Opposition Brief — Boeing Co. v. United States Ex Rel. Roby

Court, U.S,

I@ED

No. 02-1411 « MAY 2 7 2003

ORAICE OF THE CLERK

In The

Supreme Court of the Anited States

¢

THE BOEING COMPANY,

Petitioner,

v.

UNITED STATES OF AMERICA

ex rel. BRETT ROBY,

Respondents.

€

v

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

y

Vv

RESPONDENT BRETT ROBY’S BRIEF

IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

2

Vv

JAMES B. HELMER, JR.*

FREDERICK M. MORGAN, JR.

ROBERT M. RICE

HELMER, MARTINS & MorGAN Co., LPA

105 East Fourth Street, Ste. 1900

Cincinnati, OH 45202

(513) 421-2400

MICHAEL A. HAVARD

PROVOST * UMPHREY

490 Park Street

Beaumont, TX 77704

Attorneys for Respondent

Relator Brett Roby

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

7S

TABLE OF CONTENTS

Page

a issih arise sdenierasiernanianbenitiireldiiihdintansinciain i

ee Oe I rs ictansscvicesaseseiaiiasveesnsnanersmernnvenses iii

IE ak sa isicpndicsobdlesantnnhenrsinenpeenennidnbineteascenes 1

STATEMENT OF THE CASE ..............cccccccessseeeceeeees 1

I Bie tiininleviitidcitihidiiibamisstnicininiienssees 6

I. THERE IS NO CIRCUIT “CONFLICT”

REGARDING THE SIXTH CIRCUITS HVIC

HOLDING, AND THIS COURT SHOULD

DECLINE PETITIONER'S INVITATION TO

RESHAPE THE FALSE CLAIMS ACT TO

ACCOMMODATE PETITIONER'S COM-

MERCIAL INTERESTS ........ccccccsccesssessoreseoes 6

A. The HVIC Is A Contract Term Which Has

No Application To An Action Under The

I RE FIO tsitrentniccsuentoncevenceanelavsssia 6

B. There Is No Split Of Authority Regard-

ing The HVIC And The FCA.................... 12

C. There Is No Support For Boeing’s Policy

Argument That Contractor Insurance

Costs Will Be Affected By The Sixth Cir-

CURE BF er BN vvccndnccnsuseyenctindenseovinenen 16

II. THERE IS NO CONFLICT BETWEEN THE

SIXTH CIRCUIT'S DAMAGES OPINION

AND DECISIONS FROM THIS COURT OR

CF EU vvcesesitninscsesessnctreexnipiesensenns 17

TABLE OF CONTENTS - Continued

Page

A. Because Boeing Has Recast The Damage

Issue On Appeal, The Petition Presents

No Case Or Controversy: The Damage

Issue Is Moot Because Boeing Concedes

That The Government’s Damages May

Exceed The Value Of The Defective

Flight-Critical Gea?..........scccssssscovesssoveseee 18

B. Boeing Misapprehends FCA Damages

FUTIOITOIIOD i ecnisnicorsccwicasinns annie 20

C. The Unanimous Sixth Circuit Damages

Opinion Does Not Conflict With Aerodex,

And Is Consistent With Precedent From

22S CONS .....:cncsisennisnccssneanaanpabenaiaimaens 23

CONC LUTION q.001:00005ss01snsiensetemenelinioneieeanneainnnnnnene 30

TABLE OF AUTHORITIES

Page

CASES

Australia v. Lockheed Aircraft Corp. & Menasco

Mfg. Co., Civ. No. 69-1623-WPG (C.D. Cal. Jan.

PEG Limi UCnaiicaktnipeslebianindnieediekineesenervereineutessnnnnenies 12

BMY-Combat Systems Division of Harsco Corpora-

tion v. United States, 44 Fed.Cl. 141 (Ct. Cl.

ER Nias ic bid ai ud deaths pdilenaneibihiletekendbiddusadaencesueie’ 29

Commercial Contractors. Inc. v. United States, 154

Ee Gee SS BIND sonesevcsociessenisinanennniesecveciensesnonn 29

Connecticut Natl Bank v. Germain, 503 U.S. 249

Neath asd hilt iis ac anieshistnbatinenehensesvnnisadiaesbeite 10

Cook County v. United States ex rel. Chandler, 538

U.S. 123 S.Ct. 1239, 155 L. Ed. 2d 247

ee 10, 11, 20, 22

M/G Transport Servs., Inc. v. Water Quality Ins.

Syndicate, 234 F.3d 974 (6th Cir. 2000).....................00008 7

Radzanower v. Touche Ross & Co., 426 U.S. 148

ER ET A ah Ae ee Se Ne NR 10

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

ie ieee ia sltinenaeaanainaioaiicl 17, 18, 20, 22, 25

United States ex rel. Roby v. Boeing Co., 302 F.3d

I sc asleeatnsiimidinnonnntnnembis 3

United States v. Aerodex, Inc., 469 F.2d 1003 (5th

a cake neneibanneinne 17, 23, 24, 27, 29

United States v. Bankers Ins. Co., 245 F.3d 315 (4th

| EE A ON FCO TT SR ERO 15

United States v. Bornstein, 423 U.S. 303 (1976) ....... passim

United States v. General Dynamics Corp., 19 F.3d

I IIE SD ss cdinndicodavonsennscenindinesvoentenrivenes 10, 11, 29

iv

TABLE OF AUTHORITIES — Continued

Page

United States v. Halper, 490 U.S. 435 (1989)................00 22

United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977).......... 25

United States v. Killough, 848 F.2d 1523 (11th Cir.

SID \vsnkiccintenisseclcniiennaiebnacdinabeibesbaiaaiinadanteiiabibhaslainabaasaibiniipni 20

United States v. Miller, 645 F.2d 473 (5th Cir. 1981)........ 24

United States v. Neifert-White Co., 390 U.S. 228, 19

L. Ed. 2d 1061, 88 S. Ct. 959 (1968) ..................sscscevssees 10

United States v. Sforza, __ F.3d __, 2003 U.S.

App. LEXIS 7149 (2d Cir. 2008) ..............ccccscccccceeees 10, 11

United States v. United States Cartridge Co., 198

F.2d 456 (8th Cir. 1952)............sceesssesees neue 12, 18, 14, 15

Wood v. United States, 16 Pet. 342 (1842)...............cccccceees 10

STATUTES

ees See nininiecehitiisiinincecenniininieea Aeanaiinemmsiniieniaapaiaiiaiiaea 11

Se Ss eI etic sttinssincannvssiciisseaneeieiabmaviaiaiainiata 7

Se tae Oe ED ces hinisninsniinssnenhetnianninnmniatnaaniediniinloasones 7

Be els OF IE Meitnncitanenceanninisicnenneiendnnibacennmnsibaniignhiiiins 10

BD eee i veeicinie siechicesliniatiasliinneicicanininaanobaiaaebdediaimiias 11

a FA See einxicivntnsnicniscnbicteiianniininneiisinteneninaianbiionidaieianedit 10

OTHER AUTHORITIES

es Se CT Fe sisi ieaicddccieaniciieninicinn 7

H.R. 4827, § 2, reprinted in 99 Cong. Rec. H6474

(Daily Ed. September 9, 1986)................cccccseseseeeees 27, 28

Vv

TABLE OF AUTHORITIES — Continued

Page

S. Rep. No. 345, 99th Cong., 2nd Sess. (1986),

reprinted in 1986 U.S.C.C.A.N. 5266, 5284............... 9, 27

S. Rep. No. 615, 96th Cong., 2d Sess. at 4 (1982) ............. 20

1

INTRODUCTION

The Court should deny the petition for writ of certio-

rari to the United States Court of Appeals for the Sixth

Circuit sought by Petitioner The Boeing Company. There

was no error below, and there is no conflict among the

circuits. The decisions below are consistent with the

decisions of this Court and those from other circuits, as

well as the text and history of both the False Claims Act

and the High Value Items Clause. Nor does this case raise

important or unsettled questions regarding the relation-

ship between the Government and its contractors. Rather,

the holdings of the trial and appellate courts in this case

show no more than that no company — not even Boeing — is

above the law.

STATEMENT OF THE CASE

This case comes before the Court in an unusual

posture. The parties settled with Boeing agreeing to pay

$61.5 million for its actions. But Boeing insisted, as part of

the settlement, upon holding back $19 million of the

proceeds while it appealed two adverse rulings against it:

First, whether a contractual provision of the Federal

Acquisition Regulations immunized it from the reach of

the False Claims Act. Second, whether Boeing’s damages

under the False Claims Act for delivering to the Army a

helicopter with a defective flight-critical gear which

caused the helicopter to crash and be totally destroyed are

limited to the $10,000 cost of the gear. These questions

were both answered negatively by the district court and

the court of appeals in favor of the United States.

Relator Brett Roby was a Quality Assurance Specialist

at SPECO, a now-defunct Boeing subcontractor. Mr. Roby

brought this False Claims Act case against Boeing and

SPECO after learning that Boeing sold defective CH-47D

“Chinook” helicopters to the United States Army and took

2

steps to prevent information regarding that conduct from

finding its way to the United States.

During the 1980s, the Army awarded contracts worth

about $2,000,000,000 to Boeing for re-manufacture of

about 400 Chinooks. The remanufacturing program was a

frame-up rebuild of the helicopters which included new

drivetrains containing flight-critical gears manufactured

to Boeing specifications from a Boeing-proprietary alloy,

“Vasco X2-M.”

Boeing subcontracted for SPECO to make the gears.

Boeing failed to advise SPECO that Boeing’s engineers

had actual, specific knowledge of certain metallurgical

characteristics of Vasco X2-M which made it an inordi-

nately difficult material to process properly. As a result,

SPECO-produced gears often contained defects that

created a substantial risk that the gears would crack in

service. Cracked flight-critical helicopter transmission

gears cause crashes.

