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United States v. Northrop Corp.

filed: May 23, 1994.

UNITED STATES OF AMERICA, EX REL., APPELLANT, MAX KILLINGSWORTH, PLAINTIFF-APPELLEE,
v.
NORTHROP CORPORATION, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Central District of California. D.C. No. CV-88-6635-TJH. Terry J. Hatter, Jr., District Judge, Presiding. This Opinion Substituted on Grant of Rehearing for Withdrawn Opinion of January 19,.

Before: James R. Browning, Myron H. Bright*fn* and Thomas Tang, Circuit Judges. Opinion by Senior Circuit Judge Bright.

Author: Bright

Opinion AND ORDER

BRIGHT, Senior Circuit Judge:

Max Killingsworth brought a qui tam action against the Northrop Corporation [Northrop], alleging it defrauded the United States by inflating cost estimates used to support MX missile contract proposals. During an extended course of litigation, the United States declined to exercise its right to intervene under §§ 3730(b)(2) and (c)(3) of the False Claims Act, 31 U.S.C. § 3730 [the Act]. Killingsworth and Northrop eventually agreed to a settlement, notified the United States, and moved to dismiss the action. The United States objected to the settlement but still declined to intervene in the proceedings. The district court ultimately dismissed the action without the consent of the United States. The United States then moved in the district court to intervene for purpose of appeal, seeking to challenge the stipulated dismissal. The district court denied the motion.

The United States brings this appeal, asserting the district court erred in dismissing this qui tam action without the consent of the Attorney General and in denying the government the right to intervene on appeal. We reverse and remand this case for further proceedings consistent with this opinion.

I.

In November of 1988, Max Killingsworth, a former employee of Northrop, filed this action against Northrop under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730. He alleged Northrop improperly inflated cost estimates supporting MX missile contract proposals. After investigating the allegations for almost eighteen months, the government informed Killingsworth it would not exercise its right under § 3730(b)(4)(A) of the Act to take over the

litigation.

Northrop and Killingsworth agreed on a settlement of $500,000, but in May of 1990, the settlement fell through after a dispute over several issues, including fees for Killingsworth's attorneys. Killingsworth obtained new counsel and amended his complaint, adding additional claims, including one that Northrop wrongfully terminated his employment. In June of 1990, the district court entered an order which recognized the government's decision not to intervene and required that "the consent of the Attorney General . . . be solicited before the granting of a dismissal, settlement, or other discontinuation of this action." (Order re Election by the United States Declining Intervention and the Unsealing of Complaint filed June 7, 1990, at 2.)

In December of 1991, Killingsworth and Northrop entered into another agreement to settle the case. The agreement provided that Northrop would pay $1 million for the False Claims Act claim and $3.2 million for Killingsworth's wrongful termination claim including attorneys' fees and costs. Northrop conditioned its participation in the agreement on the government's approval.

For several months, the government discussed the proposed settlement with Killingsworth and Northrop, expressing concern that the bulk of the settlement money would go to the wrongful termination claim. The government thought that the parties might have specifically structured the settlement so as to reduce the amount the government realized; normally entitled to roughly seventy percent of any False Claims Act settlement under 31 U.S.C. § 3730(d)(2), the government would not receive any compensation from the wrongful termination claim. The government further asserted that Northrop failed to pursue a statute of limitations defense to the wrongful termination claim which could have shielded Northrop from liability on that claim.

On March 4, 1992, Killingsworth moved to have the district court approve the settlement and dismiss the case. On March 20, 1992, Northrop filed a statement of nonopposition. The government formally objected to the settlement on April 3, 1992, but still declined to intervene in the action.

Northrop and Killingsworth then reopened settlement Discussions, and on April 16, 1992, agreed to shift $500,000 from the wrongful termination claim to the False Claims Act claim. In sum, Northrop would pay $1.5 million on the False Claims Act claim and $2.7 million on Killingsworth's wrongful termination claim and attorneys' fees. On April 20, the district court ordered the government to inform the parties whether it consented to the settlement and, if not, to file a motion seeking leave to intervene in the case.

On May 4, the government informed the district court it did not consent to the district court's dismissal of the action, but again declined to file a motion to intervene. On May 19, 1992, the district court entered its order of dismissal with prejudice, stating:

The Attorney General's consent to dismissal is not required in the present circumstances, and that the instant action is dismissed in its entirety with prejudice to both the qui tam plaintiff and the United States.

(Corrected Joint Stipulation of Dismissal; Proposed Order Thereon filed May 19, 1992, at 3.)

The government filed a motion seeking leave to intervene for purpose of appeal on May 21, 1992. The district court denied the motion without opinion on June 16, 1992. The government then filed this timely appeal from the district court's dismissal of the action and denial of leave to intervene for purpose of appeal.

II.

The government first contends the district court erred in denying as untimely its motion to intervene for purpose of appeal. It argues that under Fed. R. Civ. P. 24(a) and the Act, it has the right to intervene at this point in the action. Northrop and Killingsworth counter that the failure of the government to intervene in the action at any time prior to the district court's approval of the settlement leaves the parties free to carry out the terms of the settlement and move to dismiss the action.

We review de novo the district court's denial of the government's motion to intervene as a matter of right. United States ex rel. McGough v. Covington Technologies Co., 967 F.2d 1391, 1393-94 (9th Cir. 1992).

The government has attempted to intervene for purpose of appeal under Fed. R. Civ. P. 24(a), Intervention of Right. This court recently permitted intervention under somewhat similar circumstances in McGough. In our opinion, McGough also controls here and we conclude the government may intervene for purpose of appeal.

In determining whether a party may intervene as of right under Fed. R. Civ. P. 24(a), we apply a ...


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