U.S. ex rel. Ritchie v. Lockheed Martin Corp.

• Decision Date: 06 March 2009
• Docket Number: No. 08-1112.,No. 07-1295.,07-1295.,08-1112.
• Citation: 558 F.3d 1161
• Parties: UNITED STATES ex rel. Ruth RITCHIE, Plaintiff/Relator-Appellant, v. LOCKHEED MARTIN CORP. and Lockheed Martin Space Systems Co., Defendants-Appellees, United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

558 F.3d 1161

UNITED STATES ex rel. Ruth RITCHIE, Plaintiff/Relator-Appellant, v. LOCKHEED MARTIN CORP. and Lockheed Martin Space Systems Co., Defendants-Appellees United States of America, Amicus Curiae.

No. 07-1295.

No. 08-1112.

United States Court of Appeals, Tenth Circuit.

March 6, 2009.

Victor A. Kubli, Grayson & Kubli, P.C., Vienna, VA (Alan M. Grayson and Melissa A. Roover, Grayson & Kubli, P.C., McClean and Vienna, VA, on the briefs), for Appellant.

Mark J. Meagher, McKenna Long & Aldridge LLP, Denver, CO (Sandra B. Wick Mulvany, McKenna Long & Aldridge LLP, Denver, CO; and Jennette C. Roberts, McKenna Long & Aldridge LLP, Los Angeles, CA, with him on the briefs), for Appellees.

Henry C. Whitaker, Attorney, Appellate Staff, Department of Justice, Washington, D.C. (Gregory G. Katsas, Assistant Attorney General, Washington, D.C.; Troy A. Eid, United States Attorney, Denver, CO; Michael S. Raab, Attorney, Appellate Staff, Department of Justice, Washington, D.C., with him on the briefs), for Amicus Curiae.

Before BRISCOE, EBEL, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Relator-Appellant Ruth Ritchie filed these consolidated appeals following a grant of summary judgment in favor of Defendant-Appellee Lockheed Martin Corporation ("Lockheed").¹ Ritchie filed the instant qui tam action alleging, inter alia, fraud on the part of Lockheed in relation to its billing practices under certain federal contracts. The district court granted summary judgment on the basis of releases signed by Ritchie prior to the filing of the qui tam suit. Ritchie argues the releases are unenforceable because they were signed without the government's consent and because their enforcement would be contrary to the federal policies underlying the False Claims Act. Before Ritchie signed the releases, Lockheed disclosed the fraud allegations to the federal government, which conducted its own audit and investigation of the charges billed under the federal contract. Because the federal interests served by enforcing releases signed after disclosure to the federal government outweigh the interests served by not enforcing them, this court concludes the releases are enforceable. Ritchie also argues the district court erred in refusing to allow her to amend her complaint or substitute a relator and objects to the assessment of costs against her pursuant to Rule 54(d)(1). Reviewing both issues for abuse of discretion, we find no error by the district court. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, the judgment of the district court is affirmed.

I. Background

Ritchie worked for Lockheed and its predecessor companies from 1979 until 2004. In 2002 she was assigned to oversee and validate the Mission Success Incentive Program ("MSI") and Critical Skills Incentive Program ("CSI") databases. These databases contained information about special pay incentives for certain employees working under expiring contracts with the U.S. Air Force. Ritchie began to raise concerns about fraud in connection with the Programs almost immediately after she began validating the databases. She believed Lockheed managers were falsifying records to increase incentive payments to Lockheed employees. The incentives would be paid by the U.S. Air Force, and thus, in Ritchie's view, the falsifications constituted fraud against the federal government.

A. Investigations into Fraud

Ritchie initially brought her concerns to the attention of various parties within Lockheed. In June of 2002, Ritchie contacted a Human Resources Business Manager to suggest a review of irregularities in the MSI database. Lockheed proceeded to conduct an internal audit of the MSI Program, and Ritchie participated in the audit. The auditors released a report in August of 2002 identifying inconsistencies and inaccuracies in the MSI program and outlining corrective procedures. In May of 2003, unconvinced the problems had been fixed, Ritchie contacted Lockheed's Corporate Ethics Officer to raise concerns about discrepancies in the databases and retaliation by her supervisors. This triggered more internal investigations regarding Lockheed's charging practices under the MSI and CSI programs. Several Lockheed employees investigated Ritchie's allegations with respect to the CSI program and retaliation by her supervisors ("the ethics investigation") and concluded the allegations were unsubstantiated. An internal auditor conducting a second audit found inaccuracies in the MSI database, but concluded they did not result in over-accrual of incentive payments and thus did not result in a negative fiscal impact to the government.

