Appendix — TDC Management Corp. v. United States

la

UNITED STATES OF AMERICA, Appellee,

vs. TDC MANAGEMENT CORPORATION, INC. AND

T. CONRAD MONTS, Appellants.

No. 01-5150

United States Court of Appeals, District of Columbia Circuit.

Argued March 8, 2002.

Decided May 3, 2002.

Before: GINSBURG, Chief Judge,

ROGERS and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

ROGERS, Circuit Judge:

This case is before the court for a second time. In the

first appeal, the court reversed in part the grant of summary

judgment to TDC Management Corporation, Inc. and its

president T. Conrad Monts. The court held that the decision

of the Department of Transportation Board of Contract

Appeals (“the Board”) on TDC’s appeal from cost

disallowances collaterally estopped the government from

relitigating the accuracy of TDC’s monthly progress and

expenditure reports, but did not estop the government from

bringing False Claims Act charges based on information that

was omitted from those reports. United States v. TDC Mgmt.

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

second appeal, from the grant of summary judgment to the

government, TDC contends correctly that the district court

erred by granting preclusive effect to factual findings by the

Board. This contention is waived, however, because TDC

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

presented for the exercise of our discretionary review in

order to prevent a manifest injustice. Accordingly, because

TDC’s other challenges are unpersuasive, we affirm.

2a

I.

The background to this appeal appears in JDC I.

Suffice to say, the litigation arose in connection with a

Demonstration Bonding Program (“Program”) of the Urban

Mass Transit Authority (“UMTA”) of the Department of

Transportation. The Program was designed to assist

minority enterprises in securing bonding from sureties when

bidding in large transportation construction projects. TDC I,

24 F.3d at 294. TDC agreed to identify private investors

willing to provide collateral and management assistance to

the minority enterprises in return for a share of the profits;

for its part, UMTA agreed to match the collateral that

investors provided. Jd. By the terms of the Program, TDC

was to serve as ombudsman between the parties, with no

financial interest in Program operations. Jd. On July 6,

1983, TDC and UMTA entered into a cost-reimbursement

contract in which TDC was to use its “best efforts” to locate

investors and sureties and obtain their tentative agreement to

participate in the Program. Jd. at 296.

When the Program failed to progress as expected,

UMTA terminated the contract for convenience and

disallowed nearly half of TDC’s claimed contract-related

expenses, which totaled $928,916. Jd. at 296. TDC

appealed to the Board. Before the Board rendered its

decision, the United States in May 1989 sued TDC under the

False Claims Act, 31 U.S.C. § 729 (1982), for

misrepresenting its actual progress in its monthly reports to

UMTA and concealing deviations from the Program terms.

Id. The Board ruled in TDC’s favor and reversed the

disallowances, finding that TDC had not breached the

contract for nonperformance and that it’s monthly reports

had notified UMTA of the categories and types of expenses

that UMTA sought to disallow. Jd. Viewing its jurisdiction

under the Contract Dispute Act, 41 U.S.C. § 605, as limited

to the costs that had been disallowed by the contracting

3a

officer, the Board declined to consider UMTA’s claim that

TDC was not entitled to any monies under the contract due

to fraudulent omissions. Jd. at 295. The Board’s decision

was affirmed by the United States Court of Appeals for the

Federal Circuit. Skinner v. TDC Mgmt. Corp., 975 F.2d 869

(Fed.Cir. 1992) (unpublished order).

Based on the collateral estoppel effect of the Board’s

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

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

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

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

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

government’s motion for summary judgment on March 29,

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

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

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

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

Il.

On appeal, TDC challenges the grant of summary

judgment on several grounds only one of which requires

extended discussion. That contention is that the district court

relied on an erroneous application of the doctrine of

collateral estoppel.

A.

