GENERAL DYNAMICS CORPORATION, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant

139 F.3d 1280, 98 Daily Journal DAR 3111, 98 Cal. Daily Op. Serv. 2236, 1998 U.S. App. LEXIS 5980, 1998 WL 136209

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 27, 1998
• Docket: 96-55821
• Status: Published

Opinions

Opinion by Judge FERNANDEZ; Dissent by Judge O’SCANNLAIN.

FERNANDEZ, Circuit Judge:

General Dynamics Corporation brought this action under the Federal Tort Claims Act, 28 U.S.C. § 1346(b), against the United States for the purpose of obtaining reimbursement of attorneys fees it expended in defending a fraud prosecution, and a related civil action. The United States claimed that, among other things, it was protected by the discretionary function exception to liability, but the district court agreed with General Dynamics and held the United States liable for damages in the amount of $25,880,752. The United States appealed, and we reverse and remand.

BACKGROUND

In January of 1978, the Department of the Army awarded General Dynamics a contract to develop two prototypes for the Divisional Air Defense System (DIVAD Contract). The DIVAD Contract was, according to its explicit terms, a “firm fixed-price (best efforts)” contract. The Defense Contract Audit Agency, the auditing branch of the United States Department of Defense, audited General Dynamics as a part of a general program designed to verify compliance with defense contracts. The DCAA reported suspected labor mischarging by General Dynamics to the United States Naval Investigative Service and to the United States Department of Justice. The DCAA then continued its audit and on February 29, 1984, issued an audit report, which indicated that General Dynamics had fraudulently mischarged over $8,000,-000 of DIVAD Contract costs. That report was negligently prepared because the DCAA, unaccountably, failed to recognize, or seek information about, the vast difference between a firm fixed-price contract and a firm fixed-price (best efforts) contract.

Still, based at least in part on the DCAA’s report, the DOJ sent General Dynamics a grand jury subpoena in which it sought documents relating to the DIVAD Contract. On that same day, General Dynamics received a copy of the DCAA’s flawed audit report. An extensive investigation followed in which the DOJ subpoenaed millions of documents and interviewed numerous witnesses. Beyond that, General Dynamics’ perspicacious attorneys met with the prosecutors and tried to explain the differences between the two types of contracts. The prosecutors, it seems, were not impressed and decided to plow ahead.

Thus, a grand jury returned an indictment against General Dynamics and four of its employees which charged them with conspiracy and the making of false statements to the United States. See 18 U.S.C. §§ 371, 1001. Unaccountably, the indictment charged that the contract was a firm fixed-price contract, and left out the limiting language “best efforts.” Despite General Dynamics’ continued emphasis on the latter language, the prosecution was vigorously pursued until, at last, the prosecutors obtained information from those who knew, gained an understanding of the significance of the differences, and forthrightly moved to voluntarily dismiss the indictment.

Fortunately for the cause of justice, General Dynamics and its employees could afford to keep fighting; unfortunately, it cost them a lot of money to do so. General Dynamics hoped to recover that money under the FTCA, so this action followed. The district court agreed that General Dynamics could recover, and the United States appealed.

JURISDICTION AND STANDARDS OF REVIEW

In general, the district court has jurisdiction over FTCA cases pursuant to 28 U.S.C. § 1346(b). We have jurisdiction pursuant to 28 U.S.C. § 1291. Of course, whether jurisdiction is precluded by the discretionary function exception, 28 U.S.C. § 2680(a), is an important issue in this ease. We will turn to it in due course.

Because it is a question of jurisdiction, “[w]e review the district court’s determination of subject matter jurisdiction under the discretionary function exception de novo.” Valdez v. United States, 56 F.3d 1177, 1179 (9th Cir.1995). Similarly, we review questions of law de novo. See, e.g., Twenty-Three Nineteen Creekside, Inc. v. Commissioner, 59 F.3d 130, 131 (9th Cir.1995), cert. denied, 516 U.S. 1154, 116 S.Ct. 1034, 134 L.Ed.2d 111 (1996). That includes questions of state law. See In re McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc).

