U.S. v. American Production Industries, Inc.
| Decision Date | 09 June 1995 |
| Docket Number | No. 93-56672,93-56672 |
| Citation | 58 F.3d 404 |
| Parties | 40 Cont.Cas.Fed. (CCH) P 76,790 UNITED STATES, ex rel., Plaintiff-Appellee, and Ara B. Papazian, and Nabil D. Hanna, Plaintiffs-Appellants, v. AMERICAN PRODUCTION INDUSTRIES, INC., dba Paramount Citrus Association, fka Paramount Citrus Association; Mohammed Ali Karbalai; Elvin Wood, Defendants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Hebert Hafif, Claremont, CA, and Phillip E. Benson, Newport Beach, CA, for plaintiffs-appellants.
Douglas N. Letter and Phillip A. Shaikun, U.S. Dept. of Justice, Washington, DC, for plaintiff-appellee.
Appeal from the United States District Court for the Central District of California.
Before: FLETCHER, BRUNETTI, and T.G. NELSON, Circuit Judges.
Ara Papazian and Nabil Hanna ("relators") appeal from the district court's dismissal of their qui tam complaint brought pursuant to the False Claims Act ("FCA"), 31 U.S.C. Sec. 3729 et seq. On appeal the relators argue that the district court erred by finding that it lacked jurisdiction over the suit because a settlement had previously been agreed to by the Department of Justice ("DoJ") and certain of the defendants. Because the relators lack standing under the DoJ regulations to challenge the settlements, we affirm.
In April 1991, Papazian and Hanna met with Agent Stephen Johanson of the Defense Criminal Investigative Service to discuss information concerning the adulteration of juice products which were being sold to the Government. Papazian and Hanna told Agent Johanson that they were coming forward with the information because they feared criminal prosecution and loss of their jobs. Agent Johanson began an investigation, and in September 1991, the U.S. Attorney's Office accepted the case for criminal prosecution. On April 29, 1992, Agent Johanson learned that at some future time Papazian and Hanna intended to file a qui tam action. However, Agent Johanson never discussed when, if at all, the appropriate time was to file a qui tam complaint and never made any representation that the Government would refrain from pursuing a civil settlement without first notifying them or their counsel.
In March of 1992, at the suggestion of counsel for Paramount, negotiations began for a settlement of criminal and civil liability against Karbalai and Paramount. On June 12, 1992, two settlement agreements were reached. Karbalai agreed to pay $900,000, and Paramount agreed to pay $6 million. The agreements were authorized for the United States by Michael F. Hertz, Director of the Commercial Litigation Branch of the Department of Justice ("Director Hertz"), and executed pursuant to the authorization by Assistant United States Attorney, John N. Joseph ("AUSA Joseph"). After reading about the settlements in the newspaper, Papazian and Hanna filed their qui tam action.
A prerequisite to awarding a qui tam relator a share of the proceeds of any settlement or claim is that the relator must bring a timely complaint under the FCA. See 31 U.S.C. Secs. 3730(d)(1)-(2). This element was lacking here. Consequently, the Government suggested partial dismissal based on the prior settlement of most of the relators' claims. 1 In response, the relators alleged that the Government had defrauded them by making false representations that it would not pursue a civil settlement and by breaching a promise to tell them when to file their qui tam action. After supplemental briefings, the district court found that the relators' claims of fraud were without basis. It concluded that the FCA does not require the Government to assist potential relators in filing their complaints, and found that the Government had made no false representations or promises. The district court then ordered a partial dismissal of the complaint.
In response, the relators moved the court to set aside its order of dismissal, arguing that the settlement agreements were void because they had not been properly authorized under DoJ regulations. See 28 C.F.R. Sec. 0.160 et seq. The district court denied this motion, concluding that the settlements were properly authorized by Director Hertz and executed by AUSA Joseph without deciding whether the relators had standing to make such a claim.
The parties stipulated that the remaining claims were dismissed without prejudice. On November 22, 1993, the district court entered final judgment. On December 14, 1993, the relators filed a timely appeal.
1993, based on a stipulation by the parties to dismiss the remaining claims, the district court entered final judgment on all claims. We have jurisdiction over the relators' timely appeal pursuant to 28 U.S.C. Sec. 1291.
The decision of the district court involved mixed questions of law and fact, which are subject to de novo review. United States v. McConney, 728 F.2d 1195, 1202 (9th Cir.), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). The district court's factual findings are reviewed for clear error. Id.
The Government argues that the district court's decision can be upheld on the ground that the relators lack standing under DoJ regulations that authorize subordinate DoJ officials to compromise claims to challenge the validity of the settlement agreements. 2 We agree.
The Attorney General ("AG") has power to conduct all litigation on behalf of the United States, its agencies, and its officers, unless otherwise provided by law. See 28 U.S.C. Sec. 519 (1988). The AG also has authority under 28 U.S.C. Sec. 510 to promulgate regulations delegating her settlement authority to subordinate DoJ officials. The AG has exercised this authority by issuing regulations and directives which permit DoJ officials to compromise claims, subject to monetary limits. 28 C.F.R. Secs. 0.160-0.172 (1991). These regulations also provide notice to persons who contract with the Government, who bear the risk that government officials are acting within the scope of their authority. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 3, 92 L.Ed. 10 (1947). The relators base their claim that the contracts are void on the DoJ's alleged failure to adhere to its own regulations concerning authority to settle claims. 3
The DoJ regulations delegating the AG's authority to compromise claims do not create a right of action for relators to challenge the validity of settlement agreements. Only regulations having the "force and effect of law" can create a private right of action. Chrysler Corp. v. Brown, 441 U.S. 281, 295-303, 99 S.Ct. 1705, 1714-18, 60 L.Ed.2d 208 (1979). In contrast, "rules of agency organization, procedure, or practice"--sometimes called "interpretive rules"--do not create enforceable rights. 5 U.S.C. Secs. 553(b), 553(d); Chrysler, 441 U.S. at 315, 99 S.Ct. at 1724; see also Guadamuz v. Bowen, 859 F.2d 762, 771 (9th Cir.1988) ().
The regulations at issue here fall into this latter category for a number of reasons. First, the statutory authority for the regulations, 5 U.S.C. Sec. 301, has been deemed by the Supreme Court to be a "housekeeping statute." Chrysler, 441 U.S. at 310, 99 S.Ct. at 1721-22. Second, the title of Part O regulations----indicates that they are aimed at agency organization. Third, these DoJ regulations are not required to be promulgated under the Administrative Procedure Act's formal notice and comment procedures, as are substantive rules. See 5 U.S.C. Sec. 553(b)(3)(A); Chrysler, 441 U.S. at 313, 99 S.Ct. at 1723; Guadamuz, 859 F.2d at 762.
Finally, the descriptions of these rules in the Federal Register indicate that they are "...
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