On remand, the district court ruled that collateral

estoppel prevented TDC from relitigating factual issues

decided by the Board with regard to omissions in TDC’s

monthly reports because “the issue of omissions was

squarely addressed by the Board in its prior review of the

contract termination.” Remand Opinion at 7. Relying on the

Board’s findings, the district court concluded there were no

genuine issues of fact with regard to alleged omissions. /d at

4a

14. The district court recited at length the Board’s findings

that TDC had departed from the terms of the Program by,

inter alia: (1) planning to use interest generated by short-

term investment of the UMTA contribution to underwrite the

costs of providing services to disadvantaged business

enterprises; (2) proposing to investors that such businesses

be charged a 3% fee for management services; and (3)

intentionally failing to disclose to UMTA its plans to hold a

financial stake in Program operations in order to keep

UMTA from learning of activities that it would insist be

terminated; and that such investment TDC could no longer

act objectively as ombudsman for the Program. On the basis

of the Board’s findings, the district court concluded that the

omissions were either intentional or resulted from reckless

disregard of the Program terms, causing monthly reports

submitted by TDC in support of its invoices for payment to

be false. In granting summary judgment to the government

on liability, the district court also relied on the unrebutted

declarations of UMTA officials, including that of UMTA

Administrator Ralph L. Stanley stating that had he known

that TDC or Monts tried to obtain an equity stake or other

financial interest in the Program, he would have directed that

the contract be immediately terminated for cause. The

district court thus found that the omissions were material

because had UMTA known of the omitted information, it

would have either required TDC to cease those activities or

terminated the contract for cause. Jd. at 15.

[1] In TDC J, this court explained that a party is not

collaterally estopped from relitigating a disputed issue of fact

unless that issue “was actually litigated and necessarily

decided by a final disposition on the merits.” 24 F.3d at 295;

see also Nasem v. Brown, 595 F.2d 801, 805 (D.C. Cir.

1979); 18 CHARLES ALAN WRIGHT & ARTHUR R. FEDERAL

MILLER, PRACTICE AND PROCEDURE § 4421 (1981); id. §

4475 at 764-70. Or, as stated in the RESTATEMENT (SECOND)

OF JUDGMENTS § 27 (1982); a prior determination can only

Sa

preclude relitigation of the same issue if it was “essential to

the [prior] judgment.” TDC prevailed before the Board and

was awarded $778,613 for expenses incurred under the

contract. TDC IJ, 24 F.3d at 294. The Board found that

“[t]here [was] no evidence in the record that the Program

failed for any reason other than [UMTA] electing not to fund

the balance of the contract, but to terminate TDC’s

performance.” Board Opinion at 133. Thus, TDC

maintains, the Board’s findings regarding the omissions in

TDC’s progress reports were not necessary to the result that

the Board ultimately reached, and a factual finding by the

Board that is adverse to the prevailing party cannot be

“essential to the judgment” because by definition it,could not

have affected the outcome of the case. TDC contends,

therefore, that in considering TDC to be bound by the

Board’s findings regarding the omissions, the district court

plainly erred.

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

reserved for the district court the legal determination of

whether TDC’s failure to report its financial stake in

Program operations constituted fraud,” and that “{ijn

disposing of TDC’s contract claim, the Board made no

necessary findings about UMTA’s reliance on TDC’s

reports.” TDC I, 24 F.3d at 296. Notwithstanding the

instruction in TDC J and what TDC now correctly contends

is clear error by the district court, TDC did not alert the

district court to its error. On remand, TDC never argued that

it should not be precluded from relitigating UMTA’s reliance

on the omissions because those findings were not necessary

to the Board’ decision. Rather, as the district court noted, in

opposing the government’s motion for summary judgment

TDC “fail[ed] to address, let alone dispute, the collateral

estoppel effect of the [Board’s] opinion with regards to

omissions from its monthly reports to UMTA. Instead, TDC

suggest[ed] that the False Claims Act claim based on

omissions [wa]s a new claim which require[d] further

6a

discovery.” Remand Opinion at 6. Nor in its motion for

clarification under Rule 60 did TDC argue that the district

court’s collateral estoppel ruling as to the omissions was

erroneous. On appeal, TDC points to nothing that would

indicate that it presented an appropriate objection in the

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

the government’s motion for summary judgment, TDC

identified several factual issues relating to the omissions that

would be inconsistent with the application of collateral

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

addressing the issue of whether TDC’s omissions were

material, i.e., whether UMTA relied on TDC’s monthly

reports, and not whether it was appropriate to afford

collateral estoppel effect to the Board’s findings. To the

extent that TDC now focuses on the salient error, it argues

that the issue of collateral estoppel vel non was placed

squarely before the district court in the government’s motion

for summary judgment. But as the district court’s opinion

makes clear, this is hardly the same as joining the

government’s argument on collateral estoppel. TDC itself

moved for summary judgment on the basis of the collateral

estoppel effect of the Board’s findings; further, it argued in

opposing the government’s calculation of damages that

collateral estoppel operated in TDC’s favor, on the ground

that the Board had already determined the government could

not prove that TDC’s actions were the proximate cause of

the Program’s demise. Thus, far from challenging the

district court’s application of collateral estoppel in its

liability determination, TDC’s argument reinforced the

notion that the district court’s invocation of the doctrine was

appropriate. TDC’s reliance on Butera v. District of

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

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

misplaced; in Butera the court addressed only those issues

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

FLRA to the implicit premise of its argument in the district

court. Here, by contrast, TDC neither explicitly nor

7a

implicitly raised a “necessity” argument in the district court.

