purportedly held concealed interests.
Defendants counter this characterization of the Scientific/Bregman phase by contending that both Scientific and Bregman were formed as bona-fide attempts by Chromcraft to obtain a "second supplier" (in addition to Wolf) of the electrical assemblies needed for the rocket launchers. They allege that neither entity was controlled by Stone or Rosenbaum, except insofar as both companies relied extensively on Chromcraft's business. Moreover, defendants suggest that Scientific's and Bregman's use of Wolf as a vendor of electrical assemblies was known to both Chromcraft and the Navy, and not objected to by either. Wolf was to be the supplier until Scientific and Bregman could become geared up as a second supplier, an event that in the eyes of defendants unfortunately never transpired. Instead, Wolf was the only supplier of assemblies during this period, and it utilized raw materials supplied directly by Chromcraft and on occasion "drop shipped" completed assemblies at Chromcraft's plant, despite working through Scientific and Bregman. Wolf's relationship with Chromcraft was not out of the ordinary, according to defendants, and its contact with Chromcraft did not violate its role as a bona-fide subvendor of Scientific and Bregman.
As for the siphoning of excess profits to Swiss bank accounts, Stone and Rosenbaum do not dispute the Government's demonstration of the flow of funds but attempt instead to explain that Scientific and Bregman accumulated sizeable bank accounts not because of any excess profits, but because Chromcraft did not bill the companies for raw materials used in the electrical assemblies, materials that Chromcraft supplied to Wolf directly. Scientific and Bregman paid for the raw materials upon receiving invoices from foreign companies, and the monies found their way into Swiss accounts, accounts that defendants allege they did not control and/or use to their own use and benefit.
B. The Republic Stage
In late 1965 and early 1966 the "Scientific/Bregman" phase ended with Chromcraft's discontinuance of Bregman as a subcontractor. At about that time, defendants allegedly used Falrock Corporation (hereinafter "Falrock"), a corporation they allegedly controlled, to acquire 62 per cent of the outstanding common stock of Republic Electronics Industries Corporation (hereinafter "Republic"). Republic was an ongoing electronics manufacturer that was in financial difficulty and ripe for a takeover. Falrock's interest in Republic allegedly was financed by funds that had been siphoned off Scientific's and Bregman's fund of excess profits and deposited in a secret Swiss bank account.
Upon acquiring control of Republic, the Government contends, defendants used it in much the same way as they allegedly had used Scientific and Bregman to raise artificially the prices ultimately charged to the Navy for rocket launchers. Specifically, plaintiff alleges that Stone and Rosenbaum caused Chromcraft (and then Alsco) to represent to the Navy that Republic manufactured the launchers' electrical components in their entirety, and sold them to Chromcraft and Alsco at specified prices which were included in the total contract prices which the Navy paid. In fact, however, Chromcraft and Alsco allegedly continued the practice of directly purchasing raw materials and supplying them at no cost to Wolf who remained the undisclosed assembler for virtually all of the electrical components produced during the Republic phase. As in the Scientific/Bregman phase, Republic's prices were substantially higher than the cost of the raw materials plus Wolf's assembly charge. In addition, the Government contends that Republic fabricated invoices and quotation letters for Chromcraft and that Chromcraft in turn submitted false purchase orders to Republic, all hiding the fact that Wolf was the real supplier of the vast majority of electrical assemblies. Republic accordingly accumulated large false profits during this period.
Defendants deny plaintiff's characterization of Republic's role in the rocket launcher controversy. They contend that after Scientific's and Bregman's failure to become the hoped-for "second supplier" of electrical assemblies, Chromcraft turned to Republic, an established electronics firm. According to defendants, after Falrock's acquisition of Republic (without the use of fraudulently-obtained funds), Chromcraft assisted the company's entrance into the business of assembling the electrical components required by 2.75-inch rocket launchers. With Chromcraft's technical assistance, and through application of the fruits of its research and development efforts, Republic was able to become a reliable, efficient producer of electrical assemblies, a producer that supplanted Wolf as the number one supplier of assemblies. Defendants admit that Wolf continued as a supplier, but that its role was never hidden from Chromcraft or the Navy. Also, defendants do not contest the fact that Chromcraft continued its practice of supplying the raw materials for the assemblies to Republic (and Wolf), a practice that they allege is not uncommon in the industry. Finally, defendants contend that Republic's increasingly stable financial position during this phase was not due to excess profits, but to Chromcraft's commitment to making them a reliable second supplier of needed electrical assemblies.
