Opinion
Case No. 1:99-CV-285.
December 14, 2010
ORDER
On November 17, 2010, Defendant Lockheed Martin submitted to the Court for in camera review a Settlement Agreement referenced in a December 15, 1994 letter from Gunnar Haase, the Director of Accounting for Lockheed Aeronautical Systems Company ("Lockheed ASC"), to William Ryan, a Government Divisional Administrative Contracting Officer. The letter is attached hereto as Exhibit A. The parties informed the Court at a discovery conference held on October 28, 2010 that they disagreed whether Lockheed Martin should be required to produce the Settlement Agreement to Relators in discovery. (Transcript, Doc. 170 at 100-105.) The parties agreed that the Court should conduct an in camera review to determine if the Settlement Agreement is discoverable.
I. BACKGROUND
The Settlement Agreement at issue here is a contract between the Government and Lockheed Martin "arising out of certain alleged nondisclosures by [Lockheed ASC] of cost or pricing data relating to manufacturing costs for labor." (Ex. A.) In the December 15, 1994 letter from Haase to Ryan, Haase discussed the Settlement Agreement and stated that Lockheed was implementing "a system for the recording of the actual costs of rework and repair" to "alleviate the conditions that gave rise to the allegations that are the subject of the Settlement Agreement." ( Id. at 1.) Haase stated that the new cost recording system was "expected to be operational by the end of 1995." ( Id. at 2.) He further stated that his letter to Ryan "shall constitute an advance agreement between Lockheed and the United States under FAR 31.109 and shall govern the treatment of the referenced costs for all costing and pricing purposes." ( Id.) The letter was signed by Haase and then signed in "concur[rence]" by Ryan on December 15, 1994. ( Id.) Relators seek to obtain the Settlement Agreement discussed in the letter because they believe that the system to track rework would have been applicable to the F-22 program. (Transcript, Doc. 170 at 101.)
At the October 28, 2010 discovery conference, Lockheed Martin's counsel represented to the Court that the system "to track rework and tooling, rework for tooling" was applicable only to the C-130 transport airplane program, not the F-22 program at issue in this case. (Id. at 102.) Lockheed Martin bases its position in part on the deposition of Gunnar Haase. Regarding his letter to Ryan, Haase testified that Lockheed had determined to develop a system to track rework for the C-130. (Haase Dep. 292-96.) He further testified that the system for rework discussed in his letter "had nothing to do with the F-22 repair and rework of tools, tooling, parts, or anything." (Id. at 292-98.) On the other hand, Relators' counsel cited a statement by a lawyer for the Defense Contract Management Agency, Gill Ellen Bass, that a system for rework related to the Settlement Agreement would have applied to the F-22 program also. (Transcript, Doc. 170 at 101-02, 104.)
After laying out their positions, the parties agreed at the discovery conference that the Court would review the Settlement Agreement to determine if Settlement Agreement was discoverable because it was relevant to, or would lead to discovery relevant to, tooling or the F-22 program. ( Id. at 104.) Relators' counsel suggested that the Settlement Agreement was discoverable if it was relevant to the following: "[o]n the issue of both rework within the Marietta plant in general and/or the F-22 particularly and also whether it's relevant to the company's knowledge that the government expected it to track rework costs." ( Id.)
Subsequent to the October 28, 2010 discovery conference, Lockheed submitted the Settlement Agreement for in camera review. Lockheed also provided a copy of the December 15, 1994 letter signed by Haase on behalf of Lockheed ASC and by Ryan on behalf of the Government. Subsequently, on December 6, 2010, Relators provided two additional documents to the Court to provide context for the Court's in camera review. The first document is an August 17, 2004 letter from Dodge Wells, an Assistant Director in the Department of Justice, to Lockheed's legal counsel. The Wells letter is attached hereto as Exhibit B. Wells stated his opinion in the 2004 letter that the "system for recording the actual costs of rework and repair" addressed in December 15, 1994 "Letter Advance Agreement" applied to the F-22 program. (Ex. B at 2.) The second document provided by Relators is an email from Gill Ellen Bass expressing her opinion that the December 1994 settlement required that Lockheed implement a rework job code for both the C-130 and the F-22 programs. The Bass email is attached hereto as Exhibit C.
