34 Cont.cas.fed. (cch) 75,252,34 Cont.cas.fed. (cch) 75,364united States of America, Plaintiff-appellant, v. General Dynamics Corporation, James M. Beggs, Ralph E.hawes, Jr., David L. Mcpherson and James C.hansen, Jr., Defendants-appellees, 828 F.2d 1356 (9th Cir. 1987)

The Amended Opinion, amending Opinion filed April 2, 1987, and Amended Dissent, amending Dissent filed April 29, 1987, submitted with this order, are ordered filed.

AMENDED OPINION^* 

The United States appeals from a district court order staying a criminal action involving allegations of conspiracy and fraud, 18 U.S.C. §§ 371, 1001, against General Dynamics Corporation and several of that corporation's officers. The stay was entered pending the district court's referral to the Armed Services Board of Contract Appeals (ASBCA or Board) of questions relating to the interpretation of the contract upon which the criminal charges hinge. The government contends that, because the primary jurisdiction doctrine is not applicable, the district court exceeded its jurisdiction in making the referral and in halting criminal proceedings pending agency action. We agree.

BACKGROUND

In 1978, General Dynamics was awarded an Army contract to develop two prototypes of the Division Air Defense (DIVAD) gun system. In 1985, General Dynamics and several General Dynamics officers (General Dynamics) were indicted on charges of conspiring to make and of making false and fraudulent cost statements to the Department of Defense. In essence, the indictment alleged that General Dynamics illegally attempted to offset losses on the DIVAD project by allocating DIVAD costs to Bid and Proposal (B & P) and Independent Research and Development (IR & D) accounts. In defense, General Dynamics contends that the DIVAD contract, which was stated to be a "firm fixed-price (best efforts) contract," either permitted the charges to the B & P and IR & D accounts or was ambiguous as to the propriety of such charges. If either were the case, it is claimed, General Dynamics would not be guilty of criminal wrongdoing.

On January 14, 1986, General Dynamics filed a notice of appeal from the indictment with the ASBCA. Citing two grounds, the ASBCA dismissed the appeal for lack of jurisdiction. General Dynamics, Pomona Division, ASBCA No. 32297, 86-2 B.C.A. (CCH) p 18,903. First the Board determined that the filing of an indictment did not meet the statutory prerequisite to an appeal--the existence of a final decision from a contracting officer. Id. at 95,348; see 41 U.S.C. § 605(a).¹  Second, the Board found its jurisdiction precluded by the action pending in the district court because the fraud allegations, over which the court had exclusive jurisdiction, were inseparable from the issues General Dynamics was attempting to submit to the Board. General Dynamics, 86-2 B.C.A. at 95,348-49.

Despite the ASBCA's refusal to entertain General Dynamics' appeal, the district court, on September 15, 1986, entered an order in which it invoked the doctrine of primary jurisdiction to stay the litigation and refer issues of contract interpretation to the Board. The court's reasoning and the questions referred are set out in a written opinion issued October 1, 1986. United States v. General Dynamics Corp., 644 F. Supp. 1497 (C.D. Cal. 1986) (amended October 28, 1986). The district court found that

[t]his case touches upon important issues in the area of defense procurement. Those issues involve nice questions about the proper construction of contracts and regulations. Those questions, in turn, call for expert consideration and uniform answers. Since the ASBCA is uniquely qualified to supply the needed answers, certain issues will be referred to it.² 

Id. at 1507. The government timely noticed its appeal from the stay and referral. General Dynamics moved to dismiss the appeal for lack of a final, appealable order. The government then filed a protective petition for a writ of mandamus.

Following the commencement of proceedings in this court, the ASBCA, on February 3, 1987, dismissed General Dynamics' appeal that had been based on the district court's referral. ASBCA No. 33633. Again the Board determined that it had no jurisdiction over issues relating to the DIVAD contract because "there was neither a contracting officer's decision nor a claim submitted to the contracting officer under the DIVAD contract regarding the alleged 'mischarging' of costs." Id. at 5. The district court's order was held to be without jurisdictional significance: "The 'referral' by the district court does not constitute such a decision any more than the Grand Jury indictment which the Board considered in the prior appeal." Id. at 6.

The Board noted that related proceedings, ASBCA No. 34051, were pending before it. No. 34051 is based on claims submitted by General Dynamics in February 1986 to a contracting officer involving the B & P and IR & D accounts to which General Dynamics had shifted DIVAD costs. The contracting officer, in a letter dated April 16, 1986, stated that he would not issue a final decision on these claims until the fraud allegations pending before the district court were resolved. General Dynamics docketed an appeal from the contracting officer's refusal to issue a final decision on December 11, 1986.³  The Board found that because the claims made in No. 34051 did not arise under the DIVAD contract, they could not serve to create jurisdiction in No. 33633, the appeal then before it.

In response to the Board's February 3 decision, the district court, on February 5, 1987, issued a scheduling order continuing the stay pending action by this court or by the Board in ASBCA No. 34051.

DISCUSSION

As a threshold matter, we must determine whether this court has jurisdiction to pass on the propriety of the district court's stay and referral. The government contends that appellate jurisdiction lies under 28 U.S.C. § 1291 and alternatively asserts that it is entitled to a writ of mandamus under the All Writs Act, 28 U.S.C. § 1651.

