please the court in boeing this court held that the costs to be allowed all in a settlement situation where the costs of an unsuccessful defense would be disallowed the contractor much show that the allegations the underlying lawsuit contending is that under four thirty one point two zero or see this litigation this employment discrimination is similar related to the litigation that is specifically dealt with in thirty one point two zero five dash forty seven that is firstly litigation that involves allegations of violation of law and regulation of the prom suit through the two separate issues here one is how to treat the will cost the little likelihood of success is the right test for determining whether a settlement and such as to would be an allowable cost ok let's assume that you're correct about that i think judge pro chin gets to the heart of this and that is that there's the first step is to determine which kinds of judgments before we get to the settlement question which kinds of judgments would be disallowed costs and the problem is that you seem to be or even that any law violation would result in a judgment which was an allowable cost which seems to be a pretty broad proposition and perhaps in some sense to be inconsistent with the regulations because that seems to distinguish between private suits and government suits and to suggest that the disallowance of judgment costs in private suits is much more limited  you do have an alternative theory as i understand it which is that if the contractor violates the contract in his judgment entered against it that that's not allowable cost relying on the earlier court of claims case that leaves bail or something like that put could could you help us understand a little bit what the contracts typically say about more violations let's suppose we were to undock your alternative argument and to say that if the contractor violates the contract by engaging in some sort of prohibit contractually prohibited practice that the judgment you wouldn't be liable cause how far would that go up if you understand what i'm asking you yes i think you're raising at least two questions i want to try to address bo first of all this case is similar related to the costs that are dealt with in thirty one point two zero five forty seven now only because there are allegations of violation of law or regulation but also because under title seven violates the contract you can't recover the judgment is it allowable cost of the contract let's assume we agree with that how broad is that proposition how broadly does new government contracts  prohibit the contractor from violating well is there a general provision in government contracts that says you can't you must comply with all federal state and municipal law as an ordinance of the false claims act those types of federal laws or there are specific provisions in federal contracts that essentially incorporate those federal laws as a matter of contract but we are contending here question where there might be a requirement that the contractor in a country with use of lease or real property that already has whether federal or state comply with regard to the lease but i do know for you know the standard government allegations in the in the boeing case and this is the simple problem dispute that was settled involving no point it's not gone it is blowing in the sense that in boeing discoursed state this court stated that if the citronelle shareholder derivative lawsuit had resulted in an adverse term determination against the director defendants the cost of that private litigation would not have been allowable that was there was no adverse determination it was a subtle guess that's correct but the court's rationale is based on its understanding that had the citronella suit resulted in an adverse determination against the director defendants the cost of that lawsuit would not have internal controls there was no allegation that the director defendants in the citron lawsuit violated federal law in the sense that in the case here this the employment discrimination case here is much closer to the lawsuits in congress by thirty one point two zero five dash forty seven because you have an allegation of violation of federal law by the defendant in the lawsuit you did not even have that in the shareholder derivative lawsuit at issue in the boeing case rather this court said that if that lawsuit had resulted in an adverse decision situation and the reasonable cost principle that the court pointed to was found in thirty one point two zero five forty seven c two which specifically deals with the sudden meant of private litigation and this this court pointed out in its decision under the false claims that yes in the regulation it's down in it and it's the regulation for false claims act privately negation but that was the standard that this court applied to a private lawsuit where the director defendants were not alleged to have engaged in submitting false claims what they were alleged to have done is failed to institute adequate question i mean here it's evident that the amount first is what had already been devoted to the amount of really devoted to legal fees in this early stage was twice as much as the amount initially set it for a contract an officer who presumably not necessarily an attorney to a value went whether there's little likelihood of success on the merits it's just unclear to me how as a practical matter that our programs you have no control over the private party  so they don't need to cooperate presumably that analysis is done what are the papers just on the filings that have been made and in cases like sexual harassment as we have here typically right it's your fault it's clearly a credibility its information as to why it believes its decision was not based on waste on race based on circs that it was a proper employment decision so the contractor would in the first instance present that information harassment and my supervisor planes this never happened and we believe him it's possible that the contracting officer that is all he has may decide that the contractor has met its  that there is a burden on the contractor to come in with evidence demonstrating that the plaintiff has very little likelihood of success on the merits of it suit and that evidence would be supreme presented first the contracting officer but you sir that it's like it's possible that that the contracting officer might say that sufficient we don't know that on an it right equally possible a plausible that the contracting officer will say that's not enough to show little likelihood of success of merits because i haven't seen either of the witnesses testify and it's just as likely that the jury might believe the victim here is opposed to the alleged perpetrator it's possible that the cut is certainly possible to contracting officer would per all sorts of reasons deny the claim and that claim would then be presented to the board and it would be up to the board to rule on the preponderance