When Boeing delivered the rebuilt helicopters to the

Army, it falsely certified the aircraft as flight-worthy. In

fact, many contained defective SPECO transmission gears.

At least two of the Vasco gears exploded while helicopters

were in flight as a result of defects which were overlooked

by both SPECO and Boeing. Through the course of the

litigation, many other gears were found to be defective.

The Army grounded that portion of its Chinook fleet with

SPECO engine-transmission gears, and as part of the:

settlement below, such gears were replaced.

As part of a settlement agreement, the district court

certified for appeal two questions which were resolved

against Boeing by both that court and the court of appeals.

Both questions concern whether Boeing can be held liable

under the False Claims Act for damages unquestionably

sustained by the United States as the result of a crash

caused by the failure of a Vasco gear. The crash occurred

3

in January 1991, during the first Gulf war when a re-

cently-delivered, Boeing-remanufactured Chinook crashed

in the Saudi Arabian desert. A defective engine-

transmission gear exploded sending shards of the gear into

the aircraft and resulting in a fuel-fed fire. Because the

helicopter was flying at low altitude, the 18 passengers

and crew scrambled off, but two soldiers were injured. The

helicopter was a total loss, as was all cargo consisting of a

truck, a howitzer, and ammunition.’

At the outset, we respectfully urge that the Court not

be misled by Boeing’s attempts to both distance itself from

the failures that caused the crash at issue here, and recast

the issues on appeal. The stipulated predicate to the

questions certified by the district judge is that sufficient

evidence existed that Boeing could, absent prevailing on

one or the other of the legal questions certified to the court

of appeals, be held liable under the False Claims Act for

any amount of damages beyond the cost of the defective

gear. This being so, the fact that the gear which caused

* Though not the subject of this petition, the United States and

Relator Roby also alleged that other Chinook crashes have resulted

from these defective transmission gears, including one in 1988 in

Honduras, causing the deaths of five American servicemen and the total

loss of the helicopter; and one in 1993 during a training mission at Fort

Meade, Maryland, resulting in over $1,000,000 in damages to the

Chinook.

* In the Settlement Agreement between Boeing and the United

States, Boeing contracted to pay the reserved settlement amount upon

a determination that the United States could recover “damages under

the False Claims Act flowing from Boeing’s claim(s) for payment for the

Saudi helicopter that represent the value of the helicopter (whether it

be replacement value, fair market value, contract value or price, or some

other measure) rather than just the value of the defective gear{.]

Settlement Agreement (attached hereto) at p. 11, {2.h.i. (emphasis

added). Accord United States ex rel. Roby v. Boeing Co., 302 F.3d 637,

640-641 (6th Cir. 2002). This decision is reprinted in Petitioner’s

(Continued on following page)

4

the crash was made by a subcontractor is irrelevant.

Boeing chose and qualified its vendor, specified the exotic

gear material, and was responsible for delivery of conform-

ing aircraft. Moreover, Boeing itself contracted to perform

annual destructive tests of these vendor-supplied flight-

critical gears, but failed to conduct these required tests.

Similarly, Boeing’s current claims that the Army

“requested” a specific vendor, that the Army “approved”

SPECO for this project, and that Army inspectors were

“deeply involved” in the quality control process at SPECO

(Petition at 9-10) are both irrelevant and misleading.

Boeing was no mere assembler, nor was it a disinterested

prime contractor which accepted and installed off-the-shelf

components while innocent of the problems which plagued

their manufacture.

To the contrary, the extensive factual record reflects

that Boeing convinced the Army that the flight-critical

transmission gears be made from Boeing’s proprietary

Vasco X2-M alloy. Vasco was not used in gears in previous

Chinook models. In fact, this alloy has never been used in

any critical aircraft application except these Chinook

transmission gears. Boeing engineers participated in the

development of the alloy and were painfully aware that it

was exceptionally prone to manufacturing defects. Boeing

knew that SPECO could not produce conforming Vasco X2-M

gears. Boeing located representatives onsite at SPECO,

wrote the manufacturing and inspection requirements,

knew of problems with grinding burns and cracks on

production parts, and knew that SPECO’s inspection

procedures failed to detect these defects.

Appendix at la-26a, and the cited passage appears at 3a-4a. For the

Court’s convenience, citation to the Sixth Circuit’s decision will

henceforth be to Petitioner’s Appendix (“App.”).

5

Boeing nonetheless installed SPECO gears into many

Chinooks — including the one lost in Saudi Arabia —

without any inspection of its own. At the same time,

Boeing submitted claims for payment which represented

to the United States that the helicopters complied fully

with all contract requirements.

As a direct, proximate, and foreseeable result of

Boeing’s representations of conformance, the United

States paid Boeing for the helicoptere. Then, in reliance

upon Boeing’s representations of quality, conformance, and

- airworthiness, the Army flew the helicopters. Once a

helicopter containing a cracked transmission gear was put

into service, the catastrophic failure of that gear, de-

stroyed helicopter and destroyed materiel were as foresee-

able as sunset. The gear in the helicopter which crashed in

the Saudi desert was a time bomb. So were the dozens of

other defective SPECO gears which Boeing caused to be

put into service. Once the gear failed and the helicopter

was destroyed, the United States had to, and did, pur-

chase another helicopter to replace it.

The Sixth Circuit correctly observed that “the Speco

gear was not simply of lesser quality than specified; it was

a defective flight-critical part, which made the loss of [the

Saudi helicopter] inevitable.” App. at 16a n.7. The panel

concluded unanimously that a jury could find Boeing liable

for the value of the Saudi Chinook as a means of making

the United States “completely whole.” It also concluded,

over a dissent, that a contractual clause known as the

* Boeing’s seeming suggestion that the Sixth Circuit was “divided”

on all issues before it is wrong. The panel’s conclusion that False

Claims Act damages can be measured by the value of a helicopter where

its loss resuited from a defective flight-critical component part was

unanimous; the panel divided 2-1 only on the issue of the HVIC. App. at

20a.

6

High Value Items Clause (“HVIC”) did not confer upon

Boeing immunity from the damage provisions of the False

Claims Act. Boeing sought rehearing and rehearing en

banc, which were denied. App. at 103a. This petition

followed.

ARGUMENT

I. THERE IS NO CIRCUIT CONFLICT REGARD-

ING THE SIXTH CIRCUIT’S HVIC HOLDING,

AND THIS COURT SHOULD DECLINE PETI-

TIONER’S INVITATION TO RESHAPE THE

FALSE CLAIMS ACT TO ACCOMMODATE

PETITIONER’S COMMERCIAL INTERESTS.

A. The HVIC Is A Contract Term Which Has

No Application To An Action Under The

False Claims Act.

Boeing asserts that the High Value Items Clause

represents a determination by the Department of Defense

that it would self-insure for any and all damages resulting

from injury to high-value items, no matter the cause.

There is a disconnect between Boeing’s position and the

facts of this case so complete that Boeing has for years

either missed it entirely, or been willing to dissemble

completely.

* Boeing’s claims regarding insurance are merely policy arguments

reserved to coordinate branches. More importantly, the Settlement

Agreement between Boeing and the United States specifically stipu-

lated that “the exceptions to the High Value Items Clause .. . based on

the Contractor having insurance ... are not at issue.” Settlement

Agreement at App. 5, { 2a. The question certified by the district court

makes no mention whatever of insurance. The fact that Boeing focuses

on these policy matters to the exclusion of reasoned analysis eloquently

demonstrates that its legal position is bereft.

7

The fundamental issue is this: The HVIC is a contract

clause. To the extent that it operates as a limitation of

Government contractor liability, its application is, and

could only be, limited to contract-based actions. This is

made clear by the express terms of the HVIC itself: “(b)

High-value items. In contracts requiring delivery of high-

value items, the Government will relieve contractors of

contractual liability for loss of or damages to those items.”

This passage, which obviously is Boeing’s Achilles heel, is

studiously ignored in the Petitioner’s papers for an obvious

reason: This case is not about contractual liability at all.

Rather, this is a False Claims Act case. There is no

dispute in the present posture of this matter that the

damages which the United States and Relator sought

flowed from Boeing’s false claims for payment and atten-

dant false certifications of contract conformance. There is,

therefore, also no dispute that this case concerns statutory

— not breach-of-contract — claims. The FCA provides for

recovery against “[aJny person who” with the requisite

intent “submits a false claim for payment” to the United

States (31 U.S.C. §3729(aX1)) and makes such person

liable for all “damages caused by [its] act.” 31 U.S.C.

§ 3729(a). There is, in other words, a manifest distinction

between a violation of the FCA — that is, the submission of

a false claim for payment — and the violation of law or

other misconduct which underlies that violation.*

* 48 C.F.R. 46.803 (1997 ed.) (emphasis supplied). This regulatory

provision is no mere “policy statement,” as Boeing argued in the court

below. It is an integral part of the HVIC itself, promulgated by the DoD

as the resu': of legislative rule making.

* Consider, for example, the decision in M/G Transport Servs., Inc.

v. Water Quality Ins. Syndicate, 234 F.3d 974, 978 (6th Cir. 2000) that

“[aJn FCA action is not converted into a Clean Water Act action simply

because a violation of the Clean Water Act is a predicate to establishing

(Continued on following page)

8

Notwithstanding this easily-understood distinction,

Boeing repeatedly asserts that the HVIC represents

nothing less than a studied decision by the United States

to “self-insure” against not only breach-of-contract claims,

but also against every possible harm resulting from every

conceivable type of fraud and abuse which occurs in the

context of execution of a contract for end items that cost

more than $100,000. Petition at 14-22. The argument,

then, is that an executive-branch contract clause, which by

its terms allocates breach-of-contract risk, immunizes the

largest defe’.se contractors, who perforce make the most

expensive products purchased by the government, from

precisely the types of misconduct addressed by Congress in

the FCA.

