Exchange National Bank of Chicago v. Abramson

• Decision Date: 24 January 1969
• Docket Number: No. 3-68 Civ. 24. D. Minnesota,3-68 Civ. 24. D. Minnesota
• Citation: 295 F. Supp. 87
• Parties: EXCHANGE NATIONAL BANK OF CHICAGO, a national banking association, Plaintiff, v. Sidney P. ABRAMSON, Defendant, and Homer A. Bonhiver, as Receiver of American Allied Insurance Company, Intervenor.
• Court: U.S. District Court — District of Minnesota

295 F. Supp. 87

EXCHANGE NATIONAL BANK OF CHICAGO, a national banking association, Plaintiff, v. Sidney P. ABRAMSON, Defendant, and Homer A. Bonhiver, as Receiver of American Allied Insurance Company, Intervenor.

No. 3-68 Civ. 24. D. Minnesota,

United States District Court Third Division.

January 24, 1969.

Best, Flanagan, Lewis, Simonet & Bellows, by Harold C. Evarts, Minneapolis, Minn., and D'Ancona, Pflaum, Wyatt & Riskind, by Edgar Bernhard, Chicago, Ill., for plaintiff.

No formal appearance by defendant but he and his counsel were present during a portion of the proceedings.

Briggs & Morgan, by Frank Hammond and David C. Forsberg, St. Paul, Minn., for intervenor.

NEVILLE, District Judge.

This cause again is before the court, this time on plaintiff's petition for an order barring intervenor from prosecuting this litigation. Exchange National Bank of Chicago seeks to disqualify as a party to this suit the intervenor, Homer Bonhiver, who is the State court appointed receiver of the insolvent American Allied Insurance Company, on the grounds that he has violated an Executive Order of the President and several criminal statutes relating to conflict of interest affecting employees of the Federal government. The Bank contends that Bonhiver should not be entitled to appear as intervenor (in effect a party plaintiff in this litigation) and, in addition, urges that all information pertaining to this litigation which he obtained in the course of his federal governmental employment should be suppressed for the purposes of this civil suit in which intervenor is seeking recovery of $10,500,000 from the Bank for alleged fraudulent and conspiratorial conduct.

Some background is necessary for a resolution of this issue.¹ Bonhiver, intervenor herein, was appointed receiver of the defunct American Allied Insurance Company on August 4, 1965 by order of the Ramsey County, Minnesota, District Court. No issue is made as to the jurisdiction or power of the State court to take such action. By further order of that court dated August 16, 1965, the receiver was empowered, authorized and directed to sequester all assets of the Company, institute and prosecute actions for recovery of assets and pursue all causes of action the receiver deemed necessary.² Ultimately Bonhiver was specifically authorized by State court order to institute and prosecute the suit now at bar.³

After intervenor had been appointed receiver, the United States Government began a criminal prosecution against a number of defendants growing out of the activities of the previous owners and officers of the American Allied Insurance Company. In connection therewith, Bonhiver entered into an agreement with the Justice Department to appear as a fact witness at the trial and also as an advisor to the prosecution for a fee of $60 per diem. Pursuant to such agreement, Bonhiver worked and was paid for ninety days' service between February 7 and June 20, 1967. He testified at the criminal trial for two days and apparently served as advisor for the remainder of the time. It is uncontested that he had access to government files not generally available to the public, though he claims that none of his testimony related to the Bank.

In general, the Bank claims that it will be prejudiced if Bonhiver is permitted to make use in any way of any of the information he may have garnered from the secret government files which relate to dealings between it and American Allied Insurance Company. Thus the Bank seeks not only his disqualification, but suppression as well of any such information.

Certain additional facts were produced at the hearing on this motion and by affidavit. First, it is clear that Bonhiver made known his position as receiver to the United States District Attorney for the State of Minnesota who prosecuted the criminal case and to the Department of Justice prior to his being hired. Second, Bonhiver appears in the litigation at bar solely in a representative capacity as receiver and not seeking a recovery for his personal gain.⁴ Any recovery will be for the benefit of creditors of the receivership.