of the evidence whether the contractor has met its burden of demonstrating that that plaintiff's lawsuit had very little likelihood of success on the merits that could be based on either would most likely be based on a on a hearing before the board we're the contractor presented in seven  lawsuit and why that lawsuit had no likelihood of success on the merits or very little likelihood of success on the merits that evidence would be presented to the board and the board on the preponderance of the evidence which is the standard for board  proceedings would make a decision as to whether the contractor had met its burden and what we are contending that this is the appropriate standard to be applied we do have a settlement which is an alternative in the case of it could be a meritorious case where it could have been a judgment against the corporation that it had in gauged in sexual harassment and retaliation against its employee so we're a contractor as an alternative settled and there are two areas lawsuits then certainly it should have this burden of coming forward with trying to demonstrate that there is very little likelihood of europe and the government id and i agree on one thing and that is far thirty one to a four allows principals to be applied to similar cases boeing was a similar case to a contempt case now the government in its discussion of the that was underlying boeing drills down to a certain level and that stops they say it was about fiduciary duty well what was the result of the breach of the fee to share duty the contractor was found guilty of submission of false claims and fraud in violation of clean water act that was the underlying case that was what drove those shareholders to sue their management is because the management had failed to prevent fraud and false claims that is why boeing found that the likelihood of success test should apply to those costs argument but that was rejected in bone i mean clearly the bowing was not a situation in which we were within the narrow scope of that particular provision we use the similar related language to apply that seem standard elsewhere right you are but there has to be some factual nexus to be similar related a slip and fall is not similar laid a rigid contract with a sub or supplier is not similar or provides if you're if we're going to go down that road then almost any legal proceeding that a contractor is involved in if you want to take the broadest interpretation the contract is a breach of the contract why is that true if my client fails to pay a supplier he's breached the payment provisions if he fails to pay a subcontractor is in a dispute with a subcontractor he's breached the payment provisions if somebody slips and falls on the base he's breached the safety provisions i mean you can stretch the contract to cover every activity well because the contractor is only on the facility because of the contract therefore everything he does on that facility is somehow related to the contract only clip you could limited to the they'd seems to do to a situation where the contract says you must come on with this provision well and if if the contract singles out that particular provision of law and violated why isn't that kind of a special situation where you are there's the permanent responsibilities cause that's in every contract which requires contractors to comply with all federal state local laws and regulations i mean the again you're back to the university law as it is that the permits and responsibilities clause it's a standard f state and local regulations usually it comes into play where a contractor is failed to get some kind of permit that's required by a local licensing body or something like that but if you want to stretch i mean yes you can stretch anything any lawsuit but let me ask and then they do then the that i'm thinking back through the through thirty one two zero five forty seven the various which allows legal expenses and a contractor will not be incurring legal expenses unless they're involved in a lawsuit of some kind and actually he jerk reaction that same instinctive reaction that i know is inevitable this is a sexual harassment case and you know what i think that part of the reason why this is so contentious this case is because it sexual harassment the idea of sexual harassment is distasteful and it immediately implies that someone has done something very very wrong that's not necessarily the case and that doesn't change the cost principles just because we don't like sexual harassment and we didn't account for it this is not just the case that your file i mean judge t ball's legal determination that there was other sexual harassment or some sort of discrimination or retaliation and so why would the taxpayers of the government foot the bill for a judgment against a contractor in that regard of course that hypothetical is not our case and that pathetic a little and actually i go back to it again thirty one to a five forty seven b which the government relies on that's one that they say would disallow the judgment what that says is it disallows legal expenses that are related to a case where a either a civil action or an administrative action or a monetary penalty could be imposed and that's where we get to the heart of the real heart of this case and the heart of the southwest marine gets spent but doesn't that go to the fact that you were probably right your first answer judge no it because there's potential for a monetary nominee in this case yes your honor but no it's not here's a reason forty seven has a very specific definition of what a penalty is in a specific lee excludes all forms of actual compensation all forms of actual damages are excluded from the definition of the panel the same is true in the english ship building case there the contractor was found with violated the longshoreman  harbor workers compensation act he had to pay a penalty he had to reimburse it wasn't healthy it had to pay monies to reimburse those workers for payments he hadn't made and this court looked at those payments they were violations of that at the court looked at those payments came up with a three part definition of what constitutes a fine or penalty that is not a law and said that those payments were allow that was this court but if the supreme court of the federal power commission case has singled out title seven and in on the case comes pretty close although it was a rate making proceed pretty close to telling us that the judgment the far should amend part number forty seven and add special treatment for titles they have not done so they have added very specific treatment special treatment for false claims against the government because there is nothing more no mccool to performing a contract for the government than defrauding it and that is why it was signalled singled out that's why those cases in those types of cases were singled out let's assume we conclude that we agree with your first statement and not your second another w realizes that