Notably, Boeing nowhere suggests that the HVIC or

documents discussing its history or purpose mention its

supposed trumping of the FCA, although the latter pre-

ceded the former by about a century. Nor does Boeing

point to so much as a sentence in the history of the 1986

FCA Amendments or their legislative history indicating

that Congress recognized that really big contractors would

be immune. The reason for these omissions is simple

enough: The HVIC never mentions the FCA, and the FCA

the falsity of the claim, or may be used as a measure of damages under

the FCA.” Here, the contract provisions set certain of the standards by

which Boeing’s conduct is measured. However, the contract is not the

source of Boeing’s liability. Nor is the basis for the action that the

contract was breached. Rather the claim is that by knowingly delivering

nonconforming helicopters while certifying their conformance, Boeing

submitted false claims. Such conduct is precisely within the terms of

the FCA, and simply has nothing to do with the HVIC.

j

i

{

9

never mentions the HVIC.’ And when Congress did men-

tion the big contractors, its intent was hardly to let them

off the hook.*

That being so, Boeing’s argument is necessarily

reduced to one of repeal (or equally improbable, amend-

ment) by implication — that is, that the HVIC is so broad

that its drafters must have intended to expand its reach to

Acts of Congress which would otherwise apply. This

" The panel found this point telling, noting that under the HVIC,

“The Government is both insurer and insured. Because nothing in the

HVIC suggests that its limitation of contractor liability covers statutory

violations, we hold that the district court did not err in concluding that

the HVIC does not provide a defense to damages sought under the

FCA.” App. at 10a.

* The Senate Report pertinent to the 1986 Amendments observed

that “while it may be difficult to estimate the exact magnitude of fraud

in Federal programs and procurement, the recent proliferation of cases

among some of the largest Government contractors indicates that the

problem is severe.” S. Rep. No. 345, 99th Cong. 2d Sess. at 4 (1986),

reprinted in 1986 U.S.C.C.A.N. 5266, 5269. The report continued:

Fraud permeates generally all Government programs

ranging from welfare and food stamps benefits, to multibil-

lion dollar defense procurements, to crop subsidies and dis-

aster relief programs. While fraud is obviously not limited to

any one Government agency, defense procurement fraud has

received heightened attention over the past few years. In

1985, the Department of Defense Inspector General, Joseph

Sherick, testified that 45 of the 100 largest defense contrac-

tors, including 9 of the top 10, were under investigation for

multiple fraud offenses. Additionally, the Justice Depart-

ment has reported that in the last year, four of the largest

defense contractors, General Electric, GTE, Rockwell and

Gould, have been convicted of criminal offenses while an-

other, General Dynamics, has been indicted and awaits

trial.

Id. at 2-3, 1986 U.S.C.C.A.N. at 5267. (emphasis supplied; footnotes

omitted). This language hardly supports the contention that the largest

contractors are effectively immune from the FCA’s grasp.

10

assertion is, of course, belied by the express language of

the HVIC itself. It is also conspicuously inconsistent with

this Court’s recognition, as recently as this Term, that in

the FCA, “Congress wrote expansively, meaning ‘to reach

all types of fraud, without qualification, that might result

in financial loss to the Government.” Cook County uv.

United States ex rel. Chandler, 5388 U.S. __, __, 123

S. Ct. 1239, __, 155 L. Ed. 2d 247, 256-257 (2003), quoting

United States v. Neifert-White Co., 390 U.S. 228, 232, 19

L. Ed. 2d 1061, 88 S. Ct. 959 (1968).”

While the HVIC is not an Act of Congress, Boeing’s.

argument runs afoul, most fundamentally, of the basic

proposition that even where two statutes may seem to

conflict, “well-established law ... strongly disfavors

preclusion of one federal statute by another absent express

manifestations of preclusive intent.” United States v.

Sforza, 326 F.3d 107, __, 2003 U.S. App. LEXIS 7149, *8-

9) (2d Cir., April 10, 2003), citing, inter alia, United States

v. General Dynamics Corp., 19 F.3d 770, 774 (2d Cir. 1994),

citing in turn Radzanower v. Touche Ross & Co., 426 U.S.

148, 154 (1976). This Court has long held that preclusion

will be found only where there is clear congressional intent

to preclude or “positive repugnancy” between the two

statutes. E.g., Connecticut Natl Bank v. Germain, 503

U.S. 249, 253 (1992), quoting Wood v. United States, 16

Pet. 342, 363 (1842).

* Even had the Department of Defense intended the HVIC to

nullify FCA claims, and there is clearly no evidence to that effect, the

DoD was powerless to do so. The Attorney General alone has authority

to prosecute FCA offenses. 31 U.S.C. § 3730(a). This is consistent with

the Contract Disputes Act, which gives the Attorney General (not the

DoD) sole authority over false and fraudulent claims. 41 U.S.C. § 601 et

seq.

11

Setting aside the dicey question whether executive

rule-making could ever trump an Act of Congress, there is

no inherent disharmony between the HVIC and the FCA —

much less the sort of statutory cacophony which might

lead to a finding of “positive repugnancy.” Indeed, both

Sforza and General Dynamics are directly instructive here:

The Sforza panel recently held that the FCA is not pre-

cluded by the Federal Employee Compensation Act, 5

U.S.C. § 8101 et seg., 326 F.3d at __, 2003 U.S. App.

| LEXIS at *8-9. And the General Dynamics panel held that

| the False Claims Act is not precluded by the Anti-Kickback

Act, 41 U.S.C. § 51 et seg. General Dynamics, 19 F.3d at

776-777.

In short, basic rules of construction confirm what

common sense suggests: That a procurement regulation

cannot credibly be argued to eviscerate an Act of Congress

— much less one which it does not even mention. Indeed,

the proposition that executive rule-making sub silentio

insulated the largest contractors from answering for

-egregious misconduct is, standing alone, richly ironic. It is

presumably Boeing’s position that only small contractors

in less vaunted positions than it should have to trouble

themselves to answer for the submission of false or

fraudulent claims against the Treasury, while the largest

(and, according to Congress, most rapacious) contractors

go about their business, beyond the reach of anti-fraud

statutes.

| As passing strange as Boeing’s proposition is when

| standing alone, it is all the more so when considered

against the history and purpose of the FCA. Boeing claims

that the DoD, by including the HVIC in its contracts for

expensive products, tacitly eviscerated what the Court

knows to be “the very Act [Congress] passed to strengthen

the Government’s hand in fighting false claims.” Cook

County, 155 L. Ed. 2d at 260 (citation omitted). The result

SESSA ELT ATTRA ACT

12

could not be so. The HVIC and the FCA are ships passing

miles apart on a foggy night.”

B. There Is No Split Of Authority Regarding

The HVIC And The FCA.

Boeing posits disarray among the lower courts, assert-

ing that even though the decisions appealed from were the

first ever to examine the interplay between the FCA and

the HVIC, the Sixth Circuit’s decision implicates every

“assumption of risk” clause promulgated by the Govern-

ment — even though all that was ever put at issue was the

HVIC. Then, Boeing identifies two cases that (while not

dealing with the HVIC) concern limitations on the FCA in

contexts much different than that pressed by Boeing in

this case.

Boeing’s claimed “conflicts” underscore the hollowness

of its interpretation of the HVIC. In United States v.

United States Cartridge Co., 198 F.2d 456 (8th Cir. 1952),

a contractor entered into a wartime procurement contract

which made it an “instrumentality of the Government.”

198 F.2d at 464. These circumstances dissuaded the court

from voiding as against public policy a provision of the

contract which waived all the contractor’s liability to the

government “of any kind whatsoever.” Id.

The Cartridge panel carefully limited its holding to

the facts before it, and cautioned against efforts to apply it

more broadly:

Indeed, the case which Boeing identifies as the very DNA of the

HVIC, Australia v. Lockheed Aircraft Corp. & Menasco Mfg. Co., Civ.

No. 69-1623-WPG (C.D. Cal. Jan. 10, 1972), Petition at 4, makes no

mention of FCA liability. Rather, it pertained exclusively to issues of

negligence and breach of warranty. These common-law claims have

nothing to do with statutory FCA liability.

13

If this contract were to be regarded as one creat-

ing the conventional relationship between the

Government and a commercial corporate contrac-

tor not subject to Government supervision and

control, for the supplying of goods or services,

and if the provisions limiting liability were to be

viewed merely as an attempt to relieve such a

contractor for liability from its own fraud, the

[public policy] argument might perhaps be unan-

swerable.

Id. Boeing ignores this passage, while spending several

pages of its Petition vacillating between the assertion that

the wartime-emergency finding was irrelevant to the

Cartridge decision, and the even more peculiar argument

that Boeing really is every bit the “instrumentality of the

Government” envisioned by the Eighth Circuit.

These assertions are makeweight. In stark contrast

with the facts of Cartridge, this litigation involves pre-

cisely the “conventional relationship between the Govern-

ment and a commercial corporate contractor not subject to

Government supervision and control.” Boeing’s helicopter

contracts with the United States were indeed “conven-

tional,” and were no different from Government contracts

for any number of expensive end items. The contracts were

unaffected by wartime emergencies: They were let and

mostly performed during the peace of the late 1980s.

Boeing assuredly was not an “instrumentality of the

Government.”

The Sixth Circuit thus correctly distinguished Car-

tridge from this case, noting that the factual differences

“suggest that the limitation of liability in United States

Cartridge Co. allocated risks in a way much more favor-

able to the defendant than does the HVIC.” App. at 12a.

As it did below, Boeing claims that the “distinction is

unavailing.” Petition at 16. It argues that the HVIC is an

“unqualified limitation-of-liability” clause that is now

Ee a ee

i4

included in nearly all Government contracts for high-value

defense items, and that its application should not depend

on the level of Government control over the contractor.

