Ridenour v. Kaiser Hill Co., L.L.C.

• Decision Date: 09 February 2005
• Docket Number: No. 01-1510.,01-1510.
• Parties: David E. RIDENOUR; Jeffrey B. Peters; Mark Graf, Plaintiffs-Appellants, United States of America, ex rel., Plaintiff-Appellee, v. KAISER-HILL COMPANY, L.L.C., and Statutory Agent: Corporation Services Company; Wackenhut Services Limited Liability Company, and Statutory Agent: James A. Dierker; EG & G Rocky Flats, Inc., and Statutory Agent: C.T. Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

397 F.3d 925

David E. RIDENOUR; Jeffrey B. Peters; Mark Graf, Plaintiffs-Appellants, United States of America, ex rel., Plaintiff-Appellee, v. KAISER-HILL COMPANY, L.L.C., and Statutory Agent: Corporation Services Company; Wackenhut Services Limited Liability Company, and Statutory Agent: James A. Dierker; EG & G Rocky Flats, Inc., and Statutory Agent: C.T. Corporation, Defendants-Appellees.

No. 01-1510.

United States Court of Appeals, Tenth Circuit.

February 9, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Wilbert Benjamin Markovits of Markovits and Greiwe Co., L.P.A., Cincinnati, OH, (Phyllis E. Brown of Copeland & Brown Co., L.P.A., Cincinnati, OH; Louise Roselle of Waite, Schneider, Bayless & Chesley Co., L.P.A., of Cincinnati, OH; and James J. Christoph of McCormick & Christoph, P.C., Boulder, CO, with him on the briefs) for Plaintiffs-Appellants.

Douglas N. Letter, Appellate Litigation Counsel, (Robert D. McCallum, Jr., Assistant Attorney General, and John W. Suthers, United States Attorney, with him on the brief) Department of Justice, Washington, D.C., for Plaintiff-Appellee.

Gail D. Zirkelbach and Michael D. Schag of McKenna Long & Aldridge, L.L.P., Denver, CO; Gregory Kellam Scott of Kaiser-Hill Company, L.L.C., Golden, CO; Thomas J. Heiden of Miller, Canfield, Paddock & Stone, P.L.C., Grand Rapids, MI, on the briefs for Defendant-Appellee Kaiser-Hill Company, LLC.

Richard J. Webber of Arent Fox Kintner Plotkin & Kahn, P.L.L.C., Washington, D.C.; Dennis W. Brown and Stacy A. Carpenter of Baldwin & Brown, P.C., Denver, CO, on the brief for Defendant-Appellee Wackenhut Services Limited Liability Company.

John T. Boese and Michael J. Anstett of Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.; and F. Gregory McKenna and Alan Epstein of Hall & Evans, L.L.C., Denver, CO, on the brief for Defendant-Appellee EG & G Rocky Flats, Inc.

Before KELLY and O'BRIEN, Circuit Judges and EAGAN¹, District Judge.

O'BRIEN, Circuit Judge.

This is a qui tam action,² filed under the False Claims Act (FCA), 31 U.S.C. § 3729. David E. Ridenour, Jeffrey B. Peters, and Mark Graf (Relators) contend Appellees, security providers³ at Rocky Flats Nuclear Weapons Plant (Rocky Flats), conspired to present for payment, knowingly presented, and were paid for, false claims for deficient, defective, or non-existent security measures, in violation of 31 U.S.C. § 3729(a)(1), (a)(2) and (a)(3). After declining to intervene, the Government filed a motion to dismiss the action, which the district court granted. United States ex rel. Ridenour v. Kaiser-Hill Co., L.L.C., 174 F.Supp.2d 1147 (D.Colo.2001). Relators appeal.

Relators present several issues on appeal: (1) whether the district court applied the correct standard of review in granting the Government's motion to dismiss; (2) whether it erred in finding the Government met its burdens under the applied standard; (3) whether it erred in denying Relators' request to conduct certain discovery in preparation for hearing on the Government's motion to dismiss, their request to subpoena the Government's person most knowledgeable about the decision to seek dismissal, and their request to inquire at the hearing into the reasons underlying the dismissal decision; and (4) whether it erred in allowing the Government to present evidence refuting certain of the Relators' allegations where the parties had stipulated Relators' claim had merit. We exercise jurisdiction pursuant to 28 U.S.C. § 1291⁴ and affirm.

FACTUAL BACKGROUND

The Department of Energy (DOE) operated Rocky Flats⁵ as a nuclear weapons manufacturing facility from 1953 through 1992. Rocky Flats is located near Golden, Colorado. In 1989, the Environmental Protection Agency (EPA) designated the by-then radiologically-contaminated facility a CERCLA⁶ Superfund⁷ site. The site is to be decontaminated and closed by 2006.

