United States Ex Rel. Ritchie v. Lockheed Martin Corp.

FILED
United States Court of Appeals
Tenth Circuit

March 6, 2009
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

UNITED STATES ex rel. RUTH
RITCHIE,

Plaintiff/Relator - Appellant,
v. Nos. 07-1295 & 08-1112
LOCKHEED MARTIN CORP. and
LOCKHEED MARTIN SPACE SYSTEMS
CO.,

Defendants - Appellees,
___________________

UNITED STATES OF AMERICA,

Amicus Curiae.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. NO. 04-CV-1937-EWN-MJW)

Victor A. Kubli, Grayson & Kubli, P.C., Vienna, VA (Alan M. Grayson and
Melissa A. Roover, Grayson & Kubli, P.C., McClean and Vienna, VA, on the
briefs), for Appellant.

Mark J. Meagher, McKenna Long & Aldridge LLP, Denver, CO (Sandra B. Wick
Mulvany, McKenna Long & Aldridge LLP, Denver, CO; and Jennette C. Roberts,
McKenna Long & Aldridge LLP, Los Angeles, CA, with him on the briefs), for
Appellees.

Henry C. Whitaker, Attorney, Appellate Staff, Department of Justice,
Washington, D.C. (Gregory G. Katsas, Assistant Attorney General, Washington,
D.C.; Troy A. Eid, United States Attorney, Denver, CO; Michael S. Raab,
Attorney, Appellate Staff, Department of Justice, Washington, D.C., with him on
the briefs), for Amicus Curiae.

Before BRISCOE, EBEL, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Relator-Appellant Ruth Ritchie filed these consolidated appeals following a

grant of summary judgment in favor of Defendant-Appellee Lockheed Martin

Corporation (“Lockheed”). 1 Ritchie filed the instant qui tam action alleging, inter

alia, fraud on the part of Lockheed in relation to its billing practices under certain

federal contracts. The district court granted summary judgment on the basis of

releases signed by Ritchie prior to the filing of the qui tam suit. Ritchie argues

the releases are unenforceable because they were signed without the government’s

consent and because their enforcement would be contrary to the federal policies

underlying the False Claims Act. Before Ritchie signed the releases, Lockheed

disclosed the fraud allegations to the federal government, which conducted its

own audit and investigation of the charges billed under the federal contract.

Because the federal interests served by enforcing releases signed after disclosure

1
The case caption lists the defendants as Lockheed Martin Corporation and
Lockheed Martin Space Systems Company. The district court apparently
recognized that these are not separate entities, since Lockheed Martin Space
Systems Company is an unincorporated division of Lockheed Martin Corporation.
Accordingly, we refer to the “defendants” in the singular as Lockheed.

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to the federal government outweigh the interests served by not enforcing them,

this court concludes the releases are enforceable. Ritchie also argues the district

court erred in refusing to allow her to amend her complaint or substitute a relator

and objects to the assessment of costs against her pursuant to Rule 54(d)(1).

Reviewing both issues for abuse of discretion, we find no error by the district

court. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, the judgment of the

district court is affirmed.

I. Background

Ritchie worked for Lockheed and its predecessor companies from 1979

until 2004. In 2002 she was assigned to oversee and validate the Mission Success

Incentive Program (“MSI”) and Critical Skills Incentive Program (“CSI”)

databases. These databases contained information about special pay incentives

for certain employees working under expiring contracts with the U.S. Air Force.

Ritchie began to raise concerns about fraud in connection with the Programs

almost immediately after she began validating the databases. She believed

Lockheed managers were falsifying records to increase incentive payments to

Lockheed employees. The incentives would be paid by the U.S. Air Force, and

thus, in Ritchie’s view, the falsifications constituted fraud against the federal

government.

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 A. Investigations into Fraud

Ritchie initially brought her concerns to the attention of various parties

within Lockheed. In June of 2002, Ritchie contacted a Human Resources

Business Manager to suggest a review of irregularities in the MSI database.

Lockheed proceeded to conduct an internal audit of the MSI Program, and Ritchie

participated in the audit. The auditors released a report in August of 2002

identifying inconsistencies and inaccuracies in the MSI program and outlining

corrective procedures. In May of 2003, unconvinced the problems had been

fixed, Ritchie contacted Lockheed’s Corporate Ethics Officer to raise concerns

about discrepancies in the databases and retaliation by her supervisors. This

triggered more internal investigations regarding Lockheed’s charging practices

under the MSI and CSI programs. Several Lockheed employees investigated

Ritchie’s allegations with respect to the CSI program and retaliation by her

supervisors (“the ethics investigation”) and concluded the allegations were

unsubstantiated. An internal auditor conducting a second audit found

inaccuracies in the MSI database, but concluded they did not result in over-

accrual of incentive payments and thus did not result in a negative fiscal impact

to the government.

After Ritchie made her May 2003 complaint, Lockheed informed the Air

Force that allegations had been made regarding payments under the incentive

plans. When the ethics investigation and the second audit were complete,

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Lockheed briefed the Air Force and the Defense Contract Management Agency 2

on the results of each audit and investigation conducted in response to Ritchie’s

complaints. The parties dispute the thoroughness of this briefing.

