U.S. v. Boeing Co., Inc., 87-2054

• Decision Date: 07 September 1988
• Docket Number: No. 87-2054,87-2054
• Citation: 845 F.2d 476
• Parties: , 34 Cont.Cas.Fed. (CCH) 75,498 UNITED STATES of America, Plaintiff-Appellant, v. The BOEING COMPANY, INC.; Melvyn R. Paisley; Thomas K. Jones; Herbert Reynolds; Harold J. Kitson; Lawrence H. Crandon, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 476

845 F.2d 476

56 USLW 2644, 34 Cont.Cas.Fed. (CCH) 75,498

UNITED STATES of America, Plaintiff-Appellant, v. The BOEING COMPANY, INC.; Melvyn R. Paisley; Thomas K Jones; Herbert Reynolds; Harold J. Kitson Lawrence H. Crandon, Defendants-Appellees.

No. 87-2054.

United States Court of Appeals Fourth Circuit.

Argued Dec. 3, 1987.

Decided May 5, 1988.

Rehearing and Rehearing In Banc Denied Sept. 7, 1988.

Michael F. Hertz, Civil Div., Dept. of Justice (Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Henry E. Hudson, U.S. Atty., Alexandria, Va., Joan E. Hartman, Civil Div., Dept. of Justice, Washington, D.C., on brief), for plaintiff-appellant.

Philip Allen Lacovara (Roger P. Fendrich, Andrew T. Karron, Hughes, Hubbard & Reed, on brief), Robert S. Bennett (Alan Kriegel, Dunnells, Duvall, Bennett & Porter, Benjamin S. Sharp, Hilary Harp, Perkins Coie, Washington, D.C., Gerard F. Treanor, Jr., Arlington, Va., Amy S. Berman, Venable, Baetjer & Howard, Washington, D.C., on brief), for defendants-appellees.

Before HALL and ERVIN, Circuit Judges, and BUTZNER, Senior Circuit Judge.

ERVIN, Circuit Judge:

In 1981 and 1982, five Boeing Company ("Boeing") employees left the company to assume high-level positions in the Reagan administration. Before their federal employment began, Boeing made a large "severance payment" to each one with the payments totalling $485,000. In 1986, the government instituted this civil action to recover the amount of the payments from both Boeing and the individual employees based on 18 U.S.C. Sec. 209(a), ¹ a conflict of interest statute. At trial, the district court found for defendants. United States v. Boeing Co., 653 F.Supp. 1381 (E.D.Va.1987). The government appeals. We affirm in part and reverse in part.

I. The Facts

During 1981 and 1982, the federal government recruited the five individual defendants for positions in the Department of Defense (DOD) or NATO. Boeing encouraged the men to accept the positions and gave each a significant severance payment upon their termination from Boeing. The details of the payments are as follows.

(1) Thomas K. Jones became Deputy Under Secretary of Defense for Strategic and Theater Nuclear Forces on June 1, 1981. He received $132,000 from Boeing on May 19, 1981.

(2) Herbert A. Reynolds became a Defense Department consultant on July 26, 1981, and Deputy Director of Space and Intelligence Policy on October 4, 1981. He received $80,000 from Boeing on July 22, 1981.

(3) Melvyn R. Paisley became Assistant Secretary of the Navy for Research, Engineering and Systems on December 2, 1981. He received $183,000 from Boeing on October 1, 1981.

(4) Lawrence H. Crandon became a computer scientist for the NATO Air Command and Control Systems Team on March 8, 1982. He received $40,000 from Boeing on March 5, 1982.

(5) Harold Kitson became a Defense Department consultant on August 2, 1982, and Deputy Assistant Secretary of the Navy for Command, Communications and Control Intelligence in September, 1982. He received $50,000 from Boeing on July 31, 1982.

While T.A. Wilson, Boeing's chairman and chief executive officer, determined the actual amount of each payment, lower level employees and the departing employees made preliminary calculations based on the financial impact of moving from Boeing to the government. Calculation factors included salary and benefit differentials, higher living costs, moving expenses, and the expected length of government service. A separate payment not at issue here cashed out the employees' interests in existing benefits. Boeing made a total of twenty-one such severance payments between 1962 and 1982 to encourage government service and sever all financial ties between Boeing and the departing employees. Employees entering government service at the state and local levels were allowed to go on paid leave instead of resigning.

The existence and the amount of the payments were disclosed initially in Financial Disclosure Reports filed by each individual. In late 1981, employees of the Defense Contract Audit Agency (DCAA) became aware of the nature of the payments. Boeing sought to include the payments in overhead calculations, in effect charging the government for them. Later, Boeing agreed not to include them in overhead. On March 22, 1982, the DCAA notified the DOD contracting officer for Boeing of the payments and their nature. The matter was referred to the Justice Department on July 14, 1982. After an unexplained delay of nearly three years, the Justice Department and Boeing executed an agreement tolling the statute of limitations on March 25, 1985. The government filed this action on July 22, 1986.