Ordinarily, a stay is not considered a final decision for purposes of section 1291. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10 n. 11, 103 S. Ct. 927, 934, 74 L. Ed. 2d 765 (1983); Silberkleit v. Kantrowitz, 713 F.2d 433, 434 (9th Cir. 1983). However, "the general rule is inapplicable in situations ... where the impact of the stay is such that the plaintiff is 'effectively out of court.' " Id. (quoting Moses H. Cone Memorial Hosp., 460 U.S. at 9, 103 S. Ct. at 933 (quoting Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 715 n. 1, 82 S. Ct. 1294, 1296, 8 L. Ed. 2d 794 (1962))).

Although we were initially skeptical that the district court's order was appealable at this time, upon further study and reflection upon the rather convoluted course that this litigation could take if it is stayed until the ASBCA acts on General Dynamics's appeal, we conclude that it is entirely possible that the Government could lose the opportunity to have the merits of its case decided by a court having jurisdiction over the criminal matters alleged in the indictment. In short, this stay could effectively put the government out of court.

Only the Court of Appeals for the Federal Circuit may review any decision that the ASBCA might enter. The Contracts Disputes Act (CDA or Act), 41 U.S.C. §§ 601-613, provides that Board decisions are final, except that appeals may be taken to the Federal Circuit. 41 U.S.C. § 607(g) (1); see also 28 U.S.C. § 1295(a) (1) (granting to the Federal Circuit exclusive jurisdiction over appeals brought under section 607(g) (1)). Where, as here, a district court refers a case to an agency under the primary jurisdiction doctrine, and exclusive authority to review the agency's determination is granted to a court other than the referring district court, the district court is bound by determinations made in the collateral administrative proceedings and may not itself review the merits of the agency's decision. Port of Boston Marine Terminal Ass'n v. Rederiaktiebolaget Translantic (Port of Boston), 400 U.S. 62, 64, 69-71, 91 S. Ct. 203, 206, 208-09, 27 L. Ed. 2d 203 (1970). The district court is "under a duty to stay its proceedings pending ... review" of the agency's findings. Pennsylvania R.R. v. United States, 363 U.S. 202, 206, 80 S. Ct. 1131, 1133, 4 L. Ed. 2d 1165 (1960). Thus, if the primary jurisdiction doctrine applies in this case, the district court must both await the outcome of any appeal that may be taken from the ASBCA and accept the contract construction arrived at in the collateral proceedings.⁴ 

Even if Port of Boston did not require the district court to accept the ASBCA's or the Federal Circuit's interpretation of the disputed agreements, traditional collateral estoppel doctrine very well could. See United States v. Stauffer Chemical Co., 464 U.S. 165, 104 S. Ct. 575, 78 L. Ed. 2d 388 (1984) (holding that the doctrine of mutual defensive collateral estoppel is applicable against the government to preclude relitigation of the same issue already litigated against the same party in another case involving the same facts).⁵  The Supreme Court has held that "the doctrine of collateral estoppel is not made inapplicable by the fact that this is a criminal case, whereas the prior proceedings were civil in character." Yates v. United States, 354 U.S. 298, 335, 77 S. Ct. 1064, 1085, 1 L. Ed. 2d 1356 (1957); see also People v. Sims, 32 Cal. 3d 468, 651 P.2d 321, 186 Cal. Rptr. 77 (1982). In the instant case, we need not and should not determine whether, in fact, the collateral estoppel doctrine would preclude the government from relitigating issues determined in the collateral contract-dispute proceedings. The Port of Boston decision alone requires that preclusive effect be given to determinations rendered in those proceedings. We simply note that traditional collateral estoppel rules may lead to the same result.

Thus, if General Dynamics were to appeal successfully an adverse ASBCA ruling, the district court would be required to accept the Federal Circuit's construction of the DIVAD contract. Similarly, if General Dynamics's version of the contract were affirmed by the ASBCA, that determination would be binding if the government were to forego its appeal⁶  or if its appeal to the Federal Circuit were unsuccessful.⁷ 

The district court has expressed the opinion that if the DIVAD contract means what General Dynamics claims it means, that interpretation of the contract could dispose of the case.⁸  Indeed, a comparison of the indictment with the questions referred to the ASBCA by the district court reveal that the issues are identical. The entire theory of the indictment is that General Dynamics submitted false, fictitious, and fraudulent statements to the government because its reports relating to B & P and IR & D accounts listed expenses that should have been charged to the DIVAD contract rather than B & P and IR & D accounts. The propriety of this cost shifting was squarely presented in the questions referred to the ASBCA.⁹  If the cost shifting was permissible, the statements submitted to the government would not have been fraudulent or false. Thus, a decision adverse to the government in the collateral proceedings before the ASBCA, under the Port of Boston rule and quite possibly under the collateral estoppel doctrine, would require dismissal of the government's criminal prosecution. In short, the stay entered in this case could result in the government being "effectively out of court."¹⁰  Accordingly, this court has jurisdiction over this appeal under 28 U.S.C. § 1291.¹¹ 

The question before us is whether the district court exceeded its authority in staying, on primary jurisdiction grounds, a criminal fraud prosecution pending action by the ASBCA on a related contract dispute. We appreciate the district court's concern that the complexities of military contracts and regulations are beyond conventional experience, and agree that ASBCA has expertise in such matters. We nevertheless are convinced that deferral to the ASBCA was an impermissible delegation of an article III judge's decision-making function and an unwarranted interference with prosecutorial discretion.

