U.S. v. Northrop Corp.

• Decision Date: 12 July 1995
• Docket Number: No. 92-56392,92-56392
• Citation: 59 F.3d 953
• Parties: , 130 Lab.Cas. P 11,372, 10 IER Cases 1426, 40 Cont.Cas.Fed. (CCH) P 76,815, 95 Cal. Daily Op. Serv. 5383, 38 Tex. Sup. Ct. J. 9205 UNITED STATES of America, ex rel., Plaintiff, and Michael E. Green, Plaintiff-Appellant, v. NORTHROP CORPORATION; Norm Bussard, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 953

59 F.3d 953

64 USLW 2061, 130 Lab.Cas. P 11,372,

10 IER Cases 1426,

40 Cont.Cas.Fed. (CCH) P 76,815,

95 Cal. Daily Op. Serv. 5383,

38 Tex. Sup. Ct. J. 9205

UNITED STATES of America, ex rel., Plaintiff and Michael E. Green, Plaintiff-Appellant, v. NORTHROP CORPORATION; Norm Bussard, Defendants-Appellees.

No. 92-56392.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 4, 1994.

Decided July 12, 1995.

Michael G. Dawson, Law Offices of Herbert Hafif, Claremont, CA, for plaintiff-appellant.

D. Barclay Edmundson, Munger, Tolles & Olson, Los Angeles, CA, for defendants-appellees.

John R. Phillips, Hall & Phillips, Los Angeles, CA, for amicus curiae Taxpayers Against Fraud.

Appeal from the United States District Court For the Central District of California.

Before: D.W. NELSON, REINHARDT, and BRUNETTI, Circuit Judges.

D.W. NELSON, Circuit Judge:

In this case, we address an important and difficult question involving the qui tam provisions of the False Claims Act, 31 U.S.C. Secs. 3729 et seq. We must determine whether the release of a qui tam claim, when entered into without the United States' knowledge or consent, and prior to the filing of an action based on that claim, is enforceable. We hold that it is not.

BACKGROUND

In November 1988, Michael Green ("Appellant"), a former employee of Northrop, filed a complaint in California Superior Court against Northrop and several unnamed defendants alleging a number of state-law causes of action stemming from his termination by Northrop in October 1988. According to Green, while working as a criminal investigator for Northrop's Advanced Systems Division, he uncovered evidence that Northrop had "double charged" the U.S. Air Force for equipment procured for the B-2 bomber program. Green maintained that he was discharged for having brought this information to the attention of certain Northrop officials and because he sought the advice of an attorney.

Northrop and Green eventually negotiated a settlement of this suit, and entered into a "Settlement Agreement and General Release" (the "Release") on April 16, 1990. The Release stated in general terms that the parties desired to settle "once and forever, all of the matters which have arisen between them including but not limited to disputes relating to or arising out of the Action and Green's employment with and separation from Northrop." Northrop agreed to pay Green $190,000 in return, inter alia, for his agreement to:

release, acquit and forever discharge Northrop [and its] employees ... from any and all claims ... rights to payment ... actions and causes of action of every nature, under any theory under the law, whether ... statutory or other of any jurisdiction, whether known or unknown ... which he had or held, or has or holds, or may claim to have or to hold by reason of any and all matters ... including, but not limited to, those arising out of or relating to the Action and/or Green's employment with and separation from Northrop.

Subsequently, on January 11, 1991, Green filed a complaint under the qui tam provisions of the False Claims Act ("FCA" or "Act") against Northrop, a third party contractor known as Autek Systems Corporation, and several individual employees of both companies. The complaint alleged that the defendants conspired to submit false claims to the United States "for costs associated with the procurement of Automated Test Equipment (ATE) that Northrop was required to deliver under the B-2 contract." As in the original suit filed in the California courts, Green contended that the defendants engaged in, among other practices that violated the FCA, "double billing," and that "[w]hen [Green] began conducting an investigation with respect to the subjects of this lawsuit," he "informed Northrop's Security Department that he had found and documented corruption at the Executive Management Level in the B-2 Division," but that he was "ordered to close his investigation" and subsequently was terminated.

Following the filing of this action under seal, the United States, in accordance with the FCA, see 31 U.S.C.A. Sec. 3730(b) (West Supp.1994), undertook an investigation of the allegations made in the complaint. In February 1992, after conducting an inquiry that lasted several months, the United States declined to intervene in the suit. Defendants Northrop and Norm Bussard ("Appellees") subsequently moved for summary judgment, raising two arguments. First, Appellees contended that, as part of the release, Green had bargained away his right to bring a qui tam action, and therefore had "discharged all claims against Northrop and Bussard." Second, Appellees asserted that, as consequence of having bargained away his qui tam claim, including his statutory right to recovery, Green could not "demonstrat[e] a personal stake in the outcome sufficient to satisfy [Article III] standing requirements." Accordingly, Appellees maintained that the action should be dismissed for lack of subject matter jurisdiction.