II. ANALYSIS
The Federal Rules of Civil Procedure define the scope of discoverable evidence as follows:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense — including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. . . .
The Court has reviewed the Settlement Agreement. Nothing in the Settlement Agreement gives rise to an inference that the Settlement Agreement would be applicable to rework in the Marietta plant in general or that it would be applicable outside the context of the C-130 program. Accordingly, the Court finds that the Settlement Agreement is not discoverable pursuant to Rule 26(b).
IT IS SO ORDERED.
Ex. A
Lockheed Aeronautical Systems Company A Division of Lockheed Corporation Marietta, Georgia 30063 December 15, 1994 Mr. William J. Ryan/RLTCDivisional Administrative Contracting Officer
Defense Plant Representative Office
Lockheed Aeronautical Systems Company
86 South Cobb Drive
Marietta, Georgia 30063-0260
Dear Mr. Ryan:
Lockheed Corporation and the United States are preparing to execute a Settlement Agreement arising out of certain alleged non-disclosures by Lockheed Aeronautical Systems Company ("LASC") of cost or pricing data relating to manufacturing costs for labor. In Paragraph 10 of that Settlement Agreement, Lockheed will agree to treat as unallowable costs as defined in FAR 31.205-47 certain types of costs incurred in connection with the matters resolved in that Agreement. In particular, in Paragraph 10(c), Lockheed will agree to treat as unallowable the costs of any corrective actions taken in response to the allegations made by the United States as set forth in the Settlement Agreement. It is understood that the terms of Paragraph 10 of the Settlement Agreement are to be read in accordance with and are governed by the terms of Paragraph 7 of the Settlement Agreement.
One action that Lockheed is implementing that will alleviate the conditions that gave rise to the allegations that are the subject of the Settlement Agreement is the implementation of a system for recording the actual costs of rework and repair. This system will provide actual cost data in lieu of the estimates that have previously been utilized in LASC's proposals.
This system is not a corrective action taken in response to the Government's allegations in the settled matter. The plan to implement a new system for recording actual rework and repair costs has been in process for several years, but was deferred primarily because of other priority projects in the Information Services Department. In April 1993, a Process Action Team ("PAT") was chartered by the LASC Vice President of Operations to address this issue. The PAT, made up of representatives from the Operations Control, Quality Assurance, Manufacturing, Planning, Finance and Internal Audit organizations, completed its work in August 1993, recommended implementation of the new system, and issued the necessary computer service requests to the Information Services Department. Information Services has subsequently reprioritized a number of projects to allow implementation of this actual cost recording system to proceed. The new system is now expected to be fully operational by the end of 1995.
The costs of implementing this system are primarily (1) the costs of developing computer software to collect the actual rework and repair costs and (2) the costs of quality assurance to check and validate the software and resulting system. LASC currently estimates the cost of the project to be approximately $425,000. Most of these costs will be incurred in calendar year 1995, and will be charged to the appropriate LASC General and Administrative indirect cost accounts in the periods in which the costs are incurred. Commencing on the date of this letter, these costs, with the exception of the costs of management personnel not directly employed on this project, shall be collected in one or more cost accounts that shall be used solely for the costs of this project in order to permit ready identification of the amounts and sources of such costs.
In connection with the execution of the Settlement Agreement, Lockheed requests your concurrence on behalf of the United States that the reasonable costs incurred by LASC in connection with the development and implementation of a system for collecting and recording actual costs of rework and repair at LASC: (1) are not costs of "corrective actions" related to the allegations resolved int he Settlement Agreement; (2) are not unallowable under Paragraph 10(c) of the Settlement Agreement or FAR 31.205-47; and (3) will be treated as General and Administrative costs in accordance with LASC's normal cost accounting practices, subject to review by the United States that the costs are actually incurred, are reasonable under FAR 31.201-3, and are allocable to government contracts under FAR 31.201-4.
If you concur with the above, please indicate by signing below. Once executed, by you, this letter shall constitute an advance agreement between Lockheed and the United States under FAR 31.109 and shall govern the treatment of the referenced costs for all costing and pricing purposes._____________________ December 15, 1994
Sincerely, __________________ Gunnar M. Haase Director of Accounting CONCUR: Dated: William J. Ryan Divisional Administrative Contracting Officer Exhibit