Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01381/USCOURTS-azd-2_06-cv-01381-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 31:3729 False Claims Act

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America ex rel. Mary A.

Cafasso, 

Plaintiff, 

vs.

General Dynamics C4 Systems, Inc., 

Defendant. _________________________________

General Dynamics C4 Systems, Inc., 

Counterclaimant,

vs.

Mary A. Cafasso,

Counterdefendant.

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No. CV06-1381-PHX-NVW

FINDINGS OF FACT AND

CONCLUSIONS OF LAW

and

ORDER

[Not for Publication]

Before the Court is General Dynamics C4 Systems, Inc.’s (“GDC4S”) Motion for

Award of Attorneys’ Fees [doc. # 363] and Motion for Leave to File Supplemental Bill of

Costs re State Court [doc. # 385]. GDC4S brought suit against its former employee Mary

Cafasso in state court alleging breach of contract and numerous other claims for her

taking of tens of thousands of business records. Shortly thereafter, Cafasso brought suit

in this Court seeking relief against GDC4S under the False Claims Act, 31 U.S.C. § 3730. 

Cafasso’s complaint included two claims under the statute, first, a qui tam claim that

GDC4S made false claims, and second, a retaliation claim that GDC4S had fired Cafasso

in response to protected activities. The state court claims were voluntarily dismissed and

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reasserted as counterclaims in the federal case. A stipulation of the parties provided that

the state court orders would remain in effect unless modified by this Court and without

waiver of any party’s substantive rights. In effect, the dual litigation was replaced by

single litigation in this Court. Judgment was entered in favor of GDC4S on the breach of

contract action, the qui tam action, and the retaliation action, and permanent injunctive

relief was entered on GDC4S’s contract action requiring Cafasso to return GDC4S’s

business records. 

GDC4S now moves for an award of attorneys’ fees under Arizona contract law

and the Court’s statutory and inherent sanctioning powers. GDC4S requests

$1,593,095.75 as sanctions against Cafasso and her lawyers: $91,930.50 for misuse of

the federal action in state court; $1,143,004.25 for prosecution of the qui tam claim; and

$358,161.00 for prosecution of the retaliation claim. GDC4S also moves for an award of

attorneys’ fees against Cafasso under A.R.S. § 12-341.01(A) in the total amount of

$575,415.00, which includes $91,930.50 of the sanctions request. GDC4S also seeks to

file a supplemental bill of costs relating to costs incurred in the state court action.

FINDINGS OF FACT

Previous orders have outlined the facts underlying the merits of this case, and it is

unnecessary to retread that ground as a whole. [Doc. ## 219, 352.] GDC4S has prevailed

in every aspect: It defeated Cafasso’s qui tam claim by obtaining judgment on the

pleadings, it defeated her retaliation claim at the summary judgment stage, and it won its

state-law contract action against her on summary judgment as well. (GDC4S voluntarily

dismissed several other counterclaims because success in the contract action provided the

essential injunctive relief sought.) 

I. The State Court Proceedings and the Ex Parte Federal Court Orders

GDC4S brought suit against Cafasso in Maricopa County Superior Court on May

15, 2006. On May 24, 2006, the state court issued a temporary restraining order after

notice to Cafasso requiring her to return nearly eleven gigabytes of documents she had

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removed from the GDC4S offices without permission, while she was still on payroll but

after her work duties were ended and before her computer access was terminated. 

Two days later, Cafasso filed this qui tam action in this Court. Her local Phoenix

counsel, Thomas M. Rogers, telephoned and asked to come to chambers to present papers

that he had filed in a sealed action. His inquiry did not request a hearing or indicate that

ex parte relief would be requested. The undersigned judge allowed him to come to

chambers. After exchange of pleasantries, Mr. Rogers presented and requested entry of

two ex parte orders, one sealing the case and one permitting Cafasso to inform the state

court ex parte of the pendency of the federal action. 

At that point, this Court committed an error of judgment in not recognizing the

unannounced request for the second ex parte order as requiring presentation on the

record. Mr. Rogers and the undersigned judge have differing recollections of the

conversation that ensued. The Complaint itself referenced the state court litigation and

restraining order as concerning an attempt to get Cafasso’s computer, not documents of

GDC4S that Cafasso allegedly misappropriated. The undersigned judge recalls inquiring

about the referenced state court litigation and receiving a general response but no

disclosure of an existing state court order to return misappropriated documents. Nor was

there any disclosure of an intent to use this Court’s ex parte order allowing ex parte

disclosure of this proceeding to the state court as a basis to seek lifting of a state court

order without notice to GDC4S. Mr. Rogers now states that he and unlisted co-counsel,

Richard J. Harris and Michael Bothwell of Atlanta, Georgia, planned and rehearsed a full

presentation of the relevant facts and procedural history of the state court proceeding if

this Court were to inquire about it. Mr. Rogers remembers informing this Court of the

state court temporary restraining order. This Court entered both requested ex parte

orders. 

