EBCA Nos. C-9509187, C-9509220, C-9509221

ROCKWELL INTERNATIONAL CORPORATION

CONTRACT:

Contract Nos. AD(29-2)-3533, DE-AC04-76DP03533

JUDGE:
SHERMAN P. KIMBALL, Administrative Judge.

COUNSEL:

For THE APPELLANT: Richard J. Ney, William J. Kelley, III, Christina A. Bull, Chadbourne & Parke, LLP, Los Angeles, California.
 
For THE GOVERNMENT: Donna M. Christensen, U.S. Department of Energy, Albuquerque Operations Office, Albuquerque, New Mexico.

OPINION:

Before KIMBALL, Administrative Judge.  

This appeal involves Appellant Rockwell International Corporation's 1986 and 1989 contracts with Respondent Department of Energy (DOE or Government) to manage and operate a government-owned facility in Colorado, known as the Rocky Flats plant. Respondent has filed motions to stay this appeal indefinitely, until the resolution of United States ex rel. Stone v. Rockwell, a qui tam False Claims Act action, in the United States District Court, District of Colorado, and for a protective order. n1
 
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A stay is sought "in the interests of justice and judicial economy," on the ground  [#2]  that the facts here are "inextricably intertwined" with the facts present, including allegations of common law fraud, in United States ex rel. Stone. A protective order is also requested to obviate DOE's need to respond to interrogatories and a request for production of documents served here which are said to be duplicative of discovery sought in a related case before the Court of Federal Claims n2 and overlap with issues to be ruled on by the District Court.
 
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In an earlier aspect of this appeal, reported at 97-1 BCA P28814, and which is incorporated herein, the Board denied Respondent's motion for summary judgment, in which DOE contended that Appellant's claims for reimbursement of costs are barred by the Major Fraud Act of 1988. The Board held that the judgment of June 1, 1992, of the District Court, in United States v. Rockwell, which accepted a plea agreement entered into between Appellant and the Government, in connection with environmental violations at  [#3]  Rocky Flats, precluded Respondent and the Board from maintaining that Appellant may not seek the costs at issue. Id., at 143,737.

The motions are denied.

Motion For Stay

1.

Respondent urges the Board to defer to the District Court and stay the proceeding before us in the interests of judicial economy. It emphasizes that Stone is a case of "extraordinary public moment which requires a full and open trial" in Colorado Federal Court to "allay any lingering fears regarding the Rocky Flats operation." Appellant Rockwell, however, vigorously opposes any delay of this case. Consequently, the Board must weigh the competing interests raised by the parties in order to determine if a stay should be granted. Landis v. North American Co., 299 U.S. 248,254-55 (1936).

Appellant here seeks reimbursement, pursuant to the Contract Disputes Act (CDA), of certain allegedly allowable costs incurred under its 1986 and 1989 contracts with DOE. The Board is compelled by the CDA to resolve claims thereunder expeditiously, to the fullest extent practicable. 41 U.S.C. § 607(e). Accordingly, a proponent of a stay of a CDA case in  [#4]  favor of another proceeding must overcome the heavy burden imposed by the statutory mandate calling for expeditious resolution. See, e.g., Meredith Relocation Corp., 90-2 BCA P22677 (GSBCA 1989), at 113,914; TDC Management Corp., 90-1 BCA P22627 (DOT BCA 1989), at 113,493; Donat Gerg Haustechnik, 96-1 BCA P27977 (ASBCA 1995), at 139,735, aff'd on reconsideration, 96-2 BCA P28333. Respondent as proponent must "make out a clear case of hardship or inequity in being required to go forward," if there is even a fair possibility that the stay for which it "prays will work damage to someone else." Landis, 254-55, where the court also said, at 256, as a corollary, that "especially in cases of extraordinary public moment, the individual may be required to submit to delay not immoderate in extent and not oppressive in its consequences if the public welfare or convenience will thereby be promoted." The Board, therefore, has carefully considered the applicability of the corollary.

2.

