.C. 3730(b)(a), all portions of the Fourth Amended
Complaint (except for the "Mantech” claim in the First Cause of
Action with was previously dismissed by the Court on December
28, 1993, and the Sixth, Seventh and Eighth Causes of Action)
are hereby dismissed with prejudice as to all plaintiffs both in
their individual capacities and in their capacities as qui tam
relators, and as to the United States.
August 30, 1994
s/ Mariana P. Pfaelzer
Honorable Mariana P. Pfaelzer
United States District Court
lla
DAppB
APPENDIX D
Constitutional Provisions
"All legislative Powers herein granted shall be vested in a
Congress of the United States...." U.S. Constitution, Article I,
Section 1.
"The Congress shall have the Power ... To make all Laws
which shall be necessary and proper ...." U.S. Constitution,
Article I, Section 8.
"The executive Power shall be vested in a President of the
United States of America..." U.S. Constitution, Article I,
Section 1.
"Congress shall make no law ... abridging the freedom of
speech or of the press ... U.S. Constitution, Amendment I.
"No person shall be ... deprived of ... property, without due
process of law ..." U.S. Constitution, Amendment V.
12a
APPENDIX E
Federal Statutes
11 U.S.C. 3730
(b) Actions by private persons. (1) A person may bring a
civil action for a violation of section 3729 for the person and for
the United States Government. The action shall be brought in the
name of the Government. The action may be dismissed only if
the court and the Attorney General give written consent to the
dismissal and their reasons for consenting........
(3) If the Government elects not to proceed with the action,
the person who initiated the action shall have the right to conduct
the action ...
(h) Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discriminated
against in the terms and conditions of employment by his or her
employer because of lawful acts done by the employee ... in
furtherance of an action under this section ... shall be entitled to
all relief necessary to make the employee whole....
13a
10 USC 2324
Allowable costs under defense contracts
(e) (1) The following costs are not allowable under a
covered contract:
(C) Costs incurred in defense of any civil or criminal fraud
proceeding .... brought by the United States where the contractor
is found liable or has pleaded nolo contendere to a charge of
fraud ...
(k)(1) Except as otherwise provided in this subsection, costs
incurred by a contractor in connection with any criminal, civil,
or administrative proceeding commenced by the United States ...
are not allowable as reimbursable costs under a covered contract
if the proceeding
(A) relates to a violation of , or a failure to comply with, a
Federal or State statute or regulation, and
(B) results in a disposition described in paragraph (2).
(2) A disposition ... of the following: ......
(B) In the case of a civil or administrative proceeding
involving an allegation of fraud or similar misconduct, a
determination of liability ...
(C) In the case of any civil or administrative proceeding,
the imposition of a monetary penalty ...
(E) A disposition of the proceeding by consent or
compromise if such action could have resulted in a disposition
described in subparagraph (A),(B),(C), or (D).
14a
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.