and he settles the case and spends five hundred thousand in the tourney suisun settles it for two hundred thousand that should be allowed in what kind of policy sense does that make to differentiate between those chill and innocence where the contractor was clearly guilty but it makes what kind of policy sense to me it makes a lot of policy sense and your honor touched on it many questioning the appellant what's the alternative is a c e o going to interview every witness with with them as you are is that it is pretty standard that a company when it is caught with a three m in the cookie jar is clearly guilty so that's the case they don't go to judgment and so by saying that if you settle you don't have to worry about it you're basically saying every really bad case is going to result in the wild will cost not every real every case because it never makes business sense for a contractor to try to title seven case if you don't get somebody judgement you're looking at hundreds of thousands of dollars in legal fees and it isn't true that the almost all cases in which the employer is clearly liable gets i would say that almost all cases in which the employer is even charged gets settled most don't make it past the e e o c stage they get settled there because the contractor is always better off paying some money putting it behind him and moving on with performance why in very for very good reasons that benefit the government number one the disruption to the workforce if there's ongoing fight between one employee and the company what kind of what does that do to the morale not only of his own workers but of the government people that the elite either argument is are the numbers here which is if it's clear that the company would have  expenses in this case and they could settle the case for anything less than that then it makes economic sense guilty or not guilty for the government for the company to settle right and here it is recited in the factual finding board that their country i wasn't the counsel on the sexual harassment case but we put on evidence that estimates are firm estimates were given to my client that it would cost one hundred thousand dollars or one hundred two hundred fifty thousand dollars to take the case to trial so the fifty thousand dollars settlement to the plaintiff was a savings of fifty to one hundred thousand dollars that makes a lot of business sense and it gets the problem over with you can move on with performing your contract and certainly if contractors were not performing this work the government would and it be the government defending itself from sexual harassment cases and certainly the taxpayer would have to pay for that including the settlement and in that case including the judge contractors step in the shoes of the government they perform employer had violated title so i would say a qualified yes for two reasons number one the farm makes a very specific distinction in treatment of one category of settlements as claimed  and not any other number to the expense not only to contractors but to the government and the policy issues that the expense and inefficiency that would be involved in going down that road dialogue about that maybe it's in the eye of the holder but when i look at that case i see that the federal circuit recited very specifically was very interested in what the allegations made by those shareholders were recited them call the the decision and page base sometimes you know i don't think that this court recites factual background for no purpose they did and that the four allegations three were fraud or false claims the other one was clean water act which southwest marine tells us is not allowable as well so made very good sense that the blowing water on one of them was clean water i don't know how that i think events here but they are a case from the ninth circuit maybe but i know that the suit about against the directors for breach of duty that's what i wasn't something which was covered at all no in the under the far and we have to look to the similar related no you are and that's what i'm talking about the citroen law suit the suit against the director wasn't specifically covered by the regulations right right and obviously the problem gaiters of the cost regulations and thirty one to zero four recognize that it's not possible for them to address every single possible element of cost their costs regulations are complex enough as they are my argument is that the facts of the boeing case and if you want to reach even further back the caldera case also involve fraud against the government and generally didn't boeing  this is the southwest marine case this is the english ship building was the only inquiry that this case court needs to engage in is whether a title seven case where the damages that are assessed under a title seven case qualify as a fine or penalty either under forty six or forty seven or section fifteen they do not the three part inquiry in english shipbuilding tells you that they do not the three parts are number one that the amount is not related to any actual damages not the case in a title vindicate private harms the government argued that there was public interest in that indication but there's public interest in that a breach of contract suit a breach of contract to protect the sanctity of contracts without that capitalism posit part so yes there is a public interest there the case had proceeded to judgment and in order to back pay back pay would have been an allowable cost then we also looked at two thirty one point two zero five years forty seven which deals with the costs of litigation against the litigation which involves violations of federal law that is the litigation of an employment discrimination suit is most like the litigation encompassed by thirty one point two zero five forty seven for several reasons and set out that involves violations of federal law and secondly that it can result in the imposition of pun supreme court has so stated so this case is like southwest marine it is a litigation where there can be the imposition of a civil penalty it involves violations of federal law and the litigation could have been brought by the federal government title seven lawsuits can be brought either by private plane ups or by the federal government so we think that this requires a government contractor for example for a construction contract the government contractor would have to go out and get any necessary permits it would have to comply with any of the stale federal laws that affected carrying out of the contract for what this case with the with the board is faced with and what this court is faced with this is determining the appropriate course principle to be applied when there is a settlement of a lawsuit involving allegations of violation of federal law it could have resulted in punitive damages and the appropriate standard when you have a settlement which avoids a judgment is the standard that the court adopted in going the very little likelihood of