U.S. ex rel. Lindenthal v. General Dynamics Corp., s. 93-16690

• Decision Date: 02 August 1995
• Docket Number: Nos. 93-16690,94-16005 and 93-16823,s. 93-16690
• Citation: 61 F.3d 1402
• Parties: , 40 Cont.Cas.Fed. (CCH) P 76,811, 95 Cal. Daily Op. Serv. 6063, 95 Daily Journal D.A.R. 10,411 UNITED STATES of America, ex rel. Murray W. LINDENTHAL; Donald B. Willis, Plaintiffs-Appellants, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellee. UNITED STATES of America, ex rel. Murray W. LINDENTHAL; Donald B. Willis, Plaintiffs-Appellees, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1402

61 F.3d 1402

32 Fed.R.Serv.3d 1342, 40 Cont.Cas.Fed. (CCH)

P 76,811,

95 Cal. Daily Op. Serv. 6063,

95 Daily Journal D.A.R. 10,411

UNITED STATES of America, ex rel. Murray W. LINDENTHAL;

Donald B. Willis, Plaintiffs-Appellants, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellee.

UNITED STATES of America, ex rel. Murray W. LINDENTHAL;

Donald B. Willis, Plaintiffs-Appellees, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellant.

Nos. 93-16690, 94-16005 and 93-16823.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 12, 1995.

Decided Aug. 2, 1995.

Murray W. Lindenthal, pro se, San Jose, CA, and Donald B. Willis, pro se, Hollister, CA, for plaintiffs-appellants-cross-appellees.

Michael T. Kavanaugh, Susan A. Mitchell, Mark R. Troy and Erik F. Stidham, McKenna & Cuneo, Los Angeles, CA, for defendant-appellee-cross-appellant.

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

Before: HALL, WIGGINS, and LEAVY, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

These appeals arise out of an action under the False Claims Act (FCA). ¹ The relators prosecuted the action on their own after the government declined to intervene.

The relators' theory of the case is as follows: General Dynamics (GD) contracted with the Air Force (AF) to produce, and provide engineering drawings for, an elaborate radar system called MUTES. MUTES is a mobile system used to train pilots by simulating the signals of various enemy radar. After a period of years, the AF solicited bids on a competitive basis from other companies who wanted to build MUTES. The AF awarded this follow-on contract to Aydin Corporation. The drawings GD had supplied to the AF proved inadequate for Aydin to produce MUTES according to its contract, and the AF was therefore forced to renegotiate the terms of its contract with Aydin at a cost of over $20 million.

The relators, who are insiders at Aydin, claim that GD knowingly provided inadequate drawings to the AF, and that this "fraud" actually damaged the United States in the amount the AF had to pay to alter the terms of the follow-on contract.

The district court held a bench trial to determine whether jurisdiction lay under the FCA. It found it had jurisdiction. The court then held a second bench trial on the merits of the FCA claim. After finding that GD had not knowingly submitted any false claims to the AF, the court entered judgment for GD. GD, as the prevailing party, then requested an award of costs. The court awarded it approximately twenty percent of its claimed costs. The relators appeal the judgment on the merits of their claim, and GD cross appeals the district court's conclusion that it had jurisdiction under the FCA. The relators separately appeal the judgment for costs. ²

The district court had federal question jurisdiction under 28 U.S.C. Sec. 1331. This Court has jurisdiction over the appeal under 28 U.S.C. Sec. 1291, over the cross appeal under 28 U.S.C. Sec. 1291 and Fed.R.App.P. 4(a)(3), and over the appeal from the costs judgment under 28 U.S.C. Sec. 1291.

I.

In the 1970s GD conceived of MUTES (Multiple Threat Emitter Systems). MUTES is a complex mobile system that simulates the threat of enemy forces. The AF uses it to train pilots. Based on GD's idea, the AF conducted a competitive procurement for the award of a contract to build and produce engineering drawings for MUTES. GD won this contract, and it became effective in February 1978. This contract is generally referred to as "0103."

The district court found that 0103 obligated GD to provide a technical data package including engineering drawings so that the AF could then use the drawings to procure spare parts. The contract further required that some of those drawings meet a set of requirements called "Level 3." Level 3 requirements are described in a Department of Defense document entitled "MIL-D-1000A." Although MIL-D-1000A does not specify precisely the kind of data to be included on Level 3 drawings, it does describe Level 3 drawings as those that would allow a competent manufacturer to reproduce the item based on the drawings.

