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United States v. Project on Gov't Oversight

August 20, 2008


The opinion of the court was delivered by: John D. Bates United States District Judge


This case comes before the Court on the government's post-trial motion for judgment on Counts III, IV, and V of its complaint. As this is the latest (and last) in a series of opinions issued by this Court in this matter, familiarity with this proceeding is assumed. In Count III, the government seeks judgment in the amount of $383,600 plus interest against defendant Robert Berman for allegedly breaching his fiduciary duty to the United States. In Count IV, the government requests similar relief because Berman was allegedly unjustly enriched when he received the payment from defendant the Project on Government Oversight ("POGO"). Berman opposes both grounds for judgment. Finally, in Count V, the government seeks declaratory and injunctive relief against Berman and POGO, both of whom oppose the relief sought. The government's motion is now fully briefed and ripe for resolution. After careful consideration, and for the reasons set forth below, the Court will deny the motion.


I. Breach of Fiduciary Duty & Unjust Enrichment

By accepting the public service award in the amount of $383,600 from POGO, the government argues, Berman breached the fiduciary duty that he owed to the United States, his employer. That obligation arises from the common law duty of loyalty that an agent owes to his principal. See United States v. Carter, 217 U.S. 286, 306 (1910) ("The larger interests of public justice will not tolerate, under any circumstances, that a public official shall retain any profit or advantage which he may realize through the acquirement of an interest in conflict with his fidelity as an agent."); see also United States v. Drumm, 329 F.2d 109, 112 (1st Cir. 1964). And under the common law, "an agent who secretly profits from a breach of fiduciary obligation to his principal must disgorge his ill-gotten gains." Crandon v. United States, 494 U.S. 152, 158 (1990). Here, the government argues that Berman's secret agreement with POGO to receive the proceeds of certain qui tam suits constituted a conflict of interest in violation of Berman's duty of loyalty to the United States. Thus, the government says, it is entitled to judgment in the amount of $383,600, which amounts to Berman's ill-gotten profit by virtue of the transaction. As explained below, under the circumstances present here, the Court disagrees.

In his opposition brief, Berman vigorously asserts that "[a]t no time were [his] actions in conflict with the interests of his employer, the Department of the Interior. Indeed, they were entirely congruent." See Berman's Opp'n at 3. There is admittedly some force to that contention. After all, the record indicates that Berman had been advocating for the use of NYMEX prices in computing oil royalty valuations since 1986, well before any liaison with POGO came to pass. Likewise, when Berman's suggestions were ultimately implemented, the government received substantially more in royalty proceeds, which would not seem to indicate that Berman's interests were adverse to the government.

On the other hand, the government is correct that its "interests go beyond the pecuniary interests of recovering money in an individual case." See Pl.'s Reply at 8. More importantly, the jury's verdict that Berman violated 18 U.S.C. § 209(a) serves as a predicate for Berman's breach of fiduciary duty -- that was, after all, the situation contemplated in Crandon, 494 U.S. at 158 (explaining that "it is at least clear that the Government must prove a violation of § 209(a) to prevail in these [fiduciary duty violation] cases"). In any event, the Court concludes that the same facts that rendered Berman liable under § 209(a) also support a finding that he breached his fiduciary duty to the government. Indeed, as the government puts it, and Crandon noted, having two paymasters -- as Berman did here -- is the paradigmatic example of a conflict of interest and breach of a fiduciary obligation.*fn1 Id. at 165 (explaining the policy justifications for prohibiting "two paymasters for the same employee on the same job") (internal quotation omitted).

Moreover, the government has submitted evidence of numerous Office of Government Ethics regulations that "prescribe employee conduct," see Pl.'s Mot. at 6-7, many of which prohibit accepting monetary gifts from outside sources without prior approval, see, e.g., 5 C.F.R. § 2635.204(d)(1). That Berman violated*fn2 those regulations, the government contends, is sufficient in its own right to establish a violation of his fiduciary obligation to the Department of the Interior. Berman has no ready response to that argument. The Court concludes that the government has demonstrated that Berman acquired an interest in conflict with his employer for purposes of fiduciary duty analysis.

Nevertheless, Berman argues that he did not breach any duty because "[t]he facts in this case would not warrant finding that Mr. Berman received a secret payment from POGO." See Berman's Opp'n at 5. The Court disagrees. Even viewing the record in the light most charitable to Berman, the evidence only shows that POGO disclosed the payment to an official at the Department of Justice shortly before issuing the payment to Berman. There is no suggestion whatsoever that Berman notified anyone at the Department of the Interior (or any other government agency, for that matter) prior to his receipt of the payment. Similarly, Berman also concealed from the Department of the Interior his initial agreement with POGO to accept any qui tam proceeds. Berman's suggestion that he "was aware" of POGO's disclosure falls far short of meeting his obligation to disclose fully to his principal any arguably adverse interest that he acquired. In short, the record does not support Berman's position that he did not receive a "secret payment from POGO."

But that does not end the matter.*fn3 The remedy for a fiduciary duty violation is disgorgement. See Crandon, 494 U.S. at 158; see also United States v. Kearns, 595 F.2d 729, 733 (D.C. Cir. 1978) ("If [the public official] takes any gift, gratuity or benefit in violation of his duty, or acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.") (citation omitted); see also United States v. Drisko, 303 F. Supp. 858, 860 (E.D. Va. 1969) (noting that the remedy for breach of fiduciary duty is accounting for "undisclosed profits"). Ultimately, the government is not entitled to the relief it seeks through its motion because Berman has already been required to disgorge all of the gains associated with the prohibited payment -- that is, this Court has already entered judgment against Berman in the amount of $383,600 pursuant to the jury's § 209(a) verdict. In other words, Berman has already forfeited any profit that he received by accepting the payment. Significantly, the D.C. Circuit has explained that the disgorgement remedy "may not be used punitively." SEC v. First City Fin. Corp., LTD, 890 F.2d 1215, 1231 (D.C. Cir. 1989). Indeed, disgorgement "is an equitable remedy" and the Court therefore has discretion to deny relief where appropriate. Id. at 1230. Because Berman has already been subjected to one judgment of $383,600, the Court declines to award the government another judgment against him in the same amount arising out of the same conduct -- that would amount to a double recovery and hence would constitute a punitive use of the disgorgement remedy.*fn4 Therefore, the government's motion on Count III will be denied.

The same goes for the government's unjust enrichment claim contained in Count IV. As with the breach of fiduciary duty, the proper remedy for unjust enrichment is disgorgement. Id. ("[D]isgorgement primarily serves to prevent unjust enrichment."). Even if the government can establish that Berman was unjustly enriched in this instance -- and there is some reason to doubt that it can do so*fn5 -- the Court will not enter a second judgment against him in the amount of $383,600 pursuant to Count IV. As explained above, Berman has already been required to disgorge his undisclosed gains by virtue of the jury's verdict, and the government is not entitled to employ the unjust enrichment claim to punish Berman any further. Thus, the government's motion on Count IV will be denied.

II. Declaratory and Injunctive Relief

In Count V, the government requests the following declaration:

[T]he agreement between Robert A. Berman and the Project on Government Oversight (POGO) to share the proceeds in POGO's qui tam law suits concerning the underpayment of oil royalties -- an agreement that was struck orally in or around early December 1996 and put in ...

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