The doctrine of primary jurisdiction operates as follows: "When there is a basis for judicial action, independent of agency proceedings, courts may route the threshold decision as to certain issues to the agency charged with primary responsibility for governmental supervision or control of the particular industry or activity involved." Port of Boston, 400 U.S. at 68, 91 S. Ct. at 208. The doctrine applies when "protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme." United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 353, 83 S. Ct. 1715, 1736, 10 L. Ed. 2d 915 (1963). Thus, it is the extent to which Congress, in enacting a regulatory scheme, intends an administrative body to have the first word on issues arising in judicial proceedings that determines the scope of the primary jurisdiction doctrine. See United States v. RCA, 358 U.S. 334, 339, 79 S. Ct. 457, 461, 3 L. Ed. 2d 354 (1959).

There are four factors uniformly present in cases where the doctrine properly is invoked: (1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration.¹²  For example, in United States v. Western Pacific Railroad, 352 U.S. 59, 77 S. Ct. 161, 1 L. Ed. 2d 126 (1956), the parties disagreed as to whether shipments of steel casings filled with napalm gel could, in the absence of burster and fuse devices, be charged under a tariff established for incendiary bombs. The regulation of railroad tariffs had been turned over to the ICC under specific legislation regulating commerce. Furthermore, resolution of the issue required an appreciation of complex and intricate facets of transportation policy that "ought to be considered by the Commission in the interests of a uniform and expert administration of the regulatory scheme laid down by the [Interstate Commerce] Act." Id. at 65, 77 S. Ct. at 166. Thus, the primary jurisdiction doctrine required that the agency created to regulate the activity in question, and which had initially determined why incendiaries warranted stiff tariffs, be afforded the opportunity to construe the tariff. Id. at 68, 77 S. Ct. at 167.

In the instant case, based on its findings that the defense industry is subject to governmental control "through webs of laws, regulations and directives," General Dynamics, 644 F. Supp. at 1504, which the ASBCA is uniquely qualified to untangle, the district court determined that referral of contract interpretation issues was necessary to ensure expert and uniform construction of government contracts and regulations. The court found the primary jurisdiction doctrine "to include virtually any case whose consideration lies within the competence of an administrative body." Id. While it is certainly true that the competence of an agency to pass on an issue is a necessary condition to the application of the doctrine, competence alone is not sufficient. The particular agency deferred to must be one that Congress has vested with the authority to regulate an industry or activity such that it would be inconsistent with the statutory scheme to deny the agency's power to resolve the issues in question.¹³ 

The district court recognized that "the ASBCA does not necessarily operate in the same fashion as the more traditional administrative agencies," but it identified several factors that it took as evidence that the ASBCA was an appropriate body for referral:

[The ASBCA] is certainly embedded in and even rather central to the operation of defense procurement. It performs traditional agency functions. It brings a highly honed and respected expertise to bear on this technical area, and makes authoritative determinations which have the effect of explaining and setting [Department of Defense] policy for the defense industry.

General Dynamics, 644 F. Supp. at 1505. What the court failed to note is (1) that the ASBCA is intended to be independent of the Department of Defense, see Report to the Chairman, Committee on Governmental Affairs United States Senate: The Armed Services Board of Contract Appeals Has Operated Independently, GAO/NSIAD-85-102 (Sept. 23, 1985); (2) that the traditional administrative function performed by the Board is strictly quasi-judicial, see 41 U.S.C. § 607(d); and, most important, (3) that the Board is bereft of any statutory authority to act as a regulatory body.

The ASBCA was created pursuant to the Contract Disputes Act of 1978 (CDA or Act), 41 U.S.C. §§ 601-613. The Act provides for the establishment of boards of contract appeals within executive agencies generally. 41 U.S.C. § 607. For several reasons we are convinced that the Act itself forecloses any argument that Congress, in drafting the CDA, created a statute that grants regulatory authority to the boards of contracts appeals or requires them to have primary jurisdiction over issues of contract interpretation arising in criminal litigation.

First, there is no requirement that the ASBCA exist at all. Rather, the Act provides that "an agency board of contract appeals may be established when the agency head ... determines ... that the volume of contract claims justifies the establishment of a full-time agency board...." 41 U.S.C. § 607(a) (1) (emphasis added). If an agency's volume of contract claims is insufficient to justify establishing its own board, the agency head is to "arrange for appeals from his agency to be decided by a board of contract appeals of another executive agency." 41 U.S.C. § 607(c). Thus, the Act would seem to permit defense contract claims to be heard, for example, by the Agriculture Board of Contract Appeals. This statutory scheme belies a finding that Congress' intent in creating boards of contract appeals was to create bodies to administer specific statutes or even to create specialists in particular administrative areas. The fact that a board does become expert in a particular genre of contract disputes does not imply any particular intent on the part of Congress.