Nearly four weeks later, armed with this Court’s order allowing Cafasso to inform

the state court ex parte of the federal action and with the participation of an Assistant

United States Attorney, Mr. Rogers presented an ex parte request to the state court to lift

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the May 24, 2006 temporary restraining order requiring Cafasso to return the nearly

eleven gigabytes of documents taken from GDC4S. The motion was heard by a judge pro

tempore in the absence of the assigned Superior Court Judge. Compliance with the

temporary restraining order would not have prejudiced the United States’ investigation if

there were some underlying False Claims Act claim; indeed, the United States could get

all GDC4S’s documents directly without divulging the sealed action under 31 U.S.C.

§ 3733. The judge pro tem was persuaded to lift the restraining order by the unsupported

contention that the investigation itself, not just the filing of the federal action, must be

kept secret under federal law. The judge pro tem explicitly stated his belief that he was

lifting the restraining order because it was required by federal law and at the request of

this Court. Mr. Rogers denies that he made either assertion to the judge pro tem, but the

record shows that he did not disabuse the judge of those mistakes when the judge

expressed them, even after the judge asked counsel to correct him as appropriate. Indeed,

counsel built on those mistakes and persuaded the judge pro tem to stay the entire state

court proceeding. The Arizona Court of Appeals later granted special action relief against

these orders as unauthorized by law.

The False Claims Act required Cafasso to give the Government “substantially all

material evidence and information [she] possesse[d].” 31 U.S.C. § 3730(b)(2). She was

not required to show the Government evidence that she did not possess, or to possess

evidence unlawfully. Cafasso did not show a lawful basis for removing or retaining those

documents. In addition, the False Claims Act only protects the confidentiality of the

federal court proceedings themselves. It does not directly enable or require courts to

protect the secrecy of the Government’s or a relator’s investigation at the price of

violating other substantive and procedural laws.

Upon later learning of these events, this Court vacated its ex parte orders as

improvidently entered. [Doc. # 19.]

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1

 During this time, proceedings were stayed for several months while the Government

considered whether to intervene. [Doc. # 42.] 

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II. The Federal Complaint

Cafasso’s initial complaint was six pages long. [Doc. # 1.] It accused GDC4S of

making false claims, but it identified none of the specific false claims or intellectual

property at issue. The Complaint contained only conclusory assertions of liability. Six

months later, Cafasso filed a lengthier Amended Complaint which was stricken for

invading Defendant’s attorney–client privilege. [Doc. # 87.] A modified version of the

Amended Complaint was filed in August 2007 without immediate challenge. [Doc.

# 92.]1

 This complaint included more bulk but identified no specific false claims. Weeks

and months after filing the initial complaint, Cafasso herself stated in state court filings

that she needed to retain the documents so that her lawyers could perform their Rule 11

inquiry and determine whether she had viable claims against GDC4S. 

III. Qui Tam Discovery and Briefing

Discovery proceeded in this forum. At a September 28, 2007 Scheduling

Conference, GDC4S expressed frustration with Cafasso’s tactics. In particular, GDC4S

objected to Cafasso’s demand that GDC4S identify privileged documents in Cafasso’s

possession before she identify those that supported her claim. Such a process would have

placed an enormous and unnecessary burden on GDC4S because Cafasso had taken

nearly eleven gigabytes of documents, numbering in the thousands. The Court ordered

that GDC4S was “entitled to be given usable, practical disclosure whether under Rule

26(a) or under a crafted order from the Court as to what it is you are relying on for your

case against them.” [Doc. # 104 at 16.] It was not enough to say that all eleven gigabytes

of documents were relevant to Cafasso’s claims; Cafasso was still obligated to inform

GDC4S of those documents supporting her claims. 

In November 2007, Cafasso gave “categorical discovery responses listing many

thousands of documents as the supposed bases for each claim—exactly the kind of

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2

 In her briefing on the motion for judgment on the pleadings, Cafasso’s attorneys

argued that she could state a claim under the False Claims Act without pleading that a

“claim” was submitted to the Government. Whatever the merits of that theory under the law

applicable at the time, it in no way justified her refusal of discovery. The interrogatory

sought the basis for claims under the statute, not “claims” submitted to the Government, as

Cafasso now reconceives it.

In her briefing on this motion for attorney fees, Cafasso more candidly states that by

refusing this discovery on the eve of her deposition of GDC4S, she thought she could invoke

GDC4S’s duty to confer before seeking discovery relief, postponing her production until

after the deposition. [Doc. # 392 at 5-6.] Rather than demand a better answer, GDC4S took

her answer at face value, as it was entitled to do.