Petition at 17. This argument is both circular (because it

ignores the facts of the very case on which it relies) and

based on a palpably-faulty premise: The HVIC is by its

own terms not an “unqualified limitation-of-liability”

clause. It applies only to contract-based claims. Moreover,

the HVIC was not even at issue in Cartridge (since it was

still 20 years away from promulgation). That case dealt

with a unique type of Government assumption of risk

clause in a unique contract involving an “instrumentality

of the Government” tasked with producing ammunition to

prosecute a World War. By its own terms, and despite

Boeing’s contrary assertions, Cartridge cannot be un-

moored from its facts and broadly applied.

Perhaps recognizing this, Boeing makes a _ half-

hearted stab at comparing its contracts with those in

Cartridge. (Boeing lays the groundwork for this argument

with its carefully distorted “Statement of the Case,” which

incorrectly paints Boeing as both victim of the acts of its

chosen subcontractor and pawn subject to supposed

“direction” from the Army). Boeing says that Government

supervision of its contracts was “extensive and included

the placement of numerous government quality assurance

representatives and inspectors at both Speco and Boeing.”

Petition at 16 n.5. Boeing stops far short, though, of saying

that it was somehow an “instrumentality of the Govern-

ment.”" The record — even as filtered through Boeing’s

“In moving for en banc review of the Sixth Circuit’s panel

decision, Boeing was so concerned about the wartime/peacetime

distinction in Cartridge — as well it should have been — that Boeing

actually claimed that this country has been in something of a constant

(Continued on following page)

15

myopic lens — comes nowhere near to supporting such a

claim.

In the end, Boeing’s attempt to cloak itself in the

mantle of Cartridge is painfully strained. The differences

between the facts of that case and this one are so obvious

that Cartridge merely demonstrates why the HVIC does

not provide what Boeing wants — insulation from respon-

sibility for violations of the FCA.

Finally, Boeing claims that the Sixth Circuit’s HVIC

decision “conflicts” with the Fourth Circuit’s decision in

United States v. Bankers Ins. Co., 245 F.3d 315 (4th Cir.

2001). Boeing is again mistaken. Bankers Insurance did

not address the HVIC or even any of the “assumption of

risk” clauses that Boeing says are implicated by this case.

Instead, it dealt with a mandatory arbitration contract

clause, which had the effect of delaying — not defeating — a

related FCA prosecution. Jd. at 324. But in enforcing this

clause, the Fourth Circuit acknowledged (as Boeing fails to

do here) that the FCA was a “unique statutory right.” Id.

at 325. As such, the court noted that its ruling meant only

a slight delay to the FCA prosecution, and thus did not

dilute the Attorney General’s ability to fully enforce the

FCA — particularly since the results of the arbitration were

not binding on the Government. Jd. at 324.

In contrast, Boeing’s interpretation of the HVIC would

render the Attorney General forever precluded from

prosecuting Boeing, or any other maker of expensive end

items, for appropriate damages under the FCA. Bankers

Insurance simply does not support this outcome. Indeed,

Bankers Insurance quite explicitly narrowed its decision —

just as did Cartridge, the other supposed “conflicting” case

state of war over the past 60 years. Boeing wisely reconsidered this bit

of silly hyperbole, and has chosen not to repeat that claim to this Court.

ee

16

cited by Boeing — to the facts presented, and thus effec-

tively foreclosed Boeing’s current effort to extract a

broadly applicable “ruling” from that case.

C. There Is No Support For Boeing’s Policy

Argument That Contractor Insurance

Costs Will Be Affected By The Sixth Cir-

cuit’s HVIC Ruling.

Many pages of Boeing’s petition are consumed by

cataclysmic predictions regarding the effect of the Sixth

Circuit's HVIC opinion. In sum, Boeing claims that con-

tractors who supply high-value end items to the Govern-

ment have been relying on the HVIC for decades to shield

them from FCA liability — and, as a result, “have foregone

the purchase of insurance that would protect them against

risk of damage or loss to high value government items.”

Petition at 19-22. Even more aggressively, Boeing says “it

would be manifestly unfair” if the HVIC did not trump the

FCA because “the government has avoided significantly

higher procurement costs by inducing contractors and

subcontractors to forgo the purchase of insurance through

a promise of self-insurance.” Jd. at 20-21.

The biggest problem with such assertions is that there

is no evidence that they are true. That is, there is no

evidence that any Government contractor ever abstained

from buying insurance for FCA liability in reliance on the

HVIC. Boeing certainly cites none, hoping instead that its

thesis gains credibility through repetition. In fact, though,

there is clear proof that Boeing never really thought the

HVIC saved it from FCA liability: Boeing itself actually

had insurance for the FCA claims in this case to the extent

that the HVIC did not apply.

Boeing’s Chicken Little claims are wholly undercut by

a lack of evidence and its own inconsistent behavior. While

17

Boeing may be correct that the HVIC is one of the Gov-

ernment’s efforts to self-insure (at least in connection with

breaches of contract), its claim that the Government

meant the HVIC to cover all manner of loss caused by all

manner of misconduct — even that which violates Acts of

Congress that predate the clause by a century — is simply

unsupported on the record. In any event, of course, these

are policy concerns reserved to codrdinate branches. As the

Sixth Circuit noted: “In its brief, Boeing expounds at

length on the negative implications, both fiscal and other-

wise, of holding military contractors liable under the FCA

for damages to high-value items. We agree with the

Government and Roby that we should leave any revision of

the FCA or the HVIC to Congress.” App. at 13a. We re-

spectfully urge this Court’s concurrence.

Il. THERE IS NO CONFLICT BETWEEN THE

SIXTH CIRCUIT’S DAMAGES OPINION AND

DECISIONS FROM THIS COURT OR OTHER

CIRCUITS.

Regarding the measure of damages under the False

Claims Act, Boeing’s petition is based principally on its

claim that the Sixth Circuit’s decision “conflicts” with the

Fifth Circuit in United States v. Aerodex, Inc., 469 F.2d

1003 (5th Cir. 1972). Boeing argues that Aerodex estab-

lished a “rule” that FCA damages can never exceed the

amount of the underlying false claim. Petition at 22.

Boeing also asserts that the Sixth Circuit’s decision is “out

of step” (though apparently not in “conflict”) with this

Court’s decisions in United States v. Bornstein, 423 U.S.

303 (1976) and United States ex rel. Marcus v. Hess, 317

U.S. 537 (1943). Id.

Boeing is wrong on both counts. Neither the Fifth

Circuit in Aerodex nor any other court has either estab-

lished or even hinted at a “rule” restricting FCA damages

nee creams

18

in every case to the amount of the false claim. Indeed,

Hess and Bornstein, far from discordant with this case,

actually mandate a broad remedial approach to FCA

damages so that the Government is made “completely

whole.” Since there is no Circuit (or any other) conflict, the

petition should be denied.

A. Because Boeing Has Recast The Damage

Issue On Appeal, The Petition Presents No

Case Or Controversy: The Damage Issue

Is Moot Because Boeing Concedes That

The Government’s Damages May Exceed

The Value Of The Defective Flight-Critical

Gear.

The district judge certified the following question at

Boeing’s request: “Whether the United States can recover

damages under the False Claims Act for loss of a helicop-

ter resulting from the failure of a defective flight-critical

component part[.]” App. at 100a. In its Petition, Boeing

has markedly rewritten the question:

Whether the court below erred in holding, in con-

flict with the United States Court of Appeals for

the Fifth Circuit, that damages recoverable un-

der tiv False Claims Act, before trebling, are not

limited “to the amount wrongfully paid to satisfy

the false claim[.]”

Petition at (i). The certified question is amplified by the

Settlement Agreement between Boeing and the United

States, in which Boeing contracted to pay the reserved

settlement amount upon a determination that the United

States could recover “damages under the False Claims Act

flowing from Boeing’s claim(s) for payment for the Saudi

helicopter that represent the value of the helicopter

(whether it be replacement value, fair market value, con-

tract value or price, or some other measure) rather than

19

just the value of the defective gear[.] Settlement

Agreement (attached) at App. 9, J 2.h.i. (emphasis added).

Remarkably, the Petition nowhere addresses “the

value of the defective gear.” Rather, it argues that the

Court should grant certiorari to decide whether Boeing’s

liability is limited to the value of “a claim for $4 million.”

Petition at 30. That Boeing has abandoned the remarkable

suggestion that the Government’s damage claim was

limited to the approximately $10,000 price of the gear is

hardly surprising, given Boeing’s abandonment of that

thesis before the Sixth Circuit” and the panel’s dismissal

of that position as nothing more than “[nJegotiation

strategy.”

The point, however, is not merely that Boeing’s strat-

egy has changed, but that the question presented to this

Court is moot. The certified question, in contrast to Boe-

ing’s re-tooled version of it, has nothing to do with “the

amount wrongfully paid to satisfy the false claim.” Boe-

ing’s Petition makes no mention of the price of the gear; it

focuses exclusively on the value of the claim. As a result,

Boeing presents no question to this Court that would serve

to resolve the underlying question before the Court

(whether Boeing must pay the reserved settlement

amounts), because no matter what answer the Court were

to give to the question Boeing now presents, Boeing has

conceded that the United States prevails on the certified

question. The second question presented, therefore, fails to

present a case or controversy, and is moot.

“ The panel observed that “Boeing now concedes that damages

under the FCA could equal — but never exceed — the amount of the

claim, which in this case would be the approximately $4.1 million value

of Boeing’s contract to remanufacture Aircraft 89-0165.” App. at 15a.

20

B. Boeing Misapprehends FCA Damages Ju-

risprudence.

Should the Court be inclined to look past Boeing’s

attempt to completely rewrite the issue presented, it will

find Boeing’s analysis of False Claims Act damages incor-

rect. The text of the FCA provides for recovery of three

times all “damages which the Government sustains

because of the act” giving rise to liability. 31 U.S.C.