The district court agreed with Appellees on both counts, and entered summary judgment in their favor on July 15, 1992. ¹ The district court concluded that the April 16, 1990, agreement unambiguously "released all claims that Green had or held against Northrop ... including the statutory right to payment he seeks to recover under the False Claims Act in this qui tam action." Furthermore, the court determined that, because the government had elected not to intervene in the action, "there are no public policy considerations which would bar the enforcement of the General Release. On the contrary, public policy strongly favors the enforcement of 'ironclad and enforceable general releases.' " Finally, the court held that, because Green had "bargained away his right to payment under the False Claims Act, as well as any right to employment by Northrop, ... he lost any standing he might have otherwise had to bring a qui tam action against Northrop." The court, therefore, dismissed the action for lack of subject matter jurisdiction.

Green timely appealed to this court, and he makes three arguments. First, Green maintains that, even if the district court determined correctly that he waived his rights to bring a qui tam action under the FCA by entering into the Release, the settlement of such a claim is void as a matter of public policy when entered into without the assent of the United States. Second, Green asserts that the district court erred in holding that the Release included either his right to bring a qui tam action or his statutory right to a portion of the recovery, attorneys' fees, or costs. Third, Green contends that the district court erred in determining that his standing to maintain a qui tam suit depended on his ability to recover the statutory award, and insists instead that injury-in-fact to the United States is all that a relator must demonstrate to establish Article III standing.

We assume for the purposes of analysis that, as Appellees insist, the Release encompassed both Green's right to bring a qui tam action as well as any recovery that might flow from that action. Nonetheless, we hold that this aspect of the Release is unenforceable because its enforcement would impair impermissibly a substantial public policy. ² Consequently, we conclude that the district court's holding that Green lacks standing to pursue this action, and therefore, that the court lacked subject matter jurisdiction, cannot be sustained. ³

DISCUSSION

I. Is the Enforceability of the Release Governed by Statutory Interpretation or Federal Common Law?

As an initial matter, the parties dispute sharply the proper focus of this court's inquiry. Appellant contends that the enforceability of the release of a qui tam claim must be measured by the federal common law test articulated by the Supreme Court in Town of Newton v. Rumery, 480 U.S. 386, 107 S.Ct. 1187, 94 L.Ed.2d 405 (1987), and further elaborated upon by this court in Davies v. Grossmont Union High Sch. Dist., 930 F.2d 1390, 1396 (9th Cir.), cert. denied, 501 U.S. 1252, 111 S.Ct. 2892, 115 L.Ed.2d 1057 (1991). Under the Rumery/ Davies test, " 'a promise [will be found] unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.' " Davies, 930 F.2d at 1396 (quoting Rumery, 480 U.S. at 392, 107 S.Ct. at 1191-92 (relying upon Restatement (Second) of Contracts Sec. 178(1) (1981))). By contrast, Appellees claim that "[t]he public policy question that Green raises is a question of statutory interpretation, not contract law." Appellees insist, therefore, that the Rumery/ Davies test is inapplicable, and that the question of the release's enforceability "depends upon the intention of Congress as manifested in the particular statute."

We agree with Appellees that we first must resolve an issue of statutory interpretation. The Court in Rumery did not hold that its test was applicable to every federal enactment. Rather, the Court drew upon "traditional common law principles" because that body of law informs "the principles governing Sec. 1983 actions." Rumery, 480 U.S. at 392, 107 S.Ct. at 1191 (citing Pulliam v. Allen, 466 U.S. 522, 539-40, 104 S.Ct. 1970, 1980, 80 L.Ed.2d 565 (1984)). If Congress has expressed its intent as to the enforceability of a release such as that entered into in this case, however, we must give effect to that intent. See Brooklyn Savs. Bank v. O'Neil, 324 U.S. 697, 706-07, 65 S.Ct. 895, 902, 89 L.Ed. 1296 (1945). Even if federal common law otherwise would operate, it is displaced when Congress has decided the matter. See, e.g., Central Bank v. First Interstate Bank of Denver, N.A., --- U.S. ----, ----, 114 S.Ct. 1439, 1448, 128 L.Ed.2d 119 (1994) (holding that the conclusion that Congress did not intend to impose aiding and abetting liability under section 10(b) of the Securities and Exchange Act "resolve[d] the case" notwithstanding the...