Beruflich Dokumente
Kultur Dokumente
1 WO
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6 IN THE UNITED STATES DISTRICT COURT
7 FOR THE DISTRICT OF ARIZONA
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9 )
United States ex rel. Mary A. Cafasso, No. CV 06-1381 PHX NVW
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10 Plaintiff-Relator, ) ORDER
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11 vs. )
)
12 )
General Dynamics C4 Systems, Inc., )
13 )
Defendant. )
14 _________________________________ )
)
15 )
General Dynamics C4 Systems, Inc., )
16 )
Counterclaimant, )
17 )
vs. )
18 )
Mary A. Cafasso, )
19 )
Counterdefendant. )
20 )
21 Before the Court are Relator’s Motion for Summary Judgment on Defendant’s
22 Counterclaims (doc. #275) and GDC4S’s Motion for Partial Summary Judgment on: (1)
23 Count II of Relator’s Substitute Amended Complaint (Retaliation) and (2) Count I of
24 GDC4S’s Counterclaim (Breach of Contract) (doc. #272).
25 I. Legal Standard for Summary Judgment
26 The court should grant summary judgment if the evidence shows there is no
27 genuine issue as to any material fact and the moving party is entitled to judgment as a
28 matter of law. Fed. R. Civ. P. 56(c). The moving party must produce evidence and
Case 2:06-cv-01381-NVW Document 352 Filed 05/21/09 Page 2 of 25
1 persuade the court there is no genuine issue of material fact. Nissan Fire & Marine Ins.
2 Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). To defeat a motion for
3 summary judgment, the nonmoving party must show there are genuine issues of material
4 fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A material fact is one
5 that might affect the outcome of the suit under the governing law. Id. at 248. A factual
6 issue is genuine “if the evidence is such that a reasonable jury could return a verdict for
7 the nonmoving party.” Id. When the moving party has carried its burden under Rule
8 56(c), the nonmoving party must produce evidence to support its claim or defense by
9 more than simply showing “there is some metaphysical doubt as to the material facts.”
10 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Where the
11 record, taken as a whole, could not lead a rational trier of fact to find for the nonmoving
12 party, there is no genuine issue of material fact for trial. Id.
13 In this context, the court presumes the nonmoving party’s evidence is true and
14 draws all inferences from the evidence in the light most favorable to the nonmoving party.
15 Eisenberg v. Insurance Co. of North America, 815 F.2d 1285, 1289 (9th Cir. 1987). If the
16 nonmoving party produces direct evidence of a genuine issue of fact, the court does not
17 weigh such evidence against the moving party’s conflicting evidence, but rather submits
18 the issue to the trier of fact for resolution. Id. “[T]he court should give credence to the
19 evidence favoring the nonmovant as well as that ‘evidence supporting the moving party
20 that is uncontradicted and unimpeached, at least to the extent that that evidence comes
21 from disinterested witnesses.’” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S.
22 133, 151 (2000).
23 Therefore, the narrative that follows states the disputed facts in favor of Relator
24 Mary A. Cafasso.
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1 II. Background
2 A. Factual History
3 In September 2001, General Dynamics Corporation hired Cafasso when it acquired
4 the assets of the Motorola, Inc., business unit in which Cafasso worked. In 2003, General
5 Dynamics Corporation merged the former-Motorola unit with another subsidiary
6 corporation, which was based in Tauton, Massachusetts. The resulting merged
7 corporation was named General Dynamics C4 Systems, Inc. (“GDC4S”) and based in
8 Scottsdale, Arizona. Before the 2003 merger, Mark Fried served as the President of the
9 former-Motorola unit in Arizona and Christopher Marzilli served as the Vice President of
10 Commercial Hardware Systems for the Massachusetts unit. After the merger, Fried was
11 appointed President of GDC4S, and Marzilli was appointed the Senior Vice President and
12 Deputy General Manager of GDC4S. Marzilli spent the majority of his time at the
13 Massachusetts location and had primary responsibility for managing the operations at that
14 location.
15 Cafasso was employed as the Chief Scientist/Technologist and reported to
16 GDC4S’s Vice President and Chief Technology Officer, Erling Rasmussen. Cafasso’s
17 responsibilities included coordinating GDC4S’s intellectual property portfolio and
18 ensuring GDC4S’s compliance with its Government contracts. She was responsible for
19 seeing that GDC4S met its obligations to protect the United States Government’s interest
20 in intellectual property developed pursuant to Government contracts. She also chaired all
21 meetings of the Technology Transfer Review Board (“TTRB”), which reviewed proposed
22 transfers of intellectual property to and from GDC4S, and assisted in functions of the
23 TTRB.
24 As early as February 2002, GDC4S had a policy that in determining whether
25 resources should be invested in pursuing a patent application, its business decision-
26 makers should consider, among other factors, whether an invention had only Government
27 application and the Government already had unlimited rights in the invention. If the only
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1 customer who could use the invention was the Government, and the Government already
2 held unlimited rights to use the invention, then a patent may not provide any value to
3 GDC4S and may not warrant substantial allocation of resources. Moreover, many of
4 GDC4S’s inventions cannot be disclosed as the patent process would require because they
5 involve United States classified information or technical information that international
6 traffic in arms regulation and federal law prohibits placing into the public domain.
7 In February 2004, Cafasso received a voice mail from a senior engineer that led
8 her to believe GDC4S planned to delay, within contractual limits, giving notice to the
9 Government of GDC4S’s intention to abandon patent prosecution on inventions in which
10 the Government had intellectual property rights. The delay would increase the risk that
11 the Government would miss its opportunity to pursue the patent process and likely would
12 enable GDC4S to retain the inventions as trade secrets. Cafasso believed GDC4S was
13 defrauding the Government by failing to protect the Government’s interest in inventions
14 developed under Government contracts. She further believed GDC4S’s actions were in
15 violation of federal regulations governing its contracts and of GDC4S’s TTRB policy.
16 She believed GDC4S took these actions under the direction of John Jones, an intellectual
17 property attorney in GDC4S’s Law Department. Cafasso reported her concerns to
18 Rasmussen, who does not recall relaying them to anyone else, but testified it was possible
19 he conveyed them to the Law Department. Rasmussen did not talk to Marzilli about
20 Cafasso’s concerns.
21 On October 27, 2004, then-Internal Compliance Manager Tim Pawlak sent an
22 email to Rasmussen, Cafasso, and another CTO employee requesting input on possible
23 audit topics for 2005. On November 2, 2004, Cafasso responded to the email and
24 requested an audit of the Law Department based on: “Legal agreements NOT being
25 compliant with the approved Transfer of Technology Review Board (TTRB). Business
26 policies not being followed OM 1.5.” Cafasso’s email identified four of six adverse
27 effects of the subject of her audit request: “failure to safeguard company assets,”
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1 “financial loss and exposure,” “erroneous record keeping,” and “failure to adhere to
2 organizational policies, plans, and procedures.” She did not identify “failure to adhere to
3 government regulations” or “negative publicity.” Cafasso did not copy anyone on her
4 email to Pawlak.
5 On November 11, 2004, Cafasso met with Pawlak to discuss her audit request.
6 Cafasso told Pawlak she believed Jones and the Law Department were not complying
7 with GDC4S’s intellectual property policy and federal regulations. She did not tell
8 Pawlak the Law Department was engaging in fraud or use the word “fraud” in her
9 discussion with Pawlak although at some point she used the word “fraud” in oral
10 communications with Rasmussen.
11 Also in November 2004, Cafasso exchanged emails with Devon Engel, Jones’s
12 supervisor in the Law Department, with a copy to Rasmussen. In these emails Cafasso
13 told Engel she believed Jones was violating company policy and intended to continue to
14 violate company policy. She did not refer to “fraud” or submission of false claims or
15 statements to the Government. Engel responded that the TTRB policy was created by
16 Motorola, a predominantly commercial company, and GDC4S may deviate from the
17 policy in some circumstances for strategic business purposes and/or because of federal
18 laws and regulations.
19 In Engel’s opinion, the roles of the Law Department and the CTO were not clearly
20 defined and led to conflict between Jones and Cafasso. Both Engel and Jones found
21 Cafasso to be difficult to work with.
22 In January 2005, Cafasso was notified her audit request did not receive a high
23 enough ranking based on identified factors to be included in the internal controls 2005
24 audits. In email communications with Pawlak, Cafasso referred to her request as “the
25 TTRB process audit of legal contracts” and said “this issue requires attention to enforce
26 company policy.” Pawlak referred to it as “the TTRB issue” and described the end result
27 of such an audit as “compliance to policies.” He offered to conduct a less formal review
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1 after receiving more information from Cafasso. She provided Pawlak a copy of her
2 November 2004 email exchange with Engel. The last correspondence Pawlak received
3 from Cafasso regarding her audit request was in early January 2005. In October 2005,
4 Pawlak sent Cafasso an email asking for her suggestions for possible audits in 2006, but
5 received no response from Cafasso.