§ 3729(a). As this Court has held time and again over the

years, the indisputable goal of FCA damages is to make

the United States “completely whole.” Marcus, 317 U.S. at

552; Bornstein, 423 U.S. at 314-15 (quoting Hess). Not two

months ago, this Court reiterated that “make-whole”

damages are an indispensable part of the FCA’s broad

remedial purpose. Chandler, 155 L. Ed. 2d at 258.

Determining proper “make-whole” damages depends

on the facts of each case, and courts understand such an

approach is not amenable to a one-size-fits-all damages

construct. As the Eleventh Circuit said in an oft-quoted

holding:

No single rule can, or should be, stated for the

determination of damages under the Act....

Fraudulent interference with the government’s

activities damages the government in numerous

ways that vary from case to case. Accordingly, the

committee believes that the courts should remain

free to fashion measures of damages on a case by

case basis. The Committee intends th: the

courts should be guided only by the principles

that the United States’ damages should be liber-

ally measured to effectuate the remedial pur-

poses of the Act and that the United States

should be afforded a full and complete recovery of

all its damages.

United States v. Killough, 848 F.2d 1523, 1532 (11th Cir.

1988) (quoting S. Rep. 615, 96th Cong., 2d Sess. at 4

ee ae

21

(1982)).” This flexibility underlies the rulings in this case

and, for that matter, in every case cited in the Petition.

FCA damages are based on the facts, and courts rightly

frame their inquiry in terms of causation — looking for a

way to make the United States “completely whole” for all

damage that directly, proximately and foreseeably occurs

because of the FCA violation. No court has fashioned a

“rule” that constrains this inquiry as a matter of law.

Yet that is exactly what Boeing advocates. Under its

view, the FCA is only concerned with “recovering money

the government was fraudulently induced to pay,” which is

capped by the amount of the false claim for payment.

Petition at 25. This completely misstates the purpose of

the FCA, which by its terms allows for recovery of all

damages sustained “because of the act” that violates the

statute. As relevant here, the prohibited “act” giving rise

to Boeing’s liability was its false claim that the Saudi

Chinook conformed to all contract requirements. Because

of that “act,” the Army did more than satisfy the $4.1

million claim from Boeing; it also began flying a helicopter

worth far more than $4.1 million which Boeing falsely —

and knowingly — represented as flightworthy, but that was

in fact doomed to crash after only a few hours of service.

Restricting FCA damages as a matter of law to the amount

paid on the claim would not make the United States

“completely whole.”

” Betraying a total failure to grasp this concept, Boeing actually

justifies its petition by asking this Court to resolve the “lack of uniform-

ity in the courts concerning the measure of damages under the FCA.”

Petition at 22. But this is exactly what the FCA demands - a case by

case determination of damages. Boeing, understandably, wants a “rule”

that reigns in its exposure for violating the FCA.

“ This Court has recognized that making the Government “com-

pletely whole” includes consideration of amounts beyond the false claim

(Continued on following page)

22

Boeing’s own damage analysis has fluctuated wildly

as the litigation progressed. Before the district court,

Boeing asserted that the “amount wrongfully paid” in

connection with the destroyed Chinook was the cost of the

defective gear — about $10,000. On appeal, Boeing advo-

cated the same “amount wrongfully paid” position, but

conceded that this amount could be the $4.1 million

Boeing was paid to rebuild the doomed Chinook. The Sixth

Circuit made quick work of this:

Negotiation strategy aside, we are at a complete

loss as to how Boeing can understand “the

amount wrongfully paid” to be limited to “the

portion of the contract price allocated to the de-

fective gear.” According to our reading of the con-

tract and the subsequent invoice, Boeing billed

the Government for the remanufactured helicop-

ters as units, not as assemblages of assorted

parts. The fact that every component but one

conformed to contract requirements is not legally

significant when the defective gear was “flight

critical” and thus necessary for flight.

App. at 15a. In scrambling to limit its exposure, Boeing

simply has not been able to coherently or consistently

state its view of damages in this case.

Finally, Boeing tries to undercut the “make whole”

language of Hess and Bornstein and Chandler, claiming

that the Hess Court viewed the measure of double dam-

ages (now treble) as the mechanism to make the Govern-

ment “whole,” and was thus not addressing the concept of

baseline actual damages. Petition at 23. But Hess simply

did not make the distinction that Boeing urges, and the

reason is obvious: doubling (or trebling) FCA damages will

such as, for example, investigation costs. United States v. Halper, 490

U.S. 435, 442-46 (1989).

23

make the United States “completely whole” only if deter-

mining the appropriate level of baseline damages is part of

the “make whole” analysis in the first place.

Indeed, Boeing’s effort to undercut the “make whole”

language masks the truly-disturbing truth of this case.

The Government’s total damages as a result of Boeing’s

misconduct with respect to the placement of exploding

Vasco gears in Chinook helicopters is hundreds of millions

of dollars in lost use of helicopters, repair, replacement,

and inspection costs, investigation costs, litigation ex-

pense, and morale damage to the troops as a result of the

knowledge that they are using equipment not just danger-

ous, but unnecessarily dangerous, and a loss of confidence

in the integrity of the aircraft on the part of Army officials

responsible for it. Boeing refuses to acknowledge the true

measure of the damages it caused.

C. The Unanimous Sixth Circuit Damages

Opinion Does Not Conflict With Aerodex,

And Is Consistent With Precedent From

This Court.

Boeing claims there is a Circuit split as to the proper

measure of FCA damages because the Sixth Circuit’s

decision in this case “is in irreconcilable conflict” with a

supposed “rule” established by the Fifth Circuit in

Aerodex. Petition at 24. That “rule,” according to Boeing, is

that any damages beyond the “amount wrongfully paid”

are by definition “consequential damages” and therefore

never recoverable. There is no such “rule.” Like all the

other cases cited by Boeing, and consistent with the FCA

text and the “make whole” nature of FCA damages,

Aerodex simply decided an appropriate level of damages

based on the facts presented.

While it is true that Aerodex is couched in terms of

“consequential damages,” close review demonstrates that

24

it actually is a case which centers around causation.” In

deciding whether a defendant that shipped defective spare

parts had to pay for the removal of those parts after they

were installed by the Air Force without any inspection, the

Fifth Circuit held that the defendant’s violations of the

FCA were not the cause of the removal-and-replacement

expenses: “The submission of these [false] vouchers,” said

the court, “was not the cause of the government’s conse-

quential damages.” Jd. at 1011. Though the Aerodex court

precluded the government from recovering (under the

FCA) the cost of removing the defective parts, it probably

did so because the Air Force was required to inspect the

parts prior to installation but failed to do so. Such an

inspection would have simply and cheaply revealed the

defect in the parts. Jd. at 1009. This failure readily can be

seen as a break in the chain of causation — an intervening

or “mediating” cause. :

Here, the United States had no duty to tear down the

helicopter Boeing sold it to inspect transmission gears,

whether before or after delivery, and thus Boeing’s attempt

to shoehorn this case into the mold of Aerodex’s consequen-

tial-damage analysis is ill-conceived. Aerodex involved a

manufacturer of component parts: Boeing is a manufac-

turer of helicopters. Aerodex involved delivery of individ-

ual components for later installation into airplanes:

Boeing delivered helicopters which it certified as airwor-

thy as delivered, requiring nothing more than a preflight

check and a Chinook pilot’s expertise.

* Indeed, the Fifth Circuit itself has expressly characterized

Aerodex as being a case which focuses on “the element of causation

between the false statements and the loss.” United States v. Miller, 645

F.2d 473, 476 (5th Cir. 1981).

25

Equally improper is Boeing’s claim that the Sixth

Circuit adopted a boundless “but for” test for determining

appropriate FCA damages. Petition at 26. The phrase “but

for” never appears in the Sixth Circuit’s decision.” In

truth, after considering the facts presented, the Sixth

Circuit decided that the best method to make the United

States “completely whole” was the “diminished-value”

measure of FCA damages that Boeing itself advocated and

this Court applied in Bornstein. App. at 18a. Since Boeing

sold helicopters, not gears, the Sixth Circuit held that the

Government could recover the difference between the

market value of a helicopter delivered with a defective

flight-critical gear ($0) and the value the entire aircraft

“would have had if it had been of the specified quality[ ]” —

a figure not identified because the court was only asked to

decide whether such amount was a candidate for proper

damages in this case. Jd. at 18a. Thus, Boeing simply does

not like how the Sixth Circuit applied the Bornstein

measure of damages.

Boeing now says the Sixth Circuit improperly ex-

tended the Bornstein “rule,” claiming that no other court

has ever held that “a supplier of remanufacturing services

* Having misstated the Sixth Circuit’s holding, Boeing then claims

that courts beyond Aerodex have “consistently rejected” the Sixth

Circuit’s “expansive” decision. Petition at 26. Interestingly, the only

case Boeing cites, United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977),

actually undercuts Boeing’s petition because its analysis is framed

around causation. The Third Circuit reasoned that the connection

between actual damage and the “act” of the defendant “compels

consideration of the element of causation. That requirement should be

liberally construed so as to provide the government restitution from

those whose fraud has caused loss.” Id. at 351 (emphasis added). The

Hibbs court also held that this inquiry requires consideration of “the

relationship between the unlawful act and the injury ultimately

sustained.” Id.

26

and upgraded components could be liable under the FCA

for three times the value of an entire aircraft if a single

upgraded part is defective.” Petition at 23.” The fact is,

though, that no other court has ever been confronted with

the situation at hand. That is, Boeing cannot demonstrate

that the United States has ever before been the victim of a

contractor who sold it an aircraft after failing to take steps

to ensure that flight-critical parts had been manufactured

free of defects, the risk of which the contractor specifically

knew. Boeing’s conduct in this case is so far from the main-

stream of acceptable conduct that the fact there is no

comparable case is hardly surprising. It proves nothing for

Boeing to claim that the Sixth Circuit decision is “at odds

with every court that has addressed these issues.” Jd. at

23. No court save the Sixth Circuit (and the District Court)

has done so.

