Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen Koniginstr v. Northrop Grumman Risk Management Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MÜNCHENER
RÜCKVERSICHERUNGS-
GESELLSCHAFT
AKTIENGESELLSCHAFT IN
MÜNCHEN,
Plaintiff,
v. Civil Action No. 10-551 (JEB)
NORTHROP GRUMMAN RISK
MANAGEMENT INC., et al.,
Defendants.
MEMORANDUM OPINION
Donald C. Holmes, counsel for reinsurance company Munich Re, is on a mission to hold
Northrop Grumman Corporation and Huntington Ingalls (formerly Northrop Grumman
Shipbuilding) accountable for purportedly defrauding the Navy. He hopes to make hundreds of
millions of dollars for doing so by bringing a False Claims Act suit in Mississippi. While
attempting to establish the alleged fraud, however, Holmes improperly used sensitive documents
provided by the Navy under a protective order issued five years ago by this Court in a separate
proceeding that has long since been terminated.
Earlier this year, the district court presiding over the FCA action in the Southern District
of Mississippi dismissed Holmes’s case, in part because he had violated this Court’s protective
order. See United States ex rel. Holmes v. Northrop Grumman Corp., No. 13-85, 2015 WL
3504525 (S.D. Miss. June 3, 2015). With that decision pending on appeal, Holmes now moves
this Court to reopen the case here to “correct” his “inadvertent noncompliance” with the
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protective order. In particular, he asks for a modification of the order to allow him to use the
protected documents in his FCA suit. As his Motion is both unconvincing and misleading, the
Court finds no reason to alter the order’s terms.
I. Background
This litigation involves the intersection of two different cases in other forums: a foreign
arbitration of a reinsurance dispute in London and a False Claims Act suit in Mississippi. The
instant Motion seeks to modify a protective order issued by this Court in relation to the former in
order to assist Holmes in the latter. In setting forth the facts, the Court draws from both the
decision in the FCA suit and other pleadings in this case.
Northrop Grumman Risk Management, Inc. (NGRMI) is the “captive” insurer of
Northrop Grumman Corporation (Northrop), a large U.S. defense contractor. See Am. Compl.,
¶ 4. NGRMI insured its parent company for certain losses over $1 million. See id. Münchener
Rückversicherungs-Gesellschaft Aktiengesellschaft in Munchen Koniginstr (Munich Re) is a
German company that reinsured Northrop’s covered losses. See id., ¶¶ 2, 4. In 2008, Munich Re
initiated arbitration proceedings against NGRMI in London to dispute a claim for losses caused
by Hurricane Katrina and to seek reimbursement under the companies’ reinsurance contract. See
id., ¶ 11.
While the arbitration was pending, Munich Re filed a request with the U.S. Navy for
documents the Navy had received from Northrop Grumman Shipbuilding, Inc., a former
subsidiary of Northrop that has since been spun off as an independent company named
Huntington Ingalls, Inc. See id., ¶ 19; Opp. at 3 n.2. According to Munich Re, the Navy agreed
to release the requested documents provided that an enforceable protective order was put in place
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to ensure that they would be used only for the arbitration proceedings. See Compl., ¶ 3 & Exh. 1
(Proposed Protective Order), ¶ 7.
Munich Re then filed a Complaint in this Court on April 6, 2010, against NGRMI,
Northrop, and Huntington Ingalls (collectively “Northrop Grumman”), asking, inter alia, for the
Court to issue a protective order. See Compl., ¶ 13. (Curiously, although Munich Re admits this
was a miscellaneous action, the company filed the Complaint as a civil case. See id., ¶ 1.)
Counsel for Munich Re, Donald C. Holmes and Gerald Fisher, explicitly stated in the Complaint
here that they sought these documents “in aid of private foreign arbitration only” and that they
were “in no way . . . attempt[ing] to usurp the power of the . . . arbitration tribunal” for another
purpose. See Am. Compl., ¶ 22 (emphasis added). Although discovery had not yet begun in the
arbitration proceedings, see Def.’s First Mot. for Extension of Time to Respond, ¶¶ 2, 10,
Munich Re was apparently eager to obtain the requested documents. In the following weeks, the
company filed multiple motions to expedite and oppositions to Defendants’ motions for
extension of time. See, e.g., Pl.’s First Mot. to Expedite (Apr. 26, 2010) at 6 (“The entry of the
protective order should take place in an expedited fashion so Plaintiff can proceed with gathering
and marshaling proof from U.S. Navy documents . . . .”); Pl.’s Opp. to First Mot. for Extension
(May 7, 2010) at 5 (“There is no reason for further delay.”); Pl.’s Second Mot. to Expedite (May
12, 2010) at 3 (“Plaintiff urgently needs . . . the entry of the protective order . . . .”); Pl.’s Opp. to
Second Mot. for Extension (May 17, 2010) at 4 (“Plaintiff needs the documents it seeks at the
earliest possible date.”).
