U.S. v. Fischl

• Decision Date: 30 July 1986
• Docket Number: No. 85-1297,85-1297
• Citation: 797 F.2d 306
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Robert D. FISCHL, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 306

797 F.2d 306

UNITED STATES of America, Plaintiff-Appellee, v. Robert D. FISCHL, Defendant-Appellant.

No. 85-1297.

United States Court of Appeals, Sixth Circuit.

Argued Jan. 7, 1986.

Decided July 30, 1986.

Curtis R. Witte, argued, Grand Rapids, Mich. for defendant-appellant.

Thomas J. Gezon, Asst. U.S. Atty., Grand Rapids, Mich., Don Davis, argued, for plaintiff-appellee.

Before MERRITT, JONES and NELSON, Circuit Judges.

DAVID A. NELSON, Circuit Judge.

The appellant in this case, Mr. Robert Fischl, was indicted and tried with a fellow businessman, Mr. Charles Kerkman, for mail fraud and other offenses related to an alleged kickback scheme. A jury found Mr. Fischl guilty on six out of eleven counts, and he was fined, ordered to make restitution, sentenced to a year's imprisonment, and placed on probation for five years. On appeal he makes two contentions: (1) that he ought to have been acquitted because the kickback scheme was not intended to harm anyone, and the evidence thus could not support a finding that Mr. Fischl had the requisite intent to defraud, and (2) that he ought to have been tried separately from Mr. Kerkman. We reject both contentions.

I

In 1979 Messrs. Fischl and Kerkman participated in the organization of two thinly capitalized corporations, Lake-Link Transportation Company (sometimes called "LLTX") and Upper Peninsula Shipbuilding Company ("UPSCO"). Both men were officers of both corporations.

The co-founders hoped initially that LLTX would be able to secure a contract from the State of Michigan for the operation of marine vessels on which railroad cars could be transported across Lake Michigan. No such contract was obtained, but in June of 1979 the men succeeded in negotiating a $35.5 million contract with the State's Transportation Commission for the construction by UPSCO of a tugboat and four "forebodies," or barges.

The construction contract, which was formally signed on July 3, 1979, called for an initial advance of $3.5 million, to be paid to UPSCO (subject to the appropriation of funds by the legislature) on or about October 1, 1979. Notwithstanding this provision, the State had indicated in a letter dated June 28, 1979, that on the date the contract was to be signed the State would hand-deliver to Mr. Fischl, as Secretary-Treasurer of UPSCO, a check payable to the company in the amount of $1 million. The letter stated "[w]e understand that the proceeds will be used for the down payment on engines for the tugboat and for general administrative expenses of the shipyard."

The State's $1 million dollar check was, in fact, delivered to Mr. Fischl on July 3, 1979, the legislature having made a special appropriation for that purpose. It was stipulated at trial that Mr. Fischl opened an account for UPSCO at a Grand Rapids bank, deposited the $1 million, and arranged for a significant part of the money to be wired to a German bank for the account of a Krupp subsidiary from which UPSCO planned to buy the engines for the tugboat.

The funds sent to Krupp ostensibly represented a straightforward down payment on the purchase price of the engines. There was evidence from which the jury could reasonably have found, however, that more than half the down payment was promptly returned to UPSCO's sister company, LLTX, as a kickback, and that UPSCO had agreed to increases in both the amount of the down payment and the total price for the engines in order to obtain a larger kickback, or "commission," than Krupp would otherwise have been willing to pay.

It would have been customary for the buyer of Krupp engines to pay only 10% of the purchase price as a down payment, and that is what Krupp proposed in negotiating sessions conducted with Messrs. Fischl and Kerkman in Michigan early in June of 1979. Those negotiations led to the issuance of a letter of intent dated June 6, 1979, typed by Mr. Fischl and signed by Mr. Kerkman as President of LLTX, memorializing an intent to place an order for the engines at a total price of 3,240,000 Deutschmarks, of which 10% would be paid with the order as a down payment. On June 29, 1979, however, Mr. Fischl sent the State a letter enclosing an offer in which Krupp proposed to sell the engines to UPSCO at a price of DM 3,536,000, with a down payment of 20%. Mr. Fischl's letter to the State explained that "[t]he 20% down payment represents approximately $390,000," and went on to say "[t]he remaining $610,000 [of the State's projected $1 million advance] will be used for working capital for UPSCO...."

