United States of America, Ex Rel., Roland Gibeault Inge Maudal v. Texas Instruments Corp., a Delaware Corporation

Citations: 25 F.3d 725; 94 Daily Journal DAR 6839; 94 Cal. Daily Op. Serv. 3668; 1994 U.S. App. LEXIS 11733; 1994 WL 197929Docket: 92-55760

Court: Court of Appeals for the Ninth Circuit; May 23, 1994; Federal Appellate Court

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Roland Gibeault and Inge Maudal filed a qui tam action against Texas Instruments (T.I.) in 1989, alleging fraudulent claims made under a contract with the U.S. Navy. The U.S. government declined to intervene, as permitted by the False Claims Act (FCA). In December 1992, Gibeault and Maudal settled with T.I. for $300,000, leading to a dismissal with prejudice, although the Attorney General objected without seeking intervention. The district court ruled that the government lacked standing to object due to non-intervention and dismissed the case. The U.S. government later sought to intervene for appeal purposes, but the district court denied this request. On appeal, the government contended that the dismissal was erroneous as it occurred without its consent. The Ninth Circuit vacated the dismissal and remanded for further proceedings. The background involved previous fraud by defense contractors concerning Navy contracts, with Gibeault initially filing a related action against Genisco Technology Corp. that resulted in a settlement in which the government intervened. The subsequent qui tam action against T.I. involved similar allegations, but the government opted not to intervene after a ten-month investigation.

T.I. and the Navy modified a contract to have T.I. cover expenses related to defective pressure transducers without Gibeault and Maudal's knowledge. In December 1991, after discovering this settlement, Gibeault and Maudal negotiated a $300,000 payment to their attorneys in exchange for a dismissal with prejudice, stipulating that any deficiencies in the Genisco pressure transducers were remedied to the Navy's satisfaction. The government raised four concerns regarding the settlement: the characterization of attorneys' fees as compensatory payments under the False Claims Act, whether the dismissal should be without prejudice, the prohibition of T.I. recouping fees through government contracts, and the unauthorized stipulation concerning the deficiencies. Despite these concerns, the government chose not to intervene. On March 16, 1992, the district court ruled that the Attorney General could not object to the dismissal since the government did not seek to intervene, leading to a dismissal with prejudice on March 17, 1992. The government attempted to intervene for appeal on April 9, 1992, but this was denied on May 12, 1992, prompting a timely appeal. The government argued that the district court erred in denying its motion to intervene and raised substantive issues regarding the dismissal, particularly that the $300,000 payment was effectively a settlement under the False Claims Act, which conflicted with statutory requirements. The government also contended that the dismissal was improper without its consent and criticized the settlement for not preventing T.I. from passing costs to the government. Following precedent in United States ex rel. Killingsworth v. Northrop Corporation, the court affirmed that the government could not withhold consent and refuse to intervene, but it is entitled to a hearing on showing good cause, which remains unresolved due to the district court's prior ruling on standing.

The government has not received a response regarding whether the qui tam plaintiff will personally receive any portion of the $300,000 settlement from Texas Instruments, raising concerns about whether the attorney's fees included in the settlement may actually benefit the plaintiff. This uncertainty suggests that factors influencing the settlement amount could warrant further examination. Under Sec. 3730(d), the entire settlement arrangement is potentially subject to review. The government has established sufficient grounds to request a hearing on its objections to the settlement, similar to another case involving Killingsworth. Following this hearing, the district court must either approve the settlement and dismiss the case or reject it, allowing the qui tam action to continue. Consequently, the dismissal is vacated, and the case is remanded for further proceedings. Additionally, while there was mention of other named defendants who were dismissed, an unauthorized statement regarding deficiencies was noted but not decided in this appeal.