On June 2, 2010, while the litigation in this Court was still pending, Holmes and Fisher
filed a qui tam lawsuit against Northrop and Huntington Ingalls under the False Claims Act,
which was later transferred to the Southern District of Mississippi, seeking over $2.5 billion in
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damages. See Holmes, 2015 WL 3504525, at *2, 6. Pursuant to the provisions of the Act, the
lawsuit was filed under seal and not made known to this Court. See 31 U.S.C. § 3730(b)(2);
Holmes, 2015 WL 3504525, at *1. The qui tam complaint alleged that Northrop and Huntington
Ingalls had defrauded the Navy in the amount of no less than $835 million by using government
funds earmarked for Hurricane Katrina-related expenses to cover cost overruns incurred before
the hurricane. See id. at *2. Holmes and Fisher further averred that they expected the
documents they had requested from the Navy would prove these allegations. See id. at *5 n.5.
A few weeks later, Munich Re and Northrop Grumman stipulated to a protective order
here, see Joint Mot. for Protective Order, and on June 24, 2010, the Court approved it. See ECF
No. 20 (Order Granting Joint Mot. for Protective Order). The protective order entered was
substantially similar to the one Munich Re had initially proposed. Compare Protective Order
with Proposed Protective Order. The final version included a “Good Cause Statement” section
in which each party explained why the order was necessary. Northrop Grumman noted that
because the company is a major defense contractor for the United States, the material disclosed
by the Navy would include both its “sensitive business material” and information “vital to the
national defense.” See id. at 2 (explaining that, if disclosed without an enforceable protective
order, these documents would “jeopardize Northrop’s competitive edge in the marketplace” and
pose a risk to national security). Munich Re, in turn, stated that it needed the requested
documents for the arbitration and, recognizing the documents’ sensitive nature, agreed they
should be protected. See id. at 3. Finally, Northrop Grumman and Munich Re further stipulated
that the Navy’s Touhy Regulations, which govern the agency’s responses to information
requests, prohibited the Navy from disclosing the requested information absent a protective
order. See id. at 3-4. The parties explained, first, that Naval officers, like all government
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personnel, are “required under penalty of prosecution and imprisonment . . . to protect from
disclosure trade secrets submitted to them,” and second, that the requested documents also
contained the Navy’s own information, some of which pertained to ongoing business with
contractors. See id.
Upon receipt of the documents from the Navy, and despite the explicit terms of the
protective order, Holmes nonetheless submitted them to the U.S. Department of Justice’s Civil
Fraud Division and the district court presiding over the qui tam action. See Holmes, 2015 WL
3504525, at *9; Mot. at 1-2. Holmes wrote in his Relators’ Motion to Assist the DOJ, “Relators
have provided the Government with an extensive Disclosure Memorandum pointing out that the
evidence of this fraud is based on documents available directly from the Navy, many of which
Relators obtained pursuant to Touhy Regulation Requests in connection with ongoing litigation
on an insurance claim.” Holmes, 2015 WL 3504525, at *8. The following year, Munich Re and
NGRMI settled their arbitration dispute, and this Court granted their joint motion to dismiss the
action here with prejudice. See Minute Order Granting Parties’ Joint Mot. to Dismiss (Nov. 29,
2011).
After investigating Holmes’s FCA claim, the United States declined to intervene in his
Mississippi suit. See Holmes, 2015 WL 3504525, at *1. Holmes’s co-relator, Gerald Fisher,
also passed on the opportunity to pursue the case, withdrawing from the qui tam action before
Holmes filed the amended complaint. See id. at *2.