More to the point, Boeing is simply incorrect that

Bornstein established a “rule” that the Sixth Circuit

somehow ignored. Far from restricting the FCA, Bornstein

actually reaffirmed the “make whole” measure of FCA

damages. Bornstein, 423 U.S. at 314, quoting Hess, 317

U.S. at 551-552. As for its specific holding, there was no

need for the Bornstein Court to address damage done to an

end-item as a result of a defective component for an

obvious reason: Nothing happened as the result of the

sub-standard radio tubes because the Government de-

tected the fraud before any adverse consequences arose.

* Boeing also claims that the Sixth Circuit’s application of

Bornstein is “absurd” because the court set the market value of the

defective helicopter at zero. Petition at 30 n.14. The Sixth Circuit was

being generous. The value of a helicopter carrying American troops and

equipment that will soon crash without warning and burn to the

ground is, we respectfully submit, far less than zero.

27

Bornstein, 423 U.S. at 307. There is no indication what-

ever in that Court’s opinion that, had the faulty tubes

caused the radios to catch fire and burn to cinders as soon

as they were turned on, their full value would not have

been recoverable. In claiming the exact opposite, Boeing

extracts a holding that just isn’t there.”

Returning to Aerodex, Boeing argues that what it

considers the “rule” of that case is the will of Congress.

Petition at 26-28. This assertion does not withstand

scrutiny. Congress did set out to reverse the consequential-

damage language from Aerodex as a “narrow and form-

bound interpretation” of the FCA, S. Rep. No. 345, 99th

Cong., 2nd Sess. (1986) at 19, reprinted in 1986

U.S.C.C.A.N. 5266, 5284, and the initial versions of the

amended FCA thus did include a provision allowing for

“consequential damages.” Congress characterized “conse-

quential damages” as follows:

(1) For purposes of this section, consequential

damages include damages which the United

States would not have sustained but for —

(A) the commission of any of the acts prohibited

by subsection (a); or

(B) entering into or making any contract or

grant as a result, in any material part, of any

false statement, record, or claim.

H.R. 4827, § 2, reprinted in 99 Cong. Rec. H6474 (Daily

Ed. September 9, 1986).

This language was removed from the bill during the

course of Conference Committee proceedings, and replaced

* In fact, Bornstein actually allowed FCA damages that exceeded

the amount of the false claims, 423 U.S. at 307, and thus Boeing’s

reliance on Bornstein for its “amount wrongfully paid” analysis is

unfathomable.

28

with the language which now appears in the FCA — “three

times the amount of damages which the Government

sustains because of the act” of the defendant. 31 U.S.C.

§ 3729(a). The legislative history is silent with respect to

the reasons for that removal. However, the extended

remarks of an opponent of the draft provision are reveal-

ing in terms of understanding why the Conference Com-

mittee acted as it did:

As reported by the committee, the definition of

consequential damages is far too sweeping. From

a fairness standpoint, assessments of damages

should be limited to those which were proximately

caused by a prohibited act, and which were rea-

sonably foreseeable. Both of these concepts are

well defined in the common law and, conse-

quently, can be readily applied by the courts. In

the absence of such limitations, persons may be

subject to penalties based on highly speculative,

attenuated and subjective considerations.

Extended remarks of Rep. Brown, reprinted in 99 Cong.

Rec. H6474 (Daily Ed. September 9, 1986) (emphasis

supplied). Representative Brown was the only Member to

speak against the consequential damage language in the

bill, and there is thus no better indication in the legisla-

tive record regarding why the compromise bill which

emerged from the Conference did not include that provi-

sion. Rather, it appears a determination was made that

while “consequential damages” should not be available

under FCA treble aamage remedies, the Act would be

interpreted based on the well-understood concepts of

proximate causation and foreseeability.

This interpretation simply makes good sense. It

reconciles the problems which characterization and com-

putation of “consequential damages” may pose, with the

over-arching goal of the Act — to make the United States

————

29

“completely whole” for its losses. Thus, while Aerodex has

become a talisman for the proposition that “consequential

damages” are not recoverable under the 1986 Amend-

ments, Boeing’s suggestion that its precise holding has

become the law of the land simply does not square with

the cases.” To the contrary; the Second Circuit squarely

held that consequential damages are recoverable under

the False Claims Act in General Dynamics, 19 F.3d at 777,

and other courts have without hesitation approved dam-

age amounts exceeding contract price.”

Boeing suggests in closing that companies will stop

doing business with the United States if this Court does

not reverse the Sixth Circuit’s ruling that Boeing could be

held liable for the value of the helicopter. Petition at 30.

Relator Brett Roby, who stood up for the principle that no

contractor is above the law when he started this lawsuit

almost ten years ago, respectfully submits that if Boeing

truly understood the responsibilities it undertook when it

signed its contracts with the United States, it would focus

not on ending its relationship with the United States, but

on reforming the practices which led to its submission of

false claims to the United States. Had it done so before

these helicopters were delivered, there would have been no

dispute at all.

* Indeed, Boeing points to no post-1986 court that has interpreted

the consequential damage issue in a way which deprives the United

States of the full measure of damages caused by the defendant’s

violations of the False Claims Act.

* E.g., Commercial Contractors. Inc. v. United States, 154 F.3d

1357, 1371-72 (Fed. Cir. 1998); BMY-Combat Systems Division of

Harsco Corporation v. United States, 44 Fed.Cl. 141, 148 (Ct. Cl. 1998).

30

CONCLUSION

The Petition for Writ of Certiorari should be denied.

Respectfully submitted,

JAMES B. HELMER, JR.*

FREDERICK M. MORGAN, JR.

ROBERT M. RICE

HELMER, MARTINS & MORGAN Co., LPA

105 East Fourth Street, Ste. 1900

Cincinnati, OH 45202

(513) 421-2400

MICHAEL A. HAVARD

PROVOST * UMPHREY

490 Park Street

Beaumont, TX 77704

Attorneys for Respondent

Relator Brett Roby

*Counsel of Record

App. 1

SETTLEMENT AGREEMENT

This Settlement Agreement (“Settlement Agreement”)

is made and entered into as of the 3rd day of August, 2000,

by and between the United States of America, acting

through the Civil Division of the Department of Justice

(“United States”), and The Boeing Company (“Boeing”), a

Delaware corporation (United States and Boeing being

referred to herein collectively as “the Parties”).

WHEREAS, an action entitled “United States ex rel.

Roby v. The Boeing Company,” now pending in the United

States District Court for the Southern District of Ohio

(“District Court”), Case No. C-1-95-375 (the “Speco Ac-

tion”), was filed by Brett Roby, as relator on behalf of the

United States (“Relator”), which made certain allegations

of False Claims Act violations against Boeing;

WHEREAS, the United States intervened in the Speco

Action and filed a First Amended Complaint against

Boeing (the “Speco Complaint”);

WHEREAS, an action entitled “United States ex rel.

Roby v. Litton Industries and The Boeing Company,” now

pending in the United States District Court for the South-

ern District of Ohio, Case No. C-1-97-410 (the “Litton

Action”), was filed under seal by Brett Roby as relator on

behalf of the United States, which made certain allega-

tions of False Claims Act violations against Boeing;

WHEREAS, the Relator has filed under seal a First

Amended Complaint in the Litton Action (the “Litton

Complaint”);

WHEREAS, the United States has intervened in the

Litton Action and filed a complaint asserting claims

relating to the CH-47D 85-24332 mishap that occurred on

App. 2

December 8, 1988 in Honduras (“United States’ Litton

Complaint”), and Boeing will, simultaneously with the

execution of this Settlement Agreement, file its answer to

the United States’ Litton Complaint;

WHEREAS, the Litton Action, Litton Complaint,

Speco Action, Speco Complaint, and United States’ Litton

Complaint (collectively “the Litton and Speco Actions and

Complaints”) include allegations of False Claims Act

violations, common law fraud, breach of contract, unjust

enrichment and payment by mistake claims in connection

with the provision of Vasco X2M spiral bevel transmission

gears under Boeing’s contracts with the United States

Army for new and remanufactured Chinook CH-47D and

MH-47D/E helicopters;

WHEREAS, Boeing denies all the allegations ad-

vanced in the Speco and Litton Actions and Complaints

and maintains that it did not submit false claims to the

government or engage in any conduct in violation of law or

of its contractual obligations as alleged in the Speco and

Litton Actions and Complaints;

WHEREAS, the Parties now mutually desire to reach

a resolution of the allegations and claims asserted by the

United States in the Speco and Litton Actions and Com-

plaints;

WHEREAS, the Parties now mutually wish to avoid to

the greatest extent possible the expense, delay and incon-

venience of protracted litigation but agree to preserve for

appellate review certain issues relating to damages

available under the False Claims Act and the applicability

of the High-Value Items Clause to False Claims Act

claims; and

App. 3

WHEREAS, Boeing has expressed its willingness to

enter into a contract modification intended to make it

possible for the United States Army to replace in the

Chinook CH-47D and MH-47D/E aircraft engine and

combiner transmissions Vasco X2M spiral bevel gears

manufactured by Speco Corporation during the period of

about 1986 through 1995;

WHEREAS, simultaneously with the execution of this

Settlement Agreement, Boeing and the United States

Army have executed an Agreement and Release in which

Boeing waives or releases its right to make certain claims

pertaining to the more than $3,395,000 in costs that

Boeing incurred or has agreed to incur as a result of the

1999-2000 reinspection and evaluation efforts by the Army

and Boeing of the spherical raceways of Army-owned first-

and second-stage planet gear/bearing assemblies.

