U.S. v. Northrop Corp.

• Decision Date: 20 September 1993
• Docket Number: No. 92-55092,92-55092
• Citation: 5 F.3d 407
• Parties: , 39 Cont.Cas.Fed. (CCH) P 76,571 UNITED STATES of America, ex rel., Plaintiff, and Leocadio Barajas, and Patricia Meyer, Plaintiffs-Appellants, v. NORTHROP CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 407

5 F.3d 407

62 USLW 2200, 39 Cont.Cas.Fed. (CCH) P 76,571

UNITED STATES of America, ex rel., Plaintiff and Leocadio Barajas, and Patricia Meyer, Plaintiffs-Appellants, v. NORTHROP CORPORATION, Defendant-Appellee.

No. 92-55092.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 8, 1992.

Decided Sept. 20, 1993.

Ronald C. Stock, Law Offices of Herbert Hafif, Claremont, CA, for plaintiff-appellant.

John T. Boese, Fried, Frank, Harris, Shriver & Jacobson, Washington, DC, for defendant-appellee.

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

Before: BROWNING, SCHROEDER, and FLETCHER, Circuit Judges.

JAMES R. BROWNING, Circuit Judge:

The question is whether the district court has jurisdiction under the False Claims Act (the Act), 31 U.S.C. Sec. 3729 et seq., over claims a qui tam plaintiff added to his complaint by amendment based on information disclosed by the United States in a criminal indictment returned after the plaintiff filed the original complaint.

I.

Boeing Corporation selected Northrop Corporation to produce flight data transmitters for Air Force nuclear cruise missiles. Although the transmitters were required to withstand temperatures as low as -65? Fahrenheit, Northrop allegedly selected a damping fluid that solidified at -50? Fahrenheit, causing the transmitters to fail, and concealed the failure of the transmitters to meet contract requirements by omitting certain tests, falsifying other tests and test results, failing to inspect incoming components, and submitting false claims, all in violation of 31 U.S.C. Sec. 3729(a).

Leocadio Barajas is a former Northrop employee who participated in falsifying test results. In early 1987, Barajas met with federal investigators, gave them tapes of falsified tests, and described failures of the transmitters in performance reliability verification tests. In October, 1987, Barajas and another Northrop employee, Patricia Meyer, filed a complaint for damages under the Act, alleging improper inspection procedures and falsification of test results. See 31 U.S.C. Sec. 3730(b)(1) (private person with knowledge of a false claim may file suit "for the person and for the United States Government"). The complaint was filed in camera and served on the government, and further proceedings were stayed while the government determined whether to intervene and take over the action. See 31 U.S.C. Sec. 3730(b)(2). ¹

The government did so, and filed an amended complaint adopting the claim that Northrop submitted invoices for tests that were falsified or omitted. Two months after taking over the suit, the government obtained an indictment against Northrop that included both the allegations that Northrop falsified inspection procedures and test results, and allegations that Northrop used inadequate damping fluid in the transmitters. Northrop pled guilty to several counts of the indictment alleging fraudulent inspection and testing. The counts charging damping fluid fraud were dismissed. The civil case alleging fraud in inspection and testing was settled for approximately eight million dollars. ²

The district court allowed Barajas and Meyer to sever the counts of their original complaint not adopted by the government. They then filed an amended complaint that included the damping fluid fraud allegations. Northrop filed a motion to dismiss, arguing jurisdiction over the damping fluid fraud claim was precluded by 31 U.S.C. Sec. 3730(e)(4) because this claim had been publicly disclosed by the government in the indictment and Barajas and Meyer were not its original source. The district court granted the motion. ³

II.

Congress enacted the False Claims Act to "enhance the Government's ability to recover losses sustained as a result of fraud against the Government," S.Rep. No. 345, 99th Cong., 2d Sess. 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, and chose a civil action for damages on behalf of the United States as the mechanism to encourage individuals with knowledge of fraud to come forward. ⁴ Although district courts have jurisdiction over false claims actions, Congress limited the class of persons who may sue under the Act. Section Sec. 3730(e)(4)(A) provides, "No court shall have jurisdiction over an action ... based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless ... the person bringing the action is an original source of the information." Congress defined "an original source" as "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information." 31 U.S.C. Sec. 3730(e)(4)(B).