On June 3, 2015, the United States District Court for the Southern District of Mississippi
issued a searing opinion, dismissing the qui tam action without prejudice to the government and
disqualifying Holmes as a relator on account of his numerous ethical violations. See id. The
opinion described Holmes’s blatant disregard for his professional responsibilities as a lawyer,
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noting that he had violated his duty of candor by misrepresenting his motives for obtaining the
Navy documents, violated his duty of loyalty to Munich Re by simultaneously arguing a position
that directly contradicted the one he took on behalf of the company, and violated his duty to keep
information regarding his representation of Munich Re confidential. See id. at *4-8. The district
court also found that Holmes was “well aware of the terms” of this Court’s protective order and
“knowingly violated the obligations imposed” by them. See id. at *9. Contending that these
conclusions are “full of speculation,” Holmes has appealed the district court’s decision to the
U.S. Court of Appeals for the Fifth Circuit. See Reply at 3.
Meanwhile, Holmes has filed the present Motion, requesting that this Court sanction him
in the amount of $1,000 “contributed out of his own pocket to the local legal aid society” and
then modify the protective order to permit disclosure to DOJ and the qui tam court. See Mot. at
1-2. Though seeking extraordinary relief, the Motion is less than two pages in length and
contains no citation to authority. And, instead of ever articulating the underlying facts in his
Motion, Holmes refers the Court to an early version of the brief he later filed with the Fifth
Circuit as background. See id. at 2; Mot., Exh. 2 (Fifth Circuit Brief).
In that document, Holmes states that his violation of the protective order is “the principal
issue” in his Fifth Circuit appeal, and he repeatedly tells the Fifth Circuit that he has filed a
motion in this Court to “correct this mistake” and “clear this issue from the record.” Fifth Circuit
Brief at 9-10, 23; see also Brief of Appellant, Donald C. Holmes, United States ex rel. Holmes v.
Northrop Grumman Corp., 15-60414 (5th Cir.) (filed Oct. 1, 2015) at 11-12, 23 (showing same
statement in filed version of Fifth Circuit brief). Apparently playing fast and loose with the
Court, Holmes explains the genesis of the order by attesting that “Northrop Grumman insisted
upon a protective order” and Munich Re merely agreed to it. See Fifth Circuit Brief at 9. Again
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mischaracterizing the facts, Holmes says that, once the order was in place, he received
“[s]upposedly confidential information” from the Navy that just so happened to support his qui
tam action. See id. at 10. Holmes then contends that he did not seek out this information to use
in his qui tam action because that case had been filed “several months earlier” and therefore “was
not an issue at that time” – an assertion that is clearly belied by the record. See id. at 21.
Northrop Grumman has opposed the instant Motion.
II. Analysis
Holmes openly admits that he has violated this Court’s protective order by sharing
documents produced under it to parties outside this case and by using the documents in other
litigation. See Mot. at 1-2; Fifth Circuit Brief at 10. With aspirations to collect his bounty under
the FCA, he nonetheless now asks the Court to modify the original protective order and sanction
him $1,000 to be donated to a local legal aid society. See Mot. at 2; Reply at 4. Although
Holmes hopes this Court will absolve him of his previous unauthorized disclosure and use of the
protected documents, it is the Southern District of Mississippi — not this Court — that has
levied the sanctions. This Court has no power to alter them. Nor will it consider his voluntary
proposal of a $1,000 penalty — a likely attempt to show the Fifth Circuit that he has already
been sanctioned by this Tribunal in the hopes of having the dismissal there overturned. All this
Court will do is assess the merits of modifying the protective order to allow Holmes to use the
protected documents going forward.
Federal Rule of Civil Procedure 26(c) permits courts to issue protective orders upon a
showing of “good cause.” Protective orders both facilitate efficient pre-trial discovery and
prevent parties from abusing Rule 26’s liberal discovery provisions. See Seattle Times Co. v.
Rhinehart, 467 U.S. 20, 34 (1984) (noting that “it is necessary for the trial court to have the
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authority to issue protective orders” because “pretrial discovery . . . has a significant potential for
abuse”).
The discretion to modify a protective order lies with the district court that issued it. See
E.E.O.C. v. Nat’l Children’s Ctr., Inc., 146 F.3d 1042, 1046-47 (D.C. Cir. 1998). The court
retains this power even after the underlying case has been settled for as long as the order is in
effect. See Public Citizen v. Liggett Group, Inc., 858 F.2d 775, 782 (1st Cir. 1988) (citing
United States v. Swift & Co., 286 U.S. 106, 114-15 (1932)).