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evasion and attempt to shift her own work to the opposing party that the court warned in

September 2007 was improper.” [Doc. # 219 at 14.] A discovery dispute then arose

regarding the scope and time limits of discovery, and the dispute was adjudicated in

January 2008. At the discovery dispute hearing, the Court reiterated its earlier directions

concerning the burden of discovery and granted Cafasso’s counsel additional time to

comply. GDC4S’s Rule 37 motion for attorney’s fees relating to this dispute was denied.

After the hearing, Cafasso propounded discovery into 110 inventions that were not

mentioned in the Substitute Amended Complaint. The Court granted GDC4S’s motion

for a protective order against the new lines of inquiry. No sanctions were sought or

awarded at this stage. 

Cafasso’s evasiveness continued on June 2, 2008, when she responded to an

interrogatory asking her to “[i]dentify each specific provision of 31 U.S.C. § 3729(a)(1)-

(7) of the False Claims Act (“FCA”) that you allege in paragraph 173 of the Substitute

Amended Complaint (“SAC”) that Defendant ‘knowingly violated’ . . . .” [Doc. # 184-2,

exh. 2, at 2-4.] In response, Cafasso stated that she “has not made a claim as described in

this Interrogatory, nor does the law require that she claim such to have been the case.” 

By any fair reading, Cafasso’s statement abandoned any qui tam allegations.2

 The answer

prompted GDC4S’s motion for judgment on the pleadings as to the qui tam action. 

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Responding to this motion, Cafasso lodged a response that was 57 pages long,

exceeding the page limit by 40 pages. The exhibits to the response also included 775

pages of single-spaced argument and supplemental charts. The Court disallowed the

filing. On its own, the Court granted Cafasso a two-week extension to file a proper

response and warned that her approach was improper. [Doc. # 202.] Nonetheless,

Cafasso filed a 17-page response that included 549 single-spaced pages of mostly

supplemental charts. She also lodged a 733-page Proposed Second Amended Complaint. 

GDC4S’s motion for judgment on the pleadings was granted [doc. # 219], and

leave to amend again was denied. The substitute amended complaint of record appeared

to allege that GDC4S had breached certain contractual or regulatory obligations to the

Government, but it did not allege any “presentment of [a] false claim itself, or the

submission of a false statement or omission to get a false claim paid” on the part of

GDC4S. [Id.] Vague attacks on regular billing under GDC4S’s contract did not avail

Cafasso. The contract covered many technologies not at issue, and the Complaint did not

explain how any such billing was relevant to charges of fraud or falsification. Similarly,

nothing in the complaint supported other allegations of nondisclosure on GDC4S’s part. 

Denying further leave to amend, the Court noted that the proposed substitute amended

complaint violated this Court’s order to “comply with the rules of pleading.” [Id. at 2;

doc. # 208 at 2.] It also violated the protective order already entered by attempting to

expand the scope of the case beyond the thirty-seven previously identified inventions. 

[Doc. # 172.] 

 Subsequently, both parties moved for summary judgment on the remaining

claims: Cafasso’s retaliation claim against GDC4S, and GDC4S’s counterclaims against

Cafasso. GDC4S prevailed on both motions. [Doc. # 352.] Facts revealed during

discovery showed Cafasso’s retaliation claim to be without merit. She could offer no

valid defense to the contract action.

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CONCLUSIONS OF LAW

GDC4S divides its fee request into three primary areas: the breach of contract

claim (counterclaim in this federal action and principal claim in the state court

proceedings), the retaliation claim, and the qui tam action. For reasons explained below,

partial fees will be awarded against Cafasso on the contract claim for taking GDC4S

documents.

I. The Breach of Contract Claim

GDC4S will be awarded partial fees for its state court litigation and federal

counterclaims under A.R.S. § 12-341.01(A). A stipulation of the parties preserves the

state court rights of the parties in this forum that fairly includes the general right to seek

attorneys’ fees at the conclusion of the case as a matter of Arizona contract law. [Doc. #

75.] For choice of law purposes, Arizona’s fee shifting statute forms part of the

substantive contract rights of the parties. See In re Larry’s Apartment, L.L.C., 249 F.3d

832, 836 (9th Cir. 2001); Building Innovation Indus., LLC v. Onken, 473 F. Supp. 2d 978,

986 (D. Ariz. 2007).

A.R.S. § 12-341.01(A) provides, “In any contested action arising out of a contract,

express or implied, the court may award the successful party reasonable attorney fees.” 

To determine whether to award fees, the Court considers the factors governing awards

under the statute, including the merits of Cafasso’s defense, GDC4S’s success in

obtaining the relief sought, the avoidable expense incurred, the possibility that the award

will cause “extreme hardship,” any chilling effect the award might have on other parties

with tenable claims or defenses, and the novelty of the legal questions presented. See

Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1995). 