Shortly after the briefing, the Defense Contract Audit Agency (“DCAA”), a

federal agency which audits defense contracts, commenced its own audit of the

MSI database for fiscal year 2001. Ritchie assisted with this audit,

communicating with the auditor at least five times and serving as the auditor’s

contact person at Lockheed. The DCAA auditor testified she was informed by

Ritchie, in detail, of Ritchie’s allegations regarding improper charging under both

the MSI and CSI programs. Ritchie claims she informed DCAA of alterations in

the relevant databases but did not provide the DCAA auditor with the substance

of her fraud allegations. It is uncontroverted, however, that DCAA expanded the

scope of its audit in response to information provided by Ritchie; informed

Ritchie she could take her concerns directly to the Defense Criminal Investigative

Service (“DCIS”), the criminal investigative wing of the Defense Department’s

Office of the Inspector General; and later made its own referral to DCIS. The

final DCAA audit report was issued in February 2005.

2
The Defense Contract Management Agency is an agency within the
Department of Defense which oversees and administers defense contracts.

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 B. Litigation History

Believing she was the subject of retaliation because of her whistleblowing

activities, 3 Ritchie sent a letter to Lockheed requesting $850,000 in damages. The

parties participated in mediation and arrived at a settlement. The settlement

contained a “General Release of Claims,” which was defined as “a waiver and

release of any and all claims [Ritchie] might have under federal, state, or local

law.” Under the settlement, Ritchie was placed on administrative leave for about

four months and then terminated, at which time she received lay-off benefits. She

also received $24,000, payable in two installments: one immediate payment of

$19,000, and another payment of $5000 payable upon her termination so long as

she agreed to sign a supplemental release. Upon her discharge she signed the

supplemental release, which contained the same language as the first release, and

received the $5000 payment. 4

Ten days after signing the supplemental release, Ritchie filed the present

qui tam action. Fifty of the 112 paragraphs in her complaint restated material

3
Ritchie’s allegations of retaliation were based upon negative job
performance ratings, the denial of merit pay increases, and sabotage of work
assignments.
4
The settlement agreements also contained clauses, cited at pages 2-3 of the
dissent, prohibiting Ritchie from voluntarily assisting other entities in bringing
claims against Lockheed. Lockheed does not assert that these clauses preclude
Ritchie from cooperating with the government in its efforts to bring its own FCA
claim. This court therefore has no reason to decide whether such a prohibition
would be enforceable in this case.

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from the demand letter she had sent to Lockheed. Ritchie stated three causes of

action under the False Claims Act (“FCA”): (1) knowingly presenting false claims

for the purpose of obtaining payment in violation of 31 U.S.C. § 3729(a)(1); (2)

knowingly using false records or statements to obtain payment of a false claim in

violation of § 3729(a)(2); and (3) retaliation for reporting and attempting to

correct false claims in violation of § 3730(h).

The case was referred by the district court to a magistrate judge for pretrial

proceedings. The magistrate judge’s scheduling order set February 3, 2006, as

the final date for the amendment of pleadings and joinder of parties. The

magistrate judge also set a discovery deadline of October 20, 2006, and a

dispositive motion deadline of November 20, 2006. On November 20, 2006,

Lockheed filed a motion for summary judgment, arguing the releases signed by

Ritchie prevented her from bringing her claims. Prior to filing a response to the

summary judgment motion, Ritchie filed a “Motion for Leave to Amend to Add a

Co-Relator, or, in the Alternative, to Substitute Relators,” seeking to add Blair

Froistad, a former Lockheed auditor, as a relator. Ritchie attempted to explain

this delay in adding Froistad to the case by arguing she had only just learned of

Froistad’s departure from Lockheed. The magistrate judge recommended

rejecting the motion to amend. The district court accepted that recommendation

and also granted summary judgment to Lockheed. Ritchie appeals these rulings.

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 After granting summary judgment, the district court awarded costs to

Lockheed. Ritchie objected to the award of costs, arguing 31 U.S.C. § 3730(d)(4)

precludes an award of costs in an FCA case unless the claim was clearly

frivolous, clearly vexatious, or brought primarily for purposes of harassment.

Ritchie also asked the district court to exercise its discretion to not award costs.

The district court denied Ritchie’s motion, and Ritchie appeals.

II. Discussion

A. Motion to Amend

The district court accepted the magistrate judge’s recommendation to deny

Ritchie’s motion for leave to amend. This court reviews the decision of the

district court to deny leave to amend for abuse of discretion. Minter v. Prime

Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006).

The district court analyzed the motion to amend under both Rule 15(a)(2),

which governs the amendment of pleadings prior to trial, and Rule 16(b)(4),

which governs the amendment of pretrial scheduling orders. This court has not

yet considered whether Rule 16(b)(4) must be met when motions to amend

pleadings would necessitate a corresponding amendment of scheduling orders.

Minter, 451 F.3d at 1205 n.4. Because the motion cannot meet the Rule 15(a)(2)

standard, however, this court does not address whether compliance with Rule

16(b)(4) is also required. Id.

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 Once the time for amendment as a matter of course has passed, pleadings

can be amended only by consent of the opposing party or leave of the court. Fed.

R. Civ. P. 15(a)(2). Leave should be freely given “when justice so requires.” Id.

Motions to add or substitute parties are considered motions to amend and

therefore must comply with Rule 15(a). United States ex rel. Precision Co. v.

Koch Indus., 31 F.3d 1015, 1018 (10th Cir. 1994). The Supreme Court has

indicated district courts may withhold leave to amend only for reasons such as

“undue delay, bad faith or dilatory motive on the part of the movant, repeated

failure to cure deficiencies by amendments previously allowed, undue prejudice

to the opposing party by virtue of allowance of the amendment, [or] futility of

[the] amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962).