The Court begins its analysis by noting that the wrong party has filed here. Plaintiff’s
counsel expressly filed this Motion on behalf of himself, Donald Holmes, and not on behalf of
Munich Re. See Mot. at 1. The Motion is titled “Counsel’s Motion to Correct Inadvertent Non-
Compliance with Protective Order in This Case,” and the first sentence reads, “Plaintiff’s
counsel in this case, Donald C. Holmes, moves the Court to allow him to correct his inadvertent
disclosure of materials to the U.S. Justice Department and a separate Federal District Court in
DC.” Id. (emphasis added). Neither Holmes’s Memorandum in Support of the Motion nor his
Reply to Defendant’s Opposition even mentions Munich Re.
Not only does this raise a question of identity of party, but it also presents a potential
conflict of interest. Holmes wants to resolve his noncompliance with the protective order
because it has complicated his qui tam action against Northrop and Huntington Ingalls. See Mot.
at 2. Munich Re, on the other hand, may not want to assist Holmes in pursuing the qui tam
claim. See Holmes, 2015 WL 3504525, at *6-7 (finding that Holmes breached his duty of
loyalty to Munich Re by filing the qui tam action without Munich Re’s informed consent).
Munich Re, therefore, has not offered any interest in modifying the protective order.
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Because the parties to this case are Munich Re and Northrop Grumman, Holmes is a third
party. Third parties seeking to modify a protective order should first move to permissively
intervene in the case under Federal Rule of Civil Procedure 24(b). See Nat’l Children’s Ctr., 146
F.3d at 1045-46. Of course, “permissive intervention is an inherently discretionary enterprise.”
Id. at 1046. Holmes’s failure to follow the proper procedure constitutes sufficient grounds for
denying the Motion.
Yet, even if he had correctly sought modification after intervening as a third party, the
outcome would be the same. The standard for modifying a protective order in favor of a third
party mirrors that used when considering a party to the litigation’s motion to modify – “‘good
cause’ under Rule 26(c).” See Tavoulareas v. Washington Post Co., 737 F.2d 1170, 1173 (D.C.
Cir. 1984).
Although Tavoulareas did not further define “good cause,” D.C. Circuit opinions
reviewing the grant of a protective order provide that “the ‘good cause’ standard in [Rule 26(c)]
is a flexible one that requires an individualized balancing of the many interests that may be
present in a particular case.” United States v. Microsoft Corp., 165 F.3d 952, 960 (D.C. Cir.
1999). To establish good cause, parties must point to specific facts to support their claimed
interests. See Alexander v. F.B.I., 186 F.R.D. 71, 75 (D.D.C. 1998). With these principles in
mind, the Court proceeds to first identify and then to balance the relevant interests.
Holmes, in asking for a modification of the protective order, directs the Court to his Fifth
Circuit brief and states that “this issue” – presumably his failure to comply with the order – “has
wound out of control over the years.” Mot. at 2. He explains that he now would like the Court’s
help in correcting his mistake. See id. Implicit in Holmes’s request is an interest in knocking
out the hurdles he faces on appeal. If, on his own initiative, Holmes resolves his failure to obey
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the Court’s order – in other words, persuades this Court to allow his disclosure of the documents
and sanctions him here – the Fifth Circuit may look more favorably on his attempt to proceed
with the qui tam action and may treat the sanctions imposed by the Southern District of
Mississippi as duplicative.
Holmes also emphasizes that he “only” shared the documents with DOJ and the district
court. See Reply at 2. He seems to contend that allowing those entities access did not
contravene any interest in maintaining confidentiality either because FCA actions are by nature
confidential or because the government’s interest in identifying and penalizing fraud trumps its
own confidentiality concerns.
Northrop Grumman responds that the Court should not modify the order because doing
so would effectively excuse Holmes’s misconduct and potentially aid in his Fifth Circuit appeal.
See Opp. at 2, 5-8. As defendants in Holmes’s FCA lawsuit, Northrop and Huntington Ingalls
have a stated interest in preventing him from succeeding in the Fifth Circuit litigation, both to
limit litigation expense and avoid potential liability. See id. In addition, the Court considers
Northrop Grumman’s and the Navy’s interests set forth in the order’s “Good Cause Statements”
section. These include the need to protect from disclosure both Northrop Grumman’s trade
secrets and the Navy’s own information regarding its dealings with contractors. See Joint Mot.
for Protective Order, Exh. A (Stipulated Protective Order) at 3-4. Holmes offers no explanation
as to why these reasons for protecting the documents are any different today from what they
were when the parties negotiated the order’s terms.
