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01/04/94

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Justice Department decides not to join Paul Biddle's qui tam suit

STANFORD -- The U.S. Department of Justice has decided not to join a lawsuit against Stanford filed by a former government employee who claims the university collected hundreds of millions of dollars in excess research overhead costs during the 1980s.

Paul Biddle, former resident representative of the Office of Naval Research, filed the lawsuit in September 1991 under the False Claims Act, which permits private citizens to recover money for the government that has been fraudulently obtained by federal contractors. If the suit is successful, the "whistleblower" is entitled to as much as 30 percent of the total award decided by the courts.

The Justice Department chose not to join the suit after it investigated for more than two years, during which the university responded to 11 subpoenas for information and provided 150,000 pages of documents.

In a Dec. 20 notice to the U.S. District Court for Northern California, the federal agency said it did not intend to prosecute the case. It did, as is standard, reserve the right to intervene at a later date.

President Gerhard Casper reacted to the Justice Department's withdrawal saying he "was pleased to learn that the federal government will not intervene in this private lawsuit against Stanford University. This is very good news for the university and for Stanford's many friends throughout the country." (See Casper's statement, this page.)

He said government investigators interviewed "current and former Stanford employees and others knowledgeable about or involved in matters related to Stanford's accounting practices." The university, he said, "responded to all requests for information and explanation."

"If the government finds the allegations to have merit, the Department of Justice typically takes over the case and prosecutes it in court," he said.

Biddle is free to pursue the suit, which is known as a qui tam, on his own. He has told the Stanford Daily that he intends to do so.

If Biddle proceeds with his suit privately, the university will "vigorously defend itself," Casper said.

In granting the Justice Department's request, U.S. District Judge Spencer Williams lifted the seal that had kept university officials from seeing Biddle's allegations. However, the judge ordered that supporting documents remain sealed.

As of Tuesday, Jan. 4, the university had not been served a copy of the suit, according to Chief Financial Officer Peter Van Etten. However, news organizations have obtained copies.

Biddle's lawsuit was filed by the law offices of Herbert Hafif of Claremont, Calif., which is no longer representing him. The Cincinnati, Ohio, law firm of Strauss and Troy now is handling his case.

The suit shows Biddle claiming that the university overcharged the government by hundreds of millions of dollars, and seeking triple damages.

Biddle told the Daily that he probably would file an amended complaint later this month elaborating on the charges. He also said he intends to "revise upward" the amount he claims the university owes.

Van Etten echoed Casper, saying the Justice Department's decision was "very important" for Stanford.

"Biddle has made many claims regarding large sums with very little verification," Van Etten said. "As a result, there have been many headlines attached to potential liabilities of several hundred million dollars.

"Our position has been that Biddle's claims are unjustified," Van Etten said.

The only way to reach numbers anywhere near that magnitude, he said, would be if the government were to cancel retroactively contracts, known as memoranda of understanding, that the government and Stanford signed during the 1970s and 1980s.

The university continues to assert that the memoranda of understanding are binding contractual obligations by the government.

The university in the last year and a half filed two lawsuits against the government to recover more than $60 million in losses dating back to 1991 and 1992 when the Office of Naval Research unilaterally lowered Stanford's indirect cost rate.

Van Etten said it is important to distinguish between final disposition of issues with the Office of Naval Research and the qui tam suit in the federal courts, but that the Justice Department's decision not to join the suit is significant.

"We feel very positively that the decision by the Justice Department will help us in resolving the contractual issues with ONR," he said.

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