C. The Western Molded Stage
Western Molded Fibre Products, Inc. (hereinafter "Western Molded") was a Chromcraft subcontractor that manufactured the "fairings" (nose cone and fins) for Chromcraft's rocket launchers. According to plaintiff, Stone induced Western's president, in 1963, to increase the price of fairings by a designated amount per set and to accrue the amount on Western's books in order to pay kickbacks to himself and Rosenbaum. The fairing prices were increased, Chromcraft paid the increase, and Stone and Rosenbaum allegedly caused Chromcraft to certify to the Navy that the increased price represented a legitimate cost of the fairings. The Navy, by paying the contract price to Chromcraft, financed the kickbacks.
Plaintiff also contends that Western accumulated a large surplus as a result of accruing the kickback payments on its books. Stone and Rosenbaum purportedly eliminated this surplus by causing a stream of fictitious invoices from five Swiss and Liechtenstein entities to be sent to Western for phenolformaldehyde or electrical parts which were not to be, and were not in fact, delivered to Western. For its part, Western paid the fictitious foreign invoices and, following negotiation of Western's checks in Switzerland, the proceeds allegedly were remitted to Stone's and Rosenbaum's Swiss bank accounts.
Defendants again dispute plaintiff's interpretation of their conduct. They admit that Western Molded increased the prices of its fairings, but the increase was not a kickback. Instead, they suggest that the differential in price was payment for the increased cost of producing the new, grenade-type fairings, and also partial payment for Chromcraft's developmental cost in designing the new fairings and rocket launchers. Stone and Rosenbaum contend that the president of Western Molded recognized his company's responsibility to reimburse Chromcraft for its developmental costs, but the president decided to do so through the use of false invoices for nonexistent materials because his company could not "justify" the expenditures publicly in view of its own research and development budget.
III. PRELIMINARY MOTIONS
Defendants have moved to dismiss Claims Two, Three and Five of the First Amended Complaints because of the lack of an indispensable party under Rule 19(b) of the Federal Rules of Civil Procedure. Plaintiff does not oppose the dismissal of the Second Claim, and it accordingly is dismissed.
The third Claim alleges the defendants are liable to plaintiff under the doctrine of recoupment of public funds paid by mistake. Under that common law theory, the Government can "recover funds which its agents have wrongfully, erroneously, or illegally paid." United States v. Wurts, 303 U.S. 414, 58 S. Ct. 637, 82 L. Ed. 932 (1938). The standard is that "if the Government made these payments under an erroneous belief which was material to the decision to pay, it is entitled to recover the payments." United States v. Mead, 426 F.2d 118, 124 (9th Cir. 1970).
Defendants contend that, even assuming the doctrine's application in this case, the plaintiff's failure to join Chromcraft and Alsco requires the Court to dismiss the claim under Rule 19(b) because Chromcraft and Alsco are indispensable parties. According to defendants, Chromcraft and Alsco are needed "not only to show such matters as payment and the alleged mistake, but to prevent Chromcraft/Alsco, which has reserved its rights in this matter against Stone, from instituting an action to recover funds from Stone after the adjudication of this case." See Consolidated Response of Defendant Stone to Motion for Summary Judgment at 75 (March 5, 1979).
Defendants' motion is without merit. Rule 19(b) requires the Court to determine whether "in equity and good conscience" the action should proceed despite the absence of a party, or whether the suit must be dismissed because the absent party is indispensable. In considering indispensability, the Court should consider the following factors:
(First), to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. F.R.Civ.P. 19(b).