DISCUSSION

The United States attacks the district court’s judgment on many fronts. Among other things, it asserts that this action is barred by the discretionary function exception, which applies to prosecutors, and that under California law the action would be precluded by the statutory privilege for submitting information to prosecutors. While we hold that the former issue does, indeed, bar jurisdiction in this action, we will also allude to the latter issue because it bears a close resemblance to the discretionary function exception. Analogically, it supports our application of that exception to this case.

Under the FTCA, the United States may be held liable in tort “for injury or loss of property ... caused by the negligent or wrongful act or omission of any employee ... under circumstances where the United States, if a private person, would be hable to the claimant in accordance with the law of the place where the act or omission occurred.” 28 U.S.C. § 1346(b). That waiver of sovereign immunity is subject to a number of exceptions. If an exception applies, sovereign immunity is not waived, and no subject matter jurisdiction exists. See Sabow v. United States, 93 F.3d 1445, 1451 (9th Cir.1996). Jurisdiction does not exist when the claim is “based upon the exercise or performance or the failure to exercise or perform a discretionary function.” 28 U.S.C. § 2680(a); see also Sabow, 93 F.3d at 1451.

The Supreme Court has explained the two-step process that must be gone through for the purpose of determining whether the discretionary function bar applies to any given case. See Berkovitz v. United States, 486 U.S. 531, 536-37, 108 S.Ct. 1954, 1958-59, 100 L.Ed.2d 531 (1988). We have done the same. See, e.g., Sabow, 93 F.3d at 1451. We need not go through that detailed, and often difficult, analysis here because no one doubts that prosecutorial discretion is covered. As we have succinctly put it: “The decision whether or not to prosecute a given individual is a discretionary function for which the United States is immune from liability.” Wright v. United States, 719 F.2d 1032, 1035 (9th Cir.1983). See also Gray v. Bell, 712 F.2d 490, 513 (D.C.Cir.1983). The exercise of that discretion is by no means easy, and prosecutors do make mistakes. Regardless, in general a prosecution does not go forward, and defendants are not sucked into its vortex merely because a report of one kind or another has been given to the prosecutor. Indeed,

[t]he prosecutor has a duty to measure the facts in the report by legal standards and decide whether they add up to probable cause to prosecute. The possibility of less than perfect investigative conduct on the part of the police is no doubt one reason the law requires an exercise of the prosecutor’s informed discretion before the initiation of prosecution.

Smiddy v. Varney, 803 F.2d 1469, 1472 (9th Cir.1986), modified on other grounds, 811 F.2d 504 (9th Cir.1987).

General Dynamics does not really dispute these observations. It, instead, recognizes that it cannot succeed in an attack on that revetment and adopts the ancient tactic of attempting to circumvent it instead. That is, it seeks to posture its ease as an attack on the DCAA rather than as an attack on the prosecutors. If it can do that, as the district court thought it could, it may enhance its claims of success immeasurably. But it cannot do it.

Courts are not required to, and should not, simply look at the surface of a complaint for the purpose of ascertaining the true basis of an attack upon something the government has done. Thus, a party may choose to dub his claim as one for negligence when it is truly a claim for misrepresentation, for which jurisdiction is excluded. Courts need not accept the label. See United States v. Neustadt, 366 U.S. 696, 703, 81 S.Ct. 1294, 1299, 6 L.Ed.2d 614 (1961). Similarly, a party might choose to say that he is suing for infliction of emotional distress so that he can avoid the bar against slander claims. Again, the courts need not accept the label. See Thomas-Lazear v. FBI, 851 F.2d 1202, 1206-07 (9th Cir.1988); see also Metz v. United States, 788 F.2d 1528, 1535 (11th Cir.1986); Enterprise Elec. Corp. v. United States, 825 F.Supp. 983, 985 (M.D.Ala.1992).