The motion for leave to amend was made after the close of a long discovery

period and after Lockheed had filed a motion for summary judgment premised

upon the releases signed by Ritchie. At a minimum, the proposed amendment

would have required the reopening of discovery regarding Froistad’s

jurisdictional eligibility to be a relator. 5 Lockheed’s time and effort in preparing

the summary judgment motion would have been wasted, since the motion focused

upon a defense personal to Ritchie. The additional expense of adjudicating

5
For example, a relator cannot bring a suit based upon allegations already
publicly disclosed unless the relator is an original source of the information. 31
U.S.C. § 3730(e)(4)(A).

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Froistad’s eligibility and the lost expense of preparing the summary judgment

motion would have prejudiced Lockheed.

Ritchie argues she was justified in waiting to add Froistad as a relator

because she only learned of his departure from Lockheed approximately one

month before the motion for leave to amend was filed. She argues her counsel

could not have contacted Froistad before that point because he was represented by

Lockheed’s counsel.

Even assuming Ritchie could not contact Froistad while he was an

employee of Lockheed, Froistad already knew of the allegations of fraud from

discussions with Ritchie that occurred in 2002 and 2003. Froistad therefore could

have filed his own suit at that time if he believed he had a valid claim. His status

as a Lockheed employee would not have prevented this, since the FCA’s anti-

retaliation provision, § 3730(h), protects employees who file qui tam actions.

Froistad chose not to file his own suit, and instead tried to join Ritchie’s suit after

discovery was closed and a summary judgment motion had been filed against her.

Froistad’s delay in joining the suit despite his earlier knowledge of the

fraud allegations would have unduly prejudiced Lockheed because it would have

necessitated the re-opening of discovery and rendered worthless the time and

effort Lockheed expended on its motion for summary judgment. Cf. Utah Ass’n

of Counties v. Clinton, 255 F.3d 1246, 1250-51 (10th Cir. 2001) (holding motion

for intervention timely under Rule 24(a)(2) of the Federal Rules of Civil

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Procedure because case was far from final disposition, no scheduling order had

been issued, no trial date set, and no cut-off date for motions set). Because the

substantial delay in seeking to add Froistad as a relator would have unduly

prejudiced Lockheed, the district court did not abuse its discretion in denying

leave to amend.

B. Enforceability of Releases

The district court granted summary judgment to Lockheed by enforcing the

releases she signed after the mediation. This court reviews a grant of summary

judgment de novo, applying the same standard applied by the district court. King

v. PA Consulting Group, Inc., 485 F.3d 577, 585 (10th Cir. 2007). Summary

judgment is only appropriate when there is no genuine issue of material fact and

the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

The legal conclusions relied upon by the district court are reviewed de novo.

Gorman v. Carpenters’ & Millwrights’ Health Benefit Trust Fund, 410 F.3d 1194,

1198 (10th Cir. 2005).

As a threshold matter, this court must determine whether the language in

the releases is broad enough to encompass qui tam claims. The releases purport

to cover “any and all claims [Ritchie] might have arising under federal, state or

local law.” Ritchie argues the FCA claims are not claims she “might have”

because they belong to the United States. This argument is undercut by the

language of the FCA and by Supreme Court precedent. The FCA states relators

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“may bring a civil action for a violation of [the FCA] for the person and for the

United States Government.” 31 U.S.C. § 3730(b) (emphasis added). Thus the

relator has an interest in some part of the civil action apart from the government.

The Supreme Court verified this when it stated that qui tam relators under the

FCA possess an interest akin to a “partial assignment of the Government’s

damages claim.” Vt. Agency of Natural Res. v. U.S. ex rel. Stevens, 529 U.S. 765,

773 (2000). The portion of the claim assigned to the relator, namely the amount

the relator is entitled to recover in a successful action, belongs to the relator to a

sufficient degree that it should be considered under the releases signed in this

case as a claim Ritchie “might have under federal . . . law.”

Ritchie attacks the district court’s ruling on two other grounds. First, she

argues the FCA requires consent by the Attorney General prior to the settlement

of qui tam claims, and in the absence of such consent the releases are

unenforceable. Second, she argues the enforcement of the releases under the

circumstances of this case would frustrate the policies behind the FCA.

1. Attorney General Consent

Ritchie points to 31 U.S.C. § 3730(b)(1), which states: “A person may

bring a civil action . . . for the person and for the United States Government. . . .

The action may be dismissed only if the court and the Attorney General give

written consent to the dismissal and their reasons for consenting.” She argues

this statute requires the consent of the Attorney General to any settlement of a qui

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tam suit, including a settlement preceding the actual filing of the qui tam action.

In support, Ritchie cites to cases from the Fifth and Sixth Circuits interpreting

§ 3730(b)(1) as requiring government consent to the voluntary dismissal of qui

tam actions at any point after they have been filed. See United States v. Health

Possibilities, P.S.C., 207 F.3d 335, 339 (6th Cir. 2000); Searcy v. Philips

Electronics of N. Am. Corp., 117 F.3d 154, 159 (5th Cir. 1997).

The statute itself only mentions the “dismissal” of a qui tam action and

further requires the consent of the court. When there is a release preceding the

filing of the qui tam action, as in this case, no action has been filed, so there is

neither an action to dismiss nor a judge to consent to the agreement. As a

consequence, the statute only governs the enforceability of settlement agreements

made after the filing of a qui tam claim. See United States ex rel. Green v.

Northrop Corp., 59 F.3d 953, 960 (9th Cir. 1995). The statute is of no assistance

to Ritchie in this case because she signed her releases before filing the qui tam

case.