Applying these factors to the case at hand, the Court finds that Harvard Industries, the corporate successor to Chromcraft and Alsco, is not an indispensable party to the third Claim of the Amended Complaints. Any judgment rendered against Stone and Rosenbaum under this claim would not be prejudicial to Harvard it already has settled with defendants and with the United States and forsaken the claims it once asserted in this litigation. See Order and Judgment (November 13, 1976). Defendants contend that they will be prejudiced by Harvard's absence, but their prejudice is not a factor relevant to Rule 19(b) and, moreover, they will not be prejudiced because Harvard has abandoned any recourse it might have against them. See id. P 3. As for defendants' argument that Harvard is needed in order to prove the alleged mistake, that duty rests upon plaintiff Harvard need not participate.
Defendants similarly contend that the Fifth Claim of the Amended Complaints should be dismissed for failure to join an indispensable party. Once again defendants fail to persuade the Court. Under the Fifth Claim, plaintiff requests that a constructive trust be put on certain assets that allegedly represent the fruits of defendants' fraudulent scheme.
Defendants argue that the Falrock Corporation must be a party to this Claim because its assets are implicated by plaintiff's charge.
They suggest that because Falrock's right of ownership of certain of its assets are at issue, it necessarily must be a party to this Fifth Claim.
Defendants' contention might be well taken except that Falrock has surrendered its right to contest this Court's resolution of plaintiff's Fifth Claim. The Consent Judgment entered on December 27, 1976 in United States v. Falrock Corporation, C.A. No. 76-2350 (D.D.C.) states, in part:
7. Defendants herein having adopted any and all defenses, of whatever nature, which are or which could be interposed by the defendants in Alsco-Harvard, and having agreed to be bound by the terms of any final judgment entered in Alsco-Harvard, the entry of a final judgment on the Fifth Claim of plaintiff's First Amended Complaint in Alsco-Harvard shall in all respects adjudicate the rights and liabilities of defendants herein with respect to the aforesaid stock of Heath Tecna Corporation.
Thus Falrock has abandoned any claims it might have against defendants insofar as those claims would arise from disposition of this Fifth Claim for a constructive trust. It therefore cannot be prejudiced by this litigation in any legally meaningful manner, and its absence also does not affect the enforceability of a constructive trust should one be placed upon its assets.
In refusing to dismiss plaintiff's Fifth Claim for failure to join an indispensable party, the Court does not express, of course, any opinion about the ultimate disposition of that claim.
Finally, on June 5, 1981 Rosenbaum filed a motion to dismiss in which he alleges inter alia that this action should be dismissed for failure to prosecute pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. Rosenbaum alleges that "plaintiff has done nothing to prove the claim it has asserted against defendants, other than to take depositions which were substantially completed by 1973." Memorandum in Support of Motion to Dismiss at 3. In fact, however, plaintiff has filed a detailed motion for summary judgment and has opposed any stay in the proceedings. The facts of the case do not in any way warrant the "drastic step" of dismissal for failure to prosecute suggested by Rosenbaum. Jackson v. Washington Monthly Co., 186 U.S. App. D.C. 288, 569 F.2d 119, 123 (D.C.Cir.1977).
IV. THE MOTION FOR SUMMARY JUDGMENT
A. Threshold Questions
Defendant Stone opposes plaintiff's motion for summary judgment because, inter alia, plaintiff allegedly violated his constitutional rights, because plaintiff's motion does not conform to Rule 56, and because defendant has been unable to present all the affidavits and evidence to which he is entitled. None of these contentions have merit.
Defendant Stone's due process complaints concern alleged interference with his parole by plaintiff and alleged interference with his legal defense by the Internal Revenue Service's attachment of funds designated for his legal fees, and by the Government's decision to depose him while in jail. Defendant Rosenbaum voices similar due process complaints, contending that the harshness of his confinement deprived him of funds and prevented him from vigorously defending this case.
