U.S. v. Barnette, s. 84-3727

• Decision Date: 08 October 1986
• Docket Number: 84-3787,Nos. 84-3727,s. 84-3727
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Larry D. BARNETTE, Leo J. Barnette, Allied Management Corporation, Jets Venture Capital Corporation, Thomas F. Gibbs, Defendants-Appellants. UNITED STATES of America, Plaintiff-Appellee, v. Larry D. BARNETTE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1558

800 F.2d 1558

UNITED STATES of America, Plaintiff-Appellee, v. Larry D. BARNETTE, Leo J. Barnette, Allied Management

Corporation, Jets Venture Capital Corporation,

Thomas F. Gibbs, Defendants-Appellants.

UNITED STATES of America, Plaintiff-Appellee, v. Larry D. BARNETTE, Defendant-Appellant.

Nos. 84-3727, 84-3787.

United States Court of Appeals, Eleventh Circuit.

Oct. 8, 1986.

Charles W. Arnold, Jr., Jacksonville, Fla., for Larry D. Barnette, Allied Management Corp., Jets Venture Capital Corp. and Leo J. Barnette.

Aaron K. Bowden, Jacksonville, Fla., for TFG.

Robert S. Yerkes, Jacksonville, Fla., Terry A. Zitek, Asst. U.S. Atty., Tampa, Fla., for the U.S. in No. 84-3727.

Terry A. Zitek, Asst. U.S. Atty., Tampa, Fla., for the U.S. in No. 84-3787.

Appeals from the United States District Court for the Middle District of Florida.

Before RONEY, Chief Judge, FAY, Circuit Judge, and SIMPSON, Senior Circuit Judge.

PER CURIAM:

On August 30, 1983 a federal grand jury returned an indictment against Larry D. Barnette ("Barnette"), Thomas F. Gibbs ("Gibbs"), Leo J. Barnette ("Leo Barnette"), Judge A. Causey ("Causey"), Murray Sentner ("Sentner"), Allied Management Corporation ("Allied") and Jets Venture Capital Corporation ("JVCC"). The defendants were charged with conspiracy to defraud the United States Army and Navy, the Department of Commerce, the Small Business Administration ("SBA") and the Internal Revenue Service ("IRS") in violation of 18 U.S.C. Sec. 371. The defendants were also charged with mail fraud in violation of 18 U.S.C. Sec. 1341, making false statements in violation of 18 U.S.C. Sec. 1001, transportation of stolen property in violation of 18 U.S.C. Sec. 2314, bribery of public officials in violation of 18 U.S.C. Sec. 201(b), misapplication of government funds in violation of 15 U.S.C. Sec. 645 and tax offenses in violation of 26 U.S.C. Sec. 7206(1). The indictment sought forfeiture from Barnette, Gibbs and Allied of their interests in several domestic and foreign corporations pursuant to the Racketeer Influenced and Corrupt Organizations act ("RICO"), 18 U.S.C. Secs. 1961-1968.

Trial on the twenty-five count indictment began April 16, 1984, and continued for three months. The jury returned verdicts of guilty on various counts against Barnette, Gibbs, Leo Barnette, Allied and JVCC ("appellants"). ¹ Appellants challenge their convictions on a number of grounds. With the exception of the restitution ordered under Count 15 (bribery in violation of 18 U.S.C. Sec. 201(b)), we find that appellants' contentions are without merit. We affirm the judgment of the district court but vacate the restitution order imposed as part of the sentence on Count 15.

I.

A. The Parties

Allied, a Delaware corporation established in 1969, set up its corporate headquarters in Jacksonville, Florida. J.E.T.S., Inc. ("J.E.T.S.") was a wholly owned subsidiary of Allied that performed government service contracts throughout the world. Barnette was the president and principal stockholder of Allied, and Gibbs was the vice president and a minority stockholder. Leo Barnette worked for JETS Waescherei GmbH, a wholly-owned subsidiary of J.E.T.S. formed to perform a laundry service contract in West Germany. Sentner was employed by the United States Army in Europe as an Army contracting officer. JVCC was a Florida corporation licensed and funded by the SBA to make loans to independent small businesses owned by socially or economically disadvantaged individuals pursuant to the Minority Enterprise Small Business Investment Companies ("MESBIC") program.

B. Background

After World War II the United States Army constructed seven large laundries in West Germany. By 1975 the Army projected that a private contractor could perform the laundry services more efficiently and solicited bids from 75 companies. J.E.T.S., licensed to do business in West Germany as JETS Waescherei GmbH, submitted the lowest bid and was, therefore, awarded the contract.