To amend his complaint to include an allegation regarding deficient damping fluid, therefore, Barajas must demonstrate either that the information was not "publicly disclosed" within the meaning of the Act despite its appearance in the indictment, or, if the information was "publicly disclosed," that he was "an original source" of that information. See Wang v. FMC Corp., 975 F.2d 1412, 1415-17 (9th Cir.1992). ⁵ We think it is possible Barajas may satisfy either or both of these prerequisites for including deficient damping fluid allegations in his false claims action. Both depend on factual findings that must be made by the district court in the first instance, and we remand so the appropriate inquiry can be made.

A. Original Source ⁶

The district court ruled that "to qualify as an 'original source,' the relator must have sufficient direct and independent knowledge of the fraud alleged to have taken place to support a claim under the False Claims Act.... Merely providing a lead which triggers an investigation does not qualify one as an 'original source.' " The court held Barajas did not meet this test because the information he provided to the government was not sufficient in itself to establish a claim under the Act for false claims involving use of inadequate damping fluid. The court also ruled that even if Barajas had direct and independent knowledge of the damping fluid defect, he would not qualify as "an original source" because he "failed to reveal the information about the fluid/cold temperature violations to the government prior to filing [the] initial qui tam complaint in October 1987."

The court below relied on the opinion of the district court in Wang v. FMC Corp., No. C-87-20814-WAI, 1991 WL 537020, 1991 U.S.Dist. LEXIS 6683 (N.D.Cal. April 23, 1991), aff'd, 975 F.2d 1412 (9th Cir.1992). On appeal, we rejected the district court's ruling that a qui tam plaintiff can be "an original source" only if he provides enough information to state a claim under the Act. We said, "To bring a qui tam suit, one must have had a hand in the public disclosure of allegations that are a part of one's suit." 975 F.2d at 1418. ⁷

Wang reflects the language of the statute. The Act refers to "an original source," 31 U.S.C. Sec. 3730(e)(4)(A) (emphasis added), suggesting there may be more than one original source eligible to bring suit, and provides that when a qui tam suit taken over by the government is "based primarily on disclosures of specific information" for which the plaintiff was not an original source, 31 U.S.C. Sec. 3730(d)(1) (emphasis added), the qui tam plaintiff is limited to 10% of the recovery. ⁸ The "original source" provision and the 10% provision were added to the Act on the floor of the Senate. Senator Grassley, who sponsored the Act and chaired the subcommittee that drafted it, stated the amendments would

limit the possible portion of the judgment recoverable by a qui tam plaintiff to 10 percent or less when the action is based primarily on public information. This limitation will affect those persons who have brought a qui tam action based almost entirely on information of which they did not have independent knowledge but had derived from a public source.

132 Cong.Rec. 20536 (Aug. 11, 1986) (emphasis added); see also id. at 28580 (Oct. 3, 1986) (statement of Senator Grassley). The House sponsor, Representative Berman, stated, "A person is an original source if he had some of the information related to the claim which he made available to the government ... in advance of the false claims being publicly disclosed." Id. at 29322 (Oct. 7, 1986) (emphasis added). He also observed, "where ... the person qualifies as an 'original source' but where the essential elements of the case were provided to the government or news media by someone other than the qui tam plaintiff ... the court may award up to 10% of the total recovery to the qui tam plaintiff." Id. ⁹

In light of the language and history of the Act, as interpreted in Wang, Barajas is "an original source" with respect to the proposed amendments if he (1) has some direct and independent knowledge of information on which the proposed amendments are based, and (2) voluntarily disclosed that information to the government before filing the original complaint. See Wang, 975 F.2d at 1417. As in Wang, Barajas is "an original source" with respect to a proposed amendment if he played some part, whether direct or indirect, in the public disclosure of the allegations that are the subject of the proposed amendments. See id. at 1418-19. The answer to this inquiry depends on the facts and circumstances of the individual case, evaluated in light of the central purpose of the Act to encourage persons with knowledge of fraud against the government to come forward with their knowledge.

The record indicates Barajas voluntarily revealed all the information he possessed prior to filing his complaint. Barajas's knowledge of the testing and inspection fraud was direct and independent because he acquired it...