NOW, THEREFORE, for an inconsideration of the

mutual covenants, conditions and promises contained

herein, the releases contained herein, and other valuable

consideration, the receipt and sufficiency of which are

hereby acknowledged, the Parties hereto agree as follows:

1. Contract Price Adjustment and Working Capital

Fund Payment. For purposes of settlement, concurrently

with and as a condition to the execution of this Settlement

Agreement, Boeing will enter into a contract modification

covering the contracts with the United States Army set

forth in Appendix A providing for an aggregate price

adjustment pursuant to the contract modification to be

made in the form of a check made payable to the Treas-

urer of the United States in the amount of $23,950,000

within five (5) days after the later of the Court’s entry of

the Order referred to in paragraphs 2(a) and (b) and the

App. 4

Orders of dismissal referred to in paragraph 2(i). Addi-

tionally, Boeing will make a payment to the Department of

Justice Working Capital Fund to be made in the form of a

check payable to the Treasurer of the United States in the

amount of $1,050,000 within five (5) days after the later of

the Court’s entry of the Order referred to in paragraphs

2(a) and (b) and the Orders of dismissal referred to in

paragraph 2(i).

2. Dismissal of Certain Claims and Further Relief

Contingent On Resolution of Specified Issues on Appeal.

a.

Concurrent with execution and delivery of this

Settlement Agreement, and conditional upon Boe-

ing executing the contract modification set out in

paragraph 1 above, the Parties will submit to the

Court an agreed-upon proposed Order, attached

hereto as Appendix B (“Order”), pursuant to

which the District Court will certify for interlocu-

tory appeal pursuant to 28 U.S.C. § 1292(b) the

Court’s Orders of November 2, 1999 and Decem-

ber 30, 1999 and the order denying Boeing’s Mo-

tion to Reconsider in Part the Court’s Order of

December 30, 1999, which will set forth the fol-

lowing two specific and exclusive issues of law

(hereinafter the “Two Damages Issues”):

In August 1990, pursuant to a contract to re-

manufacture CH-47D helicopters for the Army,

Boeing delivered a remanufactured CH-47D heli-

copter to the Army and submitted a claim(s) for

payment to the Government for the re-manufactured

helicopter. Between delivery and January 1991,

the helicopter flew 56 flight hours. On January 11,

1991, a defective flight-critical transmission gear

failed resulting in the helicopter being destroyed.

A new CH-47D helicopter was purchased from

Boeing to replace the destroyed helicopter.

App. 5

Assuming arguendo that the necessary ele-

ments of the False Claims Act are satisfied, the fol-

lowing questions of law arise:

t. Whether the United States can recover dam-

ages under the False Claims Act for loss of a

helicopter resulting from the failure of a defec-

tive flight-critical component part; and

ut. Whether the High-Value Items Clause con-

tained in the Federal Acquisition Regulations

$§ 52.246-24 and incorporated in the Boeing

CH-47D helicopter contract operates as a de-

fense to damages sought under the False

Claims Act for the loss of or damage to a heli-

copter resulting from the failure of a defective

component part.

The Parties agree that resolution of these two

questions of law do not involve disputed issues of

fact.

For purposes of this appeal only, the Parties

agree that: i) the loss of the helicopter was the re-

sult of the failure of the defective flight-critical

transmission gear; ii) they will not argue to the

reviewing courts that there needs to be any addi-

tional fact-finding on the Two Damages Issues;

iii) the exceptions to the High-Value Items

Clause, found at F.A.R. § 52.246-24(b) and (c)

(April 1984), based on the Contractor having in-

surance or there being willful misconduct or lack

of good faith on the part of any of the Contractor’s

managerial personnel, are not at issue; iv) the

version of the False Claims Act in effect at the

date of this Settlement Agreement and the ver-

sion of the High-Value Items Clause incorporated

into the helicopter contracts, F.A.R. § 52.246-24

(April 1984), shall govern this appeal; and v) the

App. 6

helicopter at issue is a high-value item under the

High-Value Items Clause.

This settlement is contingent on the District

Court issuing the proposed Order certifying the

Two Damages Issues for appeal pursuant to 28

U.S.C. § 1292(b). Accordingly, if the District Court

declines to enter the agreed upon Order, this

Agreement is, and the contract modification iden-

tified herein shall be, null and void.

If the District Court enters the agreed upon

Order, this settlement is contingent on the United

States and the Relator supporting a Petition filed

by The Boeing Company to the Sixth Circuit

Court of Appeals, seeking review of the Two

Damages Issues pursuant to 28 U.S.C. § 1292(b).

If either the United States or the Relator fails to

support the Petition for review, this Agreement is,

and the contract modification identified herein

shall be, null and void. The United States specifi-

cally hereby agrees to advise the Sixth Circuit

that the two certified questions of law are impor-

tant and controlling issues of law, and that appel-

late resolution of these questions on the merits

will terminate the litigation. Once the Sixth Cir-

cuit accepts jurisdiction, the Parties agree to use

their best efforts to obtain a ruling on the merits

of the questions certified.

If the Sixth Circuit Court of Appeals declines to

accept jurisdiction of the interlocutory appeal un-

der § 1292(b), the matter shall be returned to the

District Court for a trial limited to the False

Claims Act claim in the Speco Complaint seeking

damages for the CH-47D helicopter 89-00165 that

was destroyed in Saudi Arabia on January 11,

1991 (“the Saudi Helicopter False Claims Act

Claim”). Boeing agrees to waive any rights to any

App. 7

offset, set-off, credit, or contribution for (1) any

amounts received by the United States from Boe-

ing under paragraph 1 of this Agreement; and any

amounts, fees and expenses paid pursuant to 31

U.S.C. § 3730(d) related thereto; and (2) any

amounts received by the United States from the

Speco Corporation, or its estate, in the past, pres-

ent, or future, for any damages awarded to the

United States by a Court relating to the Saudi

Helicopter False Claims Act Claim.

If the Sixth Circuit accepts review, the Parties

agree as follows:

i. If, at the completion of all appeals, Boeing is

deemed to be the prevailing party as set forth

in paragraph 2(h) below, the Saudi Helicopter

False Claims Act Claim will be voluntarily

dismissed by the United States with preju-

dice.

ii. If, at the completion of all appeals, Boeing is

not deemed to be the prevailing party, as set

forth in paragraph 2(h) below, The Boeing

Company, for purposes of settlement, agrees

to enter into a similar contract modification

with the United States Army, as required in

paragraph 1 above, and using a then open

ccontract(s) with Boeing chosen by the United

States and providing for a price adjustment

pursuant to the contract modification to be

made in the form of a check made payable to

the Treasurer of the United States in the

amount of $14,430,000. Additionally Boeing

will make a payment to the Department of

Justice Working Capital Fund to be made in

the form of a check payable to the Treasurer

of the United States in the amount of

$570,000. Said amounts will accrue interest

App. 8

in accordance with Federal Acquisition Regu-

lation 52.232-17 from the date the District

Court enters the agreed upon Order identi-

fied in paragraphs 2(a) and (b). Upon pay-

ment of such amount, the Saudi helicopter

False Claims Act Claim will be voluntarily

dismissed by the United States with preju-

dice.

If the Sixth Circuit Court of Appeals accepts

jurisdiction, but fails to decide on their merits the

Two Damages Issues on appeal identified in

paragraph 2(b) above, and no further appeal is

taken, the matter shall be returned to the District

Court for trial limited to the Saudi Helicopter

False Claims Act Claim. If the Court of Appeals

does not rule for Boeing on at least one of the Two

Damages Issues on appeal and does not rule

against Boeing on both of the Two Damages Is-

sues on appeal, as set forth in paragraph 2(h) be-

low, it will be deemed that the Court of Appeals

did not decide the Two Damages Issues on appeal.

Either party may petition for writ of certiorari

from the United States Supreme Court of any ad-

verse ruling from the Sixth Circuit Court of Ap-

peals. If the Writ is granted, the determination of

whether Boeing is or is not the prevailing party in

the Supreme Court will be determined in accor-

dance with paragraph 2(h) below.

Determination of the prevailing party. For the

purpose of determining whether Boeing is or is

not the prevailing party under paragraphs 2(e), (f)

and (g) above, the Parties agree as follows:

i. Boeing will be deemed the prevailing party if

the Sixth Circuit (or if certiorari is granted,

the Supreme Court) either (a) reverses the

li.

App. 9

District Court’s Order of December 30, 1999

by holding on the legal issue that the United

States cannot recover damages under the

False Claims Act for loss of a helicopter re-

sulting from the failure of a defective flight-

critical component part, or that the United

States cannot recover damages under the

False Claims Act flowing from Boeing’s

claim(s) for payment for the Saudi helicopter

that represent the value of the helicopter

(whether it be replacement value, fair market

value, contract value or price, or some other

measure) rather than just the value of the de-

fective gear; or (b) reverses the District

Court’s Order of November 2, 1999 by holding

on the legal issue that the High-Value Items

Clause operates as a defense to damages

sought under the False Claims Act for the

loss of or damage to a helicopter resulting

from the failure of a defective component

part.