He complains, for example, that his lack of funds has prevented him from taking any discovery that would help him oppose the motion for summary judgment now before the Court. Rosenbaum also reminds the Court that a previous Order of this Court reserved the question whether plaintiff's depositions could be used against Rosenbaum on a motion for summary judgment. See Memorandum and Order (January 23, 1976).
Stone's and Rosenbaum's due process arguments already have been considered by this Court, and they need not detain us further. Specifically, both defendants filed extensive motions to dismiss based in large part on their due process complaints. The motions to dismiss were denied for reasons stated in plaintiff's memoranda. See Order (April 14, 1978). See also Memorandum and Order (January 23, 1976); Memorandum and Order (January 8, 1974). Thus defendants' contentions regarding alleged interference with their ability to present a defense in this case already have been decided in plaintiff's favor.
Defendant Stone also opposes plaintiff's summary judgment motion on the ground that it does not comport with Rule 56. Stone argues that the motion does not concisely state the material facts not in dispute, and he renews his and Rosenbaum's complaints regarding the inadequacy of their discovery. See F.R.Civ.P. 56(f). Once again defendants' arguments do not persuade the Court.
First, the Court finds that plaintiff's motion satisfies Local Rule 1-9(h). It includes a statement of material facts not in issue. Defendant Stone's complaints that the "9(h)" statement is too lengthy and contains immaterial and general facts are unavailing. Stone may be unhappy with the burdensomeness of responding to plaintiff's many papers, but his displeasure does not justify dismissal of plaintiff's bona-fide attempt to comply with Local Rule 1-9(h) and F.R.Civ.P. 56.
This litigation is highly complex and plaintiff's motion substantially comports with the governing rules.
Second, defendants' contentions that the Court should deny the motion for summary judgment or, at least, should continue it until defendants can take more discovery under Rule 56(f)
are not persuasive. Defendants have had, during the long course of this litigation, many opportunities to pursue discovery efforts of their own, either by depositions, interrogatories, requests for documents and admissions, and the like. The Court cannot now delay this litigation further because of their failure to complete discovery.
Indeed, as the case has unfolded, it appears that defendants do not need any additional discovery to successfully oppose plaintiff's motion for summary judgment. As explained below, the Court has denied the bulk of that motion.
Defendant Stone's renewed argument that his lack of funds has prejudiced his defense, and that his and Rosenbaum's inability to attend plaintiff's key depositions has denied them their constitutional right to cross examination, also are without merit. The Court is sympathetic to Stone's financial straits, especially in light of the Internal Revenue Service's attachment of those assets intended to serve as Stone's defense fund,
but neither he nor Rosenbaum is indigent. Even if they were, indigent defendants do not have the right to have court-appointed counsel in civil cases where defendants do not face possible loss of their physical liberty. See, e.g., Lassiter v. Department of Social Services of Durham Cy., North Carolina, 452 U.S. 18, 101 S. Ct. 2153, 68 L. Ed. 2d 640 (1981); Plaintiff's Opposition to Defendants' Motion to Dismiss at 19-26 (Sept. 20, 1976) (incorporated in this Court's April 14, 1978 Order). As for their absence at certain depositions conducted by plaintiff, defendants have not demonstrated that they did not have notice or opportunity to attend the depositions. The record in this case contains notices of the depositions that were sent to defendants, and defendants' subsequent failure to attend results in a waiver of their rights to object to the depositions. See F.R.Civ.P. 32; Houser v. Snap-on-Tools Corp., 202 F. Supp. 181 (D.Md.1962). The Court also notes that the depositions have not significantly damaged defendants because they have put sufficient material facts in dispute to avoid a complete grant of summary judgment against them. Also, defendants have had ample opportunity to cross examine several of the deponents in Tax Court litigation that has arisen out of the same facts and occurrences that form the basis of the present suit.
Finally, on June 27, 1980, defendant Stone filed a supplemental memorandum in opposition to plaintiff's motion for summary judgment in which he argued that Special Trial Judge Caldwell's report to the Tax Court "supports" Stone's contention that material facts are in dispute which preclude granting summary judgment in plaintiff's favor. However, this report which the Tax Court continues to have under review, is merely interlocutory and advisory in nature and therefore is not a final judgment establishing a basis for denial of plaintiff's motion.
