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The Worm Turns

November 1995

Author: Brian C. Elmer.

William G. Moore, then Chairman and CEO of Recognition Equipment Corporation ("REI"), was indicted and tried on charges involving a proposed contract with the Postal Service. At the close of the government's case, the court granted Moore's motion for a judgment of acquittal.

Moore then sued the Assistant United States Attorney ("AUSA") who prosecuted the case and six postal inspectors alleging that they maliciously prosecuted him, even though they knew he was unaware of the fraud, based on REI's criticism of the Postal Service's procurement policies. Moore also alleged that the AUSA told several postal inspectors, in the presence of grand jury witnesses, "that he did not care whether Moore was in fact guilty because he wanted to secure a 'high-profile' indictment to further his coverage. . . ."

The district court dismissed Moore's complaint holding that the AUSA was absolutely immune from suit based on his actions as a prosecutor.

The court of appeals reversed. It held that the AUSA was absolutely immune from suit based on his decision to prosecute Moore and his actions in court, including allegations of (i) concealing exculpatory evidence from the grand jury, (ii) manipulating exculpatory evidence before the grand jury to create a false impression of what Moore knew about the alleged false schemes, and (iii) withholding after indictment information he was required to disclose to the defendant under Brady.

However, the appellate court held that the prosecutor did not enjoy absolute immunity for actions taken in an investigatory capacity, i.e., allegations that he (i) intimidated and coerced witnesses into changing their testimony and (ii) disclosing grand jury testimony to unauthorized third parties. For these alleged actions, the AUSA enjoys only a "qualified immunity," i.e., he is immune from civil liability only if he can show that his actions did not violate clearly established statutory or constitutional rights of which a reasonable person would have known.

Most of Moore's allegations of misconduct are thus of a type for which he cannot recover, even if true. However, the court left the door open a crack. Moore v. Valder, et al., 65 F.3d 189 (D.C. Cir. 1995).

LYING 101

The Supreme Court examined three cases last term involving lying to the government. The conclusion - sometimes it's not a crime to lie to the government, and sometimes the government charges the lie under the wrong statute.

The first case involved a federal judge who lied to FBI agents in connection with an investigation of the judge. There the Court held that the judge's lies did not obstruct justice in violation of 18 U.S.C. § 1503 since his statements were not to be used in connection with any pending judicial proceeding. U.S. v. Aquilar, 115 S.Ct. 2357 (1995).

In a second case, this one involving 18 U.S.C. § 1001, the Court reversed a conviction for false (unsworn) statements in a bankruptcy court. Reversing its own 1955 decision, the Court held that 18 U.S.C. § 1001 did not apply to the statements made to a court, since a court is not a "department of the United States." (Lawyers never believed that they could violate § 1001 for statements made in court - now they have a sounder basis for that belief.) Similarly, the decision's rationale would prohibit a conviction under § 1001 for false statements made to Congress. (Congressman Dingell was prescient. He insisted that witnesses before his Committee be sworn - making false statements punishable under the general perjury statute, 18 U.S.C. § 1621.) Hubbard v. United States, 115 S.Ct. 1754 (1995).

It is interesting to note that had Judge Aquilar been charged with a violation of 18 U.S.C. § 1001, rather than obstruction of justice, his conviction should have been sustained since the FBI is an agency in the Executive Branch. Similarly, if Mr. Hubbard had been charged with violating 18 U.S.C. § 1503, rather than § 1001, his conviction should have been sustained since he clearly endeavored to impede the due administration of justice.

The third case is, perhaps, the most important. In United States v. Gaudin, 115 S.Ct. 2310 (1995), the Court held that in order to violate 18 U.S.C. § 1001 a false statement had to be material and that the issue of materiality was a question for the jury, not the judge. Materiality, like each other element of the offense, has to be proved beyond a reasonable doubt. To be material, a statement "must have 'a natural tendency to influence, or [be] capable of influencing, the decision of the decisionmaking body to which it was addressed.'"

PRACTICING LAW

Have any of you lawyers (or others) out there endeavored to influence the due administration of justice? We thought so - indeed it's what lawyers do for a living. Do you realize that only one word stands between you and 10 years in Allenwood?

18 U.S.C. § 1503 provides in part that
"Whoever . . . corruptly . . . endeavors to influence . . . the due administration of justice, shall be punished as provided in sub-section (b)."

 

The only word that distinguishes the work of the legal profession from that of the felon is the word "corruptly." Keep that in mind the next time you file a brief, produce documents to the government or speak to an agent.

DEFECTIVE PRICING

Howard Broderson, a Grumman employee, failed to update cost and pricing data (an interest rate had fallen from 13.77 percent to 10.5 percent) in negotiating a contract with NASA. After receiving a "downward departure" under the Sentencing Guidelines, Broderson was sentenced to 18 months' imprisonment. Without the downward departure, Broderson would have been sentenced to between 41 and 51 months.

The district court premised the downward departure on the fact that:

  1. Broderson had sought only to benefit his employer, Grumman, and had received no personal benefit from the fraud,
  2. under existing market conditions, the contract was favorable to the government, and
  3. the government received restitution from Grumman.

On appeal, the government argued that no downward departure was proper. The court of appeals, however, sustained the downward departure, noting

"[Broderson] did not set out to mislead the government. . . . When he was able to negotiate with the financing company a lower rate, he failed to inform the government partly because he believed Grumman to be in financial trouble and partly because he believed the new rate to be the product of his efforts rather than the government's. . . . Moreover, the fraud was not mainstream fraud; negotiators usually need not reveal their costs to the other side. Indeed, it was fraud only because of TINA and FAR. Finally, the government recovered $1.1 million in contractual damages and an additional $2.2 million in civil damages. Ultimately, therefore, unlike the typical fraud victim, the government suffered no loss."

QUI TAM - 1995

The number of cases is up, but total recoveries are down. In fiscal 1995, 274 cases were filed; 221 were filed in fiscal 1994. Total recoveries in whistleblower cases declined: $243 million in 1995, compared to $379 million in 1994.

QUI TAM SUITS - COSTS

An unsuccessful relator is liable to the defendant for its "costs" in defending the action. United States ex rel. Lindenthal v. General Dynamics Corporation, 61 F.3d 1402 (9th Cir. 1995).

HEALTH CARE FRAUD

In 1991, the FBI had 360 health care fraud investigations. Today, it has 1,800 and expects that number to double.

Further, the FBI expects to use "sophisticated investigative techniques," e.g., wiretaps, video surveillance, undercover agents, in its health care related investigations.

The criminal, civil and administrative remedies available to the government can be overwhelming.

ILL WIND REVISITED

The government's investigation and prosecution of numerous defense contractors in Operation Ill Wind and Operation Uncover is the subject of a new book, entitled, When the Pentagon Was For Sale: Inside America's Biggest Defense Scandal by Andy Pasztor, the reporter who covered the investigations.

Brian C. Elmer
Retired Partner – Washington, D.C.
Email: belmer@crowellretiredpartners.com