United States District Court, S.D. Mississippi, Southern Division
UNITED STATES ex rel. HOLMES Plaintiff,
NORTHROP GRUMMAN CORPORATION AND HUNTINGTON INGALLS INCORPORATED Defendants.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS'  MOTION TO DISQUALIFY RELATOR AND DISMISS FIRST AMENDED COMPLAINT AND DENYING AS MOOT DEFENDANTS'  MOTION TO DISMISS AMENDED COMPLAINT
HALIL SULEYMAN OZERDEN, District Judge.
BEFORE THE COURT is the Motion to Disqualify Relator and Dismiss First Amended Complaint  filed by Defendants Northrop Grumman Corporation and Huntington Ingalls Incorporated. Relator Donald Holmes has filed a Response , and Defendants have filed a Reply . Also before the Court is the Motion to Dismiss Amended Complaint  filed by Defendants, Relator's Response , and Defendants' Reply . Having considered the parties' submissions, relevant legal authorities, and the record, the Court is of the opinion that the Motion to Disqualify Relator and Dismiss First Amended Complaint  should be granted, Relator Donald Holmes should be disqualified from serving as a relator based on the totality of the circumstances surrounding his conduct as a relator, and this civil case should be dismissed without prejudice to any rights of the United States government. The Court further finds that the Motion to Dismiss Amended Complaint  should be denied as moot.
Hurricane Katrina made landfall on the Mississippi Gulf Coast on August 29, 2005. As a result of the damages caused by the hurricane, Northrop Grumman Corporation ("NGC") made claims on an insurance policy issued to a subsidiary of NGC by Munich Re, an insurance company represented by attorney Gerald Fisher ("Fisher"). First Am. Compl. 5 ; Aff. of Relator Gerald Fisher ("Fisher Aff.") ¶ 7 [11 (Attach. A), 23-24 of 86]. To obtain documents from NGC during the adjustment process, Fisher, on behalf Munich Re, entered into a confidentiality agreement with NGC dated October 24, 2006, governing the use of documents produced by NGC. Fisher Aff. ¶ 7 [11 (Attach. "A"), 26 of 86]; Confidentiality Agreement [11, 56 of 85].
By April 2010, NGC and Munich Re had commenced arbitration proceedings in London, England, to resolve coverage disputes which had arisen related to NGC's claim for insurance benefits ("UK Arbitration"). Fisher, along with attorney Donald Holmes ("Holmes"), represented Munich Re in the UK Arbitration. Mem. in Supp. of Relators' Mot. to Allow Them to Provide Information to Assist the [DOJ] in Its Investigation 7 [11, 12 of 86] ("Relators' Mot. to Assist the DOJ"). Fisher and Holmes filed a complaint on behalf of Munich Re on April 6, 2010, in the United States District Court for the District of Columbia seeking to obtain documents from the United States Navy ("the Navy") purportedly for use in the UK Arbitration. Compl. 1 , Case No. 1:10-cv-00551-JEB (D.D.C.) (the " Touhy Action"). On June 2, 2010, while both the UK Arbitration and the Touhy Action remained pending, Fisher and Holmes filed the Complaint  in this case under seal in the United States District Court for the District of Columbia against NGC, Northrop Grumman Shipbuilding Corporation, and Northrop Grumman Ship Systems, Inc. (collectively, "Northrop Grumman"), under the qui tam provisions of the False Claims Act, 31 U.S.C. §§ 3729-3733 ("FCA"). The United States has declined to intervene in this case. Notice of Election to Decline Intervention 1 .
On August 18, 2012, prior to the transfer of the case, Fisher apparently decided to withdraw from serving as a relator, and Holmes filed the operative First Amended Complaint  in this case. Holmes alleges that "[t]his case is a civil false claims action brought on behalf of the United States by [Holmes], who has properly gained access to documents and information showing that the U.S. Government has been defrauded in the amount of not less than $835 million by the unlawful actions of" Northrop Grumman. First Am. Compl. 5 . Holmes asserts that prior to Hurricane Katrina's landfall, Northrop Grumman was behind "in its budget in the performance" of various shipbuilding contracts with the Navy. Id. at 6. Holmes notes that "[w]ithin months after Hurricane Katrina..., Congress appropriated $2.3 billion to the Navy in restricted emergency shipbuilding and conversion funding  (hereinafter the Katrina Money')...." Id. at 7. According to Holmes, the Katrina Money "was to be used only for the consequences' of" Hurricane Katrina, but Northrop Grumman filed false claims with the Navy by seeking reimbursement for unrelated cost overruns which it experienced before and after Hurricane Katrina, thus allowing Northrop Grumman to avoid the consequences of its alleged inefficiency and mistakes. Id. at 7-11.
On the basis of these allegations, Holmes advances claims for violations of the FCA. Am. Compl. 15-24 . Holmes maintains that Northrop Grumman violated the FCA by misusing restricted Congressional funding to cover cost overruns on contracts for which Northrop Grumman was financially responsible and by using "[a]rtifices and [d]evices" to deceive the Navy into paying for Northrop Grumman's non-Katrina related cost overruns. Id. at 15-20. Holmes further asserts that Northrop Grumman violated the FCA by providing untruthful information to the Navy and Congress to prevent them from making accurate procurement decisions, to conceal the status of contract performance related to seven shipbuilding contracts, and to prevent discovery of the fact that Northrop Grumman was not keeping separate accounting records which segregated Hurricane Katrina's monetary consequences from unrelated costs. Id. at 20-23.