A. The Merits of Cafasso’s Defense

Cafasso’s defense to the contract claim had no merit. Cafasso never disputed she

took GDC4S’s confidential and proprietary business documents in violation of the plain

terms of her employment contract with GDC4S. She raised only the defense that she was

privileged to take those documents to obtain evidence for her qui tam action. It is not

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necessary to adjudicate here whether such a privilege ever exists in any circumstances. 

Cafasso had no such privilege in this case. In removing the documents, she was not

cooperating in a Government investigation, nor was she reporting fraud, nor was she

preserving evidence. Moreover, Cafasso’s contact with Army Fraud Advisor Spitza in

April 2006 does not excuse her conduct. Spitza asked to see any documentation of fraud

that Cafasso possessed. He did not require or ask Cafasso to download or otherwise

obtain GDC4S’s technology information wholesale. 

This is not a case where an employee came into the possession of specific

documents that exposed wrongdoing at her company. Cafasso obtained these documents

indiscriminately, whether or not they pertained to the specific claims she sought to bring.

So doing, she deprived GDC4S of vital business benefits provided by its employment

agreement. That agreement was designed to prevent GDC4S’s proprietary information

from falling into the wrong hands. It prevented the competition from availing itself of

GDC4S’s investment in its own technology. It also protected the secrecy of new

technologies that play a part in the nation’s military and domestic security operations. 

Cafasso wilfully compromised these interests for no legitimate litigation purpose, only the

speculative pursuit of self-help discovery. 

B. GDC4S’s Success in Obtaining Relief

Summary judgment was entered in favor of GDC4S on the breach of contract

counterclaim. The other counterclaims relating to the same set of facts were voluntarily

dismissed, as GDC4S obtained the full injunctive relief it sought. [Doc. ## 352, 377.] 

On its counterclaims, GDC4S prevailed in every meaningful way.

C. Avoidable Expense

Cafasso’s weak defense of the state court claims and federal counterclaims caused

much expense that could have been avoided. On June 21, 2006, almost a month after

filing her federal complaint, she argued that she needed to retain the documents at issue

“for her legal counsel to perform their due diligence obligations pursuant to Rule 11,

Ariz. R. Civ. P., to determine whether she has provable claims against [GDC4C].” [Doc.

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# 227, tab 2:1.] She reiterated this statement as late as August of that year. [Id. at tab

1:10.] Contrary to her assertions to the state courts in 2006, Cafasso now contends that

she had sufficient Rule 11 basis for her False Claims Act claims even without review of

the documents and based on what she heard and believed while at GDC4S. For purposes

of this motion, the Court will take Cafasso’s new contention as correct. Even so, the

taking and retention of the documents in violation of contract served no legitimate

purpose.

The Government had access to all GDC4S’s documents, even without legal

process. It could have sought those documents directly without informing GDC4S of the

pendency of Cafasso’s False Claims Act claims, thus observing the letter of the sealing

terms of the Act. See 31 U.S.C. § 3733. Once the Government elected not to intervene,

Cafasso could have served the complaint and had discovery. There was no colorable

basis to think GDC4S was destroying documents, nor was it even suggested that

documents were altered or falsified in the first place. If there were any basis to fear loss of

documents, Cafasso could have applied to this Court for appropriate relief, including

early protective orders.

In short, every principle of substantive and procedural law cut against Cafasso’s

self-help discovery tactic. Moreover, there was no legitimate reason for refusing

compliance with the state court restraining order to surrender documents to GDC4S. 

Shortly after getting that order lifted ex parte, Cafasso herself breached the seal on the

pendency of her False Claims Act action and GDC4S found out about it. She could have

gotten any appropriate discovery with judicial enforcement of the rules designed to

protect both parties. 

Cafasso now contends that she should not be assessed attorney fees on this failing

battle that never had any legitimate practical purpose precisely because she would have

“settled” this part of the case if she had been asked. But she was asked—in a lawsuit,

which she fought with dogged determination to the end. This contention does not defend

her conduct; it confesses its lack of justification. 

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To be sure, Cafasso’s misappropriation of records and persistent battle to retain

them had advantages to her, but not legitimate ones. It freed her of the inconvenience of

doing discovery through the ordained process, and it deprived GDC4S of the protections

of judicial mediation over what evidence and documents must be produced. It exposed

GDC4S to the danger from having its sensitive documents beyond its physical control, at

risk of further compromise from lack of care or misconduct by Cafasso herself or her

attorneys. GDC4S had reason to fear for Cafasso’s integrity and no obligation to trust

that of her attorneys, whom they did not know. GDC4S was exposed to the security

limitations of her attorneys’ law offices, which surely were different from the security

systems GDC4S designed for its business and technology data. These circumstances put

GDC4S at the utmost duty to reclaim its documents. This exponential increase in

GDC4S’s cost and risk of this litigation gave Cafasso a leverage not grounded in the

merits of any claim. 