In the following years, as a result of normal quality control audits, the parties evaluated the drawings and the MUTES system. As a result of these internal audits, GD made changes to its drawings. The AF, however, at all times considered GD's drawings to be satisfactory under the 0103 contract.

In 1982, GD and the AF entered a second contract, referred to as "0366." 0366 required GD to build more MUTES and to deliver new copies of the drawings that had been revised as a result of the internal audits. GD made approximately 6098 changes to its original drawings.

In late 1986 and early 1987, the AF initiated an effort to solicit proposals from other contractors to build more MUTES. Although the AF intended to award the follow-on contract on a performance specification basis, ³ an AF contracting officer ultimately decided to solicit bids on a build-to-print basis. ⁴ As a part of this solicitation of bids, the AF warranted that certain of GD's drawings--which would be provided to the winner of the follow-on contract--met Level 3 specifications. The AF did not warrant that the drawings were adequate for build-to-print contracts.

In 1987, the AF awarded the follow-on contract to Aydin on a build-to-print basis. Aydin had difficulty reproducing the MUTES systems, and was forced to seek permission from the AF to alter some of GD's drawings. Moreover, many of the aperture cards the AF provided to Aydin, which contained engineering data, were illegible due to poor handling and copying by the AF. The AF and Aydin therefore contracted for a new set of these aperture cards (the Aperture Card Contract).

Aydin's continuing difficulties led in 1989 to a renegotiation of the follow-on contract in which the AF agreed to pay an additional $22 million in exchange for Aydin's agreement to continue to produce MUTES on a performance specification, rather than a build-to-print, basis. The relators filed their sealed complaint soon afterward in October, 1989.

The district court held trial in two phases. Phase I was a bench trial to determine whether the court had jurisdiction under the FCA. The court ruled that although the claim would have been barred under the version of the FCA in force prior to 1986 because the government had the knowledge forming the basis of the claim, the claim was saved by a 1986 amendment, which the court applied retrospectively. The court ruled that the new provision bars claims only when they are based upon certain public disclosures, and that these claims were not based upon any public disclosures within the meaning of the FCA. The court therefore asserted jurisdiction.

Phase II was a bench trial on the merits of the relators' claims. The court found that the terms of both contracts, including the incorporation of the Level 3 specification, to be ambiguous, and therefore accepted extrinsic evidence regarding the understanding of the parties as to whether the drawings were expected to be error free or suitable for "build-to-print" follow-on contracts. It further found that the parties did not expect GD's drawings to be error free or suitable for "build-to-print" follow-on contracts and, therefore, that none of the DD Form 250's ⁵ or claims for payment constituted false or fraudulent claims. It also concluded that, even had GD submitted false claims, it did not have the scienter required in order for liability to attach.

After the entry of judgment, GD filed a bill of costs, which was eventually referred to a magistrate judge. The magistrate judge issued findings and recommendations, which the district court reviewed de novo and adopted. The district court then awarded GD $50,271.27 in costs.

II.

On cross-appeal, GD argues that the district court erred in applying a jurisdictional provision of the 1986 amendments, rather than applying the analogous provision from the preamendment act. It argues that under the preamendment act, the district court lacked jurisdiction over the action. Whether a provision of the 1986 amendments applies retrospectively to conduct that occurred prior to its enactment is a question of law reviewed de novo. United States ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810, 814 (9th Cir.1995). Although this Court reviews the existence of jurisdiction de novo, it reviews the factual findings on jurisdictional issues only for clear error. United States v. Northrop Corp., 5 F.3d 407, 409 n. 5 (9th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1543, 128 L.Ed.2d 195 (1994).

Prior to the 1986 amendments, the FCA barred actions brought by relators when the action was "based on evidence or information the Government had when the action was brought." 31 U.S.C. Sec. 3730(b)(4) (1982); see also Anderson, 52 F.3d at 813. The district court here found that the government knew of the evidence forming the basis of the action prior to 1986. Thus, the qui tam action would have been barred under the pre-1986 version of the FCA.

In 1986, however, Congress amended the FCA. Among the changes was a change to the jurisdictional provision. "The old language barring recovery if the government had 'information' before suit was filed was changed to an entirely new scheme, in which recovery was barred if the claim was based on 'public disclosure,' unless the relator was 'an original source of the information.' " Anderson, 52 F.3d at 813. This new provision states:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media....

31 U.S.C. Sec. 3730(e)(4)(A) (1988). The district court ruled that this new provision applied to this case. Tr. of Oct. 1, 1992, at 19-20.

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