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United States ex rel. Berg v. Honeywell International, Inc.

United States District Court, D. Alaska

May 8, 2017




         Before the Court at Docket 325 is Defendants' Motion for Attorney Fees. The motion is fully briefed.[1] The Court heard oral argument on the motion on April 24, 2017.


         Honeywell contends that it is entitled to recover attorneys' fees under any of three standards: the False Claims Act provision for attorneys' fees at 31 U.S.C. § 3730(d)(4); the Vexatious Litigant Statute at 28 U.S.C. § 1927; and the Court's inherent authority to impose sanctions for bad faith conduct. Honeywell seek fees from the Relators themselves under the FCA, and from Relators' counsel under § 1927 and the Court's inherent authority.

         I. The FCA Provision

         The default rule for an FCA action is that a successful relator is entitled to an award of attorneys' fees.[2] But the award of fees to a prevailing defendant “under the False Claims Act is reserved for rare and special circumstances.”[3] A successful defendant in an FCA action is entitled to such an award only if “the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”[4] This standard largely mirrors that used to determine whether a prevailing defendant is entitled to attorneys' fees under 42 U.S.C. § 1988.[5]

         As the Ninth Circuit has explained:

An action is “clearly frivolous” when “the result is obvious or the appellant's arguments of error are wholly without merit.” An action is “clearly vexatious” or “brought primarily for purposes of harassment” when the plaintiff pursues the litigation with an improper purpose, such as to annoy or embarrass the defendant.[6]

         Honeywell does not contend that this action was “clearly vexatious” or “brought primarily for purposes of harassment.”[7] Rather, Honeywell contends that it was “clearly frivolous” because of the substantial evidence of government knowledge and participation in crafting the Electrical Baseline Adjustment and because separate federal investigations into the contracts concluded there was insufficient evidence of fraud.[8] Relators respond that their argument that the government knowledge in this case was insufficient to defeat liability was not frivolous.[9]

         The Ninth Circuit has explained that a court should deny an award of attorneys' fees when the “circumstances furnish some basis, albeit somewhat tenuous, for one to theorize” a claim, even if “evidence to support such a theory failed to materialize, and summary judgment was properly granted in favor of the defendant[].”[10] Relators were not required to accept the government investigators' assessments of the evidence. The fact that this Court granted summary judgment in favor of Honeywell does not mean the result was “obvious” or that Relators' arguments were “wholly without merit.” Honeywell has not shown that this is a “rare and special circumstance[]” that warrants attorneys' fees under the FCA. Accordingly, the Court will deny Honeywell's motion seeking attorneys' fees against Relators pursuant to the False Claims Act.

         II. Vexatious Litigant Statute and Inherent Power

         Congress has authorized the award of attorneys' fees against an attorney who “multiplies the proceedings in any case unreasonably and vexatiously.”[11] To support an award of attorneys' fees, Honeywell must show that Relators' counsel “knowingly or recklessly raise[d] a frivolous argument, or argue[d] a meritorious claim for the purpose of harassing an opponent.”[12] “[R]eckless nonfrivolous filings, without more, may not be sanctioned” under § 1927.[13] To support a fee award pursuant to § 1927, then, Honeywell must show that Relators' counsel recklessly made frivolous filings or arguments, or otherwise acted “for the purpose of harassing an opponent” or some other improper purpose.

         Independent of its statutory authority, a court may also award attorneys' fees when a party or attorney has acted in bad faith.[14] Under a court's inherent power, “[s]anctions are available for a variety of types of willful actions, including recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose.”[15] Although a court's inherent power permits it to award sanctions against either a party or an attorney, [16] Honeywell mostly seeks fees only from Relators' counsel.[17]

         These standards are not identical-a fee award may in some cases be appropriate under § 1927 but not under a court's inherent power, and vice versa.[18] But because the standards under each largely overlap as relevant to this case, and because Honeywell briefed them together, the Court also addresses them together. The alleged sanctionable conduct falls into four distinct categories: (1) representations made to the Ninth Circuit; (2) actions related to Paul Knauff; (3) frivolous motions practice; and (4) frivolous legal arguments. The Court addresses each category in turn.

         a. Ninth Circuit Appeal

         Honeywell relies on Relators' representations to the Ninth Circuit that Honeywell “overwrote” the DOE software, that Steve Craig “admitted” knowing the project would not save money, and that Honeywell planned from the outset for the project to fail in order to capture profits at a later renegotiation.[19] In Honeywell's view, Relators' representations were knowingly false when made.[20] As to the “overwriting” claim, Honeywell merely indicates that the evidence produced and reviewed during discovery in this case after the representations made to the Ninth Circuit-recall that the Ninth Circuit was considering only allegations in a complaint-did not support those representations. That an allegation turns out to be unsupported by evidence does not automatically render it either frivolous or harassing.[21] Honeywell has not shown that Relators' counsel's representations on overwriting justify a fee award.