This appeal involves questions of contract interpretation exclusively, which are clearly  [#5]  within the Board's jurisdiction, and contains no fraud or false claims allegations. Indeed, the Board is precluded by the CDA (41 U.S.C. § 605(a)) from handling fraud qua fraud claims. The costs for which Appellant seeks reimbursement under its contracts with DOE were undeniably incurred as a result of a criminal investigation into environmental violations at Rocky Flats during a portion of the time when it was its M&O contractor. They are (1) costs of legal representation of Appellant in connection with the criminal investigation incurred prior to January 1, 1990; (2) costs of providing legal representation to employees in connection with the investigation; and (3) costs of a computerized litigation support system data base relating to the investigation and resulting civil actions.

Rockwell asserts that the costs are allowable under its contracts, as modified, with DOE (see 97-1 BCA, at 143,733), which provide that Rockwell shall be reimbursed: for all costs incurred "arising out of, or relating to environmental, safety and health activities" (characterized as the "environmental indemnity"); for the expenses of defending  [#6]  employees involved in legal proceedings resulting from performing their duties under the contracts; and the legal expenses of defending against litigation brought against Rockwell arising out of contract performance.

It is through an exception to the environmental indemnity provision that, in Respondent's view, the two cases are, on the surface, intertwined. Costs otherwise allowable under the indemnity are not allowable where they "result from willful misconduct or lack of good faith on the part of any of the contractor's managerial personnel." The term "managerial personnel" is defined as "the Contractor's directors, officers and any of its managers, superintendents or equivalent representatives who have supervision or direction of (1) all or substantially all of the Contractor's business; or (2) all or substantially all of the Contractor's operation at any one plant or separate location at which this contract is being performed, * * *

However, the issue has not been raised to date (see 97-1 BCA, at 143,735 and n.5) and whether or not it will remains a Government secret. Indeed, Respondent also alleges, without more, that the unallowability of the claim  [#7]  is not solely dependent on the exception. Nevertheless, if it chooses to rely on the exception in seeking to deny costs that might otherwise be allowable under the environmental indemnity clause, the question of willful misconduct or lack of good faith on the part of Appellant would become an issue here. n3 The term "willful misconduct or lack of good faith" of "managerial personnel" is well-established in Government contract law and is not unique to the contracts herein.
 
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According to Rockwell, the only person who meets the definition of "managerial personnel" for the purpose of showing whether there was willful misconduct or lack of good faith on its part was Dominick J. Sanchini, its late manager of the plant, who died in 1990. Respondent evidently has taken the same position in an earlier dispute with Rockwell involving Rocky Flats. n4
 
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[#8] The meaning of the term "willful misconduct or lack of good faith" was thoroughly discussed in Fairchild Hiller Corporation, 72-1 BCA P9202 (ASBCA 1971), at 42,698-99, where the contractor's managerial personnel was charged with willful misconduct or lack of good faith in regard to protection and preservation of aircraft. In holding that the charge of willful misconduct or lack of good faith was not proven, the Armed Services Board determined that mere indifference to duty "is not enough"; rather, willful misconduct or lack of good faith means to be unfaithful (recreant) to one's duty, to refuse deliberately to perform a plain, well-understood contractual obligation without just cause or excuse. The board concluded that the conduct of the managerial personnel did not "evince a refusal to perform its duty, a conscious failure to use appropriate means to avoid industrial accidents and indifference to their consequences so that its performance of its job can be characterized as permeated with misconduct in safety matters and with that suggestion of duplicity or dishonesty which the law calls bad faith."

That is the standard that must be met if willful misconduct  [#9]  or lack of good faith becomes an issue in this case.

3.

The Stone case, on the other hand, arose as a qui tam action by a former Rockwell employee under the False Claims Act in which it is alleged that Rockwell misrepresented to, and concealed from, DOE environmental-related problems at Rocky Flats. The DOJ, after first declining, reconsidered, and was granted leave to intervene in Stone. In its amended complaint in Stone, the Government alleged that, between 1987 and 1989, Rockwell knowingly misrepresented and concealed its environmental violations at the plant and made those misrepresentations and concealments to induce DOE to pay increased contractual fees and to enter into the 1989 contract, all of which constitute violations of the False Claims Act, 31 U.S.C. § 3729(b). The amended complaint does not allege that the environmental violations constitute material misrepresentations made with the intent to deceive the Government.