2. Does federal policy preclude the enforcement of these releases?

Ritchie contends the court should decline enforcement of her release on

policy grounds even if the FCA does not bar enforcement. Her release is a

contract and its enforceability is ordinarily a question of state law. United States

v. McCall, 235 F.3d 1211, 1215 (10th Cir. 2000). Federal common law may

supplant state law, however, when “a significant conflict exists between [a]

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federal policy or interest and the operation of state law, or the application of state

law would frustrate specific objectives of federal legislation.” Boyle v. United

Technologies Corp., 487 U.S. 500, 507 (1988) (citations, quotation, alteration

omitted).

The goal of the FCA is to prevent and rectify fraud perpetrated by

government contractors. Green, 59 F.3d at 963. The qui tam provisions of the

FCA provide an incentive to private individuals to uncover and prosecute FCA

claims by giving them a portion of the amount recovered for the United States.

United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 649 (D.C.

Cir. 1994). Private individuals are enlisted in this effort because they have

information about fraud that may be unavailable to the government and because

the government lacks the resources to prosecute every fraud claim it may have.

Green, 59 F.3d at 963.

Settlements of qui tam claims directly implicate this federal interest in

combating fraud. When an individual prevails in a qui tam lawsuit, she is only

entitled to a percentage of the amount recovered on behalf of the government. Id.

at 965. If the individual signs a general release in exchange for money, however,

she will probably keep the entire amount. 6 Id. at 965-66. The contractor and the

6
As the Green court recognized, the government may have a case in unjust
enrichment against would-be relators who settle qui tam claims and keep all of
the settlement proceeds. United States ex rel. Green v. Northrop Corp., 59 F.3d
953, 966 n.10 (9th Cir. 1995). That question is not before this court, but it
(continued...)

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would-be relator might settle a qui tam case for less than the amount recoverable

on behalf of the government but more than the prospective relator’s share of the

recovery had a qui tam action been filed. Id. at 966. Thus, there is a federal

interest in protecting the federal government’s right to recover under the FCA.

The protection of this interest, in turn, should not vary from state to state

based upon variations in state contract law. Id. at 961. Additionally, state-by-

state variations might allow parties to use choice-of-law clauses to select “as

governing law the law of a state that is most likely to uphold the release.” Id.

Under these circumstances, a uniform federal rule is appropriate to protect the

federal interest at stake. Id. Therefore, this court shall apply federal common

law to determine the enforceability of the releases.

In determining the federal common law standard to be applied, both parties

and the United States as amicus curiae rely upon Ninth Circuit precedent. Green,

59 F.3d 953; United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d

230 (9th Cir. 1997). In Green, an employee brought a lawsuit against a

government contractor for state-law causes of action stemming from termination

of his employment. 59 F.3d at 956. In settling those claims, the employee signed

a general release. Id. The government had not yet been apprised of wrongdoing

at the company. See id. at 966. Green later brought a qui tam action. Applying

6
(...continued)
illustrates the divergence of interests between the government and individual
relators.

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federal common law, the Ninth Circuit adopted a balancing test to determine the

enforceability of the releases, analyzing whether the interest in “‘enforcement is

outweighed in the circumstances by a public policy harmed by enforcement of the

agreement.’” Id. at 962 (quoting Town of Newton v. Rumery, 480 U.S. 386, 392

(1987)). The court allowed the qui tam action to proceed because the significant

public interest in deterrence and restitution of fraud against the government

outweighed the interest of encouraging the settlement of litigation. Id. at 963-69.

In so doing, the court deemed it critical that the government did not learn of the

fraud allegations until the filing of the qui tam action. Id. at 966.

In Hall, an employee of a company manufacturing nuclear reactor rod

components notified the Nuclear Regulatory Commission of alleged defects in the

construction of the components. 104 F.3d at 231. The NRC investigated the

allegations and subsequently decided they were baseless. Id. at 231-32. After the

employee complained to the NRC, he was suspended from work and ultimately

fired. Id. at 232. Following his termination he brought state law claims against

the company in state court. Id. That action settled and he signed a general

release of claims. Id. Some ten months later the employee filed a qui tam action

naming the same defendants and making the same allegations of fraud as he had

in the state proceedings. Id. Distinguishing Green, the court enforced the release

to bar the qui tam action. Id. at 233. Because the government already had full

knowledge of the allegations as a result of the NRC complaint, the interest in

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bringing information forward was absent. Id. Further, because the allegations

were deemed baseless by the government, the interest in supplementing federal

enforcement of FCA claims was not implicated. Id. The court concluded that no

federal policies overrode the general policy in favor of encouraging settlement,

and thus enforced the release. Id.

We adopt the Ninth Circuit’s framework for analyzing releases of FCA

claims as a workable method for protecting the federal interests at stake. To

determine the enforceability of Ritchie’s releases, we must analyze whether the

interest in enforcement outweighs a public policy that would be harmed by

enforcement.

In Green and Hall, the Ninth Circuit focused heavily upon the federal

interest in the disclosure of fraud. In Green, the government had no knowledge of

the fraud prior to the filing of the qui tam suit, while in Hall the government had

already been apprised of the allegations due to prior disclosures to a federal

agency. Not surprisingly, Ritchie likens the facts of this case to Green, while

both Lockheed and the United States as amicus curiae argue this case is closer to

Hall.

Ritchie contends the government lacked full knowledge of the scope of the

fraud at the time she signed the release, and thus its enforcement would fail to

protect the federal policy favoring the disclosure of fraud. Although Lockheed

voluntarily disclosed to the federal government Ritchie’s allegations of fraud, she

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characterizes those disclosures as a “whitewash” because Lockheed also informed

the government it believed the allegations lacked merit. Ritchie also argues the

government’s audit of the databases in question was incomplete, as it only

covered database entries for one year. Thus, she asserts, it could not have

provided the government with a full picture of the fraud.

