U.S. of Amer. et al v. The Parsons Co. et al

• Citation: 195 F.3d 457
• Decision Date: 10 June 1999
• Docket Number: No. 97-56452,97-56452
• Parties: (9th Cir. 1999) UNITED STATES OF AMERICA, ex rel. JANET C. OLIVER, Plaintiff-Appellant, v. THE PARSONS COMPANY; PARSONS ENGINEERING SCIENCE, INC.; PARSONS ENVIRONMENTAL SERVICES, INC.; RALPH M. PARSONS COMPANY, Defendants-Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 457

195 F.3d 457 (9th Cir. 1999)

UNITED STATES OF AMERICA, ex rel. JANET C. OLIVER, Plaintiff-Appellant, v. THE PARSONS COMPANY; PARSONS ENGINEERING SCIENCE, INC.; PARSONS ENVIRONMENTAL SERVICES, INC.; RALPH M. PARSONS COMPANY, Defendants-Appellees.

No. 97-56452

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 10, 1999--Pasadena, California

Filed July 19, 1999

Amended October 22, 1999

[Copyrighted Material Omitted]

Dean Francis Pace, Pace and Rose, Los Angeles, California, for the plaintiff-appellant.

Dale H. Oliver, Quinn Emanuel Urquhart Oliver & Hedges, Los Angeles, California, for the defendants-appellees.

Robert M. Loeb, United States Department of Justice, Washington, D.C., for United States of America, amicus curiae.

Appeal from the United States District Court for the Central District of California; William Matthew Byrne, Jr., District Judge, Presiding. D.C. No. CV-95-05423-WMB

Before: Dorothy W. Nelson, Stephen Reinhardt, and Stephen S. Trott, Circuit Judges.

ORDER AND AMENDED OPINION

TROTT, Circuit Judge:

ORDER

The opinion filed July 19, 1999, is hereby amended as follows:

At slip opinion 8102, at the end of the sentence that begins, "Their meaning is ultimately the subject of judicial interpretation," add the following as footnote 2:

We note that the agency to which the allegedly false claim was submitted has not taken any position regarding any of the issues in this case, and thus no question of Chevron deference is presented.

At slip opinion page 8103, add the following section at the end of section III. A. 3. as subsection 4:

4.

In a petition for rehearing, Parsons argues that our decision breaks from previous authority in this circuit on the issue of whether a reasonable interpretation precludes falsity, citing United States ex rel. Lindenthal v. General Dynamics Corp., 61 F.3d 1402 (9th Cir. 1995) and United States ex rel. Hochman v. Nackman, 145 F.3d 1069 (9th Cir. 1998). These cases are inapposite. Lindenthal did not involve the interpretation of a federal regulation but instead involved the interpretation of a contract between General Dynamics and the federal government. Id. at 1411. Because a term of the contract was held to be ambiguous, the court held that the parties' intent was relevant extrinsic evidence, and the court then used that evidence to inform the court's interpretation of the contract. "We agree that extrinsic evidence was properly admitted to flesh out the meaning [the contract]. `Where contractual language is unclear and suggests several speculative interpretations, the scope of the language must be read in accordance with the parties' contemporaneous construction, and extrinsic evidence is admissible to show what the parties intended it to mean.' " Id. at 1411, (quoting Lockheed Aircraft Corp. v. United States, 553 F.2d 69, 89 (Ct. Cl. 1977)). This holding is applicable only in the realm of contract law, where a contract represents a "meeting of the minds" between the parties and where the parties' interpretation and performance of the contract may be relevant evidence of the contract itself.

Hochman is similarly unhelpful. 145 F.3d 1069. Parsons argues that Hochman stands for the proposition that a reasonable interpretation of an "imprecise" directive precludes falsity. Hochman involved allegations that a Veterans Administration clinic submitted false claims regarding the number of hours worked by physicians at the Clinic pursuant to an agreement between the clinic and the University of Southern California School of Medicine. Contrary to Parsons' suggestion, the court did not hold that the Clinic's submission was not "false." To the contrary, the court explicitly declined to decide the question of falsity, and instead disposed of the case on the scienter element, holding that "[e]ven if the defendants erred in their interpretation of the Affiliation Agreement, the undisputed evidence demonstrates that the defendants believed that the Affiliation Agreement authorized their conduct." Id. at 1075.