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

the district court erred in ruling that TDC was precluded

from relitigating UMTA’s reliance on the omissions in

TDC’s monthly reports.

B.

[2] The question remains whether this court should

exercise its discretion to consider TDC’s contention

notwithstanding its waiver. In District of Columbia v. Air

Florida, 750 F.2d 1077 (D.C. Cir. 1984), the court stated the

general rule: “It is well settled that issues and legal theories

not asserted at the District Court level ordinarily will not be

heard on appeal.” Jd. at 1084-85. The Supreme Court has

long instructed, however, that appellate courts must “not lose

sight of the fact that such appellate practice should not be

applied where the obvious result would be a plain

miscarriage of justice.” Hormel v. Helvering, 312 U.S. 552,

558, 61 S.Ct. 391, 719, 722, 85 L.Ed. 1037 (1941). In

United States v. Atkinson, 297 U.S. 157, 56 S.Ct. 391, 80

L.Ed 555 (1936) the Supreme Court described “exceptional

circumstances” when appellate courts on their own motion

may, in the public interest, “notice errors to which no

exception has been taken, if the errors are obvious, or if they

otherwise seriously affect the fairness, integrity, or public

reputation of judicial proceedings.” Jd. at 160, 56 S.Ct. at

392.

This court thus acknowledged in Air Florida

that in “exceptional circumstances, where injustice

might otherwise result, we have the discretion to

consider questions of law that were neither raised

below nor passed upon by the District Court.” 750

F.2d at 1085. In that case, reviewing dismissal of a

complaint for failure to state a cause of action, the

court declined to exercise its discretion because to do

Oe eee eee cere nc renee rere ener ener eee

8a

so would have engaged the court in deciding whether

to create new federal common law where the United

States was not a party to the case and Congress may

have preempted some or all of the field. Jd. at 1085-

86. On the other hand, In Mulligan v. Andrews, 211

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

discretion to depart from the general rule; in that case

the loss of the plaintiff's livelihood was at issue due

to what he claimed was his unlawful removal from

the classified Civil Service, and the court deemed that

an “injustice might otherwise result” if the court did

not consider whether his employer had failed to

comply with the statutory requirement that written

reasons be given for his removal. Jd. at 29.

[3] TDC accordingly asserts in its brief that

“{s]omething went horribly wrong here to turn this

case upside down from [the] point” where TDC

prevailed before the Board, and “it is up to this Court

to correct that wrong.” Appellant’s Br. at 16. In

support of its position, TDC makes two arguments

why this court should address its collateral estoppel

contention: first, the issue is purely a question of law

subject to de novo review; and second, “the district

court’s error was plain — if not egregious,” as the

overwhelming weight of authority demonstrates that

collateral estoppel operates in only one direction.

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

too broadly and address only some of the relevant

considerations. Neither of TDC’s arguments

necessarily demonstrates that a manifest injustice will

occur unless this court addresses the "necessity of the

Board’s findings to its holding and remands the case

for a trial. Although TDC’s counsel may have failed

to alert the district court to an obvious error, we

decline to exercise our discretion for three reasons.

9a

First, culpability. The False Claims Act

complaint alleged that TDC’s reports overstated its

progress and failed to disclose that, contrary to the

Program terms, TDC sought to obtain a financial

interest in Program operations. See TDC I, 24 F.3d at

294. “The withholding of such information -

information critical to the decision to pay — is the

essence of a false claim.” Ab-Tech Constr., Inc. v.

Untied States, 31 Fed. Cl. 429, 434 (1994). TDC

does not contest that certain information was not

included in its progress reports and that some of the

omitted information would have revealed that TDC

was proposing to take an investor position in the

Program. TDC thus defrauded the government by

presenting reports in support of payment that omitted

- information indicating that it was acting in a manner

that was contrary to the core terms of the Program.