In sum, neither Stone's nor Rosenbaum's scatter gun attack on due process, discovery, or pecuniary deficiencies persuades the Court that they are valid defenses to the summary judgment motion now pending before the Court.
B. Estoppel Effect of the Guilty Plea
On February 10, 1970, defendants Stone and Rosenbaum plead guilty to several counts of a criminal indictment that had been lodged against them in United States v. Stone, Rosenbaum, et al., Criminal Nos. 1233-68 (D.D.C.). Specifically, they plead guilty to nine counts of a thirty count indictment. They admitted participation in a conspiracy to commit an offense or to defraud the United States under 18 U.S.C. § 371 (Count 1)
, and they plead guilty to making knowingly false, fictitious or fraudulent statements or representations to the Government in violation of 18 U.S.C. § 1001
with regard to eight specific Government contracts: Now 64-0190f (Count 3); Now 65-0121f (Count 7); Now 65-0472f (Count 8); Now 65-0547f (Count 9); Now 66-0082f (Count 10); Now 66-0307f (Count 11); Form RB-1 filed June 2, 1965 (Count 15); and Form RB-1 filed April 28, 1966 (Count 16).
Plaintiff contends that defendants' guilty pleas estop them from denying complicity under the False Claims Act, Anti-Kickback Statute and various common law claims presented by plaintiff in the civil complaints brought against defendants. Indeed, the United States alleges that Stone's and Rosenbaum's pleas conclusively establish defendants' False Claims violations relating to all the contracts entered into between Chromcraft/Alsco and the Government during the Scientific/Bregman and Republic stages of the fraud, as well as an Anti-Kickback claim relating to Chromcraft's relationship with Western Molded. The Government accordingly has moved for summary judgment.
Defendants offer basically three responses to the Government's contention. They argue, first, that their pleas were not knowing or voluntary in the sense that they would not have plead guilty had they been aware that such pleas might work an estoppel against them in these civil suits.
Second, they contend that a guilty plea does not act as an estoppel in a related civil case. Finally they suggest that, even assuming arguendo that their pleas act as an estoppel, the estoppel only applies to the specific counts that defendants admitted; the plea of guilty to the conspiracy count was not an admission of guilt as to each substantive false claim enumerated therein.
1. Validity of Guilty Plea
Faced with the application of their guilty pleas against them in this civil action, both defendants complain in their memoranda that their pleas were made without knowledge of the possible consequences that they might bring, and also without true conviction both defendants suggest that they plead guilty for reasons of expediency rather than actual guilt. Additionally, defendant Rosenbaum argued at length at the hearing on plaintiff's motion for summary judgment that this plea has no estoppel effect because he was not fully aware what he was pleading guilty to.
Defendants' excuse for their guilty pleas come too late. The transcripts of the proceedings before Judge Gasch on October 13, 1969, at which defendants pled guilty additionally makes clear that Rosenbaum fully understood the nature and implications of the counts to which he pled guilty. Defendants' attorney, Edward Bennett Williams, stated in those proceedings that "these counts and all the implications of the counts have been very carefully explained to (the defendants)." Additionally, the transcript reflects that Rosenbaum, himself an attorney, answered affirmatively the judge's questions whether he "fully understood (the) charges brought by the Government" to which he was pleading guilty and whether he was entering his plea "voluntarily and of (his) own free will and for no other reason." And both Stone and Rosenbaum unequivocally stated in open Court that they were pleading guilty because they were, in fact, guilty of the crimes to which they pled. Reply to Defendants' Opposition to Plaintiff's Motion for Summary Judgment, Exhibit B at 4-8. They cannot now engage in post hoc rationalizations for their admissions, at least for purposes of mitigating the estoppel effect of their pleas. Like the petitioner in Plunkett v. Commissioner, 465 F.2d 299 (7th Cir. 1972), defendants here cannot expect the Court "to look behind (their) convictions," especially when the record demonstrates that the pleas were made knowingly and voluntarily. See also Brady v. United States, 397 U.S. 742, 757, 90 S. Ct. 1463, 1473, 25 L. Ed. 2d 747 (1970); Parker v. North Carolina, 397 U.S. 790, 795, 90 S. Ct. 1458, 1461, 25 L. Ed. 2d 785 (1970).