Between 1989 and 1995, EG & G Rocky Flats, Inc., was the primary contractor with DOE for management and operations at Rocky Flats, which included security. During these same years, Wackenhut Services, L.L.C., contracted directly with the DOE to provide security at the site. In 1995, the DOE awarded Kaiser-Hill Co., L.L.C., the environmental cleanup contract at Rocky Flats. Since 1995, Kaiser-Hill has subcontracted the security portion of its contract to Wackenhut.

Relators performed security work at Rocky Flats, and each Relator independently voiced his concern about what he perceived as weak security. They ultimately filed suit as qui tam relators under the FCA on October 8, 1997, alleging EG & G, Wackenhut, and Kaiser-Hill were paid for security measures they either did not provide or provided below acceptable levels. At the time of the filing, Rocky Flats housed more than fourteen tons of weapons grade plutonium and six tons of highly enriched uranium. The Government requested and received several time extensions from the district court, totaling two years, in which it investigated the merits of the qui tam action. Pursuant to 31 U.S.C. § 3730(b)(2) and (b)(3), the case remained under seal during this investigation. Ultimately, the Government declined to intervene and the case was unsealed on December 14, 1999.

On April 13, 2000, the Government requested the DOE be added to the certificate of service to be kept aware of the progress of the suit. The Government became concerned about the handling of classified information and filed a status report concerning this issue on July 5, 2000. At a hearing on Defendants-Appellees' motion to stay proceedings pending the Government's resolution of classified information, the Government announced it would file a motion to dismiss, which it did on August 21, 2000.

The Government argued its motion to dismiss should be granted because the lawsuit would delay the cleanup and closure of Rocky Flats, as well as compromise national security interests by risking inadvertent disclosure of classified information. Relators opposed dismissal, claiming the Government was seeking dismissal for fraudulent and arbitrary and capricious reasons and the reasons for dismissal were not rationally related to a legitimate government purpose. They also argued the Government could not seek to dismiss the action without first intervening under 31 U.S.C. § 3730(c)(3). Relators sought discovery regarding the Government's stated reasons for dismissal and endeavored to subpoena the "most knowledgeable" government witness regarding the Government's reasons for dismissal. (Appellants' Br. at 2.) The district court denied these requests. After a five-day evidentiary hearing conducted pursuant to 31 U.S.C. § 3730(c)(2)(A), in which the Government stipulated for purposes of the hearing that the Relators' claims were meritorious, the magistrate recommended the Government's motion to dismiss be granted. The district court adopted the recommendation and dismissed with prejudice the claims considered in this appeal.

DISCUSSION

I. FCA claims

We review de novo the district court's interpretation of the FCA and its determination of what standard to apply to the Government when it moves to dismiss a qui tam action. See Foutz v. United States, 72 F.3d 802, 804 (10th Cir.1995) (construction of federal statutes reviewed de novo). We review the district court's dismissal of a qui tam action with prejudice for abuse of discretion. Stone, 282 F.3d at 809.

A. The FCA's Purposes and Provisions

The purpose of the FCA "is to enhance the Government's ability to recover losses sustained as a result of fraud against the Government." S.Rep. No. 99-345, at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266. It empowers a private individual (a relator) to bring a civil claim on his or her own behalf, and on behalf of the Government, against a person or company who knowingly presents a false claim to the Government for payment. 31 U.S.C. §§ 3729(a), 3730(a) and (b)(1). The relator can only dismiss the action upon written consent of the court and the Attorney General.⁸ § 3730(b)(1). Amended in 1986, the most substantial modifications to the FCA created an increased incentive for private individuals to bring qui tam suits and granted the Government greater control over these privately brought actions. Congress increased the relator's incentive⁹ to bring qui tam actions by guaranteeing them a percentage of the recovery if the action is successful, and slightly increasing their maximum potential recovery. S.Rep. No. 99-345, at 27 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5292. Relators are entitled to fifteen to twenty-five percent of the proceeds of the action or settlement of the claim if the Government intervenes. § 3730(d)(1). If the Government declines intervention, relators receive twenty-five to thirty percent. § 3730(d)(2). Relators are also given certain guarantees of involvement: if the Government proceeds with the action, the relators have the right to continue as a party, § 3730(c)(1); if the Government moves to dismiss the claim over relators' objections, they are entitled to a hearing, § 3730(c)(2)(A); and if the Government settles the claim, relators are entitled to judicial determination, via a hearing, that the Government's proposed settlement is fair, adequate, and reasonable, § 3730(c)(2)(B). S. Rep. 99-345, at 25-26 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5290-91. See also Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 772, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) (Stevens, J., dissenting). These hearings, however, are only to be granted if relators can show a "substantial and particularized need for a hearing."¹⁰ S. Rep. 99-345, at 26 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5291.

Through the 1986 amendments, Congress granted the Government additional opportunities to intervene and increased its power to control qui tam actions. Under the old Act, the Government only had the initial sixty days in which to decide to intervene. The 1986 am...