6 By mid-2005, Fried expressed his intent to retire at the year’s end, and Marzilli
7 began preparing to assume the presidency of GDC4S. As President, Marzilli intended to
8 address integration issues that had not been resolved since the 2003 merger of the two
9 previously distinct businesses. In Marzilli’s opinion, one of the inconsistencies between
10 the two businesses was the centralization of certain functions in the Chief Technology
11 Office (“CTO”) for Arizona operations that were decentralized for the Massachusetts
12 operations. By mid-November 2005, Marzilli decided to establish a new organizational
13 structure to reduce redundancies and inconsistencies and effect cost savings. The new
14 organizational structure eliminated a number of central departments in Massachusetts and
15 Arizona, including the CTO in Arizona. At the time Marzilli decided to eliminate the
16 CTO, he had no knowledge Cafasso ever had requested an audit of the Law Department,
17 complained about the Law Department, expressed concern about suspected fraud to
18 Rasmussen, or raised internal complaints about any issue at any time.
19 Following Marzilli’s decision to reorganize, functions of the CTO were assigned to
20 other parts of GDC4S. All functions of managing GDC4S’s intellectual property were
21 assigned to the Law Department. Technology planning and other centralized engineering
22 functions were assigned to the Engineering Leadership Team. The reorganization
23 resulted in the resignations or retirements of several executives such as the Vice President
24 of Information Technology; the Vice President of Communications, Customer and
25 Community Services; the Vice President of Programs and Integration; the Director of
26 Strategic Planning; and Chief Technology Officer Rasmussen.
27
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1 In November 2005, Cafasso talked to Rasmussen again about her concerns about
2 Jones and the Law Department. Later in November 2005, Rasmussen resigned and
3 retired, which left Cafasso and an administrative assistant as the CTO’s only remaining
4 employees. The administrative assistant was transferred to another department. In
5 December 2005, Cafasso was told the Chief Technology Officer position would be
6 eliminated.
7 On January 11, 2006, Cafasso met with Marzilli, who directed Cafasso to speak
8 with the Vice President of Strategic Initiatives about a possible position for her. Cafasso
9 did not use the word “fraud” when she talked to Marzilli about issues she felt needed
10 attention, including policy compliance and the CTO’s roles and responsibilities. She did
11 not inform Marzilli she was contemplating filing a False Claims Act qui tam action.
12 On February 9, 2006, in response to an email from Cafasso, Marzilli emailed her
13 that with “the disestablishment of the office of the CTO,” he was taking the opportunity
14 to unify the policies and procedures of the two previously distinct businesses merged in
15 2003. Cafasso responded on February 9, 2006, that she had expected to be involved and
16 have input into decisions regarding functions of the CTO office. She expressed particular
17 concern about “compliance issues regarding IP management which we have had issues
18 with in the past.” By February 13, 2006, Cafasso had been told CTO functions would be
19 covered by other departments.
20 On March 2, 2006, Cafasso was notified her position would be eliminated and
21 given sixty days notice to find another position within General Dynamics Corporation or
22 be discharged. Cafasso was advised her CTO-related job duties had been assigned to
23 others. Cafasso applied for approximately twenty-five positions within General
24 Dynamics Corporation, but was not offered any of those positions.
25 In or about the first week of March 2006, Cafasso contacted Mark Vrla, a partner
26 with a law firm serving as outside counsel for GDC4S for intellectual property matters.
27 Cafasso asked Vrla to provide information about certain patent applications the firm
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1 tracked and/or prosecuted for GDC4S. She also asked Vrla for legal advice regarding
2 GDC4S’s obligations under certain Government contracts. Vrla subsequently responded
3 to Cafasso’s requests.
4 On April 3, 2006, Bernadette Phillips-Garcia, GDC4S’s Senior Human Resources
5 Manager, informed Cafasso she would be discharged in thirty days if she did not find a
6 new job. On April 13, 2006, Phillips-Garcia sent Cafasso an email providing job-seeking
7 advice, offering further job-seeking assistance, and reminding her she was expected to
8 spend the sixty days focusing on her job search because all of her work already had been
9 transitioned to others.
10 On April 2006, Cafasso had two telephone conversations with Ken Spitza, a
11 procurement fraud adviser for the United States Army and told him she was concerned
12 GDC4S might destroy documents to prevent detection of what Cafasso perceived to be a
13 scheme to defraud the Government. Spitza thought Cafasso was the custodian of the
14 records she wanted the Government to examine and told her the Government had the right
15 to look at documents evidencing, or that could lead to evidence of, fraud or contractual
16 violation. Spitza and Cafasso did not discuss specifically what Cafasso could or could
17 not copy. Spitza never received any documents directly from Cafasso.
18 On May 1, 2006, Phillips-Garcia met with Cafasso to inform her it appeared she
19 was not going to be successful in her internal job search and she would be discharged
20 from GDC4S on Friday, May 5, 2006. Phillips-Garcia informed Cafasso her exit meeting
21 was scheduled for 9:30 a.m. on May 5, 2006, gave Cafasso the standard exit materials to
22 review, and told her the exit documents must be signed before or during her exit interview
23 on May 5, 2006. The exit documents included confirmation the departing employee had
24 returned all General Dynamics Corporation property and secured all classified material
25 and a reminder the employee had a non-disclosure obligation and obligation to return any
26 documents, computer files, “and the like” that contain or embody proprietary information
27 before departing. The exit documents also included a document requiring the departing
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1 Collins’ email stated Cafasso had until the close of business that day to return all
2 proprietary data in her possession and/or provide GDC4S with written assurances she did
3 not have any such data in her possession. Cafasso returned her ID badge, keys, remote
4 access card, and cell phone by May 11, 2006, but did not return the computer files she
5 had copied and removed.
6 On May 18, 2006, Wigington told Jones that Cafasso had asked him how GDC4S
7 billed on Government contracts. The conversation caused Jones to speculate, for the first
8 time, that Cafasso may have been collecting documents and copying files for a qui tam
9 action.
10 B. Cafasso’s Confidentiality Agreement
11 When Cafasso was hired in September 2001, she signed an Employee
12 Confidentiality and Assignment of Inventions Agreement (“Agreement”). Section 2 of
13 the Agreement is titled Nondisclosure of Confidential Information and includes the
14 following:
15 I recognize that GD is engaged in a continuous program of research
and development regarding all aspects of its business, technical and
16 otherwise, and that as a GD employee I will have access to Confidential
Information that has value to GD in part because it is confidential. During
17 the time of my employment by GD, I will not disclose or use any
Confidential Information except to the extent I am required to disclose or
18 use such Confidential Information in the performance for [sic] my assigned
duties for GD; and I will use my best efforts to safeguard the Confidential
19 Information and protect it against disclosure, misuse, espionage, loss and
theft.
20
After the termination of my employment with GD, I will not use any
21 Confidential Information or disclose any Confidential Information to any
person or entity who is not specifically authorized by GD to receive it.
22
“Confidential Information” is defined to mean:
23
...all confidential information and trade secrets (whether or not specifically
24 labeled or identified as “confidential”), in any form or medium, that is
disclosed to, or developed or learned by me and that relates to the business,
25 products, services, research or development of GD or its suppliers,
distributors or customers and which has not become publicly known.
26
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1 C. Procedural History
2 On May 15, 2006, GDC4S filed a Complaint in the Arizona Superior Court for
3 Maricopa County against Cafasso for breach of contract, misappropriation of trade
4 secrets, and conversion. On May 26, 2006, Cafasso filed in the United States District
5 Court this qui tam action for herself and on behalf of the United States against GDC4S
6 and General Dynamics Corporation. On January 10, 2007, Cafasso served the
7 Defendants. On January 30, 2007, GDC4S answered and pled six counterclaims: (1)
8 breach of contract, (2) misappropriation of trade secrets, (3) conversion, (4) breach of
9 fiduciary duty, (5) common law fraud/fraudulent misrepresentation, and (6) computer
10 fraud and abuse. (Doc. #37.) On July 5, 2007, the United States notified the Court of its
11 decision not to intervene in this action.
12 Cafasso’s Substitute Amended Complaint includes Count I (False Claims Act
13 Violations) and Count II (Retaliation). (Doc. #92.) GDC4S was granted judgment on the
14 pleadings on Count I for failure to state a claim upon which relief can be granted. (Doc.