Although TDC contends there are material disputed

issues regarding, for example, UMTA’s failure to

make reasonable inquires into TDC’s activities,

changes that UMTA made to the Program midstream,

and the source of the proposals that TDC take equity

stakes in the joint ventures with private investors, the

record evidence remains dispositive. Likewise,

TDC’s contention that it could not execute final

agreements with investors or sureties because only

UMTA had that authority under the terms of the

Program is unavailing. TDC sought payment in

connection with its efforts to obtain agreements that

were contrary to Program terms. The undisputed

evidence shows there were omissions that UMTA

officials deemed to be material, and TDC presented

no evidence to dispute UMTA Administrator

Stanley’s declaration that he would have immediately

terminated the contract had he been aware of TDC’s

unreported activities.

10a

Second, prejudice to the government. The

considerable delay in this litigation creates problems

with regard to witnesses’ memories and document

retention regarding events that occurred almost two

decades ago. These problems would presumably

affect both parties at a trial. But they are exacerbated

for the government, for at oral argument the parties

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

Stanley’s term as UMTA Administrator, from

November 21, 1983 to May 31, 1987, spanned the

period just after the Program’s inception in July 1983

until its termination in April 1985. He was directly in

charge of what he described in his Apmnl 1996

declaration as a “high priority project,” and he

claimed in his declaration that he first learned at

meetings with Monts and TDC’s legal consultant in

December 1984 and January 1985 that TDC was

deviating from the Program in significant ways.

Although other UMTA officials were involved in the

management of the Program, Stanley was the person

in charge and, due to his death there would be

obvious prejudice to the government at a trial.

Third, TDC recovered its contract costs.

Pursuant to the Board’s decision, TDC recovered

$778,613 of the $928,916 that it claimed over the life

of the contract as “allowable, allocable, and

reasonable” costs associated with its work on the

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

F.2d 869. Our holding does not disturb this result.

Rather, any False Claims Act damages awarded to

the government “would merely offset the payments to

which the Board . . . has already determined TDC is

entitled under the terms of its UMTA contract.” 7DC

I, 24 F.3d at 298. Under the version of the False

Claims Act then in effect, the government recovered

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

lla

claim plus twice the amount of damages sustained as

a result of the false claim and costs. 31 U.S.C. §

3729 (1982); see also TDC I, 24 F.3d at 298. The

district court found that TDC filed 18 false payment

vouchers due to material omissions from January 4,

1984, until the Program’s termination, and entered

judgment against TDC in the amount of

$1,285,198.31: doubling the $621,466.11 in

vouchers paid by the government plus $36,000 in

penalties and $6,266.09 in costs. Hence, although

TDC will owe money to the government, it does not

face an exacerbated “triple” penalty, i.e., the loss of

its contract costs over and above what it owes as

damages under the False Claims Act.

In sum, in light of the undisputed record

evidence of TDC’s culpability, the prejudice to the

government, and TDC’s recovery of its contract

costs, remanding for a trial would simply prolong the

closure date of this litigation without, in all

likelihood, advancing the interests of either party.

Accordingly, we decline to exercise our discretion to

address the collateral estoppel contention that TDC

waived.

Iil.

We address briefly TDC’s two other

contentions, regarding damages and Monts’ liability.

A.

[4] TDC contends that in light of the Board’s

ruling, the government’s net damages were zero

because it “got what it paid for” under the “best

efforts” agreement. TDC further contends that the

government failed to prove that TDC proximately

12a

caused its damages because it may have terminated

the contract for reasons unrelated to the omissions in

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

evidentiary hearing into the causation issue was

required. These claims are meritless.

The Supreme Court pointed out long ago that

“the chief purpose of the statutes [which formed the

basis for the False Claims Act] . . . was to provide for

restitution to the government of the money taken

from it by fraud, and that the device of double

damages plus a specific sum was chosen to make sure

that the government would be made completely

whole.” United States ex rel. Marcus v. Hess, 317

U.S. 537, 551-52, 63 S.Ct. 379, 388, 87 L.Ed 443

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

Research Corp., 59 F.3d 196, 200 (D.C. Cir. 1995),

this court stated that if the government can show it

relied on representatives in a contractor’s progress

reports in deciding to make payments, “those

payments may constitute damages under the Act.”

