Hooper v. Lockheed Martin Corp.

• Decision Date: 02 August 2012
• Docket Number: No. 11–55278.,11–55278.
• Citation: 2012 Daily Journal D.A.R. 10679,34 IER Cases 209,688 F.3d 1037,12 Cal. Daily Op. Serv. 8695
• Parties: Nyle J. HOOPER, Plaintiff–Appellant, v. LOCKHEED MARTIN CORPORATION, Defendant–Appellee, United States of America, Ex rel., Plaintiff.
• Court: U.S. Court of Appeals — Ninth Circuit

688 F.3d 1037

34 IER Cases 209

12 Cal. Daily Op. Serv. 8695

2012 Daily Journal D.A.R. 10,679

Nyle J. HOOPER, Plaintiff–Appellant,

v.LOCKHEED MARTIN CORPORATION, Defendant–Appellee,United States of America, Ex rel., Plaintiff.

No. 11–55278.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted May 10, 2012.

Filed Aug. 2, 2012.

Joseph A. Black, Daniel E. Cohen and James A. Moody, The Cullen Law Firm, PLLC, Washington, D.C.; Mark I. Labaton, Motley Rice, LLP, Los Angeles, CA, for the Plaintiff–Appellant.

Mark R. Troy and Mana Elihu Lombardo, Crowell & Moring LLP, Los Angeles, CA, for the Defendant–Appellee.

Catherine Y. Hancock, United States Department of Justice, Washington, D.C., for the Amicus.

Appeal from the United States District Court for the Central District of California, Dale S. Fischer, District Judge, Presiding. D.C. No. 2:08–cv–00561–DSF–FMO.

Before: HARRY PREGERSON, SUSAN P. GRABER, and MARSHA S. BERZON, Circuit Judges.

OPINION

PREGERSON, Circuit Judge:

Plaintiff–Appellant Nyle J. Hooper brings suit under the qui tam provisions of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729–3733, against Lockheed Martin Corporation (“Lockheed”). The FCA permits individuals, known as “relators,” to file suit on behalf of the United States seeking damages from persons who file false claims for government funds. 31 U.S.C. § 3730(b)(1). Hooper alleges that Lockheed defrauded the United States Air Force under a contract for the Range Standardization and Automation (“RSA”) IIA program concerning software and hardware used to support space launch operations at Vandenberg Air Force Base and Cape Kennedy. Hooper filed his qui tam suit in the District Court for the District of Maryland, which transferred the suit at Lockheed's request to the Central District of California on forum non conveniens grounds. The California district court granted summary judgment in favor of Lockheed on all grounds.

For the reasons set forth below, we affirm in part and reverse in part the district court's grant of summary judgment.

BACKGROUND¹

A.

Relator Hooper worked for six years for Lockheed. He was hired on April 29, 1996, as a Senior Research Operations Engineer and later became a Senior Project Engineer assigned to work on the RSA IIA Program. On July 19, 2002, Hooper was involuntarily terminated after investigating the fraud alleged in his qui tam complaint and after threatening to report the fraud to the government.

On July 18, 2005, Hooper filed his qui tam action in Maryland against Lockheed, asserting causes of action under the qui tam provisions of the FCA and under § 3730(h) of the FCA for retaliation in employment for FCA-protected activity. In addition, Hooper alleges that Lockheed violated the FCA by: (1) knowingly underbidding the contract; (2) including undisclosed freeware in software deliverables that did not convey all intellectual property rights; and (3) failing to perform all required tests or improperly conducting those tests.

B.

In 1995, the United States Air Force awarded the RSA IIA contract to a predecessor of Lockheed.² The objective of the contract is to “automate, standardize, and modernize software and hardware used to support our nation's space launch operations ... at Vandenberg Air Force Base (Western Range) and Cape Kennedy (Eastern Range), while also providing continued support for and transition from legacy systems.”

The contract is a cost reimbursement plus award fee contract, under which the contractor is not paid a fixed price, but instead is reimbursed for its actual costs and receives periodic award fees based on its overall performance, including spending less money than estimated. The Air Force concluded that the contract would be a cost-reimbursement contract because “uncertainties inherent in the requirements render attempts to establish a fixed-price unrealistic.”

At the original contract competition, the Air Force issued to potential bidders a Request for Proposal (“RFP”). The RFP laid out six factors that the Air Force would consider in deciding which company would win the contract. The first four factors (management, systems engineering, systems integration, and product development) were first and equal in importance. The fifth factor—cost—was second in importance, but was a significant consideration in the decisional process. The Air Force “informed the offerors that it may select an offer that is not the lowest priced technically acceptable offer, but may instead select a higher priced offer that represented the ‘Best Value’ to the Government.”