The disclosures to the government in this case were sufficient to satisfy the

public interest in uncovering fraud. Even if Ritchie is correct in characterizing

Lockheed’s disclosures to the government as a “whitewash,” 7 the government

subsequently conducted its own inquiry into the matter. Although the parties

dispute the amount of information Ritchie provided to the DCAA auditor, it is

undisputed that the scope of the audit expanded in response to Ritchie’s

disclosures and her allegations were taken seriously enough to warrant referral to

criminal investigators. Under these circumstances, the federal government had

ample opportunity to uncover and prosecute any fraud that had taken place. 8

Enforcing releases of qui tam claims only when the allegations of fraud

have been disclosed to the government before the release also has the benefit of

encouraging voluntary disclosure by government contractors. Although Lockheed

7
The contractor in Hall also disclosed the relator’s allegations to the
government and similarly took the position that the allegations were unfounded.
United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230, 231 (9th
Cir. 1997).
8
Since the government owns the FCA action, it is still free to bring its own
suit after a would-be relator settles his or her own claim. 59 F.3d at 967.

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believed Ritchie’s allegations were baseless, it still relayed them to the

government. Important to our analysis, Lockheed gave the DCAA auditor full

access to Ritchie, even making her the auditor’s point of contact. These steps

enabled the government to conduct its own inquiry into the alleged fraud.

Contractors like Lockheed have an interest in settling qui tam claims prior to the

filing of a lawsuit. If they can settle qui tam claims only after fraud allegations

have been disclosed to the government, then contractors effectively have an

incentive to disclose. On policy grounds, then, conditioning the enforceability of

releases of qui tam claims upon the prior disclosure of the fraud allegations to the

government promotes the federal interest in uncovering fraud against the

government. Additionally, allowing for settlement of qui tam claims in these

circumstances furthers the general federal interest in encouraging settlement.

Hall, 104 F.3d at 233.

The Hall court identified one factor favoring settlement in that case which

is not present here. Namely, in Hall, the federal government had already

concluded the allegations lacked merit at the time the employee entered into his

settlement with the company. Id. Therefore, the court reasoned, the public

interest in supplementing federal enforcement of the FCA was not applicable,

since there is no public interest in supplementing the enforcement of meritless

claims. Id. Here, the federal government had not issued its final audit report

when the settlement was reached or the qui tam suit was filed, so the interest in

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supplementing federal enforcement is still present. 9 On balance, however, that

interest does not outweigh the federal interests served by enforcement of

settlements following disclosure of fraud allegations to the government, namely

the interest in disclosure of fraud allegations and the interest in encouraging

settlement. The releases in this case are therefore enforceable, 10 and the district

court properly granted summary judgment for Lockheed.

C. Costs

Ritchie argues the district court’s award of costs to Lockheed pursuant to

Rule 54(d) was contrary to the FCA, and in the alternative, the district court

9
The dissent would require an additional safeguard to protect the
government’s interest in supplementing enforcement: it would refuse to enforce
any pre-filing release unless it had the Attorney General’s consent. Dissenting
Op. at 5-6. Such an approach, however, could well undercut the incentive for
government contractors to voluntarily disclose allegations of fraud because they
would have no guarantee that such disclosure would render pre-filing releases
enforceable. Under the dissent’s approach, the Attorney General would be under
no obligation to approve the pre-filing release, and consent could be withheld
even if allegations of fraud have been fully disclosed. If the incentive to disclose
fraud allegations is diminished, there is the risk that fewer fraud cases will see the
light of day. It is also illuminating that, as amicus, the government has not
advanced the dissent’s approach but has instead asked this court to adopt Hall’s
reasoning.
10
Since the releases are enforceable and bar all of Ritchie’s claims, we do
not reach the issue, also left open in Green, of whether releases are ever
unenforceable with respect to FCA retaliation claims. Green, 59 F.3d at 968 n.12.

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should have refused to award costs because such awards are a disincentive to

potential relators. 11

Awards of costs are reviewed for an abuse of discretion. Rodriguez v.

Whiting Farms, Inc., 360 F.3d 1180, 1190 (10th Cir. 2004). An abuse of

discretion occurs, inter alia, when a district court makes an error of law. United

States v. Yarbrough, 527 F.3d 1092, 1101 (10th Cir. 2008). Unless a statute

provides otherwise, costs should ordinarily be awarded to prevailing parties. Fed.

R. Civ. P. 54(d)(1).

Ritchie first argues 31 U.S.C. § 3730(d)(4) governs the award of costs in

FCA cases. The statute provides: “The court may award . . . reasonable attorneys’

fees and expenses if the defendant prevails in the action and the court finds that

the claim of the person bringing the action was clearly frivolous, clearly

vexatious, or brought primarily for purposes of harassment.” 31 U.S.C.

§ 3730(d)(4). Although the statute does not mention “costs,” Ritchie argues

“costs” are a subset of “expenses” and are therefore covered by the statute. If

costs are covered by the statute, she argues, the district court could not have

awarded them without determining her claim to be “clearly frivolous, clearly

vexatious, or brought primarily for purposes of harassment.” Id.

11
Ritchie filed her appeal of the district court’s final judgment prior to the
clerk’s assessment of Lockheed’s costs. She then filed a subsequent appeal of the
award of costs. Those appeals have been consolidated for procedural purposes.