The final numbers were negotiated by Mr. Kerkman with Krupp in Germany at the beginning of July. The deal he made, as the jury could reasonably have found, was that Krupp would ostensibly charge DM 3,985,136 for the engines, receiving a "down payment" from UPSCO of DM 781,136, or slightly under 20%. On receipt of this "down payment," Krupp would return DM 425,136 to UPSCO or its designee, thereby reducing the net price of the engines to DM 3,560,000. The size of the "down payment" was arrived at by taking 10% of the latter amount and adding the agreed kickback to that 10%. The "down payment," in other words, was computed (in Deutschmarks) as follows:

                  356,000  (10% of the true price)
                k 425,136  (amount to be kicked back)
                ---------
                  781,136  (amount of total "down
                           payment.")
                

Krupp was not willing to part with the DM 425,136 until it had actually received the DM 781,136; the former sum was to come out of the latter, and the latter was to come out of the initial $1 million payment by the State.

Mr. Kerkman spoke to Mr. Fischl by telephone from Germany twice during the first week of July, 1979. In the first call he gave Mr. Fischl the figures he had arrived at with Krupp and asked Fischl to transfer the "down payment" of DM 781,136. In the second call, placed a day or two after the first, he asked Mr. Fischl to expedite the transfer, explaining that he was to bring a check back to the United States with him and that the "down payment" had to be in Krupp's hands before he could leave Germany.

Mr. Fischl received the State's $1 million check on July 3, as noted, and instructed the bank in which he deposited the funds to take out DM 781,136 (approximately $428,000) and transfer that amount to Germany. The bank did so on July 5, as directed by Mr. Fischl, using electronic communications in interstate and foreign commerce. On receipt of the DM 781,136, Krupp handed Mr. Kerkman two checks totaling DM 425,136 (approximately $233,000); the larger check was made out to LLTX, and the other (for DM 20,000) was payable to Kerkman personally. Mr. Kerkman returned to the United States on July 6 and turned over the larger check to Mr. Fischl, who took it across several state lines and deposited it in an account he opened for LLTX in Chicago. The remaining DM 20,000 was also deposited ultimately in an LLTX account.

The contract between UPSCO and the State, the terms of which had been negotiated by Messrs. Fischl and Kerkman personally, contained a conflict of interest clause that prohibited UPSCO from entering into any contract or subcontract "in which any member, officer, or employee of [UPSCO] during their tenure or for one (1) year thereafter has any interest, direct or indirect." The contract contained a termination clause giving the State the right to terminate the contract in the event of a substantial violation of this or any other term of the contract. It would have been reasonable for the jury to conclude that the arrangement with Krupp gave Messrs. Fischl and Kerkman an "interest" in UPSCO's contract with Krupp that would have justified termination of the State's contract with UPSCO.

The contract also made the State's initial $3.5 million advance payment contingent upon UPSCO's providing the State

"details of ... direct or indirect construction expenditures and commitments made through the approximate date of the advance payment. Said details shall be supported by sufficient documentation to demonstrate that actual expenditures and commitments are, at least, equal to the amount of the advance."

In addition, the contract provided that UPSCO should either furnish a $33.5 million lien bond "or in lieu thereof permit [the State] to periodically audit records of payments to contractors, subcontractors and suppliers." It was not supposed that the company could obtain such a bond, and UPSCO never did so.

On September 5, 1979, several weeks before the State was to pay UPSCO the balance of the $3.5 million advance called for by the contract, an official of the State sent a letter to UPSCO referring to the $1 million paid in July and asking UPSCO to furnish "a brief outline of the expenditures thus far...." Such an outline was submitted to the State on September 11, 1979, when UPSCO invoiced the State for the remaining $2.5 million. The invoice was supported by documentation that included a "Schedule of Expenditures" on which $428,250 was listed as "Direct Expenditures" for "Engines." The documentation also included a letter from Krupp to UPSCO's auditors, Ernst & Whinney, confirming that UPSCO had a contract for the purchase of engines at a total price of $2,253,897.81, on which Krupp had received a down payment of $428,257.81 (DM 781,136) on July 5, 1979. The text of the letter had been furnished to Krupp by Mr. Fischl. Ernst & Whinney knew nothing of the kickback, and thus did not know that the net down payment retained by Krupp was less than half the amount claimed in the letter, and did not know that the true price to UPSCO, net of the kickback, was some $233,000 less than the amount it was asserted to be.

Another document submitted to the State in support of UPSCO's request for the remaining $2.5 million was a letter in which Ernst & Whinney advised the State that it had reviewed UPSCO's expenditures and commitments and found that they exceeded the $3.5 million specified in the advance payment section of the contract. The State was not...