Second, the CDA does not require contractors to resolve their disputes with the government before boards of contract appeals: "in lieu of appealing ... to an agency board, a contractor may bring an action directly on the claim in the United States Claims Court...." 41 U.S.C. § 609(a) (1). In direct-action cases, the relevant board of contract appeals does not have primary jurisdiction, although the cases and issues are identical to those it was statutorily designed to entertain.¹⁴  If there need be no resort to the ASBCA in run-of-the-mill contract disputes, certainly there can be no justification for staying a criminal proceeding pending ASBCA action.¹⁵ 

Finally, the overall scheme of the CDA reveals that boards of contracts appeals are simply not the type of administrative bodies that call the doctrine of primary jurisdiction into play. The purpose of the primary jurisdiction doctrine is not to secure expert advice for courts, but rather to secure a place for administrative power within our legal system: "Typically, the creation of a new agency means the addition to the legal system of a new lawmaking and law applying authority, with no explicit subtraction from the previously-existing power of the courts." 4 K. Davis, Administrative Law Treatise Sec. 22:1 at 81 (1983). The doctrine serves to avoid

the destructive effect upon the system of regulation devised by a [regulatory statute that] must be the result of construing the statute as giving authority to the courts without preliminary action by the [agency] to consider and pass on the administrative questions which the statute has primarily confided to that body....

Baltimore & O.R.R. v. United States, 215 U.S. 481, 496, 30 S. Ct. 164, 170, 54 L. Ed. 292 (1910). The primary jurisdiction doctrine is thus essentially concerned with ensuring that administrative bodies possessed of both expertise and authority delegated by Congress pass on issues within their regulatory authority before consideration by the courts.

Although the ASBCA may make determinations that "have the effect of explaining and setting DOD policy," General Dynamics, 644 F. Supp. at 1505, its statutory authority is limited to adjudicating contracts disputes.¹⁶  The Board is not involved in the creation of regulations or in the drafting of military contracts and nothing in the CDA implies congressional intent to delegate policy-making or policy-implementing power to the Board. Thus, it has little in common with such bodies as the Interstate Commerce Commission or the Securities and Exchange Commission, which have quasi-legislative powers and are actively involved in the administration of regulatory statutes. Where, as here, the administrative body has not been "charged with primary responsibility for governmental supervision or control of the particular industry or activity involved," Port of Boston, 400 U.S. at 68, 91 S. Ct. at 208, the doctrine of primary jurisdiction has no application.

Our concern with the district court's stay and referral is heightened by the fact that this action is a criminal prosecution. While it is true that the primary jurisdiction doctrine has been applied in criminal cases, see United States v. Pacific & A. Ry. & Navigation Co., 228 U.S. 87, 106-08, 33 S. Ct. 443, 448-49, 57 L. Ed. 742 (1913); United States v. Yellow Freight Sys., 762 F.2d 737, 742 (9th Cir. 1985), its use clearly interferes with the government's authority to prosecute criminal cases.¹⁷  We said in a related context:

We approach the interpretation of the statute with a presumption against a congressional intention to limit the power of the Attorney General to prosecute offenses under the criminal laws of the United States. In general, the "conduct [of] federal criminal litigation ... is 'an executive function within the exclusive prerogative of the Attorney General,' " In re Subpoena of Persico, 522 F.2d 41, 54 (2d Cir. 1975), quoting United States v. Cox, 342 F.2d 167 (5th Cir. 1965) (Wisdom, J., concurring). Congress may limit or reassign the prosecutorial responsibility. See Case v. Bowles, 327 U.S. 92, 96-97, 66 S. Ct. 438 [440-41] 90 L. Ed. 552 (946); Nader v. Saxbe, 162 U.S.App.D.C. 89, 92-93, 497 F.2d 676, 679-80 n. 19 (D.C. Cir. 1974); FTC v. Guignon, 390 F.2d 323, 324 (8th Cir. 1968). But " [t]o graft such an exception upon the criminal law would require a clear and unambiguous expression of the legislative will." United States v. Morgan, 222 U.S. 274, 282, 32 S. Ct. 81, 82, 56 L. Ed. 198 (1911).

United States v. International Union of Operating Engineers, Local 701, 638 F.2d 1161, 1162 (9th Cir. 1979), cert. denied, 444 U.S. 1077, 100 S. Ct. 1026, 62 L. Ed. 2d 760 (1980).¹⁸  As was the case in Operating Engineers, " [n]othing in [the CDA] suggests, much less clearly and [un]ambiguously states, that action by the Department of Justice to prosecute [this case] is conditioned upon prior consideration of the alleged violation by the [agency]. Indeed it would strain the language to imply such a condition." Id. at 1163.