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 Both the FCA and Rule 54 disprove Ritchie’s theory. Elsewhere in the

FCA, the statute explicitly mentions “costs” as a category separate from

attorneys’ fees and expenses. See 31 U.S.C. § 3730(d)(2) (allowing for the

recovery of attorneys’ fees, expenses, and costs for prevailing relators). Rule 54

also makes a distinction between attorneys’ fees and expenses, which are only

recoverable upon a motion specifying the legal grounds entitling the movant to

the award, and costs, which are awarded as a matter of course. Compare Fed. R.

Civ. P. 54(d)(2)(B)(ii), with Fed. R. Civ. P. 54(d)(1). Section 3730(d)(4) does not

govern the recovery of costs by a prevailing defendant, and the district court

properly applied the Rule 54(d)(1) standard.

Ritchie next argues the district court should have exercised its discretion to

refuse an award of costs under Rule 54(d)(1). According to Ritchie, relators are

forced to expend their own resources enforcing the rights of the government, and

the policy underlying the FCA is to encourage qui tam suits. Forcing relators to

cover the costs of prevailing defendants would be a disincentive to potential

relators.

The district court did not abuse its discretion in rejecting Ritchie’s

generalized, policy-based rationale for why Lockheed should not be awarded

costs. If this court were to hold otherwise, it would effectively legislate a per se

rule preventing prevailing FCA defendants from recovering costs, since Ritchie’s

policy-based argument would be equally applicable in every FCA case.

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 D. Discovery Issues

During discovery, Ritchie filed an untimely motion to compel, and

Lockheed sought a sanction in the amount of the fees incurred in responding to

the motion. Ritchie objected to the amount of money sought by Lockheed, and

the district court awarded a smaller sanction than what Lockheed sought. For the

first time on appeal, Ritchie argues the sanction was contrary to the intent of the

FCA because discovery sanctions could deter relators from bringing qui tam suits.

This FCA preclusion argument was not presented below, and we decline to hear it

for the first time on appeal. See Ansari v. Qwest Commc’ns Corp., 414 F.3d

1214, 1221 (10th Cir. 2005).

Ritchie also appeals the partial denial of her second motion to compel,

arguing Lockheed wrongfully withheld discoverable evidence. Because we affirm

the district court’s grant of summary judgment solely on the basis of the releases

signed by Ritchie, we do not reach this issue.

III. Conclusion

For the foregoing reasons, the decisions of the district court granting

summary judgment and awarding costs to Lockheed are hereby affirmed. 12

12
Lockheed filed its brief accompanied by a motion to file the brief under
seal. The motion was provisionally granted with the ultimate determination to be
made by the merits panel. This court then issued an order to show cause
requesting additional information to decide the motion. In its response to the
order, Lockheed indicated it was withdrawing the motion. Therefore, the
provisional order sealing appellees’ brief is vacated, and the brief is ordered
unsealed.

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07-1295 & 08-1112, United States ex rel. Ritchie v. Lockheed Martin

BRISCOE, Circuit Judge, concurring and dissenting:

I join Parts I, II(A), II(B)(1), and II(D) of the majority’s opinion, concur in

the opening section of Part II(B), concur in part and dissent in part from Part

II(B)(2), and dissent from Part II(C).

Enforceability of releases

In the opening section of Part II(B) of its opinion, the majority concludes

that “the language in the releases” referring to “‘any and all claims [Ritchie]

might have arising under federal, state or local law,’” is broad enough to preclude

her from filing this qui tam action. Maj. Op. at 11. More specifically, the

majority concludes, citing both the language of the FCA and Vermont Agency of

Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 773 (2000), that

“[t]he portion of the claim assigned to the relator, namely the amount the relator

is entitled to recover in a successful action, belongs to the relator to a sufficient

degree that it should be considered under the releases signed in this case as a

claim Ritchie ‘might have under federal . . . law.’” Maj. Op. at 12.

I respectfully disagree with this conclusion. To be sure, the Supreme Court

concluded in Vermont Agency, in the context of analyzing a qui tam relator’s

standing to maintain a suit under the FCA, that “[t]he FCA can reasonably be

regarded as effecting a partial assignment” from the government to the qui tam

relator. 529 U.S. at 773. Importantly, however, the Court emphasized that this
partial assignment was only “of the Government’s damages claim.” Id. (emphasis

added). Moreover, the Court noted that “[a] qui tam relator has suffered no . . .

invasion” of a “legally protected right,” id. at 772-773, and emphasized that “the

‘right’ he seeks to vindicate does not even fully materialize until the litigation is

completed and the relator prevails,” id. at 773. Further, the Court characterized

“the relator’s suit” as one simply for “bounty,” id., and distinguished between “a

bounty and an express cause of action,” id. at 777.

Interpreting the Court’s language in Vermont Agency, the Second Circuit

recently concluded, and I agree, that “while the False Claims Act permits relators

to control the False Claims Act litigation, the claim itself belongs to the United

States.” United States ex rel. Mergent Serv. v. Flaherty, 540 F.3d 89, 93 (2d Cir.

2008) (citing Vermont Agency of Natural Res. v. United States ex rel. Stevens,

529 U.S. 765, 774-75 (2000)). Applying that principle to the facts presented here,

the FCA claims ultimately asserted by Ritchie belonged to the United States, not

Ritchie. Thus, it is far from certain in my view that the release language quoted

by the majority encompassed those FCA claims.