The Bank alleges that Bonhiver has violated 18 U.S.C. § 209(a) which prohibits government officers or employees from receiving compensation for their work from any private source. This statute, it seems to the court, is designed to prohibit outsiders from supplementing a government employee's salary. The evils of such, were it permitted, are obvious. However, the statute quite clearly has no application to the situation at bar. Plaintiff's argument ignores subsection (c) of the statute which specifically excludes from the prohibition of subsection (a) among others, any "special employee" of the government. 18 U.S.C. § 202(a) defines a "special government employee" as:

"* * * an officer or employee of the executive or legislative branch of the United States Government, of any independent agency of the United States or of the District of Columbia, who is retained, designated, appointed, or employed to perform, with or without compensation, for not to exceed one hundred and thirty days during any period of three hundred and sixty-five consecutive days, temporary duty either on a full-time or intermittent basis, or a part-time United States Commissioner."

Bonhiver's affidavit clearly shows that he worked as a fact witness and technical advisor for only ninety days and thus he is within this exception. The Bank has presented no evidence to the contrary. The fact that the time between Bonhiver's first and last day of service according to the calendar exceeded or equalled 130 days is immaterial in view of the fact he was paid but for 90 days of actual service. Clearly he was "employed" less than 130 days.

The above exclusion was part of Public Law 87-849, 76 Stat. 1119 (1962). According to a memorandum issued by the then Attorney General Robert F. Kennedy on January 28, 1963 (28 Federal Register 985 2/1/63):

"One of the main purposes of the new legislation merits specific mention. That purpose is to help the Government obtain the temporary or intermittent services of persons with special knowledge and skills whose principal employment is outside the Government. For the most part the conflict of interest statutes superseded by Public Law 87-849 imposed the same restraints on a person serving the Government temporarily or intermittently as on a full-time employee, and those statutes often had an unnecessarily severe impact on the former. As a result, they impeded the departments and agencies in the recruitment of experts for important work. Public Law 87-849 meets this difficulty by imposing a lesser array of prohibitions on temporary and intermittent employees than on regular employees. I believe that a widespread appreciation of this aspect of the new law will lead to a significant expansion of the pool of talent on which the departments and agencies can draw for their special needs."

Further in considering the present law, the Senate Report stated:

"In considering the application of present law in relation to the Government's utilization of temporary or intermittent consultants and advisers, it must be emphasized that most of the existing conflict-of-interest statutes were enacted in the 19th century— that is, at a time when persons outside the Government rarely served it in this way. The laws were therefore directed at activities of regular Government employees, and their present impact on the occasionally needed experts —those whose main work is performed outside the Government—is unduly severe. This harsh impact constitutes an appreciable deterrent to the Government's obtaining needed part-time services." S.Rep. 2213, 87th Cong., 2d Sess. p. 6, U.S.Code Cong. & Admin.News 1962, p. 3854.

This court has no desire to recreate unnecessarily a deterrent to the Government's obtaining needed part-time services.

The purpose of the exception above was to permit the government to hire from the ranks of trained private enterprise talent pools those who could be of aid to specific government projects or agencies for a short duration and who were willing so to serve. Bonhiver falls within that category since his services were used only for the criminal litigation.

Also without merit, since Bonhiver was an employee only for 90 days, is the Bank's contention that because Bonhiver was "on call" to the government from January 5 through June 20, 1967, such should be used to compute the period of time and that since such is in excess of 130 days, Bonhiver should not qualify for the exception.

The Bank also claims that the receiver violated 18 U.S.C. § 208(a) (1969 Supp.) in serving both as a government employee and as receiver. This section provides:

"Except as permitted by subsection (b) hereof, whoever, being an officer or employee of the executive branch of the United States Government, of any independent agency of the United States, or of the District of Columbia, including a special Government employee, participates personally and substantially as a Government officer or employee, through decision, approval, disapproval, recommendation, the rendering of advice, investigation, or otherwise, in a judicial or other proceeding, application, request for a ruling or other determination, contract, claim, controversy, charge, accusation, arrest, or other particular matter in which, to his knowledge, he, his spouse, minor child, partner, organization in which he is serving as officer, director, trustee, partner or employee, or any person or organization with whom he is negotiating or has any arrangement concerning prospective employment, has a financial interest—

Shall be fined not more than $10,000, or imprisoned not more than two years, or both." Emphasis added

This statute is not applicable to the present case. It has been held by the Supreme Court that the purpose of this type of statute is "to insure honesty in the Government's business dealings by preventing federal...