U.S. ex rel. Schumer v. Hughes Aircraft Co., s. 92-55759

• Decision Date: 22 August 1995
• Docket Number: Nos. 92-55759,92-55857,s. 92-55759
• Citation: 63 F.3d 1512
• Parties: , 33 Fed.R.Serv.3d 543, 40 Cont.Cas.Fed. (CCH) P 76,828, 95 Cal. Daily Op. Serv. 6608, 95 Daily Journal D.A.R. 11,325 UNITED STATES of America, ex rel., William J. SCHUMER, Plaintiff-Appellant-Cross-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1512

63 F.3d 1512

64 USLW 2161, 33 Fed.R.Serv.3d 543,

40 Cont.Cas.Fed. (CCH) P 76,828,

95 Cal. Daily Op. Serv. 6608,

95 Daily Journal D.A.R. 11,325

UNITED STATES of America, ex rel., William J. SCHUMER Plaintiff-Appellant-Cross-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellee-Cross-Appellant.

Nos. 92-55759, 92-55857.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 4, 1994.

Decided Aug. 22, 1995.

Herbert Hafif and Linda R. MacLean, Claremont, CA, Phillip E. Benson, Newport Beach, CA, for plaintiff-appellant-cross-appellee.

James J. Gallagher, Fred D. Heather, Mark R. Troy, and Karin L. Keutzer, McKenna & Cuneo, Los Angeles, CA, for defendant-appellee-cross-appellant.

Appeals from the United States District Court for the Central District of California.

Before: D.W. NELSON, REINHARDT, and BRUNETTI, Circuit Judges.

D.W. NELSON, Circuit Judge:

Appellant William J. Schumer, a former manager at Hughes Aircraft Company ("Hughes"), filed suit against Hughes under the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. Sec. 3729 et seq. Schumer asserted that Hughes had defrauded the United States government by entering into unauthorized and illegal "commonality agreements" to allocate certain costs of projects over more than one subcontract. The district court granted summary judgment in favor of Hughes. We have jurisdiction under 28 U.S.C. Sec. 1291. We reverse the district court's grant of summary judgment on Schumer's claims that Hughes failed to disclose properly the terms of its commonality agreements to its customer and that Hughes did not comply with the disclosure requirements of the Cost Accounting Standards. We affirm the district court's rulings on Schumer's remaining claims.

After Schumer filed this appeal, Hughes filed a cross-appeal, alleging that the 1986 amendments to the FCA do not apply retrospectively to this claim and that, alternatively, the statute's jurisdictional bar against claims based on publicly disclosed allegations applies in this case. We reject the cross-appeal on the grounds that under the 1986 jurisdictional provision, which applies retrospectively, we find subject matter jurisdiction because the allegations central to Schumer's claims were not publicly disclosed prior to the suit.

BACKGROUND

During the 1970s and into the 1980s, Hughes was under contract to develop and produce equipment and systems for use by the United States armed forces. Among its contracts were projects relating to the development of radar systems for the F-15 and F-18 fighter planes. In 1982, Hughes agreed to serve as the subcontractor for Northrop Corporation ("Northrop") to develop a radar system to meet the requirements of the new B-2 bomber program.

Hughes soon found that certain components developed for use in the B-2 radar system, such as the Analog Signal Converter and the Radar Data Processor, had utility as components for other Hughes aircraft projects that it was under subcontract to develop, such as the F-15 Multi-Stage Improvement Program ("F-15 MSIP"). Accordingly, the Hughes program managers for these projects entered into internal "commonality agreements," by which Hughes committed to allocate the costs of development of such common components to either the B-2 or F-15 account, presumably with the consent of the general contractors of both programs and the United States Air Force. The development costs of the RDP were all charged to the F-15 program, and the costs of the ASC were charged to the B-2 program.

After the F-15 program experienced major cost overruns in the mid-1980s, Northrop requested a government audit of Hughes's accounting practices. The results of these audits raised concerns over whether Hughes had properly allocated costs between the contracts and whether Hughes had secured the consent of Northrop and the Air Force. A June 1986 audit, classified as "secret," concluded that the actual allocation under Appellant William J. Schumer, a manager in the Radar Systems Group of Hughes, participated in the negotiations with Northrop that resulted in the B-2 subcontract. He contends that in 1983 his supervisor asked him to draft commonality agreements between the B-2, F-14, and F-15 programs and instructed him not to inform the contractors of the agreements. Believing such agreements to be illegal, Schumer refused to do so. In 1987, Schumer was removed from the B-2 project.