2. Plea Estoppel
Defendants further argue that although a judgment after full litigation in a criminal case may, in some circumstances, conclusively establish liability for a related civil suit, a plea of guilty does not do so. Defendants' argument does find some support, especially by state courts or federal courts construing state law,
but well-established principles of federal law hold that guilty pleas collaterally estop the future civil adjudication of issues necessarily admitted to by the plea. See generally, Emich Motors v. General Motors, 340 U.S. 558, 568, 71 S. Ct. 408, 413, 95 L. Ed. 534 (1951); United States v. Podell, 572 F.2d 31 (2nd Cir. 1978).
In United States v. Ben Grunstein & Sons Co., 127 F. Supp. 907 (D.N.J.1955), for example, certain defendants had previously pleaded guilty to a false claims conspiracy. The Court held that their pleas estopped them from relitigating the conspiracy issue under the False Claims Act. In reaching this conclusion, the Court was careful to point out that it is not material whether the judgment of conviction resulted from a trial or a plea of guilty. Both are formal admissions of guilt. "Indeed at times a plea of guilty is given greater scope than is a judgment of conviction after trial..." Id. at 909-10. Similarly, in United States v. Schneider, 139 F. Supp. 826 (S.D.N.Y.1956), a case involving the collateral estoppel effect of a plea under the Surplus Property Act, a statute similar to the False Claims Act, the Court rebutted defendants' argument that guilty pleas should not be given as much estoppel effect as convictions that are based on full trials:
(W)here the prior conviction resulted from a plea of guilty there would appear to be greater warrant for application of the doctrine (than after a trial on the merits) since the defendant has admitted the truth of the charges contained in the indictment. Id. at 829.
See generally, Ivers v. United States, 581 F.2d 1362 (9th Cir. 1978); Metros v. United States District Court for District of Columbia, 441 F.2d 313, 316-17 (10th Cir. 1970); Hyslop v. United States, 261 F.2d 786 (8th Cir. 1958); United States v. Accardo, 113 F. Supp. 783 (D.N.J.1953), aff'd. 208 F.2d 632 (3d Cir.), cert. denied, 347 U.S. 952, 74 S. Ct. 677, 98 L. Ed. 1098 (1954). As recently summarized by the Court in United States v. Cripps, 460 F. Supp. 969 (E.D.Mich.1978), when granting a Government motion for summary judgment in a civil suit under the False Claims Act:
It is well established that a prior criminal conviction establishes the facts underlying the conviction conclusively for purposes of a subsequent civil proceedings instituted by the federal government on the basis of the same facts. Collateral estoppel is operative whether the conviction is obtained by jury verdict or through a guilty plea. Id. at 975.
See also, United States v. Krietemeyer, 506 F. Supp. 289, 292 (S.D.Ill.1980) (defendants' guilty pleas held to establish civil liability for purposes of partial summary judgment under the False Claims Act).
3. Scope of the Guilty Plea Admissions
Just as it is clear that a guilty plea can collaterally estop the relitigation of certain issues in subsequent civil litigation, it also is clear that the estoppel extends only to those issues that were essential to the plea. Emich Motors v. General Motors, 340 U.S. 558, 569, 71 S. Ct. 408, 414, 95 L. Ed. 534 (1951); Brown v. United States, 207 Ct. Cl. 768, 524 F.2d 693, 705 (Ct.Cl.1975).