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

303, 317 n. 13, 96 S.Ct. 523, 531 n. 13, 46 L.Ed.2d

514 (1976), holding that the government is entitled to

receive damages “equal to the difference between the

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

and the market value it would have received if they

had been of the specified quality.” The Program at

issue, however, did not call for TDC to produce a

tangible structure or asset of ascertainable value, as

occurred in Ab-Tech Construction, Inc. v. United

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

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

Rather, the evidence allowed the district court to find

that the value of the "“best efforts" provided by TDC

was vitiated by TDC’s fraudulent concealment of its

rent-seeking behavior. Once TDC deviated its

l3a

contracted role as impartial ombudsman by seeking a

financial stake in joint ventures with private investors

and by charging fees for the provision of material

assistance to minority entrepreneurs, the district court

then could properly find that the Program no longer

had any value to the government. Cf United States

ex rel. Compton v. Midwest Specialities, Inc., 142

F.3d 296, 304 (6th Cir. 1998).

[5] TDC’s contention that the government

terminated the contract for convenience and failed to

prove that TDC’s omissions proximately caused its

damages is also unavailing. UMTA initially

terminated the contract for convenience but changed

this to a termination for cause after learning about the

omissions in TDC’s progress reports. No court has

ever found the termination for cause to be

unwarranted. Further, TDC failed to rebut the

declarations of UMTA officials that UMTA relied on

TDC’s monthly reports and would not have

continued to make payments on TDC’s vouchers but

for the omissions. TDC’s alternative contention that

the district court erroneously characterized the

question of materiality by failing to ask whether

UMTA officials would have acted differently if the

omitted information had been included in the reports,

as opposed to whether they knew of such

information, was not raised in the district court and is

not properly before this court. See Air Florida, 750

F.2d at 1084-85. Under the circumstances, there was

no genuine issue of fact regarding causation and

reliance, nor any need for an evidentiary hearing.

Thus, TDC fails to show that the district court erred

in adopting a “but for” measure of damages, based on

what the government would have paid out had it

known of the information that TDC omitted from its

monthly progress reports.

l4a

[6] Finally, TDC’s contention that the district

court improperly extended the judgment to include

Monts as a defendant is frivolous. The government

sued both TDC and Monts as named defendants.

TDC I, 24 F.3d at 294. In granting the government’s

motion for summary judgment as to liability, the

district court in its March 2000 memorandum opinion

and order referred only to TDC and neglected to

mention Monts by name. However, in its February

2001 memorandum opinion awarding damages, the

district court referenced its March 2000

memorandum and order on liability as granting

summary judgment “against defendants TDC

Management Corporation (“TDC”) and T. Conrad

Monts.” Further, in granting the government’s cross-

motion in response to TDC’s Rule 60 motion, the

district court stated that the final judgment applied to

both TDC and Monts, “each of whom shall be jointly

and severally liability to the United States.”

Accordingly, we affirm the grant of summary

judgment to the government.

15a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 01-5150 September Term, 2001

89cv01533

United States of America, Filed on: July 5, 2002

Appellee

v.

TDC Management Corporation, Inc. and T. Conrad

Monts,

Appellants

BEFORE: Ginsburg, Chief Judge, and

Rogers and Garland, Circuit Judges

ORDER

Upon consideration of appellants’ petition for

rehearing filed June 17, 2002, it is ORDERED, that

the petition be denied.

Per iam

FOR THE COURT:

Mark J. Langer, Clerk

BY: S/Michael C. McGrail

Michael C. McGrail

Deputy Clerk

l6a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 01-5150 September Term, 2001

89cv01533

United States of America, _ Filed on: July 5, 2002

Appellee

v.

TDC Management Corporation, Inc. and T. Conrad

Monts,

Appellants

BEFORE: Ginsburg, Chief Judge, and

Edwards, Sentelle, Henderson, Randolph,* Rogers,

Tatel, and Garland, Circuit Judges

ORDER

Upon consideration of appellants’ petition for

rehearing en banc, and the absence of a request by

any member of the court for a vote, it is

ORDERED, that the petition be denied.

Per Curiam

FOR THE COURT:

Mark J. Langer, Clerk

BY: S/Michael C. McGrail

Michael C. McGrail

Deputy Clerk

is Ten Coe oe aaheeaaidathbinasatadhanhinatens atone ae oe ee