15 #219.) Cafasso now moves for summary judgment on GDC4S’s counterclaims, and
16 GDC4S moves for partial summary judgment on its breach of contract counterclaim and
17 Cafasso’s retaliation claim. (Doc. ##272, 275.) GDC4S seeks injunctive relief enjoining
18 and restraining Cafasso from disclosing or using any of the information she had access to
19 or copied while employed by GDC4S and directing her to execute her exit paperwork and
20 return everything she took from GDC4S (other than employee benefit documents,
21 discharge/severance documents, and payroll documents). GDC4S also seeks
22 reimbursement of its legal expenses incurred in connection with its state court claims and
23 its federal court counterclaims pursuant to section 6 of the Agreement.
24 III. Count II of Relator’s Substitute Amended Complaint (Retaliation)
25 A. The False Claims Act (“FCA”)
26 1. Liability Under the FCA
27 The FCA imposes liability on any person who:
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1 Id.
2 “Violations of laws, rules, or regulations alone do not create a cause of action
3 under the FCA. It is the false certification of compliance which creates liability when
4 certification is a prerequisite to obtaining a government benefit. . . . Mere regulatory
5 violations do not give rise to a viable FCA action.” Hopper, 91 F.3d at 1266-67.
6 2. FCA Protection from Retaliation
7 The FCA protects employees from retaliation by their employers for lawful acts
8 done in furtherance of an FCA action:
9 Any employee who is discharged, demoted, suspended, threatened,
harassed, or in any other manner discriminated against in the terms and
10 conditions of employment by his or her employer because of lawful acts
done by the employee on behalf of the employee or others in furtherance
11 of an action under this section, including investigation for, initiation of,
testimony for, or assistance in an action filed or to be filed under this
12 section, shall be entitled to all relief necessary to make the employee whole.
13 31 U.S.C. § 3730(h) (emphasis added). To prove a § 3730(h) claim, a plaintiff must
14 prove three elements: (1) the employee was engaging in conduct protected by the FCA,
15 (2) the employer knew the employee was engaging in protected conduct, and (3) the
16 employer discriminated against the employee because of his or her protected conduct.
17 U.S. ex rel. Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996). Though Hopper’s
18 summary of the statute did not mention it because it was not in play in that case, the
19 statute plainly protects only “lawful acts done by the employee.”
20 Although § 3730(h) does not require specific awareness of the FCA, the subsection
21 protects only employees “investigating matters which are calculated, or reasonably could
22 lead, to a viable FCA action.” Id. “[A]n employee engages in protected activity where
23 (1) the employee in good faith believes, and (2) a reasonable employee in the same or
24 similar circumstances might believe, that the employer is possibly committing fraud
25 against the government.” Moore v. Cal. Inst. of Tech. Jet Propulsion Lab., 275 F.3d 838,
26 845 (9th Cir. 2002). See also U.S. ex rel. Yesudian v. Howard University, 153 F.3d 731,
27 740-41 (D.C. Cir. 1998) (FCA-protected activity includes investigating matters that
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1 reasonably could lead to a viable FCA case, but does not require specific awareness of the
2 FCA).
3 “[A] retaliation claim can be maintained even if no FCA action is ultimately
4 successful or even filed.” United States ex rel. Ramseyer v. Century Healthcare Corp.,
5 90 F.3d 1514, 1522 (10th Cir. 1996). But “the activity prompting plaintiff’s discharge
6 must have been taken ‘in furtherance of’ an FCA enforcement action.” Id. And the
7 defendants must have had notice the plaintiff was acting “in furtherance of” an FCA
8 enforcement action in order for their actions to constitute retaliation. Id. Where a
9 plaintiff merely advised her superiors of noncompliance and warned of consequences for
10 noncompliance, and her monitoring and reporting activities were required to fulfill her
11 job duties, defendants did not have notice the plaintiff was furthering or intended to
12 further an FCA action. Id. at 1523; see Yesudian, 153 F.3d at 740 (to be covered by the
13 FCA, the plaintiff’s investigation must include false or fraudulent claims, something more
14 than his employer’s noncompliance with state or federal regulations).
15 Just as there is no requirement a plaintiff know his investigation could lead to an
16 FCA action, there is no requirement the plaintiff inform his employer he is contemplating
17 an FCA action to be protected from retaliation. Yesudian, 153 F.3d at 742. Nor must the
18 employer know, or be advised, the false or fraudulent claims the plaintiff is investigating
19 would violate the FCA. Id. What the employer must know, however, is the plaintiff is
20 engaged in investigations that reasonably could lead to an action under the FCA. Id.
21 “[U]nless the employer is aware that the employee is investigating fraud, the employer
22 could not possess the retaliatory intent necessary to establish a violation of § 3730(h).”
23 Hopper, 91 F.3d at 1269.
24 Although courts may infer causation based on the proximity between the protected
25 action and the allegedly retaliatory employment decision, such an inference cannot be
26 made where nine months or more lapsed between the two events. Manatt v. Bank of
27 America, 339 F.3d 792, 802 (9th Cir. 2003). “Although lack of temporal proximity may
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1 regulations or contract provisions. It may have seemed unfair or even fraudulent. But
2 Cafasso does not allege she investigated and reported—or even suspected—GDC4S had
3 submitted a false claim, statement, or bill to the Government or had created a false record
4 or statement to conceal, avoid or decrease an obligation to pay or transmit money or
5 property to the Government.
6 At the most, Cafasso could have suspected GDC4S, by omission, avoided
7 transferring intellectual property rights to the Government. But even if § 3729(a)(7) did
8 not require that GDC4S affirmatively create a false record, the business strategy Cafasso
9 challenged applied only to inventions having only a Government application and for
10 which the Government already held unlimited intellectual property rights. For those
11 inventions GDC4S could not have had an obligation to transfer additional intellectual
12 property rights.
13 “Violations of laws, rules, or regulations alone do not create a cause of action
14 under the FCA.” Hopper, 91 F.3d at 1266. Cafasso’s acts could not reasonably have led
15 to an FCA claim. See id. at 1269 (“Her investigatory activity did not have any nexus to
16 the FCA.”) Even assuming Cafasso in good faith did believe GDC4S was committing
17 fraud subject to the FCA, a reasonable employee in the same or similar circumstances
18 could not have. See Moore, 275 F.3d at 845. Therefore, Cafasso’s investigating and
19 reporting do not constitute acts “in furtherance of an action” under the FCA.1
20 2. Even If the FCA Protected Cafasso’s Conduct, GDC4S Did Not
Know of Her Protected Conduct.
21
Even if Cafasso’s investigating and reporting did constitute acts “in furtherance of
22
an action” under the FCA, Cafasso did not report she suspected fraud or that GDC4S had
23
submitted false claims or created false records or statements. She requested an audit of
24
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1
26 This conclusion means the FCA claims, which have been dismissed with prejudice
for failure to state a claim upon which relief can be granted, also are wanting under a
27 summary judgment standard.
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1 the Law Department for failing to comply with the TTRB. She informed the Law
2 Department she believed it was violating company policy. She complained to her
3 supervisor, but he did not give notice to anyone else that she suspected GDC4S of fraud,
4 submitting false claims, or creating false records. Cafasso’s job included ensuring
5 GDC4S’s compliance with its Government contracts, and she repeatedly voiced concerns
6 about compliance. None of her actions could have notified GDC4S she was acting in
7 furtherance of an FCA action.
8 3. Even If the FCA Protected Cafasso’s Conduct and GDC4S Knew
of Her Protected Conduct, GDC4S Did Not Terminate Cafasso’s
9 Employment Because She Engaged in Protected Conduct.
10 It is undisputed Marzilli alone made the decision to eliminate the CTO, which
11 included Cafasso’s position, and when Marzilli decided to eliminate the CTO, he did not
12 know of Cafasso’s concerns about compliance with the TTRB policy or federal
13 regulations. He did not know she had requested an audit of the Law Department. There
14 is no evidence—or evidence from which it may be inferred—he was persuaded by the
15 Law Department, or anyone else, to eliminate the CTO.
16 Instead, the undisputed evidence is General Dynamics Corporation acquired a
17 business unit in 2001 and merged it with another subsidiary in 2003. Until late 2005, the
18 two units functioned substantially under separate leadership. When Marzilli took control
19 of the Arizona unit, he chose to structure it consistently with the Massachusetts unit
20 already under his control. The Massachusetts unit did not have a CTO. Cafasso may not
21 have fully understood Marzilli intended to eliminate the entire CTO when he eliminated
22 the Chief Technology Officer position in November 2005, but it is not reasonable to
23 conclude Marzilli intended to retain a one-person CTO employing only Cafasso.
