U.S. v. Markwood

• Decision Date: 17 March 1995
• Docket Number: No. 93-2059,93-2059
• Citation: 48 F.3d 969
• Parties: , 40 Cont.Cas.Fed. (CCH) P 76,785 UNITED STATES of America, Petitioner-Appellee, v. Ronald P. MARKWOOD, Respondent-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 969

48 F.3d 969

31 Fed.R.Serv.3d 756, 40 Cont.Cas.Fed. (CCH) P 76,785

UNITED STATES of America, Petitioner-Appellee, v. Ronald P. MARKWOOD, Respondent-Appellant.

No. 93-2059.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 19, 1994.

Decided March 17, 1995.

Michael F. Hertz, Jr., U.S. Dept. of Justice, Civ. Div., Steve Maddox, Dennis L. Phillips, U.S. Dept. of Justice, Civ. Division--Comm. Litigation Branch, Mark B. Stern (argued and briefed), U.S. Dept. of Justice, Civ. Div., Dennis L. Phillips, U.S. Dept. of Justice, Civ. Division--Comm. Litigation Branch, Washington, DC, for petitioner-appellee.

Nancy Luque (argued and briefed), Dombroff & Gilmore, Washington, DC, for respondent-appellant.

Before: BROWN, MARTIN, and BOGGS, Circuit Judges.

BOYCE F. MARTIN, Jr., Circuit Judge.

The dispute that gives rise to this appeal involves a disagreement over whether or not Arveco, Inc. included the requisite amount of federal excise tax when it bid on a billion dollar contract to supply the Army with trucks. We are charged with determining under the arcanum of federal procurement and false claims laws whether an administrative subpoena was properly issued to begin an investigation of a possible false claim. Agreeing with the district court that it was properly issued, we AFFIRM.

On May 1, 1985, a division of the United States Department of Defense, the Tank Automotive Command of the United States Army, issued a two-step invitation for bids to supply the Army with 15,218 five-ton trucks. The bid was to cover delivery over five years with an option to supply an additional 15,218 trucks of the same size. The party offering its bid to the Tank Command is not clearly identified in the materials submitted to this Court, and most of the bid solicitation documents are illegible. The offering party appears to be Arveco, Inc., a joint venture with Harsco, Incorporated and one of Harsco's unincorporated subsidiaries, BMY Wheeled Vehicles Division, and General Automotive Corporation, Inc., all of which we will refer to as Arveco. ¹ Ronald Markwood, the now named party to this appeal, was President of Arveco on the date it submitted its bid and, as of February 9, 1988, Markwood was Vice President and General Manager of its BMY Wheeled Vehicles Division. Markwood was directly in charge of preparing and submitting the bids on the trucks, and signed the bid offer as President of Arveco.

The bids to provide the Army with trucks were opened on April 14, 1986, and the bids for the trucks were to include an amount for federal excise tax. ² In a departure from common sense, Congress has decreed that manufacturers of certain vehicles weighing over 33,000 pounds must pay a federal excise tax for road maintenance even though the United States is the purchaser. 26 U.S.C. Sec. 4051(a)(1). In any event, whether the federal excise tax clause (paragraph B.O.1.1) in the government's bid solicitation document required bidders to include federal excise tax for trucks delivered during the entire term of the contract, or only for trucks delivered prior to October 1, 1988 (the scheduled expiration date for the tax), was a subject of dispute between Arveco and the Tank Command just prior to the due date for the submission of bids.

On the morning bids were to be submitted, April 14, 1986, Arveco asked the purchasing officer for the United States if it should include the excise tax on trucks to be delivered after October 1, 1988, because the statute extending the excise tax was due to expire on that date. However, the statute had been regularly extended since its enactment in 1917. Anticipating the extension of the tax, the purchasing officer apparently told Arveco to include the tax on all the trucks, even those delivered after September 30, 1988. Arveco succeeded in placing the winning bid, but its bid was some ninety-seven million dollars less than the next lowest bid. On April 23, 1986, Arveco informed the Tank Command that it had not included the taxes as instructed because, as stated in its May 14 letter to the Tank Command, it believed it should include only excise tax as it considered to be "payable." On April 28, Arveco submitted a letter to the Tank Command expressing its intention to certify that its bid had not included an amount to cover any extension of the excise tax. However, on the same day, Arveco called the Tank Command's contract specialist and said it would rescind its April 28 letter. Arveco was then awarded the contract on May 14. Arveco changed its position again and informed the Tank Command that it had not included an amount for an extension of the federal excise tax. "Since the [excise tax] expires on October 1, 1988, we feel no tax is payable after that date and only payable taxes are included in ... our bid." (Letter of May 14, 1986 from Ronald P. Markwood, President of Arveco, to Mr. Sheill at the Tank Command).