The contract was a "fixed-price contract" ² for a nine month period commencing January 1, 1977. While a fixed-price contract typically places the maximum risk upon the contractor, 48 C.F.R. Sec. 16.202-1 (1985), the German laundry contract was not a typical fixed-price contract. J.E.T.S. did not assume "maximum" risk because the laundry facilities, equipment and utilities were furnished by the Army free of charge. J.E.T.S. inherited an existing work force of approximately seven hundred employees and enough supplies for several months of operations. Additionally, the contract provided for economic price adjustments for increases or decreases in the costs of labor or materials. The contract also provided for two, one year options at a fixed price to be negotiated by the Army and J.E.T.S. The Army did not have to exercise its options, nor did J.E.T.S. have to agree to perform under them.

As early as February, 1977, Barnette realized that the German laundry contract was going to be extremely lucrative. On February 10 he informed his banker that the contract was "throwing off" over $100,000 in pre-tax profit per month. Five months later Barnette reported that this figure had doubled.

In July, 1977 the Army notified J.E.T.S. that it intended to exercise its option, extending the contract through September 30, 1978. The Army asked J.E.T.S. to submit a completed Contract Pricing Proposal, a Form DD 633. Barnette signed the form and on September 23, 1977 Barnette and Gibbs certified that the cost and pricing data submitted on the form was "accurate, complete, and current." The government went on to demonstrate that it was not.

When the Defense Contract Audit Agency ("DCAA") decided to perform an audit of J.E.T.S.' proposal, J.E.T.S.' comptroller reported to DCAA that its records of operating supplies were in a state of disarray--accurate records "would not be available during [the] audit period." J.E.T.S.' assistant manager in charge of inventory in the seven plants testified, however, that accurate records were maintained and regularly scheduled inventories were required. Barnette told DCAA auditors in West Germany that J.E.T.S.' records of its general and administrative expenses were in Jacksonville, Florida. Several days later, Barnette and Gibbs told DCAA auditors in Florida that the records were in Germany. DCAA issued a highly qualified report on J.E.T.S.' proposal and the auditors who prepared the report testified at trial that they did not have full access to all relevant information when it was issued.

If the auditors had full access to all relevant information, they would have discovered that J.E.T.S. had fraudulently overstated its expenses misrepresenting how profitable the laundry contract had become. For example, Gibbs submitted exaggerated payroll records to DCAA auditors which included several "managers" who were not employed by J.E.T.S. During the negotiations for the contract extension, Barnette and Gibbs presented falsified invoices from Hamilton Insurance Company ("Hamilton"), a shell corporation created and owned by Barnette, to support overestimated insurance costs. The evidence showed that at this point, Hamilton had not been paid by JETS Waescherei.

In January, 1978 J.E.T.S. asked the Army to exercise its remaining one year option on the contract. In February, 1978 the Army decided it would extend the contract another year. Sentner, who pled guilty to a conflict of interest charge prior to trial, negotiated the extension on behalf of the government. Barnette submitted a DD 633 form, proposing a four percent increase over 1978's extension price. Barnette had offered Sentner a position with Allied and then informed Sentner that the upcoming DCAA audit would "disrup[t] his operations." Sentner, thereafter, waived the audit requirement and approved Barnette's DD 633 proposal. Sentner testified, "I did not want to unduly antagonize him.... Because of my possibility of future employment with Barnette, I did not aggressively pursue the audits."

If Sentner had not waived the DCAA audit, the auditors would have discovered that J.E.T.S. was experiencing costs well below the estimates provided in the DD 633 form. Its profit rate was increasing dramatically and J.E.T.S.' labor and supply costs had been steadily decreasing. In fact, Barnette falsified J.E.T.S.' accounting records to support the inflated supply cost estimates to ensure consistency in the event J.E.T.S. was audited. Barnette informed the DCAA that Old Dominion Corporation S.A. ("Old Dominion"), a corporation owned by Barnette, sold the supplies to J.E.T.S.. In fact, J.E.T.S. actually purchased and received its laundry supplies directly from the supplier but Old Dominion paid the invoices and billed J.E.T.S. at a substantial markup. Barnette, who prepared the Old Dominion invoices, created fictitious account numbers and altered the invoice number sequence to make it appear that Old Dominion had customers other than J.E.T.S.. J.E.T.S.' General Manager observed Barnette typing a sham invoice one evening and testified that Barnette asked him whether the figures on the invoice seemed realistic. Finally, the evidence showed that Barnette backdated several supply invoices using invoice forms that had not been ordered from the printer until well after the invoice date.

In the spring of 1979, the Army elected to extend the German laundry contract one more year. This extension, through September 30, 1980, required special Army approval because it was for an additional period beyond the contract term. The Army therefore prepared a comprehensive Government Fair Cost Estimate for Sentner's use in negotiating the third extension. The Army's estimated cost was DM 16,135,535.

J.E.T.S.' estimated cost, submitted by Gibbs on May 10, 1979, was DM 25,493,968. ³ In the documentation supporting the DD 633 proposal, Gibbs wrote that "[c]osts to date for fiscal '79 substantiate the accuracy of the estimate." In fact, J.E.T.S.'...