Requiring the government to litigate issues central to a criminal prosecution in collateral agency proceedings is at odds with the general rule of prosecutorial discretion over the bringing of criminal indictments. See, e.g., United States v. Carrasco, 786 F.2d 1452, 1455 (9th Cir. 1986) (" [C]harging decisions are generally within the prosecutor's exclusive domain.... [T]he separation of powers mandates judicial respect for the prosecutor's independence....") (citations omitted); United States v. Lee, 786 F.2d 951, 956-57 (9th Cir. 1986) (same); United States v. Cox, 342 F.2d 167, 171 (5th Cir.) (describing the discretionary powers of the attorney general and finding that "as an incident of the constitutional separation of powers, ... the courts are not to interfere with the free exercise of the discretionary powers of the attorneys of the United States in their control over criminal prosecutions"), cert. denied, 381 U.S. 935, 85 S. Ct. 1767, 14 L. Ed. 2d 700 (1965). Only where an issue unambiguously requires initial agency determination under the primary jurisdiction doctrine, see, e.g., Yellow Freight Sys., 762 F.2d at 462, and the referring court has the authority to review the agency's order, can the agency's regulatory interests be required or allowed to subordinate the government's authority to prosecute criminal offenses. Accordingly, the district court's order is reversed and it is directed to lift its stay of the criminal action.

AMENDED DISSENT

BRUNETTI, Circuit Judge:

I dissent both from the majority's finding of appellate jurisdiction and the holding that primary jurisdiction is inapplicable.

* Appellate Jurisdiction

The district court's order is not a "final judgment" which is appealable at this time. The majority strains to find a final order where there is none by "reflection upon the rather convoluted course that this litigation could take" if further delayed. See Amended Opinion at 1360.

Under 28 U.S.C. § 1291, this court may only review "final judgments" of the district court. A judgment is "final" only when it "terminates the litigation between the parties on the merits of the case, and leaves nothing to be done but to enforce by execution what has been determined." United States v. Dior, 671 F.2d 351, 354 (9th Cir. 1982). This court has previously concluded that a district court order granting a stay of a case pending a hearing by an administrative agency does not meet the finality requirements of Sec. 1291. Fugate v. Morton, 510 F.2d 307 (9th Cir. 1975) (per curiam). Subsequent Supreme Court authority requires a more extensive analysis.

A stay order is not ordinarily a final decision for purposes of Sec. 1291, 'unless it operates to put a party 'effectively out of court' or 'required all or an essential part of the federal suit to be litigated' in another forum." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 8-10, 103 S. Ct. 927, 932-34, text and n. 11, 74 L. Ed. 2d 765 (1983).

In Cone Memorial, a hospital contracted with a building contractor to construct additions to the hospital. Contract disputes were to be referred to the architect overseeing the project. The contract provided that these disputes, whether or not decided by the architect, could then be submitted to binding arbitration. The hospital refused to pay the builder's claims for additional costs. Rather than submit the dispute to an arbitrator, the hospital filed an action in state court seeking a declaratory judgment that there was no right to arbitration. A few days later, the hospital obtained an ex parte injunction from the state court forbidding the builder from taking steps toward arbitration. When the builder objected, the state court dissolved the injunction. The builder then filed a diversity suit in Federal District Court, seeking an order compelling arbitration under Sec. 4 of the United States Arbitration Act. The District Court stayed the action pending resolution of the state court suit because the two suits involved the identical issue of arbitrability of respondent's claims.

The Supreme Court held that the district court's stay order was an appealable "final decision" under 28 U.S.C. § 1291. Since the order was based on the conclusion that the federal and state actions involved the identical issue of arbitrability, and this issue was the only substantive issue present in the federal action, a stay of the federal action pending resolution of the state action meant that there would be no further litigation in the federal court:

Here, by contrast, the District Court predicated its stay order on its conclusion that the federal and state actions involved "the identical issue of arbitrability of the claims of Mercury Construction Corp. against the Moses H. Cone Memorial Hospital." App. to Pet. for Cert. A-38. That issue of arbitrability was the only substantive issue present in the federal suit. Hence, a stay of the federal suit pending resolution of the state suit meant that there would be no further litigation in the federal forum; the state court's judgment on the issue would be res judicata.

460 U.S. at 10, 103 S. Ct. at 934 (emphasis added). Thus, the builder was "effectively out of court" because "this stay order amounts to a dismissal of the suit." Id.

Judge Fernandez's ruling in this case, on the other hand, does not amount to a dismissal of the indictment. First, as the government argued both in the district court and in this court, "referral would be futile, because the decision of the ASBCA will not bind this Court." United States v. General Dynamics Corp., 644 F. Supp. 1497, 1506 (C.D. Cal. 1986). It is true, as the district court recognized, that

if under the proper construction of the Contract and the regulations, it is clear that it was proper to charge the expenses here exactly the way they were charged, the effect on this indictment would be most devastating.

Id., 644 F. Supp. at 1497, and that

[T]he decision of the ASBCA on the proper construction of the regulations and the proper meaning of the language of the Contract may well resolve issues that will allow this court to dispose of all or a major portion of the case.

Id., 644 F. Supp. at 1497. The judge's recognition that the contract interpretation, if adopted, may make or break the indictment is not dispositive: the district court has not yet decided to dispose of the case. When the district court decides the case, its interpretation of the contract provisions and the applicability of the primary jurisdiction will be reviewable in this court.

The majority's entire "effectively out of court" analysis depends on the assumption that res judicata or collateral estoppel would preclude the government from relitigating issues determined in the collateral contract dispute proceedings. Yet rather than conclusively determining that res judicata applies, the majority simply notes that such a result is a possibility. A mere possibility is insufficient to make the district court's order final.