Three companies responded to the RFP. Lockheed's initial bid was $439.2 million, but its Best and Final Offer was $432.7 million. To compare the three final offers, the Air Force hired independent consultants to create an “Independent Government Estimate.”

After conferring with independent consultants, the Air Force drafted a memorandum summarizing the bid process. The memorandum concludes, in relevant part, as follows:

[Lockheed's] cost estimating and risk analysis practices were assessed for compatibility with the technical approach and for the probable accuracy of the methodologies employed.... The assessment ... found that [Lockheed] employed realistic methods ... but was optimistic about some of the inputs to the methodology, resulting in an overstated potential for cost savings. [Lockheed's] Risk Analysis was found to be unrealistic: the methodology employed is sound in theory, but the inputs (severity of certain risks) are understated, so the total risk is understated. Also, technical risks are not explicitly quantified, as specified in the RFP. However, defects in the Risk Analysis were not considered a discriminator, since the Risk Analysis accounted for only a portion of one of the Cost Factors. Overall, [Lockheed] was found “realistic” for this factor.

In its summary, the Air Force stated that although Lockheed did not submit the lowest bid, Lockheed's bid provided the “best overall value,” knowing that it was possible that there were “risks” that might “lead to cost growth beyond target cost.” The Air Force concluded that “the risk potential is acceptable ... and ... determined that a fair and reasonable price was obtained without reliance on certified cost or pricing data.” Accordingly, the Air Force awarded Lockheed the RSA IIA contract. Lockheed has been paid more than $900 million for its work on the RSA IIA contract. Hooper did not work for Lockheed when Lockheed's proposal was prepared or when the Air Force awarded Lockheed the RSA IIA contract.

Lockheed employee Mike Allen, one of the individuals who prepared cost estimates for the RSA IIA program, testified that Lockheed employees were instructed to lower their estimates without regard to actual costs. Although Allen did not see the final bid, he saw “some of the workups that they had done in the bidding process.” He concluded that the inputs used to compute the final bid were based on “bad, bad guesses” but were not false.

C.

1.

After winning the contract, Lockheed sent the Air Force a series of seven letters in which Lockheed disclosed its use of “software to be provided with less than unlimited rights” (“Disclosure Letters”). This software, also referred to as “FOSS”, is “freely downloadable open source software from which the human-readable source code is available for use, study, reuse, modification, enhancement, and redistribution by the users of that software.” FOSS can be downloaded at no charge, but “comes with license restrictions which are generally aimed at preserving the free and open nature of the particular FOSS product.” The Disclosure Letters listed a description of the software, the name of the manufacturer, the product in which it is used, the intended use, and the software license type. The Letters also “requested that the Air Force review the identified items, and provide its concurrence with [Lockheed's] use of them.”

The Air Force Contracting Officer issued responses to these Disclosure Letters and approved each use of the disclosed FOSS. For example, in its June 2, 2005 response letter, the government stated that “the Government hereby acknowledges and approves the use of the subject software by [Lockheed]” and “[t]he Government believes this discretion to be within the current contractual requirements[,] estimated costs, and terms and conditions.”

Marilyn Washington, the Air Force Contracting Officer for the RSA IIA program from 2000–2005, testified that she interacted daily with Lockheed personnel on the RSA IIA program. As Contracting Officer, she was required to respond to Lockheed's Disclosure Letters. Relying on Air Force Deputy Program Manager Cory Pike, she responded to the Lockheed Disclosure Letters approving the use of the FOSS items listed in the letter. “At no point during [her] tenure as Contracting Officer on the RSA IIA contract” did Washington recall “anyone ever saying that FOSS was not permissible under the contract.” Nor was she “aware of any violations by Lockheed Martin under the RSA IIA contract.” Washington did not believe that there was any obligation under the RSA IIA contract that required Lockheed to disclose the use of freeware at any time.

Pike stated that he interacted daily with Lockheed regarding the RSA IIA program. Pike was “the Air Force person in charge of coordinating the Air Force's assessment of the use or incorporation of [FOSS].” He stated that the Air Force employed independent contractors to provide the Air Force “with assessments of various technical issues under the RSA IIA contract, including technical assessments about the use of FOSS.” Pike provided the independent assessments and his own recommendation to Washington, who formally approved the use of the disclosed FOSS. He stated that he “never had any reason to believe that Lockheed Martin should have made its FOSS disclosures at some earlier point in time.” Pike also said that “the Air Force, at all times, had the opportunity and...