Parsons also argues in its petition for rehearing that our holding splits from the Fifth and Seventh Circuits, asserting that those courts have adopted a "reasonable interpretation" approach to falsity. However, the cases cited do not support a conclusion that other courts have taken this view of "falsity." United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir. 1999) did not reach the issue and instead combined the issues of falsity and scienter, "our consideration of the falsity question will be incorporated into our knowledge discussion." United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 546 (5th Cir. 1977) also did not address the question of reasonable interpretation and instead looked to legislative history in order to determine the appropriate statutory interpretation. Finally, in Luckey v. Baxter Healthcare Corp., 2 F. Supp. 2d 1034, 1047 (N.D. Ill. 1998), aff'd, 183 F.3d 730, 1999 WL 482670 (7th Cir. July 12, 1999), the court held that the exercise of legitimate scientific judgment did not allow a finding of falsity. "Courts have consistently declined to find that a contractor's exercise of scientific or professional judgment as to an applicable standard of care falls within the scope of the FCA." Id.

In short, Parsons' petition arguing that the sky will fall upon government contractors if they are precluded from relying on a "reasonable interpretation" is not only unsupported by case law, it is also ungrounded in reality. It ignores the fact that the FCA requires more than just a false statement -it requires that the defendant knew the claim was false. 31 U.S.C. S 3729(a)(1). A contractor relying on a good faith interpretation of a regulation is not subject to liability, not because his or her interpretation was correct or "reasonable" but because the good faith nature of his or her action forecloses the possibility that the scienter requirement is met.

With these amendments, the panel has voted to deny the petition for rehearing and Judges Reinhardt and Trott have voted to deny the suggestion for rehearing en banc. Judge D.W. Nelson so recommends. The petition for rehearing and the petition for rehearing en banc are hereby DENIED.

Opinion by Judge Trott

TROTT, Circuit Judge:

Janet C. Oliver, plaintiff qui tam, appeals the district court's denial of her motion for summary judgment and its grant of summary judgment in favor of defendants The Parsons Company, Parsons Engineering Science, Inc., Parsons Environmental Services, Inc., and Ralph M. Parsons Company (collectively, "Parsons"). The district court held that Parsons' cost accounting practices did not give rise to a claim under the False Claims Act, 31 U.S.C. S 3729 (West 1999) ("the Act") because Parsons employed a "reasonable interpretation" of the applicable regulations and because the facts alleged failed to meet the scienter requirement.

This court has jurisdiction under 28 U.S.C. S 1291. We hold that the district court erred in applying a "reasonable interpretation" approach to determining falsity under the Act and that genuine issues of material fact exist regarding whether Parsons "knowingly" submitted a false claim. We therefore REVERSE and REMAND for further proceedings in accordance with this opinion.

I FACTS

Oliver was an accountant for The Parsons Company ("TPC"). She now sues on behalf of the United States, claiming that Parsons knowingly violated the federal Cost Accounting Standards in an effort to overcharge the government, thereby giving rise to a claim under the Act.

Parsons Engineering Science, Inc. ("Parsons ES") is the predecessor of Engineering Science, Inc. ("ES") and is a subsidiary of TPC. Parsons ES is a significant federal government contractor, with contracts amounting to over $300 million between 1989 and 1996.

In August 1989, Parsons ES was awarded a $58,115,836 contract by the State of California Bureau of Automotive Repairs to operate part of the state's air quality emissions program ("the BAR contract"). In January 1990, Parsons ES awarded a subcontract to Inspection and Maintenance Corporation ("I&M"), another wholly-owned subsidiary of TPC, to perform the "field and supervisory work" associated with the BAR contract. I&M's only corporate objective is the BAR contract; it performs no work for the federal government and has continued to perform under the BAR contract even after the written subcontract with Parsons ES expired on December 31, 1991.

I&M consists solely of employees who directly implement the BAR contract. It is, as the district court put it, "in essence, only a payroll." For accounting purposes, I&M labor costs were not included in Parsons ES's direct labor base cost but were instead characterized as "other direct costs " arising from the subcontract. This practice affects the overhead rate charged to the federal government by Parsons ES in its federal contracts because the overhead rate is calculated as a percentage of the difference between the direct labor base and the "overhead pool costs." For example, if Parsons ES's direct labor base cost is $100 and the overhead pool money amounted to $150, the overhead rate is 150%. If its direct labor base cost was increased to $150, then the overhead rate charged to the government is 100%. In this way, Oliver alleges that Parsons ES used I&M to reduce its direct labor costs, thereby increasing the overhead rate billed to the federal government.

Oliver filed this qui tam action under seal on August 14, 1995, notified the government, and disclosed to the government all her evidence of fraud. On November 7, 1996, the government issued a letter declining to intervene in the litigation. The complaint was then unsealed, and Oliver began pursuing the action as relator. The parties filed a joint statement of stipulated facts on June 2, 1997. Both parties moved for summary judgment. On July 31, 1997, the district court entered...