Even assuming that the ASBCA's interpretation of the contract is reviewable only by the Federal Circuit and could lead to issue preclusion in some criminal cases pending in a district court in the Ninth Circuit, it could not have that effect in this case. The issues before the ASBCA (and possibly the Federal Circuit) simply are not identical to those before the district court in this case. Cone Memorial, 460 U.S. at 10, 103 S. Ct. at 934.

The district court's referral was merely for questions of interpretation of this particular contract document. The referral did not request the ASBCA to determine the merits of General Dynamics' claims, or to rule on General Dynamics' actions or performance under the contract, or to address the criminal issues of conspiracy and fraud which are to be tried in a district court. Unlike the state court's decision in Cone Memorial, the ASBCA's response to the district court's questions will not address the only substantive issue present in the district court action, and ASBCA's answer will not be res judicata. Id., 460 U.S. at 10, 103 S. Ct. at 934. The district court referred questions to the ASBCA regarding the nature and type of contract involved here, whether the regulations permit charging the government for additional amounts expended, and the propriety of charging expenses to B & P or IR & D if the contract is ambiguous. The court did not ask for a determination of whether the contractor breached the contract, or if the contractor performed or failed to perform any specific acts or actions whether or not those actions were allowed under the contract. See General Dynamics, 644 F. Supp. at 1508. At first glance, this may appear to be hair-splitting. But it is important to note that the district court did not refer to the ASBCA the ultimate questions at issue in the criminal prosecution.¹  The government lawyers confirmed this in oral arguments. They claimed, as they did in district court, that the referral would not bind the district court because the government could prosecute for a conspiracy or fraud even if General Dynamics' interpretation of the contract was found to be "reasonable" by the ASBCA. Since the issues decided by the ASBCA (and possibly by the Federal Circuit) would not necessarily determine the outcome of the criminal case, we have a case very different from Cone Memorial, in which the Supreme Court determined that the litigants were "effectively out of court" because the state court proceedings would dispose of all issues in the federal court.

Unlike the stay in Moses, the stay in this case is only temporary. The district court discussed the possibility that delay by the ASBCA would prejudice the prosecution of the criminal case. The judge therefore expressly retained authority to terminate the referral. 644 F. Supp. at 1507.

The majority contends that there is no discretion involved in a district court's application of the primary jurisdiction doctrine. See Amended Opinion at note 15. The majority thus holds that the district court was not at liberty to "disinvoke" primary jurisdiction by lifting the stay. See Amended Opinion at note 4. The majority has mischaracterized the nature of the primary jurisdiction doctrine and disregards opinions of this court and others indicating that the application of the doctrine is discretionary. For example, the D.C. Circuit Court of Appeals has stated:

The doctrine of primary jurisdiction, despite what the term may imply, does not speak to the jurisdictional power of the federal courts. It simply structures the proceedings as a matter of judicial discretion, so as to engender an 'orderly and sensible coordination of the work of agencies and courts.' We may not now second guess whether the trial judge used his discretion wisely.

United States v. Bessemer and Lake Erie R. Co., 717 F.2d 593, 599 (D.C. Cir. 1983) (primary jurisdiction question not "jurisdictional" so issue could not be raised on appeal after nolo contendre plea entered). The district court correctly exercised discretion to determine whether the stay pending a ruling from the ASBCA was appropriate. E.g. Northern California District Council of Hod Carriers v. Opinski, 673 F.2d 1074, 1075 (9th Cir. 1982) ("district court must exercise its discretion to determine whether proceedings should be stayed" under primary jurisdiction doctrine); I.C.C. v. Big Sky Farmers & Ranchers Marketing Cooperative of Montana, 451 F.2d 511, 515 (9th Cir. 1971) (district court did not abuse discretion by refusing to apply primary jurisdiction).² 

The Third Circuit has concluded in a civil case that a stay pending administrative action, where the district court determined to monitor the stay and reconsider its order periodically, was "merely a temporary suspension of the proceedings" and not a final decision. Cheney State College Faculty v. Hufstedler, 703 F.2d 732, 735-36 (3rd Cir. 1983). Since the stay was only temporary, it does not have the practical effect of a dismissal: "Nothing in the district court's opinion or order intimates that the stay was intended to 'deep six' the suit. Plaintiffs have not been put 'effectively out of court.' " Id. 703 F.2d at 735.

D. Collateral Order Exception to Finality Requirement

The main exception to the final order requirement is the Cohen collateral order doctrine. This exception may apply in criminal cases where the appellant can demonstrate satisfaction of the following prerequisites:

1. The pretrial order fully disposed of the appellants' claim;

2. The appellants' claim is collateral to, and separate from, the principal issue of guilt or innocence; and

3. The order involves an important right that would be lost if review had to await final judgment.

United States v. Yellow Freight System, Inc., 637 F.2d 1248, 1250-51 (9th Cir. 1980) (citing Abney v. United States, 431 U.S. 651, 658-62, 97 S. Ct. 2034, 2039-41, 52 L. Ed. 2d 651 (1977)). See also United States v. Harper, 729 F.2d 1216, 1219-20 (9th Cir. 1984).