Having said this, I note that Paragraph 11 of each release provided:

Employee understands that if this Agreement were not signed,
Employee would have the right to voluntarily assist other individuals
or entities in bringing claims against Employer. Employee hereby
waives that right and will not provide any such assistance other than
assistance in an investigation or proceeding conducted by the United
States Equal Employment Opportunity Commission. Employee and
Employer further agree that Employee may provide information

-2-
 pursuant to any valid subpoena, provided that Employee first notifies
Employer in writing of the proposed disclosure in order to provide
Employer an opportunity to seek a Protective Order.

In my view, this language was sufficiently broad to have encompassed Ritchie’s

right to serve as a relator in a qui tam action.

Does federal policy preclude the enforcement of these releases?

I agree with the majority’s conclusions, in Part II(B)(2), that “there is a

federal interest in protecting the federal government’s right to recover under the

FCA,” Maj. Op. at 15, that “a uniform federal rule is appropriate to protect the

federal interest at stake,” id. at 16, and that, accordingly, we must “apply federal

common law to determine the enforceability of the releases,” id. As to the federal

common law standard to be applied in this case, I also agree with the majority

that the Ninth Circuit’s analysis in United States ex rel. Green v. Northrop Corp.,

59 F.3d 953 (9th Cir. 1995), is thorough and well-reasoned and that we should

adopt it as our own.

I disagree with the majority’s decision, however, to adopt the Ninth

Circuit’s analysis in United States ex rel. Hall v. Teledyne Wah Chang Albany,

104 F.3d 230 (9th Cir. 1997). Several related public interests are undoubtedly at

stake under the FCA’s enforcement scheme. These include (1) incentivizing

insiders to come forward with information about fraud against the Government,

(2) supplementing Government efforts to recoup monies lost due to fraud, and (3)

deterring fraud against the Government. See, e.g., False Claims Amendment Act

-3-
of 1986, S. Rep. No. 99-345, at 7 (1986), reprinted in 1986 U.S.C.C.A.N. 5266,

5272 (“In addition to detection, investigative and litigative problems which

permit fraud to go unaddressed, perhaps the most serious problem plaguing

effective enforcement is a lack of resources on the part of Federal enforcement

agencies.”); id. at 8 (“[a]n additional problem . . . exists when large, profitable

corporations are the subject of a fraud investigation and able to devote many

times the manpower and resources available to the Government.”); id. (“The

Committee believes that the amendments . . . which allow and encourage

assistance from the private citizenry can make a significant impact on bolstering

the Government’s fraud enforcement effort.”); id. at 23-24 (amending the FCA’s

qui tam provision in order “to encourage more private enforcement suits”). The

Ninth Circuit’s analysis in Hall focuses primarily on the first interest: providing

insiders with incentives to come forward with information about fraud against the

Government. See Hall, 104 F.3d at 233. Most of the cases applying the

Green/Hall framework have likewise focused on these incentives. See, e.g.,

United States ex rel. Longhi v. Lithium Power Tech., Inc., 481 F. Supp. 2d 815,

818-21 (S.D. Tex. 2007).

The problem with the Hall exception is that it undermines one of the other

public interests under the FCA: the Government’s compensatory interest in

recouping funds lost due to fraud. Presumably, the Government has two potential

reasons for declining to pursue a civil fraud claim independently when it knows

-4-
of the allegations: (1) the suit lacks merit, or (2) the Government lacks the

resources to be an active party to the litigation. The FCA is designed to help

remedy the latter scenario:

[P]erhaps the most serious problem plaguing effective enforcement is
a lack of resources on the part of Federal enforcement agencies.
Unlike most other types of crimes or abuses, fraud against the
Federal Government can be policed by only one body—the Federal
Government. State and local law enforcement are normally without
jurisdiction where Federal funds are involved.

Taking into consideration the vast amounts of Federal dollars
devoted to various complex and highly regulated assistance and
procurement programs, Federal auditors, investigators, and attorneys
are forced to make ‘screening’ decisions based on resource factors.
Allegations that perhaps could develop into very significant cases are
often left unaddressed at the outset due to a judgment that devoting
scarce resources to a questionable case may not be efficient. And
with current budgetary constraints, it is unlikely that the
Government’s corps of individuals assigned to anti-fraud
enforcement will substantially increase.

S. Rep. No. 99-345, at 7; see also Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d

925, 931 n.9 (10th Cir. 2005) (“The increased incentives to private individuals

have proven effective at helping the Government recover substantial sums of

fraudulently obtained payments.”); Green, 59 F.3d at 968 (“The relator’s right to

recovery exists solely as a mechanism for deterring fraud and returning funds to

the federal treasury.”); cf. United States v. Health Possibilities, 207 F.3d 335, 343

n.6 (6th Cir. 2000) (“There is absolutely no statutory authority for the proposition

that simply because the government decides not to expend the resources to

proceed with an action itself, it thereby authorizes the relator to settle the

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government’s claims in whatever manner he wishes. Indeed, such a construction

would only force the government to unnecessarily intervene in qui tam cases and

thereby frustrate the efficacy of the qui tam framework.” (citations omitted));

United States ex rel. DeCarlo v. Kiewit/AFC Enter., Inc., 937 F. Supp. 1039,

1047 (S.D.N.Y. 1996) (“[T]he government’s decision not to participate in the qui

tam action is not equivalent to a consent to voluntarily dismiss a claim against a

defendant with prejudice. Non-intervention does not necessarily signal

governmental disinterest in an action, as it is entitled to most of the proceeds even

if it opts not to intervene.”). By allowing contractors to buy off relators whose

resources would otherwise be available to pursue fraud claims on behalf of the

Government, the exception from Hall disregards the Government’s compensatory

interest in recouping funds lost due to fraud.