24 No later than January 2006, however, Cafasso knew that the entire CTO would be
25 eliminated, including her position as Chief Scientist/Technologist. In May 2006, the final
26 determination that Cafasso would be discharged was made because she had not found
27 another position in the company within sixty days—not the decision to eliminate
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1 the burden of proving: (1) the existence of a valid contract; (2) its breach; and (3)
2 resulting damages. Id.
3 B. GDC4S’s Claim for Breach of Contract
4 The existence of a contract and its breach are not disputed. It is undisputed
5 Cafasso executed an Agreement in which she promised not to disclose any Confidential
6 Information to any person or entity not specifically authorized by GDC4S to receive it
7 and she disclosed Confidential Information, as defined by the Agreement,2 to her
8 attorneys in violation of Section 2 of the Agreement. It also is undisputed Cafasso
9 violated Section 5 of the Agreement both by removing copies of GDC4S documents and
10 files from GDC4S’s premises and by failing to deliver all GDC4S materials and copies in
11 her possession to GDC4S promptly upon her termination.
12 Cafasso contends GDC4S has not incurred, disclosed, or proven damages. Section
13 6 of the Agreement, however, provides that Cafasso acknowledged her failure to comply
14 with the Agreement “will irreparably harm the business” of GDC4S and entitle GDC4S to
15 injunctive and other equitable relief. Section 6 further provides that in the event GDC4S
16 successfully enforces the Agreement against Cafasso, she will reimburse and indemnify
17 GDC4S for the actual costs incurred by GDC4S in enforcing the Agreement, including but
18 not limited to attorneys’ fees. Cafasso deprived GDC4S of its right under the Agreement
19 to keep its confidential information confidential, and GDC4S has spent three years
20 litigating to protect that right and is entitled to an injunction. Although its legal expenses
21 are not yet quantified, there is no question GDC4S has been damaged. Nor is there any
22 unfair surprise to Cafasso.
23
24
2
Although Cafasso now contends that GDC4S has not met its burden of proving that
25 any of the wrongfully copied files contained trade secret or privileged documents, she
26 admitted in her state court answer that she downloaded “more than ten gigabytes of the
Company’s confidential, proprietary, and trade secret information” and copied that data onto
27 removable storage devices.
28 - 21 -
Case 2:06-cv-01381-NVW Document 352 Filed 05/21/09 Page 22 of 25
1 limitation of statutory protection for retaliation to “lawful acts done by the employee”
2 weighs against any inference of a broad privilege for Cafasso to breach her contract with
3 GDC4S. Statutory incentives encouraging investigation of possible fraud under the FCA
4 do not establish a public policy in favor of violating an employer’s contractual
5 confidentiality and nondisclosure rights by wholesale copying of files admittedly
6 containing confidential, proprietary, and trade secret information. Although the
7 Agreement might be unenforceable if the interest in its enforcement is outweighed in the
8 circumstances by a substantial public interest, e.g., the public interest in filing an FCA qui
9 tam action, that would be harmed by enforcement of the Agreement, such an interest is not
10 harmed by enforcement of the Agreement in these circumstances. See U.S. ex rel. Green
11 v. Northrop Corp., 59 F.3d 953, 962-63 (9th Cir. 1995). In fact, Cafasso filed a FCA qui
12 tam action before she or her attorneys reviewed the files she copied and removed from
13 GDC4S’s premises.
14 Further, there is no evidence Cafasso needed to remove copies of the files to avoid
15 destruction of evidence in support of her FCA claim. Although Cafasso told Spitza she
16 feared document destruction, she testified her concern was that two databases were to be
17 transferred from the CTO to the Law Department and the Law Department may not
18 continue to use those databases. She said she was not concerned the documents would be
19 destroyed, just the databases. Moreover, Cafasso’s copying and removing was not limited
20 to files in the two databases or to files within the time period during which the alleged
21 fraud occurred.
22 Finally, Cafasso’s characterization of O’Day v. McDonnell Douglas Helicopter
23 Co., 79 F.3d 756 (9th Cir. 1996), as permitting “an employee to surreptitiously gather
24 documents related to an employer’s unlawful conduct” is incorrect. In O’Day, the Ninth
25 Circuit applied the Title VII balancing test for determining whether an employee’s conduct
26 constitutes “protected activity” to a retaliation claim under the Age Discrimination in
27
28 - 23 -
Case 2:06-cv-01381-NVW Document 352 Filed 05/21/09 Page 24 of 25
1 Employment Act. Id. at 763. The balance tipped in favor of the employer’s interest in
2 maintaining a harmonious and efficient operation. Id. The court explained:
3 In balancing an employer’s interest in maintaining a “harmonious and
efficient” workplace with the protections of the anti-discrimination laws, we
4 are loathe to provide employees an incentive to rifle through confidential
files looking for evidence that might come in handy in later litigation. The
5 opposition clause protects reasonable attempts to contest an employer’s
discriminatory practices; it is not an insurance policy, a license to flaunt
6 company rules or an invitation to dishonest behavior.
7 O’Day v. McDonnell Douglas Helicopter Co., 79 F.3d 756, 762-64 & n.6 (9th Cir. 1996).
8 Thus, the FCA does not immunize Cafasso for her breach of Sections 2 and 5 of the
9 Agreement. Summary judgment on Count I (Breach of Contract) of GDC4S’s
10 Counterclaim will therefore be granted in favor of GDC4S.
11 C. GDC4S’s Other Claims
12 In addition to Count I for breach of contract, GDC4S’s Counterclaim includes the
13 following five counts: (2) misappropriation of trade secrets, (3) conversion, (4) breach of
14 fiduciary duty, (5) common law fraud/fraudulent misrepresentation, and (6) computer
15 fraud and abuse. In its Motion for Partial Summary Judgment, GDC4S states if it obtains
16 summary judgment on Count I of its Counterclaim, it will agree to dismiss its remaining
17 counterclaims. Because the Court will grant GDC4S summary judgment on Count I of its
18 Counterclaim, the remaining counts will be treated as voluntarily dismissed, and Cafasso’s
19 motion for summary judgment on the remaining counterclaims will be denied as moot.
20 V. Conclusion
21 GDC4S is entitled to summary judgment on Cafasso’s retaliation claim. Although
22 Cafasso may have believed she was investigating what she suspected to be fraud, no
23 reasonable employee could have believed what she suspected reasonably could have led to
24 an action under the FCA. Further, GDC4S did not know she was engaging in conduct
25 protected by the FCA, and GDC4S terminated her employment as a result of a strategic
26 business decision, not in retaliation for FCA-protected activity.
27
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Case 2:06-cv-01381-NVW Document 352 Filed 05/21/09 Page 25 of 25
1
2
3
4
5
6 IN THE UNITED STATES DISTRICT COURT
7 FOR THE DISTRICT OF ARIZONA
8
9 )
United States ex rel. Mary A. Cafasso, No. CV 06-01381 PHX NVW
)
10 Plaintiff-Relator, ) JUDGMENT
) and
11 vs. ) PERMANENT INJUNCTION
)
12 )
General Dynamics C4 Systems, Inc., )
13 )
Defendant. )
14 )
_________________________________ )
15 )
)
16 General Dynamics C4 Systems, Inc., )
)
17 Counterclaimant, )
)
18 vs. )
)
19 Mary A. Cafasso, )
)
20 Counterdefendant. )
)
21 )
22 By order of August 11, 2008, the Court granted Defendant General Dynamics C4
23 System, Inc.’s (“GDC4S”) Motion for Judgment on the Pleadings on Count I of the
24 Substitute Amended Complaint. (Doc. # 219.) By order of May 21, 2009, the Court granted
25 Defendant and Counterclaimant GDC4S’s Motion for Partial Summary Judgment on: (1)
26 Count II of Relator’s Substitute Amended Complaint (Retaliation) and (2) injunctive relief
27 on Count I of GDC4S’s Counterclaim (Breach of Contract). Having prevailed for injunctive
28 relief on Count I of GDC4S’s Counterclaim (Breach of Contract), GDC4S voluntarily
Case 2:06-cv-01381-NVW Document 377 Filed 07/01/09 Page 2 of 4
1 dismissed the remaining Counts II through VI of its Counterclaim. GDC4S also withdrew
2 its claim for damages on Count I of its Counterclaim (Breach of Contract). The only matter
3 remaining for determination is GDC4S’s Motion for Attorneys’ Fees (doc. # 363), which is
4 set for hearing on August 18, 2009, and the pendency of which does not preclude entry of
5 final judgment on the substantive claims, all of which have been adjudicated or withdrawn.