The application of this analysis to the present appeal demonstrates that it does not qualify as an appealable collateral order. The government here claims that the district court erred in staying the criminal trial and referring questions of contract interpretation to an administrative tribunal. Although this claim is separable from the principal issue of guilt or innocence, the district court's pretrial order does not fully dispose of the claim, nor does the order preclude review of the district court's decision if the government is forced to wait until final judgment. If the defendants are acquitted on legal rather than evidentiary grounds, the government can appeal.³  While the government generally alleges that delay resulting from the district court's stay will cause it "irreparable injury warranting review," the government does not allege prejudice to any "important rights" that would be lost if review had to await final judgment. See Yellow Freight Systems, 637 F.2d at 1250-51.

The district court in its order filed February 5, 1987 entitled "Order Re Scheduling in Light of Opinion in ASBCA Case No. 33633", acknowledges that Case No. 33633 has been dismissed but notes there is another appeal still pending at ASBCA in Case No. 34051. Judge Fernandez notes that the ASBCA has not ruled on the issue of whether the questions he referred will be addressed in that appeal. He notes further that the Board has not declined to address the court's questions although it could do so. If the Board should so decline, the district court is prepared to lift the stay. The district court's stay order only deferred this matter until ASBCA acts on Case No. 34051 or until this court rules on this appeal.

Furthermore, the Supreme Court has admonished that the collateral order doctrine should be applied only with the "utmost strictness" in criminal cases. Flanagan v. United States, 465 U.S. 259, 265, 104 S. Ct. 1051, 1055, 79 L. Ed. 2d 288 (1984). The Flanagan Court noted that it has found only three classes of pretrial criminal orders to satisfy the Cohen requirements: orders involving claims of double jeopardy, excessive bail, and the Speech and Debate Clause of the Constitution. None of these orders involve appeals by the prosecutor.

The Flanagan case was analyzed by this court in United States v. Harper, supra, 729 at 1220-21. The Harper decision rejected the criminal defendant's claim that the court should review on appeal the district court's pretrial order holding that the death penalty under the Espionage Act was constitutional. In deciding that the order was not appealable under the Cohen doctrine, the court focused on the effects of the pretrial order, not the merits of the claim:

Harper does not argue that the amendment protects him from having to endure a trial for a crime carrying a penalty that may be cruel and unusual. Rather, he asserts that the erroneous order will cause him to undergo much hardship that cannot be corrected on appeal. The Supreme Court precedents require us to focus on the nature of the right asserted by the defendant, not the hardships caused by the order. Thus we believe that this case falls outside the narrow class of criminal cases in which interlocutory appeals are available.

Harper, 729 F.2d at 1221. Again, the government has not identified any extraordinary hardship or prejudice to its case that would result from waiting to appeal the primary jurisdiction issue only upon acquittal or other final judgment on the merits.

For all of these reasons, I must conclude that this court has no jurisdiction over the government's appeal.

II

Primary Jurisdiction

If I thought it appropriate to address the merits of this case, I would still dissent from the majority opinion. Its conclusion that the district court erred in applying the doctrine of primary jurisdiction is contrary to United States v. Yellow Freight System, Inc., 762 F.2d 737 (9th Cir. 1985), and other authorities which bind this court.

The majority sets forth two reasons why primary jurisdiction should not apply in this case. First, the ASBCA is not a "regulatory" agency. Second, deferral in a criminal case raises separation of powers issues that militate against the application of primary jurisdiction.

A. Quasi-legislative vs. Quasi-judicial Functions

As the majority notes, " [t]here are four factors uniformly present in cases where the doctrine properly is invoked: (1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration." Ricci v. Chicago Mercantile Exch., 409 U.S. 289, 93 S. Ct. 573, 34 L. Ed. 2d 525 (1973). There is no doubt that the defense industry is heavily regulated and that there is a need for expertise or uniformity in the administration of defense contracts. But the majority is concerned that interpretation of the defense contract in this case has not been placed by Congress within the jurisdiction of an administrative body having regulatory authority.

The majority reasons that the critical distinction between this case and cases in which primary jurisdiction applies is that the ASBCA is "quasi-judicial" rather than "regulatory." See Amended Opinion at 1363, n. 13. To the majority, "regulatory" apparently means "quasi-legislative:" the majority attempts to distinguish the NLRB from the ASBCA because the NLRB has rule-making powers to implement policy but the ASBCA only has rule-applying powers. See Amended Opinion note 16.

While it is true that primary jurisdiction doctrine is designed to secure a place for administrative power within our legal system, it does not follow that the quasi-legislative function is all that is protected: "Typically, the creation of a new agency means the addition to the legal system of a new lawmaking and law applying authority...." 4 K. Davis, Administrative Law Treatise Sec. 22:1 at 81 (1983).

The "law applying function" is just as important to the overall regulation of the defense industry as the promulgation of legislative regulations. As the district court pointed out:

[I]t is not amazing to find that the ASBCA plays a significant role in the military procurement process. One does not marvel to hear that the military agencies closely monitor the handling of disputes before the Board, and that "DOD makes changes to bring its acquisition system into compliance with Board decisions." [authorities omitted] Thus, the interpretations of the hierophants who man the ASBCA do, indeed, form an important part of the whole scheme of regulation of the defense industry.