We see no reason to accord amaranthine obeisance to a plaintiffs designation of targeted employees when we refuse to be bound by his choice of claim labels. We may take cognizance of the fact that a target has been selected for the purpose of evading the discretionary choice of the persons who actually caused the damage — here the prosecutors’, who were pushing a criminal (and civil) attack upon General Dynamics and its employees. Were it otherwise, it would be a simple matter to bog down the government in a new litigation whenever the erstwhile defendant had been the victor. Prosecutors do not usually do all of their own investigation, so a victorious defendant could almost always argue that this or that report was negligently prepared. We referred to that very problem in Smiddy, 803 F.2d at 1471, when we said that the exercise of prosecutorial judgment will usually insulate investigating officers from liability.

The same note was sounded by the Third Circuit when it turned back an action against the United States. See Fisher Bros. Sales, Inc. v. United States, 46 F.3d 279, 286 (3rd Cir.) (en banc), cert. denied, 516 U.S. 806, 116 S.Ct. 49, 133 L.Ed.2d 15 (1995). In Fisher Bros., the United States Food and Drug Administration received information from the United States Embassy in Chile that an anonymous caller had warned that fruit from Chile would be injected with cyanide. The FDA decided that that was a hoax. Then a second call came in, and the caller said that he had already injected some fruit. The FDA then took steps to see if there was any tainted fruit and a report was issued from an FDA laboratory, which said that a couple of grapes were tainted. Those results were not duplicated and no more tainted fruit was found. Based upon the information before him, including the allegedly negligently prepared report from the FDA’s laboratory, the FDA Commissioner exercised his discretion to refuse entry of any Chilean fruit into this country, and to withdraw all Chilean fruit already in domestic distribution channels. That damaged the plaintiffs from whom the Commissioner had not requested information before he acted. Id. at 282-83. The plaintiffs chose not to attack the Commissioner’s exercise of discretion; they hardly could. Instead, they attacked the work of the laboratory technicians. The Third Circuit noted that it was not required to “accept plaintiffs’ characterization of’ the facts and that plaintiffs could not “by the manner in which they draft their complaints, ... dictate that then-claims are ‘based upon’ one government employee’s actions and not another’s.” Id. at 286. It continued:

The reality here is that the injuries of which the plaintiffs complain were caused by the Commissioner’s decisions and, as a matter of law, their claims are therefore “based upon” those decisions. Any other view would defeat the purpose of the discretionary function exception. In situations like this where the injury complained of is caused by a regulatory policy decision, the fact of the matter is that there is no difference in the quality or quantity of the interference occasioned by judicial second guessing, whether the plaintiff purports to be attacking the data base on which the policy is founded or acknowledges outright that he or she is challenging the policy itself.

Id. As the court noted, decision makers do, of necessity, rely upon information from others, and the purpose of the discretionary function exception would be severely undercut if a plaintiff could adopt the simple expedient of attacking one or more of the people who supplied information to the decision maker. Id. at 286-87.

We recognize that if Fisher Bros, is read too broadly, the discretionary function exception could swallow up a large part of the FTCA itself. No doubt many actions within an agency pass through the hands of somebody with some discretion at some stage. We have previously made that very point. See United Cook Inlet Drift Assoc. v. Trinidad Corp. (In re Glacier Bay), 71 F.3d 1447 (9th Cir.1995). In Glacier Bay, hydrogra-phers had allegedly failed to follow required procedures when they collected data for the preparation of nautical charts for Cook Inlet. Their reports and data had to pass through the hands of reviewers before the charts were released. The former did not perform a discretionary function, but the latter did, although the extent of their discretion is not clear. Id. at 1449-50. We held that the intervention of the reviewers did not preclude an action for the negligence of the hydrographers. Id. at 1451. Rather, we said that we would make our inquiry as to each “specific actor.” Id. Of course, the only information before the reviewers had to have been the hydrographic manuals coupled with the reports and data generated by the hy-drographers, and the nautical charts themselves would reflect only that information, unless the reviewers sent the whole project back for some reason. That tight coupling between hydrographers, reviewers,' charts, and results does show that there is a danger in allowing any slight discretionary component to cut off all acts of negligence within an agency. But if Glacier Bay is read too broadly, the specific acts or actions theory could swallow up a large part of the discretionary function exception.

