U.S. v. Karron

• Decision Date: 23 March 2011
• Docket Number: No. 08 CV 10223(NRB).,08 CV 10223(NRB).
• Citation: 750 F.Supp.2d 480
• Parties: UNITED STATES of America, Plaintiff,v.Daniel B. KARRON, Defendant.
• Court: U.S. District Court — Southern District of New York

750 F.Supp.2d 480

UNITED STATES of America, Plaintiff,

v.Daniel B. KARRON, Defendant.

No. 08 CV 10223(NRB).

United States District Court, S.D. New York.

March 23, 2011.

Michael J. Byars, United States Attorney's Office, New York, NY, for Plaintiff.D.B. Karron, Long Beach, NY, pro se.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

The United States of America (“Government”) brings this civil action against defendant Daniel B. Karron (“Karron”) to recover damages and civil penalties under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. Before us is the Government's motion for summary judgment on both liability and damages. In that motion, the Government contends that Karron's related conviction under 18 U.S.C. § 666 for intentionally misapplying federal funds precludes Karron from contesting liability in this civil action.

For the reasons stated herein, the Government's motion is granted in part and denied in part.

BACKGROUNDI. Factual Background

At all times relevant hereto, Karron was the President and Chief Technical Officer of Computer Aided Surgery, Inc. (“CASI”).¹ (R. 56.1 ¶ 3.) In July and August of 2001, Karron submitted a proposal on behalf of CASI to the National Institute of Standards and Technology (“NIST”), an agency housed within the United States Department of Commerce. (R. 56.1 ¶ 5.) Specifically, CASI applied for funds through NIST's Advanced Technology Program (“ATP”), a program that was designed to facilitate research and development on high-risk, high-reward, emerging technologies. (R. 56.1 ¶ 5; see also 15 C.F.R. § 295.1(a).)

CASI's proposal was entitled “Anatomic Computer Modeling for Precise and Accurate Therapies.” (R. 56.1 SI 5.) In the proposal, Karron stated that CASI would develop computer applications that would “rapidly generate encrypted, precise, accurate, and variable resolution three dimensional tiled models applicable for diverse applications [such] as radiation therapy, surgical planning, intraoperative guidance, rapid manufacturing of prosthesis” and other uses. (R. 56.1 ¶¶ 5–7.)

Karron also included an estimated budget in the CASI proposal. (R. 56.1 ¶ 8.) In that budget, Karron projected that CASI's costs would total $2,110,500 over a three-year period, of which $2,000,000 would come from ATP. (R. 56.1 ¶¶ 8–10.) Karron also specified in the budget that CASI would enter into a subcontract with the City University of New York's Institute for Software Design and Development (“CUNY”). (R. 56.1 ¶¶ 11–12.) By virtue of this subcontract, CUNY faculty, visiting scientists, and graduate students would work on the CASI project. (R. 56.1 ¶ 12.)

In October 2001, ATP notified Karron that her proposal had been approved. (R. 56.1 ¶ 16.) Thereafter, Karron signed a so-called cooperative agreement, which provided that: ATP would grant CASI $2,000,000 in federal funds over three years; CASI would gain exclusive rights to any intellectual property developed under the cooperative agreement; and CASI would share certain costs during the life of the project. (R. 56.1 ¶¶ 17–21.)

The cooperative agreement also called for CASI to comply with certain federal regulations. (R. 56.1 ¶¶ 17–18.) These regulations specified, inter alia, the actions that CASI was required to take in connection with its use of ATP funds. First, to access the funds, CASI was obligated to submit a “Request for Advance or Reimbursement” on Form SF–270. (R. 56.1 ¶ 17; Chukran Decl. ¶ 3 (citing 15 C.F.R. § 14.22).) Second, after receiving the ATP funds, CASI was required to submit a “Federal Cash Transactions Report” on Form SF–272 to account for its use of the funds.² (R. 56.1 ¶ 17; Chukran Decl. ¶ 7 (citing 15 C.F.R. § 14.52).) And third, CASI was obligated to provide a “Financial Status Report” on Form SF–269 or SF–269A on a quarterly basis. (R. 56.1 ¶¶ 17–18; Chukran Decl. ¶ 11 (citing 15 C.F.R. § 14.52).)

Each of the above-mentioned forms required CASI's “Authorized Certifying Official” to certify that the statements on the form were accurate and that CASI had complied with the terms of the cooperative agreement.³ (Chukran Decl. ¶¶ 4, 8, 12.) From October 2001 through July 2003, Karron signed at least twenty such forms as CASI's “Authorized Certifying Official.” (R. 56.1 ¶ 24.)

ATP conducted a limited audit of CASI in June 2003. (R. 56.1 ¶ 26.) As a result, ATP learned that Karron and CASI failed to comply with the cost share, drew down funds exceeding the amount to which CASI was entitled, failed to enter into a subcontract with CUNY, and made impermissible expenditures. (R. 56.1 ¶¶ 26–31.) On June 27, 2003, ATP suspended its cooperative agreement with CASI. (R. 56.1 ¶ 26.)