In a bench trial, the district court found for the defendants reasoning that: (1) severance payments made prior to government employment do not violate the standards of Sec. 209; (2) subjective intent is required to violate Sec. 209, and no intent was shown; (3) because the payments were disclosed, they did not violate common law agency principles which prohibit only secret, undisclosed profits; (4) the payments created neither the appearance of nor an actual conflict of interest; and (5) the three year statute of limitations, 28 U.S.C. Sec. 2415(b), bars the claims against Boeing for the first four payments.

The issues on appeal are whether Sec. 209 applies to severance payments made prior to government service, whether Sec. 209 includes an intent element, whether Sec. 209 includes an injury element, and the statute of limitations.

II. 18 U.S.C. Sec. 209

This is a case of first impression in which the government seeks to apply the standards of Sec. 209 in a civil action to recover severance payments made before five individuals began their government employment. Section 209(a) provides, in relevant part:

Whoever receives any salary, or any contribution to or supplemention of salary, as compensation for his services as an officer or employee of the executive branch of the United States Government ... from any source other than the Government of the United States ...; or

Whoever ... pays, or makes any contribution to, or in any way supplements the salary of, any such officer or employee under circumstances which would make its receipt a violation of this subsection--

Shall be fined not more than $5,000 or imprisoned not more than one year, or both.

Although the conflict of interest statutes, including Sec. 209, are criminal in nature, civil remedies exist based on the fiduciary duty owed by federal employees. See United States v. Kenealy, 646 F.2d 699, 703 (1st Cir.), cert. denied, 454 U.S. 941, 102 S.Ct. 478, 70 L.Ed.2d 250 (1981); United States v. Kearns, 595 F.2d 729, 733 (D.C.Cir.1978); Continental Management, Inc. v. United States, 527 F.2d 613, 617, 208 Ct.Cl. 501 (1975). That duty is defined by the statutory standard of conduct. Kenealy, 646 F.2d at 703; Continental Management, 527 F.2d at 617, 620. Therefore, the government has a civil cause of action based on the statutory standards of Sec. 209.

A. Preemployment Severance Payments

Section 209 prohibits outside "contribution to or supplementation of salary, as compensation for his services as an officer or employee" of the United States. On its face, this does not require that payment occur while the party was a government employee. The district court, however, read Sec. 209 to require payment during government employment. Boeing, 653 F.Supp. at 1386; see also United States v. Raborn, 575 F.2d 688 (9th Cir.1978) (in dicta, stating that status as an employee is an element of a violation of Sec. 209). Because the statutory language is ambiguous, we turn to the legislative history of Sec. 209.

Prior to 1962, Sec. 209 was codified at 18 U.S.C. Sec. 1914, and provided "[w]hoever, being a Government official or employee, receives any salary in connection with his services...." In 1962, Congress eliminated the phrase "being a Government official or employee," a phrase which did require employment status at the time of payment. This change indicates that payment need not occur during federal employment; a preemployment payment to supplement salary could also violate Sec. 209.

The policy behind Sec. 209 and the conflict of interest laws in general also support a broad interpretation of its coverage. The statutes are

directed at an evil which endangers the very fabric of a democratic society, for a democracy is effective only if the people have faith in those who govern, and that faith is bound to be shattered when high officials and their appointees engage in activities which arouse suspicions of malfeasance and corruption. The seriousness of this evil quite naturally led Congress to adopt a statute whose breadth would be sufficient to cope with the evil.

United States v. Mississippi Valley Generating Co., 364 U.S. 520, 562, 81 S.Ct. 294, 315, 5 L.Ed.2d 268 (1961). Congress has established rigid rules of conduct to ensure that this faith is maintained. Id. at 551, 81 S.Ct. at 310; Kenealy, 646 F.2d at 703; Continental Management, 527 F.2d at 620. Large severance payments by defense contractors to those going to work at high levels in the Defense Department certainly "arouse suspicions," and those suspicions are not reduced by making the payments just before government service begins.

Therefore, we conclude that payments made prior to the onset of federal service can violate Sec. 209. Employment status at the time of payment is not an element of a violation. All preemployment payments do not necessarily run afoul of Sec. 209, so we must still determine whether these payments were made to supplement salaries "as compensation for ... services as an officer or employee of the United States."

B. Intent

The government argues that the conflict of interest statutes, including Sec. 209, set forth an objective standard of conduct which does not include an intent requirement. This ignores the language of Sec. 209, that payments must be made "as compensation for"...