The False Claims Act requires a showing that a party knowingly presented a false claim. The Stone case, therefore, is directed at corporate and not individual liability. Accordingly, assuming that  [#10]  the exception to the environmental indemnity is raised, Mr. Sanchini's alleged culpability here is not a necessary element of the Government's case in Stone, since a showing of fraud qua fraud by him for purposes of Stone is beyond the Board's authority.

Moreover, Rockwell has conceded that a finding against DOE on the environmental indemnity exception could have no preclusive effect on any False Claims Act claims because the scienter requirements for False Claims Act claims falls short of the willful misconduct or lack of good faith needed to trigger the environmental indemnity exception. In short, Rockwell has conceded that a Board finding that Mr. Sanchini did not engage in willful misconduct or lack of good faith, the same conduct could nonetheless support False Claims Act liability in Stone, citing Miller v. United States, 550 F.2d 17 (Ct. Cl. 1977).

Conclusion

Except for some common facts, the Board is unable to find that the legal issues in this case are identical or "intertwined inextricably" with the District Court case and that a stay is warranted. We, therefore, hold that Respondent has not made out, in the words of Landis, [#11]   "a clear case of hardship or inequity" in being required to go forward here. Nor can the Board find that a stay will promote "the public welfare or convenience." Rather, on balance, there is more than a fair possibility that a stay will impact negatively on Appellant's statutory right to a speedy resolution of its claim for the recovery of costs here for which it first invoiced DOE in 1992.

The Board appreciates the Government's concern about unnecessarily litigating the same matters in two separate venues. In this connection, we also have considered the Government's characterization of the qui tam case as one of extraordinary public moment which requires a full and open trial in Colorado to allay any lingering fears regarding the Rocky Flats operation. However, the matters ultimately to be resolved in this appeal, while possibly presenting some of the same factual determinations which may be made by the District Court, do not present identical legal issues and should not hamper a full and open trial in Colorado.

The issues before the Board and the issues before the District Court are quite distinct and dissimilar. This is, at this stage, purely a case involving the cost allowability  [#12]  provisions of a contract, in which the question is Appellant's entitlement to reimbursement for costs incurred, pursuant to its environmental indemnity provision, in contract performance. Stone is a qui tam action asserting claims under the False Claims Act in which the question is, did Rockwell, the corporation, knowingly present a false claim by knowingly misrepresenting and concealing its environmental violations at Rocky Flats?

The Government's reliance on the exception to the environmental indemnity for willful misconduct or lack of good faith on the part of Rockwell's managerial personnel, in order to link the two cases, is misplaced. In the first place, the exception has not been invoked and is, therefore, not before us. However, even if the exception were to become an issue in this appeal, our inquiry would be directed at whether Rockwell's managerial personnel by willful misconduct or lack of good faith brought about the environmental violations and the resulting costs at issue. In Stone, on the other hand, the issue is whether Rockwell fraudulently concealed the environmental violations. The distinction to be kept in mind between this appeal and Stone is that  [#13]  in this appeal, one might be found to have no involvement in committing an environmental violation, yet upon learning of the violation fraudulently conceal it from the authorities.

Respondent's contention that a decision in the District Court favorable to the Government might moot the appeal and that it would serve judicial economy to stay this proceeding might well be correct. However, it is also possible that the Government will not prevail in the District Court, in which event, if a stay were granted, the Board would have to resume jurisdiction, after a considerable passage of time, to the prejudice of Appellant. Moreover, it can also be argued that the fact that Appellant may be found to have misrepresented Respondent for purposes of the False Claims Act does not necessarily mean that the costs which it incurred were not reasonable and allocable to the contract before the Board. In any event, the fact that Appellant might argue that a Board finding against the Respondent on the environmental indemnity exception of the contract would have a preclusive effect on the common law fraud count in Stone is not a sufficient basis for a stay.
 
Sherman P. Kimball
Administrative  Judge

End of Opinion.