II. Procedural Background

A. Criminal Case

In June 2007, Karron was indicted for allegedly violating 18 U.S.C. § 666. The indictment charged, consistent with the language of the statute, that Karron knowingly misapplied more than $5,000 of funds in the care, custody, and control of CASI, a company that received more than $10,000 in federal funds during a one-year period. See United States v. Karron, No. 07 Cr. 541(RPP), 2007 WL 4201529 (S.D.N.Y. filed June 13, 2007) (dkt. no. 1). Nearly a year later, the Government filed a second superseding indictment. In that indictment, the Government again included a single count under 18 U.S.C. § 666 but also included a forfeiture allegation. Id. (dkt. no. 44).

A jury trial commenced on June 2, 2008 and continued for eight days. Id. (dkt. nos. 50–51). During the trial, the Government introduced evidence that:

• Karron used $75,000 of the initial disbursement of ATP funds to pay for her personal debts. Karron took this action despite warnings from her business manager that such use was unauthorized. (R. 56.1 ¶ 28; Trial Tr. 1271:23–1272:8.)

• Karron and her business manager originally had to co-sign all expenditures over $250. However, within one week of receiving ATP funds, Karron stripped her business manager of signing authority and vested herself with sole signing authority. (Trial Tr. 1271:9–24.)

• Karron set up CASI's business location in her own apartment and then spent approximately $60,000 of ATP funds on rent. Again, Karron took this action despite receiving frequent warnings that such use was unauthorized. (R. 56.1 ¶¶ 30–31; Trial Tr. 1266:23–1267:23, 1272:9–1273:13, 1318:8–1319:16.)

• During the project's first year, Karron spent approximately $16,000 of ATP funds on utility bills and approximately $2,000 of ATP funds on meals. Yet again, Karron made such expenditures despite repeated warnings that these were not authorized uses. (R. 56.1 ¶ 30; Trial Tr. 1267:25–1269:9, 1320:14–18.)

• Karron used more than $5, 000 in ATP funds to compensate her cleaning lady. Karron also spent more than $40,000 of ATP funds on other categories of unauthorized expenses. The items that Karron purchased with federal funds included a blender, a GPS navigation system, a digital camera, a drill set, and a dust buster. (R. 56.1 ¶ 30; Trial Tr. 1273:13–21, 1320:19–1321:25.)

• According to the testimony of Karron's business manager, Karron directed him to create false financial reports that did not reflect actual expenditures. Karron signed these very reports and submitted them to ATP. (R. 56.1 ¶ 25.)

On June 11, 2008, at the conclusion of the trial, the court instructed the jury to determine whether the Government proved beyond a reasonable doubt that:

First, at the time alleged in the indictment, the defendant was an agent of Computer Aided Surgery, Inc., or CASI; Second, in a one-year period, CASI received a federal grant in excess of $10,000; Third, during that one-year period, the defendant without authority intentionally misapplied the grant money; Fourth, the misapplied grant money was under the care, custody, or control of CASI; Fifth, the value of the money intentionally misapplied by defendant was at least $5,000.

(Trial Tr. 1350:5–15.) The court further instructed the jury that:

[t]o intentionally misapply money means to use money under the control of CASI knowing that such use is unauthorized or unjustifiable or wrongful. Intentional misapplication includes the wrongful use of money for a purpose the defendant knew was unauthorized, even if such use benefited CASI in some way. ... Misapplication of money, however, does not apply to bona fide salary, wages, fringe benefits, or other compensation paid, or expenses paid or reimbursed, in the usual course of business .... As I said, the government must prove beyond a reasonable doubt that the defendant acted intentionally in misapplying grant money. To find that the defendant acted intentionally, you must be satisfied beyond a reasonable doubt that the defendant acted deliberately and purposefully. That is, the defendant's misapplication must have been the product of the defendant's conscious objective to spend the money for an unauthorized purpose, rather than the product of a mistake or accident or some other innocent reason.

(Trial Tr. 1351:16–1352:11 (emphasis added).) Later that day, the jury returned a guilty verdict against Karron on Count One of the second superseding indictment. (R. 56.1 ¶ 1.)

In October 2008, the court sentenced Karron to seven and one-half months of imprisonment, to be followed by three years of post-release supervision (which included a period of monitored home confinement). The court also ordered Karron to pay $120,000 in restitution. See United States v. Karron, No. 07 Cr. 541(RPP) (dkt. nos. 68–69, 71).

Karron appealed her conviction to the Court of Appeals for the Second Circuit. On appeal, Karron argued that: (1) the district court erred when it instructed the jury to determine whether Karron “intentionally misapplied funds,” rather than instructing the jury that “intent to defraud” is an element of the crime; and (2) 18 U.S.C. § 666 was void for vagueness. The Second Circuit rejected Karron's arguments and affirmed her conviction by summary order dated October 7, 2009. United States v. Karron, ...