D. Possibility of Extreme Hardship

Cafasso’s sworn statement indicates that she has remained unemployed for over

three years while devoting over 5,000 hours to this litigation, her house has limited equity

remaining, and her living expenses are barely being met while her savings are “nearly

depleted.” Cafasso claims to have lost $500,000 in income over a period of three years,

which suggests substantial past income and present earning power. She provides no

specific information concerning her assets or sources of income, her household budget, or

additional liabilities, but GDC4S does not dispute her general assertions of likely

hardship. This limited evidence indicates the possibility that a fee award of $575,415.00

would cause Cafasso extreme hardship. 

In a typical commercial litigation case, it may be appropriate to give greater weight

to that fact. Where a whistle blower, consumer, or other individual pursues a contract

action against a large company in good faith and with substantial basis throughout, the

relative resources of the parties may often weigh against a fee award to the large

company. But this is not the ordinary commercial case. Here the breach of a generally

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valid contract was plain and wilful, and great substantive harm and litigation cost was

thrust upon the employer. The justification offered for the breach of contract, if it might

suffice in narrow circumstances, fell far short of the wholesale misappropriation of

records in this case. The unfair expense of having to defeat Cafasso’s breach of contract

is not excused by its own magnitude. It would be a poor exercise of discretion to allow

that reckless, unnecessary, and burdensome breach to trump the other factors strongly

favoring an award of fees “to mitigate the burden of the expense of litigation to establish

a just claim.” A.R.S. § 12-341.01(B).

Therefore, although fees will be awarded under A.R.S. § 12-341.01(A), the

amount of the award will reflect a reduction based on the possibility of extreme hardship

the full amount requested could impose on Cafasso.

E. Chilling Effects

Cafasso contends that a fee award will deter parties from raising novel defenses

and will deter future qui tam plaintiffs from bringing suit. These arguments rely upon

flawed reasoning. As explained in the following section, Cafasso’s defense was not so

much novel as unsupported. Breaching the terms of her employment agreement was not

necessary to bring the qui tam or retaliation actions. The contract fees at stake are not

attributable to GDC4S’s successful defense of the qui tam and retaliation actions, but

rather to the prosecution of a well-founded contract claim independent of those actions. 

Cf. Moses v. Phelps Dodge Corp., 826 F. Supp. 1234, 1237 (D. Ariz. 1993) (disfavoring

fee awards relating to the defense of statutory actions that vindicate Congressional intent). 

Cafasso’s claims under the False Claims Act and GDC4S’s breach of contract claims and

counterclaims do not have a reciprocal relationship. The award poses no threat to False

Claims Act plaintiffs who perform a reasonable inquiry into the facts and law underlying

their claim and avail themselves of the discovery under the law.

F. Novelty of the Issues

Any novelty to Cafasso’s defense and her related qui tam theory does not militate

against fees. Cafasso’s defense to her breach of contract was not grounded in the line of

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authority protecting whistle blowers who lawfully report fraud or cooperate in ongoing

Government investigations. [Doc. # 352 at 22.] The lack of directly applicable precedent

for her sweeping proposition signals her defense’s weakness more than its novelty. In re

Estate of Parker, 217 Ariz. 563, 569, 177 P.3d 305, 311 (Ct. App. 2008) (absence of

applicable precedent does not preclude award of fees where “the result was compelled by

the plain language of the statute”). 

G. Interwoven Counterclaims

The award of fees encompasses the other counterclaims for misappropriation of

trade secrets, breach of fiduciary duty, common law fraud, conversion, and computer

fraud and abuse. Although the bulk of the fees are attributable to the contract claim, the

other counterclaims are sufficiently interwoven with the contract claim to fall within the

ambit of the award. Campbell v. Westdahl, 148 Ariz. 432, 441, 751 P.2d 288, 297 (Ct.

App. 1985). They arise out of the same set of facts—Cafasso’s removal of nearly eleven

gigabytes of documents from GDC4S’s offices—and they all involve a common legal

question: whether Cafasso’s contractual relationship with GDC4S, including her

contractual duty of secrecy, prohibited her from removing the documents. Modular

Mining Sys., Inc. v. Jigsaw Techs., Inc., No. 2 CA-CV-2008-0118, 2009 WL 1162893, at

*6 (Ariz. App., April 30, 2009); see also, e.g., A.R.S. § 44-401(1)-(2) (defining

misappropriation of trade secrets with reference to duties of secrecy); Restatement

(Second) of Agency § 395, 396 cmt. h (1959) (defining fiduciary duty with reference to

confidentiality agreements). However, the Court’s discretionary reduction in the fee

award effectively limits the award to an amount incurred directly on the breach of

contract claim.