6 Fed. R. Civ. P. 54(d)(2). The Court finds it appropriate to enter final and appealable
7 judgment on all substantive claims at this time.
8 IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED that Defendant
9 General Dynamics C4 Systems, Inc., have judgment against Plaintiff United States of
10 America and Relator Mary A. Cafasso on their Substitute Amended Complaint and that
11 Plaintiff United States of America and Relator Mary A. Cafasso take nothing.
12 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Counts II through
13 VI of Counterclaimant General Dynamics C4 Systems, Inc.’s Counterclaim are voluntarily
14 dismissed without prejudice, but without leave to refile them in this or any other action.
15
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED as follows:
16
1. Plaintiff/Counterdefendant Mary A. Cafasso (“Plaintiff”) and all of her
17
lawyers, agents, servants, employees, successors and assigns shall return to General
18
Dynamics C4 Systems, Inc. (“GDC4S”) any and all documents and copies of documents
19
(including electronic documents, data and information where converted to hard copies, but
20
not including any of her attorneys’ work product or their attorney-client communications)
21
that Plaintiff took from GDC4S during her employment, provided that, where Cafasso’s
22
attorneys have written on GDC4S documents or attached them to attorney-client
23
communications or attorney work product, such writings or attachments may be
24
deleted/unattached before the documents are returned to GDC4S, but this paragraph does not
25
apply to the following:
26
27
28
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Case 2:06-cv-01381-NVW Document 377 Filed 07/01/09 Page 3 of 4
1
a. Employee benefit documents, discharge/severance documents, payroll
2
and tax documents, and personal (non-business-related) documents and things where, in each
3
category, such documents pertain directly to her; and
4
b. Any documents that have been filed as exhibits in connection with any
5
motions or pleadings in this matter, to the extent that Plaintiff or her attorneys require access
6
to such documents for purposes of any further trial or appellate court proceedings. If any
7
such documents were filed under seal, they shall remain under seal until all trial and appellate
8
proceedings in this matter are exhausted – at which point they shall be returned to GDC4S,
9
upon GDC4S’s motion. Until that time, the documents described in this sub-paragraph shall
10
remain subject to the restrictions imposed by the July 26, 2006 Order of the Arizona Superior
11
Court in Case No. 06-007147, as adopted by this Court pursuant to the April 26, 2007 Order
12
on Procedural Matters (doc. # 79). To the extent not filed as exhibits with the Court, the
13
original and all copies of any GDC4S documents that Plaintiff introduced or used as exhibits
14
at any depositions in this matter shall be returned to GDC4S’s attorneys by September 8,
15
2009, as described below.
16
2. By September 8, 2009, Plaintiff and her attorneys shall comply with this Order
17
by doing the following:
18
a. obtaining the return of all documents and copies identified in Paragraph
19
1 above that Plaintiff or her attorneys have shared with or published to any other persons or
20
entities (other than a Court or a branch of the U.S. Government);
21
b. delivering all hard-copy documents and copies identified in Paragraphs
22
1 and 2a above (except as otherwise noted in Paragraphs 1a or 1b) to GDC4S’s attorneys,
23
Mark G. Kisicki, Lawrence Allen Katz and Peter S. Kozinets, Steptoe & Johnson LLP, 201
24
East Washington Street, Suite 1600, Phoenix, Arizona 85004-2382;
25
c. destroying and/or permanently deleting from any electronic media
26
within their possession, custody or control any originals, images or copies of such data and
27
documents; and
28
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Case 2:06-cv-01381-NVW Document 377 Filed 07/01/09 Page 4 of 4
1
d. certifying in a writing, signed by both Plaintiff and her attorneys, that
2
they have performed all the obligations set forth in Paragraphs 1 and 2 above.
3
3. Plaintiff and her lawyers are also restrained and enjoined from referring to or
4
divulging any of the documents and data referred to in Paragraph 1 and 2 above to any third
5
party (other than a Court or a branch of the U.S. Government), for any purpose unrelated to
6
the litigation of this case and any appeals therefrom.
7
4. For seven years from the conclusion of this litigation, all documents returned
8
to GDC4S or its counsel shall be maintained and available to be accessed by Plaintiff’s
9
counsel pursuant to normal discovery procedures or court order prior to which GDC4S has
10
been given the opportunity to challenge the request for access.
11
The Clerk shall terminate this case, without prejudice to adjudication of the pending
12
motion for attorneys’ fees.
13
Dated: July 1, 2009.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 1 of 20
1 WO
2
3
4
5
6 IN THE UNITED STATES DISTRICT COURT
7 FOR THE DISTRICT OF ARIZONA
8
United States of America ex rel. Mary A.) No. CV06-1381-PHX-NVW
9 Cafasso, )
) FINDINGS OF FACT AND
10 Plaintiff, ) CONCLUSIONS OF LAW
)
11 vs. ) and
)
12 General Dynamics C4 Systems, Inc., ) ORDER
)
13 Defendant. )
_________________________________ ) [Not for Publication]
14 )
General Dynamics C4 Systems, Inc., )
15 )
Counterclaimant, )
16 )
vs. )
17 )
Mary A. Cafasso, )
18 )
Counterdefendant. )
19 )
20 Before the Court is General Dynamics C4 Systems, Inc.’s (“GDC4S”) Motion for
21 Award of Attorneys’ Fees [doc. # 363] and Motion for Leave to File Supplemental Bill of
22 Costs re State Court [doc. # 385]. GDC4S brought suit against its former employee Mary
23 Cafasso in state court alleging breach of contract and numerous other claims for her
24 taking of tens of thousands of business records. Shortly thereafter, Cafasso brought suit
25 in this Court seeking relief against GDC4S under the False Claims Act, 31 U.S.C. § 3730.
26 Cafasso’s complaint included two claims under the statute, first, a qui tam claim that
27 GDC4S made false claims, and second, a retaliation claim that GDC4S had fired Cafasso
28 in response to protected activities. The state court claims were voluntarily dismissed and
Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 2 of 20
1 reasserted as counterclaims in the federal case. A stipulation of the parties provided that
2 the state court orders would remain in effect unless modified by this Court and without
3 waiver of any party’s substantive rights. In effect, the dual litigation was replaced by
4 single litigation in this Court. Judgment was entered in favor of GDC4S on the breach of
5 contract action, the qui tam action, and the retaliation action, and permanent injunctive
6 relief was entered on GDC4S’s contract action requiring Cafasso to return GDC4S’s
7 business records.
8 GDC4S now moves for an award of attorneys’ fees under Arizona contract law
9 and the Court’s statutory and inherent sanctioning powers. GDC4S requests
10 $1,593,095.75 as sanctions against Cafasso and her lawyers: $91,930.50 for misuse of
11 the federal action in state court; $1,143,004.25 for prosecution of the qui tam claim; and
12 $358,161.00 for prosecution of the retaliation claim. GDC4S also moves for an award of
13 attorneys’ fees against Cafasso under A.R.S. § 12-341.01(A) in the total amount of
14 $575,415.00, which includes $91,930.50 of the sanctions request. GDC4S also seeks to
15 file a supplemental bill of costs relating to costs incurred in the state court action.
16
17 FINDINGS OF FACT
18 Previous orders have outlined the facts underlying the merits of this case, and it is
19 unnecessary to retread that ground as a whole. [Doc. ## 219, 352.] GDC4S has prevailed
20 in every aspect: It defeated Cafasso’s qui tam claim by obtaining judgment on the
21 pleadings, it defeated her retaliation claim at the summary judgment stage, and it won its
22 state-law contract action against her on summary judgment as well. (GDC4S voluntarily
23 dismissed several other counterclaims because success in the contract action provided the
24 essential injunctive relief sought.)
25 I. The State Court Proceedings and the Ex Parte Federal Court Orders
26 GDC4S brought suit against Cafasso in Maricopa County Superior Court on May
27 15, 2006. On May 24, 2006, the state court issued a temporary restraining order after
28 notice to Cafasso requiring her to return nearly eleven gigabytes of documents she had
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 3 of 20
1 removed from the GDC4S offices without permission, while she was still on payroll but
2 after her work duties were ended and before her computer access was terminated.
3 Two days later, Cafasso filed this qui tam action in this Court. Her local Phoenix
4 counsel, Thomas M. Rogers, telephoned and asked to come to chambers to present papers
5 that he had filed in a sealed action. His inquiry did not request a hearing or indicate that
6 ex parte relief would be requested. The undersigned judge allowed him to come to
7 chambers. After exchange of pleasantries, Mr. Rogers presented and requested entry of
8 two ex parte orders, one sealing the case and one permitting Cafasso to inform the state
9 court ex parte of the pendency of the federal action.
