Hagood v. Sonoma County Water Agency

• Citation: 81 F.3d 1465
• Decision Date: 15 April 1996
• Docket Number: No. 95-16092,95-16092
• Parties: 96 Cal. Daily Op. Serv. 2624, 96 Daily Journal D.A.R. 4345 James M. HAGOOD, Plaintiff-Appellant, v. SONOMA COUNTY WATER AGENCY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1465

81 F.3d 1465

96 Cal. Daily Op. Serv. 2624, 96 Daily Journal

D.A.R. 4345

James M. HAGOOD, Plaintiff-Appellant, v. SONOMA COUNTY WATER AGENCY, Defendant-Appellee.

No. 95-16092.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 15, 1996.

Decided April 15, 1996.

Lauren Cabot, The Law Firm of Cabot and Farrell, Denver, CO, for plaintiff-appellant.

Vernon I. Zvoleff, Kenneth P. Conour, Preuss Walker & Shanagher, San Francisco, California, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California; Claudia Wilken, District Judge, Presiding.

Before: HUG, Jr., Chief Judge, SNEED and KLEINFELD, Circuit Judges.

Opinion by Judge SNEED; Concurrence by Judge KLEINFELD.

SNEED, Circuit Judge:

This is an appeal by qui tam plaintiff James M. Hagood from the district court's grant of summary judgment in favor of the Sonoma County Water Agency in his action under the False Claims Act, 31 U.S.C. §§ 3729-3733. ¹ Hagood's action has its source in the construction of the Warm Springs Dam on Dry Creek, a tributary of the Russian River in northern California, and a 1982 amended contract by which the Sonoma County Water Agency ("the Water Agency") agreed to repay the United States for the water supply component of the cost of building the dam. Thus, Hagood's action is a "reverse false claim": he alleges not that the Water Agency fraudulently overbilled the United States, but that it fraudulently induced the United States to underbill it. Hagood contends on appeal that the district court erred by (1) finding that it lacked subject matter jurisdiction over his claim concerning the fixed repayment schedule; and (2) granting summary judgment in favor of the Water Agency on his cost allocation claim. The Water Agency submits that the district court lacked subject matter jurisdiction over both claims.

This is Hagood's second trip to this court. On his first trip, we held that his complaint stated a claim under the False Claims Act, and reversed the district court's 12(b)(6) dismissal. United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir.1991). This time, with more evidence in hand, we hold him to the higher standard required to survive summary judgment.

The district court had jurisdiction under 31 U.S.C. §§ 3729-3733, unless the claims were barred under 31 U.S.C. § 3730(e)(4), a disputed issue on appeal. We have jurisdiction pursuant to 28 U.S.C. § 1291. We now affirm the grant of summary judgment.

I. BACKGROUND OF HAGOOD'S CLAIMS

It all began when Congress authorized construction of the Warm Springs Dam by the United States Army Corps of Engineers ("the Corps") in the Flood Control Act of 1962, Pub.L. 87-874, 76 Stat. 1180. The project's authorized purposes were flood control, recreation, and water supply. To the latter purpose a storage capacity of 132,000 acre-feet ² was allocated. Under the Water Supply Act of 1958, 43 U.S.C. § 390b, the Accordingly, in 1964 the Water Agency signed a contract with the Corps to use and repay the cost of water supply storage created by the Warm Springs Dam and its reservoir, Lake Sonoma. The contract defined three 44,000 acre-foot blocks of water storage space, use and repayment of which was to begin in 1979, 1985, and 1991, respectively. In the contract, the Corps allocated to water supply storage 30% of the total construction cost, or $12,433,500.

                local interests who benefit from the water supply component of federal projects, such as Warm Springs, are to shoulder the portion of construction costs allocated to that purpose. 3  Costs allocated to federal purposes like flood control and recreation are to be borne by the federal government.   The local sponsor for the Warm Springs project was the Sonoma County Flood Control & Water Conservation District, later renamed the Sonoma County Water Agency
                

The Expanded Warm Springs Project

In 1967, before significant construction had begun, the Corps prepared a General Design Memorandum ("GDM") which envisioned an expanded Warm Springs Dam project with a water supply storage capacity of 212,000 acre-feet, an increase of 80,000 acre-feet. In the GDM, the Corps reevaluated the breakdown of costs and adjusted the cost allocation for water supply storage downward to 27.76%. Despite the lower allocation, a higher price tag of $20 million was assigned to water supply storage because of the project's expansion and rising construction costs. ⁴ The Corps asked for the Water Agency's assurances that it needed and would pay for the additional storage, and the Water Agency agreed. In 1969, the Corps approved the project "optimization" and reported it to Congress.

