United States v. Rockwell International Corporation

924 F.2d 928, 36 Cont. Cas. Fed. 76,012, 91 Daily Journal DAR 1358, 91 Cal. Daily Op. Serv. 828, 1991 U.S. App. LEXIS 1257, 1991 WL 8588
CourtCourt of Appeals for the Ninth Circuit
DecidedJanuary 31, 1991
Docket89-50120
StatusPublished
Cited by3 cases

This text of 924 F.2d 928 (United States v. Rockwell International Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Rockwell International Corporation, 924 F.2d 928, 36 Cont. Cas. Fed. 76,012, 91 Daily Journal DAR 1358, 91 Cal. Daily Op. Serv. 828, 1991 U.S. App. LEXIS 1257, 1991 WL 8588 (9th Cir. 1991).

Opinions

LEAVY, Circuit Judge:

PROCEEDINGS IN THE DISTRICT COURT

This is a criminal case in which Rockwell International Corporation, Inc. (Rockwell), a defense contractor, pled guilty to a charge of procurement fraud. The grand jury charged Rockwell in a superceding indictment in June of 1988 with violations of 18 U.S.C. §§ 371, 401, 1001, and 1341 (West 1988). Rockwell moved to dismiss the indictment or to suppress evidence, claiming the government failed to honor its promises and follow its own rules established by the Voluntary Disclosure Program.

The Voluntary Disclosure Program (the program) was initiated in 1986 by the government to encourage defense contractors to engage in self-policing to reduce the likelihood of fraud related to accounting on Department of Defense contracts. In exchange for their disclosures of fraud, the program offered defense contractors certain benefits.

The government claimed that even though Rockwell had made certain disclosures, it had done so under circumstances that did not meet the criteria for participation in the program. The government also claimed Rockwell’s disclosures were not based on any commitments or promises made by the government in exchange for those disclosures. Finally, the government claimed that, as a matter of law, Rockwell was not entitled to relief because the program consists only of “in-house” guidelines that have no legal foundation.

The district court orally denied Rockwell’s motion without explanation. At that time, Rockwell did not request the court to make findings of fact and conclusions of law. Rockwell entered a plea of guilty to conspiracy to defraud and making false statements to the United States, in violation of 18 U.S.C. §§ 371, 401, and 1001. The remaining counts of the indictment were dismissed.

FACTS

In 1979, the Air Force awarded Rockwell a contract (the “development contract”) to manufacture and deliver four NAVSTAR Global Positioning System (NAVSTAR) satellites. The contract was a fixed price incentive contract, which means that Rockwell was to perform its work for a set price. If Rockwell’s contract costs exceeded the set price, the Air Force agreed to pay 65% of the excess costs while Rockwell would absorb the remaining 35%, up to an agreed-upon ceiling after which Rockwell would be responsible for all costs.

In 1983, the Air Force awarded Rockwell a second contract (the “production contract”) to manufacture, deliver, and launch twenty-eight NAVSTAR satellites. This contract was a firm fixed-price contract that required Rockwell to deliver satellites for the agreed price regardless of its production costs.

Under both contracts, Rockwell subcontracted portions of the work to the Defense Communications Division of International Telephone and Telegraph Corporation (ITT). ITT built the radio equipment used to transmit encoded navigational signals from orbiting NAVSTAR satellites. However, in 1982, when negotiations between the Air Force and Rockwell were ongoing for the production contract, Rockwell discovered that certain parts ITT had supplied for the development contract were nonfunctional and required repairs. ITT made the repairs at Rockwell’s request, but a dispute arose between ITT and Rockwell as to who should pay for the repairs. Rockwell ultimately concluded that it should pay, but knew that it could be reimbursed for only 65% of the cost under the development contract.

[930]*930To avoid incurring unreimbursed costs, Rockwell told ITT it would negotiate a “package deal” with the Air Force to cover the repair claims for the development contract under the production contract. Rockwell submitted a cost bill to the Air Force of $42.3 million for the ITT subcontract portion of the production contract, which included the entire repair costs incurred under the development contract. The Air Force contracted with Rockwell to produce the satellites for a total cost of $1.7 billion, including the $42.3 million ITT subcontract.

Under the agreement, Rockwell was required to certify that the cost or pricing data it had submitted to the Air Force was “accurate, complete, and current.” The government required such certification under the Truth in Negotiations Act, 10 U.S.C. § 2306(f)(1) (West 1988). Accordingly, on December 15, 1982, Rockwell certified that the ITT subcontract for $42.3 million contained pricing data that was “accurate, complete, and current.” Thereafter, Rockwell did not reveal to the government that the $42.3 million included total costs of repairs that were only partially reimbursable under an entirely separate contract.

In March 1983, Rockwell and ITT agreed to a definite price of $337,000 for the repair claims. Rockwell then deducted this cost from the $42.3 million it had negotiated earlier with ITT for the production contract and executed a purchase order to pay ITT only $41,963,000 for the production contract. Next, Rockwell inexplicably drew up additional purchase orders totalling $337,-000 to pay ITT for the repair claims, and billed the government for those orders under the development contract. Thus, Rockwell unlawfully obtained at least $337,000 on the production contract while at the same time it obtained a 65% reimbursement of the repair costs under the development contract, thereby defrauding the Air Force twice since Rockwell received double reimbursement for the same costs.1

Rockwell then prepared a misleading internal memo for the ITT production subcontract negotiations that omitted any reference either to the repair orders or to the price reduction on the ITT subcontract.

Starting in February 1985, the Defense Contract Audit Agency (DCAA) audited the ITT production contract as part of a routine post-award action for an Air Force contract. The letter notifying Rockwell of the audit requested the subcontract price that was certified and any negotiation memorandums with ITT. As a result of that notification, Rockwell’s Major Subcontracts Manager, Robert L. Zavodnik, called ITT to ask “if there was any way that DCAA could track through ITT’s file from the rework orders to the production contract and price change.” An ITT employee told Zavodnik he did not think so. Zavod-nik then asked the ITT employee to call him after the DCAA audit and let him know if any problems had developed.

The Rockwell employees involved in the double-billing went to the Controller of the Satellite Division at Rockwell and asked for advice on how to deal with the problem during the audit. The Controller checked with the legal department and advised the employees not to mention the repair orders when they talked with the government auditors.

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Bluebook (online)
924 F.2d 928, 36 Cont. Cas. Fed. 76,012, 91 Daily Journal DAR 1358, 91 Cal. Daily Op. Serv. 828, 1991 U.S. App. LEXIS 1257, 1991 WL 8588, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-rockwell-international-corporation-ca9-1991.