U.S. ex rel. Hagood v. Sonoma County Water Agency

Decision Date02 April 1991
Docket NumberNos. 89-16290,89-16360,s. 89-16290
Citation929 F.2d 1416
Parties, 37 Cont.Cas.Fed. (CCH) 76,068 UNITED STATES of America, ex rel. James M. HAGOOD, Plaintiff-Appellant, v. SONOMA COUNTY WATER AGENCY, Defendant-Appellee. James M. HAGOOD, Plaintiff-Appellant, v. SONOMA COUNTY WATER AGENCY, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Peter M. Smith, Peter Smith & Susan Young Law Offices, P.C., Englewood, Colo., for appellant.

Vernon I. Zvoleff and Peter J. Nova, Bronson, Bronson & McKinnon, San Francisco, Cal., for appellee Sonoma County Water Agency.

Lauren Saunders, Hall & Phillips, Los Angeles, Cal., for amicus curiae Center for Law in the Public Interest; Taxpayers Against Fraud.

Allan J. Joseph, Linda R. Koenig, Connie M. Taevan, Rogers, Joseph, O'Donnell & Quinn, San Francisco, Cal., for amicus curiae Chamber of Commerce of the U.S.A.

Michael Hertz, U.S. Dept. of Justice, Washington, D.C., for amicus curiae U.S.

Appeal from the United States District Court for the Northern District of California.

Before SCHROEDER, CANBY and NOONAN, Circuit Judges.

NOONAN, Circuit Judge:

James M. Hagood brought suit under the qui tam provision of the False Claims Act, 31 U.S.C. Secs. 3729-3733, alleging its violation by the Sonoma County Water Agency (the Water Agency). The district court dismissed his third amended complaint for failure to state a cause of action. On appeal, the United States filed a brief as amicus curiae, arguing that the district court was incorrect in its reasoning but right in its result, because the court had no jurisdiction of Hagood's complaint. The jurisdictional issue is novel. We decide it in favor of jurisdiction and reverse the district court on the question of whether Hagood stated a cause of action.

BACKGROUND

In February 1982, as the attachments to Hagood's complaint make clear, Hagood was assistant district counsel to the San Francisco District of the Army Corps of Engineers (the Corps) and was assigned to represent the district counsel to handle the renegotiation of the Warm Springs Dam Water Supply contract with the Water Agency. Hagood came to the conclusion that the proposed cost allocations for the new contract, which would govern the Water Agency's repayment obligations, did not comply with the terms of the 1958 Water Supply Act, 43 U.S.C. Sec. 390b. The cost allocations proposed by the Corps substantially reduced the obligations of the Agency.

Hagood--again according to the documents attached to his complaint--brought his objections to Colonel Paul Bazilwick, Jr., the District Engineer and Contracting Officer for the project. Bazilwick made what he termed "a command decision" to proceed with the cost allocations as proposed and to accept responsibility for the clauses in the contract to which Hagood had objected. Hagood orally refused to draft the contract in this form. He then received an order from the district counsel to comply with Colonel Bazilwick's order or "suffer the consequences of a refusal to follow a direct order from an individual within your direct chain of command."

On March 25, 1982, Hagood put his legal objections to the contract in writing in a letter addressed to Colonel Bazilwick with carbon copies to various other officers of the Corps. The district counsel responded with a memorandum for the files, disputing Hagood's legal points and specifically arguing that the 1958 Water Supply Act did not apply to the Warm Springs Dam, which had been authorized by Congress in 1962. The memorandum of district counsel concluded that Hagood's personal opinion was not the opinion of legal counsel for the district.

According to the allegations of the complaint, Bazilwick was "in the spring" seeking a job with a company later awarded design work by the Water Agency on the Warm Springs Dam and he "used his position as District Engineer to cause an obstruction as to Hagood raising the most fundamental questions on the purported repayment arrangement. A product of that was threats received by Hagood which basically indicated if you want your job with Meanwhile, the contract that Hagood had refused to prepare had been prepared. According to the allegations of the complaint, the Water Agency "used pressure and influence" to expedite its signing without accurate and current cost allocations. The signatory for the Army was William Gianelli, Assistant Secretary of the Army. According to the complaint, Gianelli had been Director of Water Resources for the State of California, had been involved in that capacity with the Warm Springs Dam, and therefore had "a conflict of interest" in acting on the contract. He knew that "an accurate and current cost allocation" had not been prepared, and this knowledge "is related to his expediting" of the contract. The contract was signed by Gianelli on October 1, 1982.