After Ritchie made her May 2003 complaint, Lockheed informed the Air Force that allegations had been made regarding payments under the incentive plans. When the ethics investigation and the second audit were complete, Lockheed briefed the Air Force and the Defense Contract Management Agency² on the results of each audit and investigation conducted in response to Ritchie's complaints. The parties dispute the thoroughness of this briefing.

Shortly after the briefing, the Defense Contract Audit Agency ("DCAA"), a federal agency which audits defense contracts, commenced its own audit of the MSI database for fiscal year 2001. Ritchie assisted with this audit, communicating with the auditor at least five times and serving as the auditor's contact person at Lockheed. The DCAA auditor testified she was informed by Ritchie, in detail, of Ritchie's allegations regarding improper charging under both the MSI and CSI programs. Ritchie claims she informed DCAA of alterations in the relevant databases but did not provide the DCAA auditor with the substance of her fraud allegations. It is uncontroverted, however, that DCAA expanded the scope of its audit in response to information provided by Ritchie; informed Ritchie she could take her concerns directly to the Defense Criminal Investigative Service ("DCIS"), the criminal investigative wing of the Defense Department's Office of the Inspector General; and later made its own referral to DCIS. The final DCAA audit report was issued in February 2005.

B. Litigation History

Believing she was the subject of retaliation because of her whistleblowing activities,³ Ritchie sent a letter to Lockheed requesting $850,000 in damages. The parties participated in mediation and arrived at a settlement. The settlement contained a "General Release of Claims," which was defined as "a waiver and release of any and all claims [Ritchie] might have under federal, state, or local law." Under the settlement, Ritchie was placed on administrative leave for about four months and then terminated, at which time she received lay-off benefits. She also received $24,000, payable in two installments: one immediate payment of $19,000, and another payment of $5000 payable upon her termination so long as she agreed to sign a supplemental release. Upon her discharge she signed the supplemental release, which contained the same language as the first release, and received the $5000 payment.⁴

Ten days after signing the supplemental release, Ritchie filed the present qui tam action. Fifty of the 112 paragraphs in her complaint restated material from the demand letter she had sent to Lockheed. Ritchie stated three causes of action under the False Claims Act ("FCA"): (1) knowingly presenting false claims for the purpose of obtaining payment in violation of 31 U.S.C. § 3729(a)(1); (2) knowingly using false records or statements to obtain payment of a false claim in violation of § 3729(a)(2); and (3) retaliation for reporting and attempting to correct false claims in violation of § 3730(h).

The case was referred by the district court to a magistrate judge for pretrial proceedings. The magistrate judge's scheduling order set February 3, 2006, as the final date for the amendment of pleadings and joinder of parties. The magistrate judge also set a discovery deadline of October 20, 2006, and a dispositive motion deadline of November 20, 2006. On November 20, 2006, Lockheed filed a motion for summary judgment, arguing the releases signed by Ritchie prevented her from bringing her claims. Prior to filing a response to the summary judgment motion, Ritchie filed a "Motion for Leave to Amend to Add a Co-Relator, or, in the Alternative, to Substitute Relators," seeking to add Blair Froistad, a former Lockheed auditor, as a relator. Ritchie attempted to explain this delay in adding Froistad to the case by arguing she had only just learned of Froistad's departure from Lockheed. The magistrate judge recommended rejecting the motion to amend. The district court accepted that recommendation and also granted summary judgment to Lockheed. Ritchie appeals these rulings.

After granting summary judgment, the district court awarded costs to Lockheed. Ritchie objected to the award of costs, arguing 31 U.S.C. § 3730(d)(4) precludes an award of costs in an FCA case unless the claim was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment. Ritchie also asked the district court to exercise its discretion to not award costs. The district court denied Ritchie's motion, and Ritchie appeals.

II. Discussion

A. Motion to Amend

The district court accepted the magistrate judge's recommendation to deny Ritchie's motion for leave to amend. This court reviews the decision of the district court to deny leave to amend for abuse of discretion. Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006).

The district court analyzed the motion to amend under both Rule 15(a)(2), which governs the amendment of pleadings prior to trial, and Rule 16(b)(4), which governs the amendment of pretrial scheduling orders. This court has not yet considered whether Rule 16(b)(4) must be met when motions to amend pleadings would necessitate a corresponding amendment of scheduling orders. Minter, 451 F.3d at 1205 n. 4. Because the motion cannot meet the Rule 15(a)(2) standard,...