10 At that point, this Court committed an error of judgment in not recognizing the
11 unannounced request for the second ex parte order as requiring presentation on the
12 record. Mr. Rogers and the undersigned judge have differing recollections of the
13 conversation that ensued. The Complaint itself referenced the state court litigation and
14 restraining order as concerning an attempt to get Cafasso’s computer, not documents of
15 GDC4S that Cafasso allegedly misappropriated. The undersigned judge recalls inquiring
16 about the referenced state court litigation and receiving a general response but no
17 disclosure of an existing state court order to return misappropriated documents. Nor was
18 there any disclosure of an intent to use this Court’s ex parte order allowing ex parte
19 disclosure of this proceeding to the state court as a basis to seek lifting of a state court
20 order without notice to GDC4S. Mr. Rogers now states that he and unlisted co-counsel,
21 Richard J. Harris and Michael Bothwell of Atlanta, Georgia, planned and rehearsed a full
22 presentation of the relevant facts and procedural history of the state court proceeding if
23 this Court were to inquire about it. Mr. Rogers remembers informing this Court of the
24 state court temporary restraining order. This Court entered both requested ex parte
25 orders.
26 Nearly four weeks later, armed with this Court’s order allowing Cafasso to inform
27 the state court ex parte of the federal action and with the participation of an Assistant
28 United States Attorney, Mr. Rogers presented an ex parte request to the state court to lift
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 4 of 20
1 the May 24, 2006 temporary restraining order requiring Cafasso to return the nearly
2 eleven gigabytes of documents taken from GDC4S. The motion was heard by a judge pro
3 tempore in the absence of the assigned Superior Court Judge. Compliance with the
4 temporary restraining order would not have prejudiced the United States’ investigation if
5 there were some underlying False Claims Act claim; indeed, the United States could get
6 all GDC4S’s documents directly without divulging the sealed action under 31 U.S.C.
7 § 3733. The judge pro tem was persuaded to lift the restraining order by the unsupported
8 contention that the investigation itself, not just the filing of the federal action, must be
9 kept secret under federal law. The judge pro tem explicitly stated his belief that he was
10 lifting the restraining order because it was required by federal law and at the request of
11 this Court. Mr. Rogers denies that he made either assertion to the judge pro tem, but the
12 record shows that he did not disabuse the judge of those mistakes when the judge
13 expressed them, even after the judge asked counsel to correct him as appropriate. Indeed,
14 counsel built on those mistakes and persuaded the judge pro tem to stay the entire state
15 court proceeding. The Arizona Court of Appeals later granted special action relief against
16 these orders as unauthorized by law.
17 The False Claims Act required Cafasso to give the Government “substantially all
18 material evidence and information [she] possesse[d].” 31 U.S.C. § 3730(b)(2). She was
19 not required to show the Government evidence that she did not possess, or to possess
20 evidence unlawfully. Cafasso did not show a lawful basis for removing or retaining those
21 documents. In addition, the False Claims Act only protects the confidentiality of the
22 federal court proceedings themselves. It does not directly enable or require courts to
23 protect the secrecy of the Government’s or a relator’s investigation at the price of
24 violating other substantive and procedural laws.
25 Upon later learning of these events, this Court vacated its ex parte orders as
26 improvidently entered. [Doc. # 19.]
27
28
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 5 of 20
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 6 of 20
1 evasion and attempt to shift her own work to the opposing party that the court warned in
2 September 2007 was improper.” [Doc. # 219 at 14.] A discovery dispute then arose
3 regarding the scope and time limits of discovery, and the dispute was adjudicated in
4 January 2008. At the discovery dispute hearing, the Court reiterated its earlier directions
5 concerning the burden of discovery and granted Cafasso’s counsel additional time to
6 comply. GDC4S’s Rule 37 motion for attorney’s fees relating to this dispute was denied.
7 After the hearing, Cafasso propounded discovery into 110 inventions that were not
8 mentioned in the Substitute Amended Complaint. The Court granted GDC4S’s motion
9 for a protective order against the new lines of inquiry. No sanctions were sought or
10 awarded at this stage.
11 Cafasso’s evasiveness continued on June 2, 2008, when she responded to an
12 interrogatory asking her to “[i]dentify each specific provision of 31 U.S.C. § 3729(a)(1)-
13 (7) of the False Claims Act (“FCA”) that you allege in paragraph 173 of the Substitute
14 Amended Complaint (“SAC”) that Defendant ‘knowingly violated’ . . . .” [Doc. # 184-2,
15 exh. 2, at 2-4.] In response, Cafasso stated that she “has not made a claim as described in
16 this Interrogatory, nor does the law require that she claim such to have been the case.”
17 By any fair reading, Cafasso’s statement abandoned any qui tam allegations.2 The answer
18 prompted GDC4S’s motion for judgment on the pleadings as to the qui tam action.
19
20
21
2
In her briefing on the motion for judgment on the pleadings, Cafasso’s attorneys
22
argued that she could state a claim under the False Claims Act without pleading that a
23 “claim” was submitted to the Government. Whatever the merits of that theory under the law
applicable at the time, it in no way justified her refusal of discovery. The interrogatory
24 sought the basis for claims under the statute, not “claims” submitted to the Government, as
25 Cafasso now reconceives it.
In her briefing on this motion for attorney fees, Cafasso more candidly states that by
26 refusing this discovery on the eve of her deposition of GDC4S, she thought she could invoke
27 GDC4S’s duty to confer before seeking discovery relief, postponing her production until
after the deposition. [Doc. # 392 at 5-6.] Rather than demand a better answer, GDC4S took
28 her answer at face value, as it was entitled to do.
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 7 of 20
1 Responding to this motion, Cafasso lodged a response that was 57 pages long,
2 exceeding the page limit by 40 pages. The exhibits to the response also included 775
3 pages of single-spaced argument and supplemental charts. The Court disallowed the
4 filing. On its own, the Court granted Cafasso a two-week extension to file a proper
5 response and warned that her approach was improper. [Doc. # 202.] Nonetheless,
6 Cafasso filed a 17-page response that included 549 single-spaced pages of mostly
7 supplemental charts. She also lodged a 733-page Proposed Second Amended Complaint.
8 GDC4S’s motion for judgment on the pleadings was granted [doc. # 219], and
9 leave to amend again was denied. The substitute amended complaint of record appeared
10 to allege that GDC4S had breached certain contractual or regulatory obligations to the
11 Government, but it did not allege any “presentment of [a] false claim itself, or the
12 submission of a false statement or omission to get a false claim paid” on the part of
13 GDC4S. [Id.] Vague attacks on regular billing under GDC4S’s contract did not avail
14 Cafasso. The contract covered many technologies not at issue, and the Complaint did not
15 explain how any such billing was relevant to charges of fraud or falsification. Similarly,
16 nothing in the complaint supported other allegations of nondisclosure on GDC4S’s part.
17 Denying further leave to amend, the Court noted that the proposed substitute amended
18 complaint violated this Court’s order to “comply with the rules of pleading.” [Id. at 2;
19 doc. # 208 at 2.] It also violated the protective order already entered by attempting to
20 expand the scope of the case beyond the thirty-seven previously identified inventions.
21 [Doc. # 172.]
22 Subsequently, both parties moved for summary judgment on the remaining
23 claims: Cafasso’s retaliation claim against GDC4S, and GDC4S’s counterclaims against
24 Cafasso. GDC4S prevailed on both motions. [Doc. # 352.] Facts revealed during
25 discovery showed Cafasso’s retaliation claim to be without merit. She could offer no
26 valid defense to the contract action.
27
28
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 8 of 20
1 CONCLUSIONS OF LAW
2 GDC4S divides its fee request into three primary areas: the breach of contract
3 claim (counterclaim in this federal action and principal claim in the state court
4 proceedings), the retaliation claim, and the qui tam action. For reasons explained below,
5 partial fees will be awarded against Cafasso on the contract claim for taking GDC4S
6 documents.
7 I. The Breach of Contract Claim
8 GDC4S will be awarded partial fees for its state court litigation and federal
9 counterclaims under A.R.S. § 12-341.01(A). A stipulation of the parties preserves the
10 state court rights of the parties in this forum that fairly includes the general right to seek
11 attorneys’ fees at the conclusion of the case as a matter of Arizona contract law. [Doc. #
12 75.] For choice of law purposes, Arizona’s fee shifting statute forms part of the
13 substantive contract rights of the parties. See In re Larry’s Apartment, L.L.C., 249 F.3d
14 832, 836 (9th Cir. 2001); Building Innovation Indus., LLC v. Onken, 473 F. Supp. 2d 978,
15 986 (D. Ariz. 2007).