Army Corps in San Francisco don't ask any questions."

According to the complaint's allegations, the district counsel advised Hagood in April 1982 "that he was no longer considered an attorney in the San Francisco district," and Hagood was told by unnamed other Corps lawyers that "he had better get out of California." In July 1982 Hagood "found a job in Alaska with the Army Corps." It appears from other parts of the complaint that Hagood's new job was as assistant district counsel in Anchorage. In 1985 he transferred to the Sacramento district of the Corps. In 1987 he retired.

PROCEEDINGS

Pursuant to 31 U.S.C. Sec. 3730(b), Hagood began this suit for himself and for the United States in March 1988. The United States declined to proceed with the suit on its own behalf, but invoking 31 U.S.C. Sec. 3730(c)(2)(A) intervened to ask dismissal of the complaint's claims against two individual defendants, Colonel Bazilwick and the San Francisco district counsel. This motion was granted. Hagood proceeded as the sole plaintiff as provided by 31 U.S.C. Sec. 3730(c)(3). He amended his complaint so that it named only the Water Agency. The defendant moved to dismiss. The motion was granted with leave to amend.

Hagood's third amended complaint alleged that the Water Agency "knowingly presented, caused to be presented and conspired to present the following false information," to wit, "that a true and correct, and current and accurate cost allocation was contained in the 1982 contract," and various other misstatements and material omissions relating to the contract. The resulting damage to the United States was asserted to be at least $60 million. The Water Agency was further charged, as already noted, with using pressure and influence to expedite the signing of the contract based on this false information.

After a hearing, the district court on September 25, 1989 dismissed with prejudice Hagood's third amended complaint for failure to state a claim for which relief could be granted. In a memorandum opinion the district court analyzed Hagood's complaint as essentially self-contradictory: the complaint alleged fraud by the defendant but also alleged that "the high government officials responsible for taking the action" knew of the facts that made the complaint false. The complaint failed to charge, "with the specificity necessary under Rule 9(b) of the Federal Rules of Civil Procedure," these officials with "acting with any fraudulent intent" toward the government. The district court observed that the closest Hagood came to alleging fraud was his allegations about Bazilwick and Gianelli but that Hagood made "no connection between these allegations and any direct form of wrongdoing by the government employees."

The district court found the facts to be similar to those of Boisjoly v. Morton Thiokol, Inc., 706 F.Supp. 795, 808-10 (D.Utah 1988), and so came to the same conclusion as Boisjoly, that it was impossible to say that the government had suffered the kind of injury necessary to impose liability under the False Claims Act. In amplification of this conclusion, the court observed that the United States is not necessarily damaged every time its officers agree to a procedure that diminishes money coming into the Treasury, because the officers may have acted to promote non-monetary interests of the United States-- Hagood appealed to this court. The United States was permitted to file a brief amicus curiae. This brief argued that the district court was mistaken in its reasoning for two reasons: under the False Claims Act penalties are recoverable even if the United States sustains no damage from the false claim; and the government's knowledge of a claim's falsity does not preclude recovery. At the same time the brief contended that the district court lacked jurisdiction of Hagood's claim because of "the plain language" of 31 U.S.C. Sec. 3730(e)(4).

for example, here, to increase water storage facilities. Moreover, the court noted, "it is difficult to see how any damages to the United States are caused by false statements when officials, with full knowledge of the falsity of the statements, proceed to take an action depriving the government of funds notwithstanding the false statements."

ANALYSIS

Jurisdiction. Exclusions of federal jurisdiction, set out in the 1986 amendments to the False Claims Act, are unusually precise:

No court shall have jurisdiction over an action brought by a former or present member of the armed forces ... against a member of the armed forces arising out of such person's service in the armed forces. 31 U.S.C. Sec. 3730(e)(1)

No court shall have jurisdiction over an action brought under subsection (b) against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought. Id. (e)(2)(A).

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...

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