In other words, while Glacier Bay and Fisher Bros, seem to be in healthy tension, they are not in opposition unless one or the other is read in an overly broad fashion. Glacier Bay seeks to avoid the problem of expanding the discretionary function exception to the point that it .overcomes the purposes of the FTCA, while Fisher Bros, seeks to avoid shrinking the exception to a mere formality, which redirects suits against the government from one named actor to another, but which has no real effect on the right to sue. We fully understand General Dynamics’ argument that we could accept an asthenic exception and, thus, easily find a waiver of sovereign immunity because a lawsuit might still founder on the causation element of a claimed state tort. But that would elide what Congress has written, and we cannot wholly ignore causation concepts when a robust exercise of discretion intervenes between an alleged government wrongdoer and the harm suffered by a plaintiff. An attempt to go around the exception then amounts to an exercise in mislabeling and misdescription of the truly discretionary source of the injury.

Again, Glacier Bay and Fisher Bros, illustrate that nicely. In the former, little intervened between the hydrographers’ wrongdoing and the injury to the plaintiff. That was not true in Fisher Bros. Whether the laboratory report indicated that two grapes had been tampered with, or not, the FDA Commissioner had to make a high level and far reaching discretionary decision based upon all of the information available to him. He had to decide whether he would stop the import of all fruit from Chile, or some, or none. The report was part of that decision, perhaps a significant part, but much more than a yes-no answer based upon that report was before the Commissioner for decision.

Similarly, there is no danger to the FTCA when a totally separate exercise of discretion stands between the generators of a report and the commencement of a prosecution. Prosecutors have access to a great deal of information beyond that submitted by any one agency, such as the DCAA. That was the ease here. Indeed, the prosecutors could have had even more information- if they had chosen to pursue it. Theirs was a broad based discretion which was independent of the DCAA in every sense of the word. Here the prosecution was clearly based upon the discretionary decisions of the prosecutors. Thus, the Third Circuit’s wisdom in Fisher Bros., is applicable.

California has applied the same wise thinking when considering the scope of its judicial proceedings privilege.¹ See Cal. Civ.Code § 47. The courts have made it clear that the privilege applies to communications made to prosecutors, even when those are designed to prompt a prosecution, which has not yet commenced. See Passman v. Torkan, 34 Cal.App.4th 607, 619, 40 Cal.Rptr.2d 291, 299 (1995); see also Lebbos v. State Bar of California, 165 Cal.App.3d 656, 668, 211 Cal.Rptr. 847, 853 (1985). In Block v. Sacramento Clinical Labs, Inc., 131 Cal.App.3d 386, 182 Cal.Rptr. 438 (1982), a plaintiff sought to circumvent that privilege by purporting to attack the preparer of a report for his own negligence, rather than for his transmittal of the report to a'prosecutor, who then relied upon it. In other words, the plaintiff attempted the same kind of flanking maneuver that General Dynamics attempts here. The Court of Appeal was not impressed. It stated that despite plaintiff’s assertions, the claim was not really for preparation of the report at all. It was for the communication of the report to the prosecutor. Id. at 392, 182 Cal.Rptr. at 442. “Whether the matter be characterized as the publication of a negligently prepared report or the negligent publication of the report,” the wrong was in the publication, not in the preparation. Id. at 393, 182 Cal.Rptr. at 442. Any other approach would “substantially defeat the purpose of [the] privilege.” Id. at 394, 182 Cal.Rptr. at 442. The same is true here. General Dynamics did not suffer an injury simply because the DCAA negligently prepared a report. It was the communication of that report to the prosecutors which can be connected to the ultimate harm suffered by General Dynamics. But California protects that communication and “labeling the complaint as one for ‘professional negligence,’” does not evade the protection given to citizens by California law. Id. at 388, 182 Cal.Rptr. at 439.