On any of the Two Damages Issues, taken

and decided on the merits by the United

States Supreme Court, the Supreme Court

ruling shall control on that issue. On any of

the Two Damages Issues, not taken or not de-

cided, on the legal issues presented by the

Supreme Court, the Sixth Circuit Court of

Appeals’ ruling shall control on that issue. If

at the end of all appeals, any such combina-

tion of rulings by the Supreme Court and the

Court of Appeals does not result in a ruling

for Boeing on the merits in at least one of the

Two Damages Issues, and does not result in a

ruling against Boeing on the merits in both of

the Two Damages Issues, as set forth in

paragraph 2(f) above, the matter shall be

App. 10

returned to the District Court for a trial lim-

ited to the Saudi Helicopter False Claims Act

Claim.

iii. If, at the end of all appeals, the Parties

cannot agree if Boeing has prevailed or not

prevailed as set forth in this paragraph, the

District Court for the Southern District of

Ohio, Western Division, will retain jurisdic-

tion: (1) to determine if Boeing has prevailed;

(2) to determine if Boeing has not prevailed;

or (3) to proceed with trial of the matter lim-

ited to the Saudi Helicopter False Claims Act

Claim. The Parties retain the right to appeal

that determination...

i. Concurrent with execution and delivery of this

Settlement Agreement, and conditional upon Boe-

ing executing the contract modification set out in

paragraph 1 above and the District Court enter-

ing the proposed Order attached at Appendix B,

the Parties will execute Stipulations and Orders

providing for dismissal, with prejudice to the Re-

lator, of all claims in the Litton Action and the

Litton Complaint against all defendants, with

prejudice to the Relator and the United States of

all claims in the United States’ Litton Complaint

against all defendants, and with prejudice to the

United States and the Relator of all claims in the

Speco Action and in the Speco Complaint except

for the Saudi Helicopter False Claims Act Claim,

which Orders the Parties will request that the

Court enter simultaneously with the proposed

Order attached at Appendix B.

3. Releases by United States. Upon execution of this

Agreement, the United States and its agencies, employees,

representatives, and assigns (“the United States”) hereby

App. 11

waive, release, and promise to refrain from instituting,

maintaining, or causing to be instituted or maintained

a.

any civil action, claim, adjustment, set-off, or

administrative monetary proceeding against Boe-

ing, its past, present or future officers, directors,

employees, agents, subsidiaries, affiliates (includ-

ing but not limited to Boeing Precision Gear,

Inc.), representatives, successors, or assigns, ei-

ther in their corporate or personal capacities, and

Litton Industries, Inc., its past, present, or future

officers, directors, employees, agents, subsidiar-

ies, affiliates (including but not limited to Litton

Precision Gear), representatives, successors, or

assigns, either in their corporate or personal ca-

pacities (collectively the “Releasees”), which the

United States has or may have against Releasees

under the False Claims Act, 31 U.S.C. §§ 3729 et

seq., the Contract Disputes Act, 41 U.S.C. §§ 601

et seq., the Civil Majoy Fraud Act, 18 U.S.C.

§ 1031(h), the Civil Anti-Kickback Act, 41 U.S.C.

§ 55, the Program Fraud Civil Remedies Act, 31

U.S.C. §§ 3801 et seg., and under any common law

or equitable theories including fraud, breach of

contract, unjust enrichment or payment by mis-

take, for the conduct alleged by the United States

in the United States’ Litton Complaint including

for the aircraft mishap at Honduras on December

8, 1988, and all such claims for the conduct al-

leged in the Speco Action and the Speco Com-

plaint except for the Saudi Helicopter False

Claims Act Claim;

any civil action, claim, adjustment, set-off, or

administrative monetary proceeding against the

Releasees which the United States has or may

have against the Releasees under the False

App. 12

Claims Act, 31 U.S.C. §§ 3729 et seg., the Con-

tract Disputes Act, 41 U.S.C. §§ 601 et seq., the

Civil Major Fraud Act, 18 U.S.C. § 1031(h), the

Civil Anti-Kickback Act, 41 U.S.C. § 55, the Pro-

gram Fraud Civil Remedies Act, 31 U.S.C.

§§ 3801 et seg., and under any common law or eq-

uitable theories including fraud, breach of con-

tract, unjust enrichment or payment by mistake,

premised on any of the Vasco X2M spiral bevel

gears, part numbers 145D5305, 145D5306,

145D6301 and 145D6302 manufactured through

March 31, 2000, it being agreed that the release

in this paragraph does not extend to a mishap,

the cause of which is a part or parts other than

any of the four part numbers identified in this

paragraph;

any civil action, claim, adjustment, set-off, or

administrative monetary proceeding against the

Releasees which the United States has or may

have against the Releasees under the False

Claims Act, 31 U.S.C. §§ 3729 et seqg., the Con-

tract Disputes Act, 41 U.S.C. §§ 601 et seq., the

Civil Major Fraud Act, 18 U.S.C. § 1031(h), the

Civil Anti-Kickback Act, 41 U.S.C. § 55, the Pro-

gram Fraud Civil Remedies Act, 31 U.S.C.

§§ 3801 et seg., and under any common law or eq-

uitable theories including fraud, breach of con-

tract, unjust enrichment or payment by mistake,

premised on the allegation that Vasco X2M is an

inherently unsafe or unsuitable material for use

for the manufacture of CH-47 or MH-47 compo-

nents, it being agreed that the release in this

paragraph does not release the Releasees from

any liability relating to the design (apart from

material choice and the use of the material in con-

formity with the design), quality oversight, or

manufacturing and processing of parts made of

: -

~~.

App. 13

Vasco X2M other than the claims released for the

four parts identified in paragraph 3(b) and the

claims released in paragraph 3(a).

4. Exclusions. The Parties agree that the following

are excluded from this Settlement Agreement, the dis-

missal set forth in paragraph 2 above and the releases set

forth in paragraph 3 above: (a) liability, if any, the Re-

leasees have or may have for delivery of any deficient

product or parts, or for breach of any express or implied

warranty, including injury to persons and property, or any

other claims the Parties may have regarding the contracts

between them, excepting therefrom the claims released in

paragraph 3 above; (b) any disputes or claims between the

Parties arising under the Internal Revenue Code or

Internal Revenue Service Regulations or under Securities

or Environmental laws; (c) any administrative matter

relating to the suspension or debarment by any federal

agency of the Releasees; and (d) disputes and claims for

the enforcement of this Settlement Agreement.

5. Cost Allowability. Boeing agrees that all costs, as

defined by FAR § 31.205-47(a), incurred by, for, or on

behalf of Boeing, its affiliates, subsidiaries, officers,

directors, agents, representatives, and employees relating

to (a) the matters covered by this Settlement Agreement;

(b) the government’s audit and investigation of the mat-

ters covered by this Settlement Agreement; (c) Boeing’s

investigation and defense of the matters and corrective

actions if any; (d) the negotiation of this Settlement

Agreement; (e) the amounts, fees and expenses paid

pursuant to 31 U.S.C. §3730(d) relating to the cases

settled herein, (f) matters relating to the Boeing Releasees

responding to the 1999 Department of Defense Inspector

General subpoenas pertaining to planetary gears, and (g)

App. 14

costs of the payments referred to in paragraphs 1 and

2(eXii) above, shall be treated as unallowable for govern-

ment contract accounting purposes. These amounts shall

be separately accounted for by Boeing by identification of

costs incurred through (1) accounting records to the extent

possible; (2) memorandum records :ncluding diaries and

informal logs, where accounting records are not available;

and (3) good faith itemized estimates, where no other

accounting basis is reasonably available. Any such costs

previously submitted or treated by Boeing as an allowable

cost for government accounting purposes shall be with-

drawn, and any charge or charges previously submitted

that were based on such costs shall be adjusted accord-

ingly, and any refund or credit due the United States as a

result will be paid or given promptly.

6. Federal Tax Deductibility. Boeing further agrees

that costs of the payments referred to in paragraphs 1 and

2(e\ii) above will not be taken as a federal tax deduction

by Boeing. Except for the foregoing, nothing in this Set-

tlement Agreement is intended to characterize the federal

tax deductibility of any other matter pertaining to this

Settlement Agreement.

7. No Admissions. Nothing in this Settlement

Agreement is intended to constitute an admission or

finding of liability by any of the Releasees, each of which

denies any fault or liability by it.

8. Authority. Boeing and the United States each

warrant and represent that their representatives, whose

signatures appear below, have the authority to execute

this Settlement Agreement and to bind Boeing and the

United States to 2very promise or covenant contained in

this Settlement Agreement.

App. 15

9. Binding Upon Parties. This Settlement Agree-

ment will be binding upon and inure to the benefit of

Boeing and the United States, and their employees,

officers, agents, servants, attorneys, representatives, and,

in the case of Boeing, its directors and shareholders. This

Settlement Agreement will also inure to the benefit of

Litton Industries, SKF U.S.A., Inc., and MRC Bearing

Company. The Parties agree that the Settlement Agree-

ment does not waive, compromise, or release any claims or

causes of action against any other person or entity not

identified in this Settlement Agreement.

10. Counterparts. The Parties have executed two

identical copies of this Settlement Agreement, which may

be executed in counterparts, each of which shall be

deemed an original which will be fully enforceable.

11. Changes. The Parties agree that this Settlement

Agreement may not be altered, amended, modified, or

otherwise changed except by a writing duly executed by

both Boeing and United States.

12. This Settlement Agreement shall be construed as

if the Parties jointly prepared it and any uncertainty or

ambiguity shall not be interpreted against any one Party.

13. This Settiement Agreement shall be interpreted

in accordance with federal law. The District Court shall

retain jurisdiction over this case for the purpose of resolv-

ing any disputes under the Settlement Agreement until

such time as the Saudi Helicopter False Claims Act Claim

is dismissed with prejudice pursuant to paragraphs 2(e)(i)

or 2(e\ii) above, or until any potential appeals pursuant to

paragraph 2 above are exhausted and final judgment is

entered on the Saudi Helicopter False Claims Act Claim.

App. 16

IN WITNESS WHEREOF, this Settlement Agreement has

been executed as of August 3, 2000 the date first above

written.

THE UNITED STATES OF AMERICA:

By /s/ Dennis L. Phillips

Date August 3, 2000

U.S. Department of Justice

Attorney for the Plaintiff United States

THE BOEING COMPANY:

By /s/ John W. Wallace

Date August 3, 2000