Hughes's commonality agreement did not reflect the terms of the subcontracts. Specifically, the report alleged that Hughes had inappropriately charged expenditures to the B-2 program that should have been borne by the F-15 program, with the effect that the losses to the F-15 contract were artificially reduced at the expense of the B-2 program. Subsequent audits conducted between 1986 and 1988 concluded that the commonality agreements had not been authorized and had not been reflected properly in accounting disclosure statements. As a result, the government withheld payment to Hughes of approximately $15.4 million in costs charged to the B-2 program.

In January 1989, Appellant filed a complaint against Hughes under the qui tam provisions of the FCA, which authorize a private individual to bring an action on his own behalf and on behalf of the government against a party who "knowingly presents ... a false or fraudulent claim" to the United States government. 31 U.S.C. Sec. 3729. The government conducted a sixteen month investigation of the matter, but ultimately declined to intervene in the case. Because audits conducted in 1990 and 1991 revealed that Hughes's pooling arrangement had actually saved the government money, the government withdrew an earlier finding of noncompliance.

Schumer's amended complaint alleged that Hughes had "misbid, misallocated, and mischarged" the costs of F-14, F-15, F-18, and B-2 programs, and that the commonality agreements had been established without the knowledge of the Air Force or the contractors. After an unsuccessful motion to dismiss for lack of subject matter jurisdiction, Hughes moved for summary judgment. The district court granted the motion, finding that Hughes had properly informed and secured the approval of the Air Force and all but one of the relevant contractors for the commonality agreements, and that any failure to inform was excusable because of security concerns relating to the B-2 program. Consequently, the district court concluded that there was no genuine issue of material fact as to whether Hughes had submitted a false claim.

On appeal, Schumer challenges the district court's grant of summary judgment on the merits and also contends that the district court erred by refusing to reopen discovery, grant him leave to amend, and return the case to the jury docket. In a cross-appeal, Hughes asserts that the 1986 amendments to the False Claims Act do not apply retrospectively, and that the court therefore must dismiss the action under the pre-1986 statute, which contained a jurisdictional bar that precluded the court from hearing a qui tam action when the government had knowledge of the relator's allegations prior to the filing of the suit. Alternatively, Hughes argues that the district court improperly failed to dismiss the case for lack of subject matter jurisdiction because the complaint was "based upon the public disclosure of allegations," a condition under which the court's jurisdiction is barred by the 1986 amendments to the False Claims Act, 31 U.S.C. Sec. 3730(e)(4)(A). Finally, Hughes contends that qui tam actions are inherently unconstitutional and requests attorneys' fees on the ground that the appeal is frivolous.

DISCUSSION

I. Retrospectivity of the Jurisdictional Bar

Because the 1986 amendments to the False Claims Act altered subject matter jurisdiction rules, we must first address whether the jurisdictional amendment applies retrospectively in order to determine whether the district court had subject matter jurisdiction. See Wang v. FMC Corp., 975 F.2d 1412, 1415 (9th Cir.1992). Since this is an issue of statutory interpretation, we review it de Whereas the pre-1986 Act barred cases brought by qui tam plaintiffs when their allegations were "based on evidence or information the Government had when the action was brought," 31 U.S.C. Sec. 3730(b)(4) (1982), the 1986 amendments narrowed this bar to the more limited class of cases based on information previously disclosed to the public, 31 U.S.C. Sec. 3730(e)(4). Specifically, Hughes argues that the more restrictive rules of the pre-1986 Act should apply because Schumer's allegations involve cost allocations primarily made prior to 1986. Since the government was aware of Schumer's allegations before he filed his suit, the pre-1986 rules would bar his claim. ¹ We reject this argument because the jurisdictional bar of Sec. 3730(e)(4) applies retrospectively and therefore controls this case.

novo. Braun v. INS, 992 F.2d 1016, 1018 (9th Cir.1993).

The first step of retrospectivity analysis is to consider whether Congress has demonstrated in the statute itself or in its legislative history an intent for the statute to apply retrospectively. Landgraf v. USI Film Products, --- U.S. ----, ----, 114 S.Ct. 1483, 1500, 128 L.Ed.2d 229 (1994). If so, the statute should be construed in accordance with that congressional intent. Here, however, Congress did not demonstrate an intent that the FCA should apply retrospectively. See United States v. Murphy, 937 F.2d 1032, 1037 (6th Cir.1991); United States ex rel. McCoy v. California Medical Review, Inc., 723 F.Supp. 1363, 1368 (N.D.Cal.1989).

Absent such a demonstration, we presume that a statute altering substantive rights applies only prospectively. See Landgraf, --- U.S. at ----, 114 S.Ct. at 1500. The Landgraf Court, however, carved out an exception to that rule in the case of jurisdictional statutes. The Court applied a strong presumption that jurisdictional statutes apply retrospectively, for such stat...