         As to the “Craig” claim, Honeywell has not met its burden to show that this claim was made recklessly or with intent to harass. Rather, the Court simply held in its order on summary judgment that Relators had failed to present sufficient evidence on which a reasonable jury might return a verdict in their favor with regard to that claim.[22]

         The Court notes that in Relators' briefing on the motion for attorneys' fees, Relators have substantially augmented the record in this regard beyond what was submitted to or relied on by the Court in support of their summary judgment briefing. This includes the submission of a new declaration by Teresa Robison, one of the attendees at the July 2006 meeting, which she signed in February 2017-two months after the Court had ruled on summary judgment, and more than ten years after the July 2006 meeting.[23] Relators have also just filed a memorandum apparently written by Tim Berg shortly after the July 2006 conference call and around the same time as the Tyler Memorandum.[24] For unknown reasons, Mr. Berg's previous declaration in support of the summary judgment briefing did not append his own contemporaneous memorandum but instead relied only on the Tyler Memorandum.[25] But in any event, Mr. Berg's recently filed memorandum, consistent with Mr. Tyler's, indicates that Mr. Craig's comment at the July 2006 meeting was conditional: “Mr. Craig . . . reiterated that unless the Government lived up to its commitment to ensure actual facility heat loads that both Honeywell and the Government knew the project would not be economically viable.”[26] While the newly submitted materials reflect the extent of certain FRA employees' distrust of Honeywell, they do not undermine the Court's ruling on summary judgment.[27] But neither do they-or any other evidence before the Court on this motion-establish that Relators and their counsel knowingly or recklessly relied on Mr. Craig's July 2006 remarks in pressing their claims. The fact that Honeywell prevailed on summary judgment does not render the Relators' claim “frivolous, ” nor does it prove an intent to harass. Relators' and counsel's conduct as to this issue does not warrant an award of attorneys' fees.

         Relators also proffered a “renegotiation” theory to the Ninth Circuit. Although ultimately this Court found no genuine issue of material fact to support such a theory, the advancement of that theory also does not warrant an award of attorneys' fees. Despite Honeywell's contention that government documents already in Relators' possession at the time of the Ninth Circuit oral argument disproved this theory, matters concerning Honeywell's intentions in its original bidding would not necessarily be found in the government's documents. Oral argument before the Ninth Circuit took place before any extensive discovery had begun. The government's documents then in Relators' possession merely reveal that the government contemplated alternative resolutions to the AAA findings, and ultimately decided to pursue renegotiation. Honeywell has not shown the absence of any factual basis for Relators to allege the renegotiation theory to the Ninth Circuit during the prior appeals, for that theory necessarily would turn on the later-acquired discovery related to Honeywell's documents and personnel.[28]

         b. Paul Knauff

         Honeywell maintains that attorneys' fees are warranted for Relators' counsel's conduct related to Paul Knauff's affidavit, documents, and deposition. Much of that alleged conduct, standing alone, would not warrant sanctions or an award of fees even if true. Counsel's alleged failure to notify the government or Honeywell prior to contacting Mr. Knauff, for example, does not, by itself, demonstrate bad faith. Likewise, counsel's failure to timely produce documents collected from Mr. Knauff was not shown to be done in bad faith.

         The allegations that Relators' counsel procured a false affidavit and persuaded Mr. Knauff to sign it, however, are far more serious. But the record on this issue is insufficient to support Honeywell's proposed remedy. So far as the Court can discern, Relators' counsel met with and interviewed Mr. Knauff, drafted an affidavit that reflected counsel's understanding of the relevant facts, reviewed that draft affidavit with Mr. Knauff, made corrections as directed, and then provided a final version of the affidavit for Mr. Knauff to sign before a notary public. In Mr. Knauff's own telling, this notary public then went through and read each line, confirming Mr. Knauff's agreement, before having Mr. Knauff sign and date the affidavit.[29] That notary public-whose credibility is not in question- averred that Mr. Knauff was alert and appeared to fully understand the contents and import of the affidavit, after reviewing supporting documentation in his own file.[30] And Honeywell's contention that Mr. Knauff “would not have included almost any of the paragraphs” is somewhat misleading.[31] Mr. Knauff's testimony indicates only that he had written affidavits in the past and that if he had written this one “[i]t wouldn't have been this long.”[32]