At this point, the record goes silent as to what happened regarding the contract for the trucks until February 9, 1988, when Arveco requested in writing a contract price adjustment of $47,386,980 to reimburse Arveco for the tax on trucks to be delivered after October 1, 1988. Arveco submitted its price adjustment claim under the Contract Disputes Act, 41 U.S.C. Secs. 604-613 (1988) ("Section 604" claim). Arveco submitted its price adjustment claim after the excise tax was extended by Congress in March 1987. Highway Revenue Act of 1987, P.L. 100-17, Sec. 502(a)(2), 101 Stat. 256 (changing the expiration date for this federal excise tax from October 1, 1988 to October 1, 1993). In submitting its price adjustment claim, Arveco stated that it had omitted the excise tax on trucks to be delivered after October 1, 1988. Arveco's claim was at first denied by the contracting officer, but on appeal from the contracting officer's decision, the price adjustment was granted by the Armed Services Board of Contract Appeals.

In deciding to sustain Arveco's price adjustment appeal, the Armed Services Board of Contract Appeals did not have before it an important document. According to a memorandum dated April 18, 1986 and prepared by John Witmer, Harsco's Tax Manager, the bid included excise tax for all trucks to be delivered under the contract:

The bid specifications require that the bid proposal include federal excise tax. BMY's bid included federal excise tax on all models to be produced during the term of the contract despite the fact that the excise tax is scheduled to expire September 30, 1988.

It is possible IRS may question the gross vehicle weight of those trucks BMY considers to have a gross weight of 33,000 pounds or less. Should IRS prevail, we would owe excise tax on those vehicles. Please note that the bid price included the excise tax and the only additional cost to us would be any interest on the tax due.

("Witmer memorandum") (emphasis added). Partly based on this new evidence, the Army has moved for reconsideration and to reopen the Section 604 proceedings, but the Armed Services Board of Contract Appeals had not decided to reopen the proceedings as of July 1, 1993.

Into this labyrinth Arveco and the United States have led three federal jurisdictions without a mention of the trucks that were ordered. We assume they were delivered. The plot thickens when, on February 19, 1993, a federal grand jury in the Eastern District of Michigan issued a subpoena to Markwood to appear and produce documents. Markwood provided documents on April 6, and testified before the grand jury on September 28, after the court issued an order compelling his testimony and granting him immunity pursuant to 18 U.S.C. Sec. 6002 (1988). The grand jury obtained corporate documents, including the Witmer memorandum, indicating that Arveco did in fact include all excise tax in its initial bid. The Army obtained an order allowing disclosure of these documents, pursuant to Federal Rule of Criminal Procedure 6(e). These documents were also provided to Lt. Col. Phillips, an Army Judge Advocate General officer assigned to the Department of Justice Civil Division. ³ Markwood did not argue before the district court, nor to the judge presiding over the grand jury proceeding, that Lt. Col. Phillips's access to the documents violated Rule 6(e). Instead, Markwood uses this alleged violation to support his argument before this Court that Phillips has a conflict of interest and that the subpoena was issued for an improper purpose. According to Markwood, this information, particularly the Witmer memorandum, created the suspicion that Arveco had filed a false request for a contract adjustment.

The Arveco documents provided the Department of Justice with information to issue a civil investigative demand ("CID") ⁴ to Markwood in its False Claims Act investigation. 31 U.S.C. Secs. 3729-33 (1988). After being served with the CID, Markwood provided documents, but refused to testify because the ongoing grand jury investigation implicated his Fifth Amendment privilege. Markwood did not appear for his scheduled deposition. The Department of Justice informed him that it viewed his failure to appear as a failure to comply with the CID. Also, the Army used Markwood's refusal to appear to support its motion to reopen and for reconsideration of the Section 604 price adjustment claim before the Armed Services Board of Contract Appeals.

On May 24, 1993, the Department of Justice filed a petition to enforce the CID and requested an Order to Show Cause. 31 U.S.C. Secs. 3733(j)(1) and (j)(5). On June 1, the district court issued an Order to Show Cause, requiring Markwood to appear for a hearing, and provided that Markwood could not serve or file any discovery requests without further leave of court. On June 15, Markwood filed a Motion to Vacate the Order to Show Cause arguing that the district court proceeded in an ex parte manner because the petition for enforcement was not served on Markwood at the time of filing. The district court declined to...