Court Finds Whistle Blower Entitled to Portion of Debarment Settlement
 
December 26, 2001
 

In the first ruling of its kind, the United States Court of Appeals for the Ninth Circuit recently held that a qui tam relator (whistle blower) was entitled under the False Claims Act (FCA) to recover part of the proceeds paid to the government in a debarment proceeding. The case turns on the interpretation of a section of the FCA providing that a qui tam relator may recover a portion of proceeds paid in an "alternate remedy" pursued by the government in lieu of the FCA case. The case is United States, ex rel. Barajas v. Northrop Corporation.

Barajas, a former Northrop employee and the qui tam relator in this case, sued Northrop under the FCA, claiming that the company had falsified testing of flight data transmitters designed for Air Launched Cruise Missiles. The United States intervened in the case and settled it, with Barajas receiving a portion of the settlement proceeds. The settlement expressly stated that it did not apply to debarment proceedings.

While the FCA suit was pending, the United States brought criminal charges against Northrop based on the falsified test data, but also charged that Northrop delivered transmitters to the government that contained a damping fluid that could not withstand the extremely cold temperatures in which the flight transmitters were required to operate. Barajas then brought a second FCA suit against Northrop based on the damping fluid issue, which had not been a part of his earlier FCA case. The United States declined to intervene in this second FCA case. Instead, it initiated debarment proceedings against Northrop based on the damping fluid issue. The debarment proceedings were resolved under an administrative agreement, in which Northrop agreed to pay millions of dollars in a cash settlement and to replace the transmitters.

Northrop moved to dismiss the second FCA suit, claiming that the damping fluid issue should have been raised in the first suit, and that the debarment proceedings were an "alternate remedy" under FCA section 3730(c)(5), also precluding the second suit. The Ninth Circuit affirmed the trial court's ruling that the second FCA suit was precluded because the damping fluid issue should have been raised in the first FCA suit, but did not rule on the "alternate remedy" claim.

Barajas then moved to collect a share of the proceeds of the debarment proceedings. He argued that he had the same rights to a share of the debarment proceeding based on the damping fluid issue that he would have enjoyed if the United States had intervened in the second FCA suit based on that issue.

The court concluded that the debarment proceeding satisfied the statutory definition of an "alternate remedy," noting that the government had pursued the debarment case after declining to intervene in the FCA case, and that the statutory language referred broadly to "any" remedy "available" to the government. Finding in Barajas' favor, the court described the sequence of events as follows: "the government first refused to intervene in Barajas' second action; then the government settled the first action, making it impossible for Barajas to proceed with that second action; finally, the government brought a suspension or debarment proceeding that allowed it to achieve essentially the same result it could have achieved by intervening in Barajas' second action." The court noted that the effect of these events was that the "government now hopes to avoid paying Barajas the relator's share to which he would have been entitled." Under these circumstances, the court held that the debarment proceeding was an "alternate remedy" under the FCA, and that Barajas was entitled to a portion of the government's recovery. It remanded the case to the trial court for consideration of what share of the total recovery Barajas should receive.

In practical terms, the holding in Barajas substantially raises the ante for government contractors facing a suspension and debarment proceeding when there is a related FCA case in which the government has declined to intervene. Relator's counsel will certainly rely upon Barajas to persuade the government to include the relator's interest as part of any administrative settlement in the debarment proceeding. In short, the price of settling a suspension and debarment proceeding has just gone up.

For more information, contact Leslie McAdoo at 1-888-688-8500 or via e-mail at lmcadoo@hklaw.com.