         An attorney must always exercise caution to ensure that an unrepresented individual does not mistake that attorney for his own.[33] But there is no indication that Relators' counsel actively misled Mr. Knauff as to their relationship; rather, Mr. Knauff testified that he had assumed they represented him.[34] Relators' counsel explained that they represented Relators in the matter.[35] Any misunderstanding between Mr. Knauff and Relators' counsel on this point is not grounds for a fee award.

         In its Reply, Honeywell argues that the Knauff affidavit contained statements that Relators' counsel knew to be false. Honeywell points to the contradiction between an After Action Review account of Mr. Knauff's actions with regard to calculating the baseline and the account of Mr. Knauff's actions in the affidavit.[36] But many a witness's recollection will vary over time, even if Mr. Knauff's varied substantially. In light of this conflict in the evidence, at summary judgment the Court specifically did not decide the issue of Mr. Knauff's role in setting the baseline.[37]

         “Fair competition in the adversary system is secured by prohibitions against destruction or concealment of evidence, improperly influencing witnesses, obstructive tactics in discovery procedure, and the like.”[38] While certain of the interactions between Relators' counsel and Mr. Knauff are questionable, Honeywell has not shown that the conduct was in bad faith so as to justify a fee award.

         c. Motions Practice

         Honeywell points to five filings by Relators that Honeywell maintains were “frivolous and vexatious.”[39] The Court addresses each filing in turn.

         1. Docket 174 - Case Status Report

         After over eight years of litigation, this case was reassigned to the undersigned judge on January 13, 2016.[40] Three days prior to a scheduling conference, Relators filed a “Case Status Report” that summarized their argument and view of the facts.[41]Honeywell moved to strike that submission, and the Court did so at the scheduling conference.[42] Although the Court struck the filing, the Court does not find it warrants a fee award: counsel appears to have been acting in good faith to inform the newly assigned judge of the relevant legal, factual, and procedural background of the case.[43] No fees will be awarded for this filing.

         2. Docket 181 - Motion to Compel

         In the midst of fact discovery, Relators filed a Motion to Compel seeking production of certain of Honeywell's internal documents that Honeywell had withheld as privileged.[44]The Court denied the motion without prejudice to renew and with specific instructions for renewal.[45] Honeywell appears to contend that Relators' failure to renew the motion shows it to have been vexatious.[46] The Court disagrees: that the motion was denied without prejudice to renew does not entitle Honeywell to fees; neither does Relators' decision not to renew the motion. Indeed, the Court's order denying the motion recognized that its assessment of any renewed motion would turn on the content of Honeywell's motion for summary judgment.[47] That Relators opted not to renew the motion to compel after reviewing the motion for summary judgment does not show that the original motion was vexatious or otherwise sanctionable.

         3. Docket 225 - Motion for Partial Summary Judgment

         Relators filed a motion for partial summary judgment, contending that the undisputed facts unequivocally demonstrated Honeywell's liability.[48] The Court, of course, denied the motion and granted summary judgment to Honeywell.[49] Honeywell's particular complaint with regard to this filing is the insufficiency of factual citations and the late filing of “corrected” briefing and omitted exhibits.[50]

         The Court will not revisit its rulings on summary judgment. Honeywell prevailed on summary judgment in light of the relevant briefing and submitted evidence. Relators did not. But a fee award on this basis is unwarranted.[51]

         4. Docket 231 - Motion to Compel

         After the close of fact discovery, and after the filing of motions for summary judgment (and related oppositions), Relators filed a Motion to Compel.[52] The Court granted that motion in part.[53] In addition to seeking fees for its briefing on this matter, Honeywell apparently also seeks recovery of its “fees for engaging in further discovery and responding to deposition by written question.”[54] No fees are warranted for responding to what the Court deemed a meritorious motion or for complying with the Court's order.

         5. Docket 307 - Motion to Compel

         Following Honeywell's compliance with the Court's order on the motion to compel discussed above, Relators filed another Motion to Compel seeking additional production of internal correspondence related to ESPC audits.[55] The motion was denied. But the filing of the motion to ...

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