Given this second, equally well-established principle, it is necessary to examine the issues that defendants necessarily admitted by pleading guilty to several counts of the criminal indictment lodged against them. As for Counts 3, 7, 8, 9, 10, 11, 15, and 16, defendants admitted, by their plea, that the "Certificates of Current Cost or Pricing Data" that accompany certain contracts, and that certain "Form RB-1" reports that account for costs and expenses during specified contract periods knowingly contained false, fictitious and fraudulent statements and representations. These admissions satisfy the requisites of the False Claims Act,
and thus defendants are liable under that Act for the false certificates and Forms RB-1.
The less obvious question is the estoppel effect of defendants' plea of guilty to the conspiracy count, Count 1. That count alleges that defendants conspired to frustrate proper Navy contract procedures by agreeing to submit false, fictitious and fraudulent statements and representations to the Government. The count also describes in some detail the United States' entire version of defendant's allegedly fraudulent scheme, beginning with the Scientific/Bregman stage, through the Republic stage, and into the Western Molded stage.
Plaintiff contends that defendants' plea of guilty to the conspiracy count of the indictment amounts to an admission of guilt to all the allegations made in Count 1, including the substantive allegations. They illogically argue that despite the dismissal of the majority of the indictment's substantive counts in exchange for defendants' plea, defendants are liable for the substantive allegations set forth in those counts because they are incorporated in the comprehensive conspiracy count.
Plaintiff's position finds no support in logic or in the law. A review of the following three, often-cited opinions demonstrates the fallacy of plaintiff's position.
In United States v. American Packing Corp., 113 F. Supp. 223 (D.N.J.1953), a case strikingly similar to the one before the Court, the Government moved for summary judgment in a False Claims Act civil proceeding. The motion was based on defendants' plea of guilty to count one of the indictment conspiracy. (18 U.S.C. § 371). The count generally alleged defendants' conspiratorial conduct, and then described the conspiracy in some detail. The civil complaint contained ninety-nine counts that detailed asserted violations of the False Claims Act.
Faced with the question whether defendants' plea of guilty to the conspiracy count established their liability for the acts undertaken by the conspiracy as described in Count 1, the American Packing Court found that the plea was of limited effect. The Court concluded that "the plea of guilty to the charge of conspiracy must be confined to the judicial admission that the defendants engaged in a conspiracy to defraud the United States..." Id. at 225. The Court reasoned that pleas of guilty must be construed strictly, and that the admission of a conspiracy is not tantamount to an admission of responsibility for the complete recital of deeds that plaintiff ascribes to the conspiracy. As the Court stated: "(T)hough the defendants pleaded guilty to the general conspiracy, nevertheless the burden is on the Government to prove that the specific transactions affecting each contract were the fruitful result of said conspiracy." Id. at 225-26. "It would seem, therefore, that on the strength of the plea alone the Government would not be entitled to summary judgment as to liability." Id. at 226.
Another decision reaching the same conclusion under similar facts is United States v. Ben Grunstein & Sons Co., supra. In that case, certain defendants had pled guilty to a conspiracy count of an indictment, but were opposing a summary judgment motion lodged against them in a related civil action under the False Claims Act. The civil complaint covered the conspiracy itself, but it also detailed more than 400 other counts of alleged substantive violations of the Act. The Court faced the question of the estoppel effect of the plea to the conspiracy count.
The Grunstein Court first recognized that a guilty plea did serve as an estoppel device, but only for issues "essential to the verdict." It then found that the many acts allegedly undertaken in furtherance of the conspiracy were not themselves admitted to by defendants by reason of their plea. As the Court stated:
But since in a criminal conspiracy case proof of the unlawful agreement between the parties, plus the commission of any overt act, not necessarily all those alleged, suffices to support a verdict of guilty, no conviction of a criminal conspiracy, whether on verdict or plea, suffices of itself, without further evidence, to prove that defendant either admitted, or was found guilty by the jury, of committing any particular act. 127 F. Supp. at 910.
Following its reasoning to its necessary conclusion, Grunstein held that the admission of conspiracy estopped further relitigation of the question whether a conspiracy existed or not, but that the alleged effectuation of the conspiracy, manifested in the substantive counts of plaintiff's civil complaints, was not conclusively established by reason of the plea. Summary judgment was denied.