16 A.R.S. § 12-341.01(A) provides, “In any contested action arising out of a contract,
17 express or implied, the court may award the successful party reasonable attorney fees.”
18 To determine whether to award fees, the Court considers the factors governing awards
19 under the statute, including the merits of Cafasso’s defense, GDC4S’s success in
20 obtaining the relief sought, the avoidable expense incurred, the possibility that the award
21 will cause “extreme hardship,” any chilling effect the award might have on other parties
22 with tenable claims or defenses, and the novelty of the legal questions presented. See
23 Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1995).
24 A. The Merits of Cafasso’s Defense
25 Cafasso’s defense to the contract claim had no merit. Cafasso never disputed she
26 took GDC4S’s confidential and proprietary business documents in violation of the plain
27 terms of her employment contract with GDC4S. She raised only the defense that she was
28 privileged to take those documents to obtain evidence for her qui tam action. It is not
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 9 of 20
1 necessary to adjudicate here whether such a privilege ever exists in any circumstances.
2 Cafasso had no such privilege in this case. In removing the documents, she was not
3 cooperating in a Government investigation, nor was she reporting fraud, nor was she
4 preserving evidence. Moreover, Cafasso’s contact with Army Fraud Advisor Spitza in
5 April 2006 does not excuse her conduct. Spitza asked to see any documentation of fraud
6 that Cafasso possessed. He did not require or ask Cafasso to download or otherwise
7 obtain GDC4S’s technology information wholesale.
8 This is not a case where an employee came into the possession of specific
9 documents that exposed wrongdoing at her company. Cafasso obtained these documents
10 indiscriminately, whether or not they pertained to the specific claims she sought to bring.
11 So doing, she deprived GDC4S of vital business benefits provided by its employment
12 agreement. That agreement was designed to prevent GDC4S’s proprietary information
13 from falling into the wrong hands. It prevented the competition from availing itself of
14 GDC4S’s investment in its own technology. It also protected the secrecy of new
15 technologies that play a part in the nation’s military and domestic security operations.
16 Cafasso wilfully compromised these interests for no legitimate litigation purpose, only the
17 speculative pursuit of self-help discovery.
18 B. GDC4S’s Success in Obtaining Relief
19 Summary judgment was entered in favor of GDC4S on the breach of contract
20 counterclaim. The other counterclaims relating to the same set of facts were voluntarily
21 dismissed, as GDC4S obtained the full injunctive relief it sought. [Doc. ## 352, 377.]
22 On its counterclaims, GDC4S prevailed in every meaningful way.
23 C. Avoidable Expense
24 Cafasso’s weak defense of the state court claims and federal counterclaims caused
25 much expense that could have been avoided. On June 21, 2006, almost a month after
26 filing her federal complaint, she argued that she needed to retain the documents at issue
27 “for her legal counsel to perform their due diligence obligations pursuant to Rule 11,
28 Ariz. R. Civ. P., to determine whether she has provable claims against [GDC4C].” [Doc.
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Case 2:06-cv-01381-NVW Document 419 Filed 11/04/09 Page 10 of 20
1 # 227, tab 2:1.] She reiterated this statement as late as August of that year. [Id. at tab
2 1:10.] Contrary to her assertions to the state courts in 2006, Cafasso now contends that
3 she had sufficient Rule 11 basis for her False Claims Act claims even without review of
4 the documents and based on what she heard and believed while at GDC4S. For purposes
5 of this motion, the Court will take Cafasso’s new contention as correct. Even so, the
6 taking and retention of the documents in violation of contract served no legitimate
7 purpose.
8 The Government had access to all GDC4S’s documents, even without legal
9 process. It could have sought those documents directly without informing GDC4S of the
10 pendency of Cafasso’s False Claims Act claims, thus observing the letter of the sealing
11 terms of the Act. See 31 U.S.C. § 3733. Once the Government elected not to intervene,
12 Cafasso could have served the complaint and had discovery. There was no colorable
13 basis to think GDC4S was destroying documents, nor was it even suggested that
14 documents were altered or falsified in the first place. If there were any basis to fear loss of
15 documents, Cafasso could have applied to this Court for appropriate relief, including
16 early protective orders.
17 In short, every principle of substantive and procedural law cut against Cafasso’s
18 self-help discovery tactic. Moreover, there was no legitimate reason for refusing
19 compliance with the state court restraining order to surrender documents to GDC4S.
20 Shortly after getting that order lifted ex parte, Cafasso herself breached the seal on the
21 pendency of her False Claims Act action and GDC4S found out about it. She could have
22 gotten any appropriate discovery with judicial enforcement of the rules designed to
23 protect both parties.
24 Cafasso now contends that she should not be assessed attorney fees on this failing
25 battle that never had any legitimate practical purpose precisely because she would have
26 “settled” this part of the case if she had been asked. But she was asked—in a lawsuit,
27 which she fought with dogged determination to the end. This contention does not defend
28 her conduct; it confesses its lack of justification.
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1 valid contract was plain and wilful, and great substantive harm and litigation cost was
2 thrust upon the employer. The justification offered for the breach of contract, if it might
3 suffice in narrow circumstances, fell far short of the wholesale misappropriation of
4 records in this case. The unfair expense of having to defeat Cafasso’s breach of contract
5 is not excused by its own magnitude. It would be a poor exercise of discretion to allow
6 that reckless, unnecessary, and burdensome breach to trump the other factors strongly
7 favoring an award of fees “to mitigate the burden of the expense of litigation to establish
8 a just claim.” A.R.S. § 12-341.01(B).
9 Therefore, although fees will be awarded under A.R.S. § 12-341.01(A), the
10 amount of the award will reflect a reduction based on the possibility of extreme hardship
11 the full amount requested could impose on Cafasso.
12 E. Chilling Effects
13 Cafasso contends that a fee award will deter parties from raising novel defenses
14 and will deter future qui tam plaintiffs from bringing suit. These arguments rely upon
15 flawed reasoning. As explained in the following section, Cafasso’s defense was not so
16 much novel as unsupported. Breaching the terms of her employment agreement was not
17 necessary to bring the qui tam or retaliation actions. The contract fees at stake are not
18 attributable to GDC4S’s successful defense of the qui tam and retaliation actions, but
19 rather to the prosecution of a well-founded contract claim independent of those actions.
20 Cf. Moses v. Phelps Dodge Corp., 826 F. Supp. 1234, 1237 (D. Ariz. 1993) (disfavoring
21 fee awards relating to the defense of statutory actions that vindicate Congressional intent).
22 Cafasso’s claims under the False Claims Act and GDC4S’s breach of contract claims and
23 counterclaims do not have a reciprocal relationship. The award poses no threat to False
24 Claims Act plaintiffs who perform a reasonable inquiry into the facts and law underlying
25 their claim and avail themselves of the discovery under the law.
26 F. Novelty of the Issues
27 Any novelty to Cafasso’s defense and her related qui tam theory does not militate
28 against fees. Cafasso’s defense to her breach of contract was not grounded in the line of
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1 authority protecting whistle blowers who lawfully report fraud or cooperate in ongoing
2 Government investigations. [Doc. # 352 at 22.] The lack of directly applicable precedent
3 for her sweeping proposition signals her defense’s weakness more than its novelty. In re
4 Estate of Parker, 217 Ariz. 563, 569, 177 P.3d 305, 311 (Ct. App. 2008) (absence of
5 applicable precedent does not preclude award of fees where “the result was compelled by
6 the plain language of the statute”).
7 G. Interwoven Counterclaims
8 The award of fees encompasses the other counterclaims for misappropriation of
9 trade secrets, breach of fiduciary duty, common law fraud, conversion, and computer
10 fraud and abuse. Although the bulk of the fees are attributable to the contract claim, the
11 other counterclaims are sufficiently interwoven with the contract claim to fall within the
12 ambit of the award. Campbell v. Westdahl, 148 Ariz. 432, 441, 751 P.2d 288, 297 (Ct.