Cafasso’s contract with GDC4S was not an implied agreement or one that merely

mirrored her preexisting legal obligations, but a “special contractual relationship” that

created specific boundaries in Cafasso’s employment relationship. Thus, the

counterclaims would not have arisen in the same manner had the contract not existed. 

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Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 523-24, 747 P.2d 1218, 1222-

23 (1987). 

H. Fee Statements

The Court has reviewed the fee statements submitted by GDC4S. There is no

merit to Cafasso’s contention that the statements contain many billing entries that cannot

be the subject of any fee award, either because the billing entries are too vague or because

GDC4S has sometimes engaged in “block billing” of unrelated tasks. The context of the

objected-to entries makes their meaning clear, and tasks are grouped into appropriate

categories of activity.

I. Amount of Fees and the Fee Litigation

Under A.R.S. § 12-341.01(A), the Court has discretion to determine the amount of

attorneys’ fees to be awarded. The award of attorneys’ fees “need not equal or relate to

the attorney fees actually paid or contracted, but the award may not exceed the amount

paid or agreed to be paid.” A.R.S. § 12-341.01(B). 

The following factors strongly weigh in favor of an award of attorneys’ fees: the

merits of Cafasso’s defense, the avoidable expense incurred, the novelty of the legal

questions presented, and any chilling effect the award might have on other parties with

tenable claims or defenses. The possibility that an award in the amount of $575,415.00

will cause extreme hardship on Cafasso weighs against an award of that amount, but is

barely supported with Cafasso’s general assertions and no specific information regarding

her financial condition. 

Therefore, attorneys’ fees will be awarded under A.R.S. § 12-341.01(A) in the

amount of $300,000.00. In exercising its discretion in setting the amount of the award,

the Court also exercises its discretion to decline to impose an additional award of

attorneys’ fees incurred in preparing the fee application. This is a major discretionary

reduction in the award that otherwise would be warranted. 

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J. Sanctions as an Alternative Basis for Fees Related to the Contract

Claim

No fee award will be made on the alternative basis of sanctions against Cafasso’s

attorneys under 28 U.S.C. § 1927 or against Cafasso or her attorneys as a matter of

inherent powers. At the outset, fees cannot be assessed based on Mr. Rogers’ ex parte

obtaining of the May 26, 2006 order allowing him to inform the state court ex parte of

this proceeding. This Court’s error in judgment in hearing Mr. Rogers’ request off the

record deprives him of the proof of whether he did or did not discharge his ethical duty to

inform the Court of all material facts and circumstances in the ex parte proceeding, even

though he is also at fault for not informing the Court of his purpose to ask for ex parte

orders when he asked to come to chambers. Rules of the Supreme Court of Arizona, Rule

42, ER 3.3 (d) (“In an ex parte proceeding, a lawyer shall inform the tribunal of all

material facts known to the lawyer which will enable the tribunal to make an informed

decision, whether or not the facts are adverse.”) The Court’s error is greater, and

sometimes judicial error has irremediable consequences.

More generally, sanctions relating to the state proceedings are beyond this Court’s

power. Neither § 1927 nor inherent judicial powers enable this tribunal to remedy any

such abuses; these powers are limited “to attorney’s actions which multiply the

proceedings in the case before the court.” In re Case, 937 F.2d 1014, 1022-24 (5th Cir.

1991); accord GriD Sys. Corp. v. John Fluke Mfg. Co., Inc., 41 F.3d 1318, 1319 (9th Cir.

1994) (following the holding of Case). Obviously a court may sanction abuses of process

beyond the courtroom, but only to the extent those abuses implicate the court’s

administration of its own rules or orders. Chambers v. NASCO, Inc., 501 U.S. 32, 55 &

n.17, 57-58 (1991); CJC Holdings, Inc. v. Wright & Lato, Inc., 989 F.2d 791, 794 (5th

Cir. 1993); see also LaPrade v. Kidder Peabody & Co., 146 F.3d 899, 904-05 (D.C. Cir.

1998). This is not a case where the state proceedings interfered in this way. None of

GDC4S’s cited cases affirms, condones, or even discusses the use of a federal fee

sanction to redress abusive litigation conduct in non-federal proceedings. See, e.g., In re

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3

 The state and the federal actions in this case are separate. The state action was

voluntarily dismissed, and the parties stipulated to the adoption of the state court’s orders by

this Court, while reserving all the rights they retained in the state proceeding. A nonremoved state court proceeding is an “entirely separate action” even when a parallel claim

is made in federal court. Case, 937 F.2d at 1023. 