The Cost Allocation Question

In early 1974, while the dam was still under construction, the U.S. General Accounting Office conducted an inquiry into the Warm Springs project and concluded that delays in project completion called into question the validity of the cost allocation. ⁵ In response, the Corps acknowledged that delays The confusion over the cost allocation resurfaced several years later, when the Water Agency and the Corps began negotiating an amended contract to reflect the project's expansion. The primary negotiators were Robert F. Beach, General Manager of the Water Agency since 1980, and Capt. Scott Mosely of the Corps' San Francisco district. In April 1981, Capt. Mosely sought guidance from Corps headquarters on how to proceed in view of the project's expansion. In response, L.H. Blakey, Chief of the Planning Division at Corps headquarters, noted that "[a] new cost allocation is required," but that "[t]he above guidance cannot be taken as official Office, Chief of Engineers views."

                and the increased storage space in the expanded project made a new cost allocation necessary, but explained that this would be performed when firm cost figures became available, "about four years from now."   However, in a letter to the Water Agency later in 1974, the chief of the Corps' Engineering Division in San Francisco, H.E. Pape, Jr., wrote that "[t]he percentage of cost allocated to the water supply feature is 27.76% as established in the approved General Design Memorandum.   This percentage will remain unchanged regardless of any changes made in the project's first [i.e. construction] cost."
                

Apparently, Mosely and Beach then agreed that Beach would submit a draft of the proposed amended contract, which Beach did on October 1, 1981. The draft included the 27.76% allocation and a handwritten figure of $122,018,700 for the cost allocated to water supply. In a cover letter, Beach pointed out that he had "included a cost estimate which you may wish to modify."

Mosely and Beach then met to discuss the draft in November 1981. Also at that meeting was appellant Hagood, who was an Assistant District Counsel in the Corps' San Francisco district and had been assigned the task of drafting the new contract. According to Hagood, he and Mosely went into the meeting with questions about the figures Beach had included in the draft. Beach responded by showing them the Pape letter:

At that time, Mr. Beach pulled out a letter from Mr. Pape.... Mr. Beach explained that the figures, the percentage figure that he was using in his contract, proposed contract, was the same figure that Henry Pape had sent to Mr. Beach's predecessor, Mr. Miller.

Mosely and Hagood, who had been unaware of this letter, told Beach they would "look into this."

When the two returned to San Francisco after the meeting, Hagood asked the engineering branch about the cost allocation. He was told by an assistant chief of engineering in the San Francisco district that a cost allocation would not be done for the enlarged project. Greatly concerned, Hagood wrote two file memos in November 1981, and a letter to the District Engineer, Colonel Paul Bazilwich, Jr., on March 25, 1981, opining that the Water Supply Act required "a new allocation based on accurate and current costs." ⁶ Hagood refused to participate in drafting the contract. According to Hagood,

if a current and accurate cost allocation was performed, [the Water Agency's] repayment obligation would increase at least $60 million over its cost allocation based on the inaccurate 1967 GDM. Thus [the Water Agency's] cost share may be over $145 million rather than the approximately $86 million based on the 27% total repayment obligation.

Steve Lingenfelter, who was then District Counsel for the San Francisco District, wrote a memo to the file disputing Hagood's interpretation of the Water Supply Act and arguing:

Colonel Bazilwich considered all staff comments regarding the cost allocation issue. It was ultimately his decision, after a thorough review and evaluation of all aspects of that issue, that preparation of a new cost allocation was not mandatory.

In April 1982, Hagood left the San Francisco District for Alaska; in 1987, he retired from the Corps.

The cost allocation controversy continued to percolate within the Corps, however. On September 13, 1982, James P. Oppenheim, Assistant Director of Civil Works, Pacific, wrote to the Commander of the Pacific Division that

In accordance with paragraph 2-5b of ER 1105-2-40 [an internal Corps regulation], dated 8 January 1982, an updated preliminary cost allocation study is required. This cost allocation must be approved before an accompanying water storage contract can be submitted to the Secretary of the Army for approval.... Corps policy on this item ... is to adjust contract costs to only reflect actual construction costs and not to reflect change in cost allocations.

On September 27, 1982, Edward M. Lee, Jr., who had replaced Colonel Bazilwich as District Engineer, wrote to the Commander of the South Pacific Division that "the cost allocation set forth in Table II of Exhibit 'A' to the executed contract is the current updated project cost allocation based upon the project and the authorized project purposes."

Finally, on ...