Northrop Grumman now moves to disqualify Holmes from serving as a relator and to dismiss the First Amended Complaint based on alleged ethical violations committed by Holmes. Mem. Br. in Supp. of Mot. to Disqualify Relator and Dismiss First Am. Compl. 1 . According to Northrop Grumman, Holmes has breached his ethical duties of obedience to court orders, candor and honesty to the courts and to Northrop Grumman, respect for Northrop Grumman's legal rights, and loyalty to his former client, Munich Re. Id. at 12-13. Northrop Grumman maintains that Holmes' conduct was not authorized or required by either the FCA or misprision of felony statute, 18 U.S.C. § 4. Id. at 19-24.
Holmes offers excerpts from various prior filings which he asserts address Northrop Grumman's Motion . Resp. in Opp'n to Defs.' Mot. to Disqualify and Dismiss 2-9 . Holmes claims that "[f]ederal courts have repeatedly held that confidentiality agreements are not a bar to the disclosure of fraud to the government" and posits that such holdings are "directly applicable" here. Id. at 3-5. Holmes asserts that Munich Re had no objection to his decision to report Northrop Grumman's alleged fraud to the United States Department of Justice ("DOJ"). Id. at 8-9. Holmes also acknowledges that he violated the terms of a Stipulated Protective Order issued by the Court in the Touhy Action and notes that "with 20/20 hindsight, he should have handled the situation differently[, ]" but Holmes appears to argue the Order is not entitled to be accorded the weight of a court order. Id. at 10-11. Holmes also posits that the ethical nature of his conduct should not be considered because the FCA preempts the ethical rules governing his conduct. Id.
A. Legal Standard
In allowing an attorney to serve as a relator and finding the attorney was nevertheless still required to abide by his ethical obligations as an attorney, one court has reasoned that "[w]hile the [FCA] permits any person... to bring a qui tam suit, it does not authorize that person to violate state laws in the process." United States ex rel. Doe v. X Corp. ("X Corp. II"), 862 F.Supp. 1502, 1507 (E.D. Va. 1994). Although attorneys may act as relators pro se, non-attorneys are prohibited from proceeding as relators pro se. See, e.g., Timson v. Sampson, 518 F.3d 870, 873-74 (11th Cir. 2008) (finding that a non-attorney was "not [authorized to] maintain a qui tam suit under the FCA as a pro se relator"). A primary policy reason for this prohibition is that "[l]awyers are bound to ethical constraints to which non-lawyers may have no knowledge and no obligation[, and v]iolation of these fundamental canons may result in serious consequences to the errant attorney." United States ex rel. Schwartz v. TRW Inc., 118 F.Supp.2d 991, 995 (C.D. Cal. 2000). Furthermore, "[a]n attorney has an obligation which he owes to the court[...], and he owes a public duty to aid in the administration of justice, to uphold the dignity of the court and respect its authority.'" Id. (quoting United States v. Onan, 190 F.2d 1, 6-7 (8th Cir. 1951)). These ethical obligations and the consequences of breaching them remain applicable to attorneys proceeding as relators pro se. See X-Corp. II, 862 F.Supp. at 1507 ("[S]tate statutes and rules that regulate an attorney's disclosure of client confidences" apply in the context of a qui tam action, and attorneys serving as relators therefore have "significant incentives... to abide by their" state law obligations in light of this fact and "given the existence of state disciplinary powers over attorneys...."). Because Holmes is permitted to act as a relator pro se in this matter due to his status as an attorney, the Court will evaluate whether he should be disqualified from serving as a relator by reference to the rules of professional conduct governing Holmes as an attorney.
An attorney's breach of his ethical obligations may be raised in a motion to disqualify counsel, which is a "substantive motion... determined by applying standards developed under federal law." In re Am. Airlines, 972 F.2d 605, 610 (5th Cir. 1992) (citations omitted) (emphasis removed). Generally, when considering a motion to disqualify counsel in a civil case, the Fifth Circuit Court of Appeals "consider[s] the motion governed by the ethical rules announced by the national profession in the light of the public interest and the litigants' rights." In re Dresser Industries, Inc., 972 F.2d 540, 543 (5th Cir. 1992). While "the relevant local and national ethical canons provide a useful guide for adjudicating motions to disqualify, they are not controlling." F.D.I.C. v. U.S. Fire Ins. Co., 50 F.3d 1304, 1314 (5th Cir. 1995) (citation omitted). "A court must take into account not only the various ethical precepts adopted by the profession but also the social interests at stake[, ]" including whether the lawyer's conduct "has (1) the appearance of impropriety in general, or (2) a possibility that a specific impropriety will occur, and (3) the likelihood of public suspicion from the impropriety outweighs any social interests which will be served by the lawyer's continued participation in the ...