Therefore, while it is true that when taken by itself the ASBCA does not necessarily operate in the same fashion as the more traditional administrative agencies, it is certainly embedded in and even rather central to the operation of defense procurement. It performs traditional agency functions. It brings a highly honed and respected expertise to bear on this technical area, and makes authoritative determinations which have the effect of explaining and setting DOD policy for the defense industry.

644 F. Supp. at 1505. The majority's conclusion that the ASBCA has "little in common with such bodies as the ICC and the SEC, which have quasi-legislative powers and are actively involved in the administration of regulatory statutes" is thus not compelling. In fact, the Supreme Court has pointed out that it was Congress' intent to make the ASBCA and other Boards of Contract Appeals "the factfinders within their contract area of competence, just as the Interstate Commerce Commission, the Federal Trade Commission, and the National Labor Relations Board are the factfinders for other purposes." United States v. Utah Construction and Mining Co., 384 U.S. 394, 421 n. 18, 86 S. Ct. 1545, 1559-60 n. 18, 16 L. Ed. 2d 642 (1966) (quoting with approval Judge Davis' opinion in Utah Construction and Mining Co. v. United States, 168 Ct. Cl. 522, at 541-42, 339 F.2d 606 at 618 (1964)) (emphasis in original).

For these reasons, I disagree with the majority's conclusion that the ASBCA has not been "charged with primary responsibility for governmental supervision or control of the particular industry or activity involved."

Perhaps the majority's distinction between quasi-judicial and quasi-legislative administrative powers is really an attempt to articulate a difference between questions of policy from questions of interpretation or administration. Footnote 14 implies that only questions of policy need be referred to the appropriate agency: "However, if a claim brought in district court raised issues of transportation policy, the doctrine of primary jurisdiction requires the parties to air the claim first before the ICC." I agree that this is a valid concern since the reason for deferring to the agencies is to preserve administrative power rather than to provide the district court with special masters for difficult questions involving regulatory agencies. But "administration" and "policy" in some cases become inextricably tied together:

Whether the doctrine requires the ICC to pass on the construction of a particular tariff's requirements "depends on whether the question raises issues of transportation policy which ought to be considered by the Commission in the interests of a uniform and expert administration of the regulatory scheme laid down by the Act." Western Pacific, 352 U.S. at 65, 77 S. Ct. at 166.

United States v. Yellow Freight System, Inc., 762 F.2d 737, 739 (9th Cir. 1985).

The majority also argues that 41 U.S.C. §§ 601-613, the statute authorizing establishment of the ASBCA, does not require primary jurisdiction deferral for issues of defense contract interpretation.

First, the Amended Opinion points out that the statute does not require establishment of the ASBCA. It is true that the statute states that the agency may establish a full-time agency board and that if the case load volume is too small for such a board, appeals can be referred to other Contract Boards of Appeals. But the statute also sets forth procedures for making the determination whether a full-time board is necessary:

[A]n agency board of contract appeals may be established within an executive agency when the agency head, after consultation with the Administrator, determines from a workload study that the volume of contract claims justifies the establishment of a full-time agency board of at least three members who shall have no other inconsistent duties. Workload studies will be updated at least once every three years and submitted to the Administrator.

41 U.S.C. § 607(a) (1) (emphasis added). Workload studies are thus mandatory and a failure to create a board of appeals in light of a workload study recommending would seem to be an abuse of administrative discretion.

The fact that defense contract disputes may be referred to other boards of contract appeals if the caseload is insufficient to justify a full-time ASBCA does not support the majority's conclusion that the ASBCA was not intended to "become expert in a particular genre of contract disputes." See Amended Opinion at 1363-64. Although the majority impliedly trivializes the importance of the ASBCA by stating that defense disputes could be heard by other boards of contract appeals, the ASBCA actually has a large caseload and is an important model for the other boards. Utah Construction, 384 U.S. at 408, 86 S. Ct. at 1553.

The majority's suspicion of primary jurisdiction in this case is "heightened" by the fact that this is a criminal prosecution. Amended Opinion at 1365. I do not believe that staying proceedings under primary jurisdiction affects the prosecutor's independence or discretion in bringing indictments. This court has once before addressed the propriety of applying primary jurisdiction in criminal cases:

The government argues that notwithstanding the reasons for deferring to the ICC on this issue, the court should not defer in this case because it is a criminal rather than a civil case. Although we recognize that care must be taken not to delay unnecessarily a criminal prosecution, this is not an ordinary criminal case. Whether the volume tariff applied to Yellow Freight's deviations from the tariff's technicalities is a threshold question of policy which must be decided before the criminal issues can be determined. Thus, it is an appropriate subject for ICC determination pursuant to the primary jurisdiction doctrine.

Yellow Freight Systems, 762 F.2d 737. The case before this panel, like that in Yellow Freight Systems, is not an ordinary criminal case. Whether the defense contractor's accounting and claims practices are proper under the DIVAD contract and defense procurement regulations is a threshold question of policy and uniform administration that must be decided before criminal liability may be determined. The majority has determined that the district court must make these initial determinations. The authority of Yellow Freight Systems supports the district court's referral to the ASBCA. I would dismiss the appeal.