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DeVille, 361 F.3d 539, 545-46, 550-51 (9th Cir. 2004); Fink v. Gomez, 239 F.3d 989,

993-94 (9th Cir. 2001); Bader v. Itel Corp. (In re Itel Sec. Litig.), 791 F.2d 672 (9th Cir.

1986); Schepers v. Babson-Smith, 2008 WL 246086, at *5-7 (N.D. Iowa Jan. 28, 2008).3

GDC4S contends that the parties’ procedural stipulation enables this Court to

sanction conduct that occurred in the state proceedings. This is not so. The scope of the

Court’s sanctioning powers is akin to subject matter jurisdiction, Morris ex rel. Rector v.

Peterson, 871 F.2d 948 (10th Cir. 1989), and like subject matter jurisdiction, it cannot be

enlarged by consent or waiver of the parties. The purpose and effect of the stipulation

was to achieve judicial economy by combining two related proceedings. It accelerated

the federal case according to what had been accomplished in the state court, and the

parties brought with them whatever substantive rights they could still assert in this

tribunal. Those rights included the fee-shifting provisions of Arizona contract law, which

are an incident of substantive contract rights. Building Innovation Indus., LLC v. Onken,

473 F. Supp. 2d 978, 986 (D. Ariz. 2007). They did not include a procedural right, which

never existed, to have a federal district judge regulate abusive litigation conduct that

occurred in the state forum. Even where separate state court proceedings are used to

obstruct a federal action, the federal court’s sanctioning powers do not stretch so far. See

Case, 937 F.2d at 1022 (reversing bankruptcy court’s award of § 1927 and inherent

powers sanctions for state court tactics designed to harass federal court creditor and delay

federal proceedings). 

For the same reasons, no attorney sanctions will be awarded for Cafasso’s alleged

evasion of service of process. Even if the Court had the power to award those sanctions,

the record contains no indication that Cafasso’s attorneys participated in or encouraged

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4

 GDC4S originally sought fees relating to the qui tam claim under the False Claims

Act itself, 31 U.S.C. § 3730(d)(4). [Doc. # 227 at 16.] Although GDC4S’s most recent

motion for attorney’s fees renewed the original motion with that request for relief, the new

motion excludes the False Claims Act as a basis for fees. Therefore, no fee request will be

adjudicated under the Act. However, § 3730(d)(4) does not preclude sanctions by way of the

Court’s inherent powers or 28 U.S.C. § 1927. Pfingston v. Ronan Eng’g, 284 F.3d 999, 1006

n.5 (9th Cir. 2002).

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evasive conduct on her part. Any difficulty in obtaining personal service on Cafasso

herself is primarily explained by her need to travel out of state from May 24, 2006, until

June 18, 2006, to attend to her ill mother. She was served five days after she returned. 

II. The Retaliation Claim

No fees will be awarded as sanctions relating to Cafasso’s retaliation claim. The

Court is not persuaded that Cafasso’s attorneys unreasonably multiplied the retaliation

proceedings in violation of 28 U.S.C. § 1927, or that Cafasso committed some serious

wrongdoing that requires use of the Court’s inherent sanctioning power because the

statutes or rules come up short. Chambers, 501 U.S. at 50. Summary judgment on the

retaliation claim was granted in favor of GDC4S. The retaliation claim’s lack of merit is

not, by itself, grounds for § 1927 sanctions. Knorr Brake Co. v. Harbil, Inc., 738 F.2d

223, 226 (7th Cir. 1984). 

GDC4S argues that Cafasso’s retaliation suit was not brought in good faith

because in the days before leaving the company, she complained that her termination was

in retaliation for reporting an instance of workplace violence. This complaint is not

inconsistent with the allegations relating to retaliation. As the False Claims Act itself

recognizes in its sealing provisions, plaintiffs may have good reasons not to alert their

employers of an intent to bring suit under the Act. Nor does the time passing between her

ethics complaints and her termination show bad faith in pursing the claim; it simply

increases the difficulty of showing a causal connection between the two.

III. The Qui Tam Action4

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5

 The Court declined to entertain a motion for sanctions at the time the qui tam action

was adjudicated to avoid likely duplication of effort. [Doc. # 237.] The Court treats the

instant motion as though it had been brought at that time.

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Finally, no fees will be awarded as sanction against Cafasso’s attorneys under 28

U.S.C. § 1927 for multiplication of the qui tam proceedings. In general, § 1927 is not a

vehicle for awarding “a generic, all-encompassing, massive, post-trial retribution, with no

indication whatsoever of reasonableness.” In re Yagman, 796 F.2d 1165, 1185 (9th Cir.