Finally, the Second Circuit case of United States v. Guzzone, 273 F.2d 121 (2d Cir. 1959) echoes the propositions put forth in American Packing and Grunstein. In that case the Court found that defendants' plea of guilty to a conspiracy charge estopped their later denial of the conspiracy or of the overt acts allegedly a part of the conspiracy. The plea did not, however, establish substantive facts not essential to the conspiratorial behavior of defendants.
In summary, it is clear that plaintiff cannot hope to use defendant Stone's and Rosenbaum's admission to a conspiracy to defraud the Government under 18 U.S.C. § 1001 as a catch-all for conclusively establishing the specific manner by which that conspiracy was effectuated, even though a recital of the alleged scheme is included in Count 1 of the indictment. Instead, the plea of guilty to conspiracy only serves as an admission of the necessary elements of 18 U.S.C. §§ 371 and 1001: viz., that defendants conspired to defraud the United States through knowingly submitting false, fictitious or fraudulent statements or representations to the United States. The fact that defendants allegedly formed "sham" corporations to effectuate such misrepresentations, and that they caused the fabrication of cost data for various contracts is not essential to the fact that a conspiracy existed. Indeed, defendants could be guilty of criminal conspiracy even if their conspiracy were detected and interrupted before they were able to submit any false claims to the Government.
4. Summary of Estoppel Effect
As explained above, defendants' prior guilty plea to nine counts of a criminal indictment under 18 U.S.C. §§ 371 and 1001 collaterally estops them from relitigating issues essential to the convictions. As a result, defendants are liable under the False Claims Act for false certificates and Form RB-1 described in Counts 3, 7, 8, 9, 10, 11, 15, and 16. They also are liable for conspiracy under the False Claims Act by reason of their plea of guilty to Count 1 of the indictment. Their plea on that count, however, does not conclusively establish the substantive counts incorporated in Count 1's explanation of the effectuation of defendants' conspiracy.
C. Summary Judgment for Claims not Admitted by Defendants' Guilty Pleas
Plaintiff has filed an extensive statement of material facts allegedly not in dispute as support for its motion for summary judgment. It suggests that its statement, when taken in conjunction with depositions and other supporting material, conclusively establishes that defendants presented 1,522 false claims for payment to the Government in contravention of the False Claims Act. Plaintiff also alleges that the damages flowing from the purportedly false claims are not in dispute, and it asks for a False Claims award totalling $ 14,870,626.22. In the alternative, plaintiff contends that it is entitled to recover several million dollars in alleged overcharges under the theory set forth in the Third Claim, recoupment of public funds paid by mistake and under the Anti-Kickback Act. The United States also argues that it has established the Fifth Claim based on facts not in dispute, and thus it asks that the Court impose a constructive trust on certain assets that purportedly represent the fruits of the fraudulent conduct.
Defendants vigorously oppose plaintiff's motion by contending that material facts regarding the allegedly false payments remain in dispute.
After a careful review of the record in this case, the Court concludes that plaintiff is not entitled to summary judgment for those allegedly false statements that are not established by defendants' guilty pleas, except that defendants have been proven liable for certain fictitious claims submitted to the United States under the Western Molded stage of the alleged fraud.
1. Summary Judgment Standard of Scrutiny
Plaintiff bears a heavy burden in order to prevail on a motion for summary judgment. Rule 56(c) of the Federal Rules of Civil Procedure sets forth the standard:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
This Circuit has recognized that a party seeking summary judgment bears a heavy burden of showing an absence of material, disputed facts; inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. See generally Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970). As recently summarized by our Court of Appeals in Lee v. Flintkote Co., 193 U.S. App. D.C. 121, 593 F.2d 1275, 1281-82 (D.C. Cir. 1979):
In the federal courts, a party moving for summary judgment bears the burden of establishing the absence of any issue of material fact. This principle obtains although the movant would not have the burden of proof at trial. Moreover, the party opposing summary judgment need not present any evidentiary matter unless the movant has made a prima facie showing that the case is completely free from any significant question of fact.