Based on these identified interests, good cause weighs heavily in favor of maintaining the
current terms of the protective order. Holmes’s interest in mitigating the consequences of his
misconduct and proceeding as a relator in the qui tam action pales in comparison to the Navy’s
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interest in protecting the trade secrets of its contractors and the details of how it conducts
business. Even if the defense contractors did defraud the Navy, the Navy’s interest in protecting
the integrity of its contract operations still prevails. Of course, if it believes such fraud has
occurred, the Navy remains free to pursue further action on its own against Northrop Grumman.
The Court’s interest in preserving the integrity of the judicial process further tips the
scales away from modification. First, although Holmes would have the Court believe that his qui
tam action “was not an issue” when he sought the protective order, see Fifth Circuit Brief at 21,
the record clearly shows that Holmes knew he would use the documents from the Navy in that
case. He filed the qui tam action only a month after he asked this Court to help him obtain
Northrop and Huntington Ingalls’s documents from the Navy. Compare Am. Compl. (filed May
3, 2010), with Holmes, 2015 WL 3504525, at *1 (FCA complaint filed June 2, 2010). More
importantly, two weeks before Holmes signed the ultimate protective order, when the parties
were still negotiating its terms, he told the district court presiding over the qui tam action that he
expected the documents he had requested in this Court would support his claims. See Holmes,
2015 WL 3504525, at *5 n.5 (noting that Holmes stated in FCA complaint that “[u]pon review of
documents submitted by Northrop Grumman [and Huntington Ingalls] to the [Navy], . . . those
records will show that Northrop Grumman [and Huntington Ingalls] also improperly used
Katrina Money for pre-Katrina overruns”) (emphasis added). In fact, the Southern District of
Mississippi found that Holmes had a “clear intent” to use the protected documents in the qui tam
case. See id. at *5.
While ostensibly negotiating on behalf of his client for the release of documents by
means of a protected order, Holmes appears to have been seeking his own access to the
documents, indicating that he acted in bad faith in order to obtain them. Whatever legitimate
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interest Holmes might have in the documents today, he should have raised his interest in using
the documents outside the arbitration when he negotiated the order’s terms. Northrop clearly
agreed to the release of the documents only under the condition of the Protective Order, and
Holmes cannot come to this Court five years later, absent a change in circumstances, and
reasonably expect the Court to change the terms he requested.
Second, the Navy relied on Holmes’s word and signature. As Holmes himself explained,
the Navy would not have released the documents without an enforceable protective order in
place. See Compl., ¶ 3. And the Navy did not want just any protective order – indeed, the Navy,
Northrop Grumman, and Munich Re spent over two months negotiating its terms. Compare
Compl. (filed April 6, 2010), with Joint Mot. for Protective Order (filed June 18, 2010). To now
change those terms to permit Holmes to share and use the Navy’s documents against its stated
interests would negate the purpose of the order. See S.E.C. v. Merrill Scott & Assocs., Ltd., 600
F.3d 1262, 1271-72 (10th Cir. 2010) (warning that allowing parties to breach promises made in
protective orders would “encourage similar improper conduct” and prevent future parties from
being able to rely on such orders when giving essential information).
That Holmes asks to use the protected documents in a sealed proceeding that might assist
the Navy in recovering misused funds does not help his cause. First, the protective order that
Holmes drafted, negotiated, and signed plainly prohibits using the documents “for any . . .
purpose” other than the London arbitration. See Stipulated Protective Order, ¶ 4. This includes
FCA lawsuits. And second, should the government have an interest in taking legal action against
Northrop and Huntington Ingalls, it is at liberty to do so. See Holmes, 2015 WL 3504525, at *10
(“[A]s the real party in interest, the government would not be prevented from bringing these or
similar claims against Northrop Grumman [and Huntington Ingalls].”).
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Finally, the Court does not take lightly Holmes’s repeated attempts to draw it into
believing that his violation of the order was an “inadvertent” “mistake” caused by his failure to
read it. See Mot. at 1-2; Reply at 1, 4-5. Given the facts on the record, this contention is
disingenuous at best.
As Holmes’s conduct here is precisely what Rule 26(c) is designed to prevent, see Seattle
Times, 467 U.S. at 34, the Court finds no reason – let alone good cause – to change the terms of
the original protective order.
III. Conclusion
For the reasons set forth above, the Court will issue an Order denying Plaintiff’s
Counsel’s Motion.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: December 9, 2015
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