13 App. 1985). They arise out of the same set of facts—Cafasso’s removal of nearly eleven
14 gigabytes of documents from GDC4S’s offices—and they all involve a common legal
15 question: whether Cafasso’s contractual relationship with GDC4S, including her
16 contractual duty of secrecy, prohibited her from removing the documents. Modular
17 Mining Sys., Inc. v. Jigsaw Techs., Inc., No. 2 CA-CV-2008-0118, 2009 WL 1162893, at
18 *6 (Ariz. App., April 30, 2009); see also, e.g., A.R.S. § 44-401(1)-(2) (defining
19 misappropriation of trade secrets with reference to duties of secrecy); Restatement
20 (Second) of Agency § 395, 396 cmt. h (1959) (defining fiduciary duty with reference to
21 confidentiality agreements). However, the Court’s discretionary reduction in the fee
22 award effectively limits the award to an amount incurred directly on the breach of
23 contract claim.
24 Cafasso’s contract with GDC4S was not an implied agreement or one that merely
25 mirrored her preexisting legal obligations, but a “special contractual relationship” that
26 created specific boundaries in Cafasso’s employment relationship. Thus, the
27 counterclaims would not have arisen in the same manner had the contract not existed.
28
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1 Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 523-24, 747 P.2d 1218, 1222-
2 23 (1987).
3 H. Fee Statements
4 The Court has reviewed the fee statements submitted by GDC4S. There is no
5 merit to Cafasso’s contention that the statements contain many billing entries that cannot
6 be the subject of any fee award, either because the billing entries are too vague or because
7 GDC4S has sometimes engaged in “block billing” of unrelated tasks. The context of the
8 objected-to entries makes their meaning clear, and tasks are grouped into appropriate
9 categories of activity.
10 I. Amount of Fees and the Fee Litigation
11 Under A.R.S. § 12-341.01(A), the Court has discretion to determine the amount of
12 attorneys’ fees to be awarded. The award of attorneys’ fees “need not equal or relate to
13 the attorney fees actually paid or contracted, but the award may not exceed the amount
14 paid or agreed to be paid.” A.R.S. § 12-341.01(B).
15 The following factors strongly weigh in favor of an award of attorneys’ fees: the
16 merits of Cafasso’s defense, the avoidable expense incurred, the novelty of the legal
17 questions presented, and any chilling effect the award might have on other parties with
18 tenable claims or defenses. The possibility that an award in the amount of $575,415.00
19 will cause extreme hardship on Cafasso weighs against an award of that amount, but is
20 barely supported with Cafasso’s general assertions and no specific information regarding
21 her financial condition.
22 Therefore, attorneys’ fees will be awarded under A.R.S. § 12-341.01(A) in the
23 amount of $300,000.00. In exercising its discretion in setting the amount of the award,
24 the Court also exercises its discretion to decline to impose an additional award of
25 attorneys’ fees incurred in preparing the fee application. This is a major discretionary
26 reduction in the award that otherwise would be warranted.
27
28
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1 DeVille, 361 F.3d 539, 545-46, 550-51 (9th Cir. 2004); Fink v. Gomez, 239 F.3d 989,
2 993-94 (9th Cir. 2001); Bader v. Itel Corp. (In re Itel Sec. Litig.), 791 F.2d 672 (9th Cir.
3 1986); Schepers v. Babson-Smith, 2008 WL 246086, at *5-7 (N.D. Iowa Jan. 28, 2008).3
4 GDC4S contends that the parties’ procedural stipulation enables this Court to
5 sanction conduct that occurred in the state proceedings. This is not so. The scope of the
6 Court’s sanctioning powers is akin to subject matter jurisdiction, Morris ex rel. Rector v.
7 Peterson, 871 F.2d 948 (10th Cir. 1989), and like subject matter jurisdiction, it cannot be
8 enlarged by consent or waiver of the parties. The purpose and effect of the stipulation
9 was to achieve judicial economy by combining two related proceedings. It accelerated
10 the federal case according to what had been accomplished in the state court, and the
11 parties brought with them whatever substantive rights they could still assert in this
12 tribunal. Those rights included the fee-shifting provisions of Arizona contract law, which
13 are an incident of substantive contract rights. Building Innovation Indus., LLC v. Onken,
14 473 F. Supp. 2d 978, 986 (D. Ariz. 2007). They did not include a procedural right, which
15 never existed, to have a federal district judge regulate abusive litigation conduct that
16 occurred in the state forum. Even where separate state court proceedings are used to
17 obstruct a federal action, the federal court’s sanctioning powers do not stretch so far. See
18 Case, 937 F.2d at 1022 (reversing bankruptcy court’s award of § 1927 and inherent
19 powers sanctions for state court tactics designed to harass federal court creditor and delay
20 federal proceedings).
21 For the same reasons, no attorney sanctions will be awarded for Cafasso’s alleged
22 evasion of service of process. Even if the Court had the power to award those sanctions,
23 the record contains no indication that Cafasso’s attorneys participated in or encouraged
24
25 3
The state and the federal actions in this case are separate. The state action was
26 voluntarily dismissed, and the parties stipulated to the adoption of the state court’s orders by
27 this Court, while reserving all the rights they retained in the state proceeding. A non-
removed state court proceeding is an “entirely separate action” even when a parallel claim
28 is made in federal court. Case, 937 F.2d at 1023.
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1 evasive conduct on her part. Any difficulty in obtaining personal service on Cafasso
2 herself is primarily explained by her need to travel out of state from May 24, 2006, until
3 June 18, 2006, to attend to her ill mother. She was served five days after she returned.
4 II. The Retaliation Claim
5 No fees will be awarded as sanctions relating to Cafasso’s retaliation claim. The
6 Court is not persuaded that Cafasso’s attorneys unreasonably multiplied the retaliation
7 proceedings in violation of 28 U.S.C. § 1927, or that Cafasso committed some serious
8 wrongdoing that requires use of the Court’s inherent sanctioning power because the
9 statutes or rules come up short. Chambers, 501 U.S. at 50. Summary judgment on the
10 retaliation claim was granted in favor of GDC4S. The retaliation claim’s lack of merit is
11 not, by itself, grounds for § 1927 sanctions. Knorr Brake Co. v. Harbil, Inc., 738 F.2d
12 223, 226 (7th Cir. 1984).
13 GDC4S argues that Cafasso’s retaliation suit was not brought in good faith
14 because in the days before leaving the company, she complained that her termination was
15 in retaliation for reporting an instance of workplace violence. This complaint is not
16 inconsistent with the allegations relating to retaliation. As the False Claims Act itself
17 recognizes in its sealing provisions, plaintiffs may have good reasons not to alert their
18 employers of an intent to bring suit under the Act. Nor does the time passing between her
19 ethics complaints and her termination show bad faith in pursing the claim; it simply
20 increases the difficulty of showing a causal connection between the two.
21 III. The Qui Tam Action4
22
23
24 4
GDC4S originally sought fees relating to the qui tam claim under the False Claims
25 Act itself, 31 U.S.C. § 3730(d)(4). [Doc. # 227 at 16.] Although GDC4S’s most recent
motion for attorney’s fees renewed the original motion with that request for relief, the new
26 motion excludes the False Claims Act as a basis for fees. Therefore, no fee request will be
27 adjudicated under the Act. However, § 3730(d)(4) does not preclude sanctions by way of the
Court’s inherent powers or 28 U.S.C. § 1927. Pfingston v. Ronan Eng’g, 284 F.3d 999, 1006
28 n.5 (9th Cir. 2002).
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1 court costs in this instance falls within the spirit of LR 54.1(e)(1)-(9) and within the letter
2 of LR 54.1(e)(10). To deny taxable costs from the state court proceeding would defeat
3 the purpose of the stipulation bringing the state court claims into this case without
4 prejudice to the rights of either party. GDC4S will therefore be granted leave to file its
5 supplemental bill of costs. Cafasso may raise objections to particular costs once the bill is
6 filed.
7 ORDER
8 IT IS THEREFORE ORDERED that Defendant GDC4S’s Motion for Award of
9 Attorneys’ Fees [Doc. # 363] is granted in part and denied in part. The motion for award
10 of fees against Relator’s counsel under 28 U.S.C. § 1927 and the court’s inherent power is
11 denied. The motion for award of fees against Relator Mary A. Cafasso under A.R.S.
12 § 12-341-01(A) is granted in the amount of $300,000.00.
13 IT IS FURTHER ORDERED that Defendant GDC4S’s Motion for Leave to File a
14 Supplemental Bill of Costs re State Court [doc. # 385] is granted. The Clerk is directed to
15 file Defendant GDC4S’s Lodged [Proposed] Supplemental Bill of Costs [doc. # 386].
16 IT IS FURTHER ORDERED that the Clerk enter judgment in favor of General
17 Dynamics C4 Systems, Inc., against Mary A. Cafasso in the amount of $300,000.00 for
18 attorney fees pursuant to A.R.S.§ 12-341.01(A).
19 DATED this 3rd day of November, 2009.
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