1986). Yet that is the type of award GDC4S seeks: all the attorney fees that it expended

to litigate the qui tam action. Other, more specific principles support this denial of

sanctions. First, the filing of a complaint cannot be the basis for sanctions under 28

U.S.C. § 1927. Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec. Litig.), 78

F.3d 431, 435 (9th Cir. 1996). To predicate a fee award on the pursuit of the qui tam

action as a whole would contravene this basic principle.

Second, it is necessary to deny fees because some such fees were already sought

and denied before judgment, and others were not sought at all. In general, district courts

are expected to sanction wrongful conduct as it occurs. Yagman, 796 F.2d at 1183. The

Court will not revisit its previous denials of fees relating to purported discovery abuses. 

Although post-judgment sanctions may be warranted where the depth and the cumulative

effect of the bad faith were not clear to the Court at the time of the offending conduct, see

Yagman, 796 F.2d at 1183; Salstrom v. Citicorp Credit Servs., Inc., 74 F.3d 183, 185 (9th

Cir. 1996), the Court does not come to a different conclusion.5

 

Third, GDC4S contends that the Court already has characterized certain acts of

Cafasso’s attorneys as taken in bad faith, namely, the filing of egregiously over-length

papers and attempted expansion of discovery that contravened both the rules and prior

orders of the Court. However, these characterizations were not made with reference to

sanctioning standards, but with reference to the standards of briefing, discovery, and

amendment of pleadings. The Court limited discovery and rejected the proposed overlength filings. The nature of counsel’s bad faith at that time went to the merits of those

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tactics—that is, whether expanded discovery or amendment should be allowed—and not

to the vexatious or multiplicitous abuse of the litigation process. To the extent that

Cafasso’s counsel persisted in an ill-considered strategy near the conclusion of the qui

tam action, that strategy engendered its own penalty: denial of leave to amend the

insufficient complaint again. The Court’s prior findings of bad faith do not, therefore,

require the imposition of sanctions now.

Fourth, GDC4S’s fee motion fails because it does not set apart the additional

expenses attributable to specific instances of wrongful behavior. Yagman, 796 F.2d at

1183. It is not enough to say that a particular stage of the briefing was time consuming. 

The burden is on GDC4S to show the extent to which any sanctionable actions augmented

its expense beyond what it should have been required to spend in the course of good faith

litigation. New Alaska Dev. Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th Cir. 1989). 

The fee motion and exhibits submitted with it present no such differentiation. 

Other conduct relating to the qui tam case will not be the subject of sanctions,

including Cafasso’s June 2, 2008 response to the interrogatory and her counsel’s

appearance by telephone for settlement meetings. Cafasso’s response to the interrogatory

confirmed her attorneys’ defiant attitude toward discovery duties, but it did not multiply

the proceedings. To the contrary, it hastened their conclusion. GDC4S held Cafasso to

her answer, rather than demanding a different answer, and obtained judgment on the

pleadings just weeks later.

IV. State Court Costs

GDC4S seeks leave to file a supplemental bill of costs relating to taxable costs

incurred in the state court action. [Doc. ## 385, 386.] Under LR 54.1(e)(9), a prevailing

party may be entitled to costs of “fees paid to the Clerk of the State Court prior to

removal.” LR 54.1(e)(10) provides for taxation of “[o]ther items . . . with prior Court

approval.” GDC4S’s state court action was not removed. Rather, the parties stipulated to

its dismissal in state court and it was refiled in federal court with a further stipulation that

all prior rulings of that court would be adopted by this one. Nonetheless, taxation of state

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court costs in this instance falls within the spirit of LR 54.1(e)(1)-(9) and within the letter

of LR 54.1(e)(10). To deny taxable costs from the state court proceeding would defeat

the purpose of the stipulation bringing the state court claims into this case without

prejudice to the rights of either party. GDC4S will therefore be granted leave to file its

supplemental bill of costs. Cafasso may raise objections to particular costs once the bill is

filed.

ORDER

IT IS THEREFORE ORDERED that Defendant GDC4S’s Motion for Award of

Attorneys’ Fees [Doc. # 363] is granted in part and denied in part. The motion for award

of fees against Relator’s counsel under 28 U.S.C. § 1927 and the court’s inherent power is

denied. The motion for award of fees against Relator Mary A. Cafasso under A.R.S.

§ 12-341-01(A) is granted in the amount of $300,000.00.

IT IS FURTHER ORDERED that Defendant GDC4S’s Motion for Leave to File a

Supplemental Bill of Costs re State Court [doc. # 385] is granted. The Clerk is directed to

file Defendant GDC4S’s Lodged [Proposed] Supplemental Bill of Costs [doc. # 386].

IT IS FURTHER ORDERED that the Clerk enter judgment in favor of General

Dynamics C4 Systems, Inc., against Mary A. Cafasso in the amount of $300,000.00 for

attorney fees pursuant to A.R.S.§ 12-341.01(A).

DATED this 3rd day of November, 2009.

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