The explication of the tort of malicious prosecution in the Restatement subtends the same result. As the drafters explain:

When a private person gives to a prosecuting officer information that he believes to be true, and the officer in the exercise of his uncontrolled discretion initiates criminal proceedings based upon that information, the informer .is not liable under the rule stated in this Section [the malicious prosecution rale] even though the information proves to be false and his belief was one that a reasonable man would not entertain. The exercise of the officer’s discretion makes the initiation of the prosecution his own and protects from liability the person whose information or accusation has led the officer to initiate the proceedings.

Restatement (Second) of Torts § 653 cmt. g (1977). Just so. The quoted material also demonstrates that what General Dynamics attempts here is not only an avoidance of the strictures of the discretionary function exception, but also nothing less than a direct assault on the whole citadel of prosecutorial discretion and the protection that discretion offers to citizens who communicate with prosecutors.²

When the threads of these insights are woven together, they manifest the principles which animate our decision. Where, as here, the harm actually flows from the prosecutor’s exercise of discretion, an attempt to recharacterize the action as something else must fail. And there can be no doubt that the buck stopped at the prosecutors. True, they had a report from the DCAA, but the decision to prosecute was all their own. They were not required to prosecute, and were not forced to do so. Nothing prevented them from gathering further information before they proceeded. In fact, they gathered a great deal of information and even met with General Dynamics’ redoubtable lawyers before the prosecution went forward. The prosecutors had the difference between firm fixed-price contracts and firm fixed-price (best efforts) contracts explained to them. They also knew that the DCAA had not explicated that difference in its report. Nothing stopped the prosecutors from investigating further by speaking to those who had negotiated the contract on behalf of the government. They alone chose not to do so. But there can be no doubt that the choices were, indeed, in the prosecutors’ hands. They had the discretion to advance or resile. Advance they did, but “whether or not the discretion involved [was] abused,” the United States cannot be sued under the Federal Tort Claims Act. 28 U.S.C. § 2680(a).³

CONCLUSION

The actions taken against General Dynamics and its employees will not be recorded as the Department of Justice’s finest hour, nor, considering the ultimate candid request for dismissal, was it the Department’s darkest one. A mistake was made, but, because prosecutors do not have ichor in their veins, mistakes can be expected from time to time. Mistakes, however, do not necessarily equal governmental liability.

Perhaps the prosecutors should have listened to General Dynamics’ lawyers; perhaps they should have done more of their own investigation and spoken to government employees who really knew what the contract meant; perhaps they were merely misled by the arcane differences between the phrase “firm fixed-price” and the phrase “firm fixed-price (best efforts)”; perhaps reasonable minds could, even today, differ about the true meaning of the contractual words. In any event, General Dynamics’ troubles flowed directly from the prosecutors’ exercise of discretion. The United States is immune from suit under the FTCA.

REVERSED and REMANDED, with directions to dismiss for lack of jurisdiction.

1 . This privilege would by itself point unerringly toward reversal, if we had jurisdiction to decide the issue.

2 . Of course, reporting citizens may be sued for malicious prosecution. General Dynamics wisely avoids claiming malicious prosecution because recovery would be barred if it did claim that. See 28 U.S.C. § 2680(h). It seeks to avoid that horn of its dilemma by saying that the DCAA’s wrong was the less heinous wrong of negligence. But that impales it on the other horn of the dilemma.

3 . If we had jurisdiction to decide the issue, we would agree with Judge O’Scannlain that General Dynamics’ claim is time barred.