As I see it, a better rule would be that prefiling releases are unenforceable

under the FCA unless the Government—and more specifically, the Attorney

General—has provided its express written consent. 1 An express consent rule is

consistent with the FCA’s post-filing settlement requirements. See 31 U.S.C. §

3730(b)(1); Ridenour, 397 F.3d at 931 n.8. Such a rule also accounts for the

1
The Green court actually hinted at a consent requirement as a potential
prerequisite for enforcing a prefiling release. Cf. Green, 59 F.3d at 965
(“[P]ermitting a prefiling release when the government has neither been informed
of, nor consented to, the release would . . . frustrate one of the central objectives
of the Act.” (emphasis added)). Green did not explicitly require such consent,
though, and the Hall court chose to import a broader exception.

-6-
Government’s compensatory interest in recouping funds lost due to fraud. If the

Government wants the relator to have the opportunity to bring suit on the

Government’s behalf to recoup the lost funds, then the Government can simply

withhold its consent.

An express consent rule also decreases the risk that the relator and

contractor will bargain away the Government’s claim. See Health Possibilities,

207 F.3d at 340-41 (concluding that “the power to veto a privately negotiated

settlement of public claims is a critical aspect of the government’s ability to

protect the public interest in qui tam litigation,” and that without such power “the

public interest would be largely beholden to the private relator”); Searcy v.

Philips Elec. N. Am. Corp., 117 F.3d 154, 160 (5th Cir. 1997) (noting that the

express consent provision of § 3730(b)(1) allows the government to reduce the

risk that “relators [will] manipulate settlements in ways that unfairly enrich them

and reduce benefits to the government”); Green, 59 F.3d at 966 (noting that “a

rational relator” has a financial incentive “to accept a substantially smaller

amount to settle the claim immediately than to preserve the right to eventually file

a qui tam action in which the government would retain the lion’s share of the

proceeds”). Admittedly, even the Hall exception provides some protection from

parties bargaining away the Government’s claims, because the Government must

know about a claim for Hall to apply—and the Government can always bring the

claim later, if it so desires. See Hall, 104 F.3d at 233. Nevertheless, there is still

-7-
a risk under Hall that the Government will not bring a meritorious claim simply

because the Government lacks the resources to do so. The parties will likely

know this, and the contractor will pay the relator more money to reflect the

probability that resource constraints will preclude the Government from bringing

the claim independently. An express consent rule helps prevent this problem by

allowing the Government to veto the release of relators who would otherwise

pursue meritorious FCA claims with their own resources.

Moreover, if we require the Government’s express consent, then contractors

will be forced to disclose enough information to satisfy the Government. This

will help the Government investigate the alleged fraud, and it will ensure that the

Government is satisfied with its investigation before a relator can be released.

Along these same lines, an express consent rule eliminates a very difficult task

for the courts: attempting to determine, based on the conflicting evidence and

testimony of two adverse parties (the contractor and the relator), whether a third

party (the Government) is satisfied with its knowledge and investigation of the

alleged fraud. In the case before us, as in any case which involves a

representation that a party will “tell all,” it is very difficult to determine whether

all relevant information was in fact disclosed by Lockheed and whether, as a

consequence, the extent of the alleged fraud was fully investigated by the

Government. From my distant vantage point in this case, the exchange of

information and the extent of the Government’s investigation appears superficial.

-8-
 I fully recognize that requiring express consent will likely deter more

settlements than under the Hall framework. If the Government withholds its

express consent, then the parties will have to value the settlement to include the

probability of the relator filing a subsequent qui tam action. If that probability is

high, then the value of settling, from the contractor’s perspective, will be

correspondingly low. This may well result in fewer settlements, which will

impinge on the parties’ interest in resolving disputes. As the Ninth Circuit has

pointed out, though, the settlements at most risk of falling apart in this context are

those in which the contractor is most likely to have committed fraud. Green, 59

F.3d at 969. This, in my view, is not necessarily a bad result.

I also recognize, relatedly, that an express consent requirement may make it

more difficult for parties to craft an agreeable prefiling release. Most likely, the

Government will not be bound by the prefiling release between the relator and the

contractor, so the Government will still be able to bring its own claim for the

alleged fraud. See Hall, 104 F.3d at 233 (“The government, of course, was not a

party to the release, and is therefore not barred by it from pursuing a claim

against Teledyne.”). This is one way in which prefiling consent will differ from

post-filing consent: in the post-filing settlement context, the FCA claim is usually

dismissed with prejudice, and the Government is barred from pursuing it further.

The contractor has several potential solutions to this problem, however. Most

obviously, the contractor can attempt to include the Government in the prefiling

-9-
settlement and release. This will actually further the FCA’s purpose, because the

Government will only agree to be a party to the release if it has adequately

investigated the alleged fraud and if the settlement provides the Government with

adequate compensation. Also, in situations where the Government has provided

its express consent but is not a party to the release, the contractor can discount the

value of the settlement by the risk that the Government will bring its own claim

for the same fraud. In short, an express consent rule protects and furthers the

interests at stake under the FCA, while at the same time providing the parties with

some flexibility to account for the circumstances of each individual case.

Because I favor adoption of an express consent rule, I must in turn

conclude, since the Government never consented to Ritchie’s release, that we

must reverse the district court’s grant of summary judgment in favor of Lockheed.

That is, I would conclude that the release does not bar Ritchie’s subsequent qui

tam action under the FCA.

Costs

Because I would reverse the district court’s grant of summary judgment in

favor of Lockheed, I would also, necessarily, reverse the district court’s award of

costs to Lockheed pursuant to Rule 54(d).

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