U.S. v. Kenny

• Decision Date: 08 June 1981
• Docket Number: 79-1563 and 79-1735,79-1545,Nos. 79-1544,s. 79-1544
• Citation: 645 F.2d 1323
• Parties: 7 Fed. R. Evid. Serv. 1803 UNITED STATES of America, Plaintiff-Appellee, v. John E. KENNY, Trenton P. Oelberg, and William L. Parker, Defendants- Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1323

645 F.2d 1323

7 Fed. R. Evid. Serv. 1803

UNITED STATES of America, Plaintiff-Appellee, v. John E. KENNY, Trenton P. Oelberg, and William L. Parker,

Defendants- Appellants.

Nos. 79-1544, 79-1545, 79-1563 and 79-1735.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 15, 1980.

Decided Jan. 23, 1981.

Rehearing and Rehearing En Banc Denied April 30, 1981.

As Amended May 18, 1981.

Certiorari Denied June 8, 1981.

See 101 S.Ct. 3059.

John A. Mitchell, San Diego, Cal., for Kenny.

Lawrence W. Campbell, San Diego, Cal., for Oelberg.

Peter J. Hughes, San Diego, Cal., for Parker.

Herbert Hoffman, Asst. U.S. Atty., San Diego, Cal., argued, for plaintiff-appellee; Michael H. Walsh, U.S. Atty., San Diego, Cal., on brief.

AMENDED OPINION

Appeal from the United States District Court for the Southern District of California.

Before TRASK and NELSON, Circuit Judges, and SOLOMON ^*, District Judge.

NELSON, Circuit Judge:

The earlier opinion in this matter, dated January 23, 1981, is withdrawn, and the following is substituted.

After a lengthy jury trial, appellants Kenny, Parker and Oelberg were found guilty on 14, 4 and 3 counts, respectively, of a multiple-count indictment alleging conspiracy, fraudulent government contracting activities, bribery, and tax evasion. ¹ Each has brought a direct appeal, asserting numerous errors. In addition, Oelberg has appealed the denial of his motion for new trial on grounds of newly-discovered evidence. The appellants have assailed almost every facet of this prosecution, from the pre-indictment to post-trial stages. For the reasons set forth below, however, we find that none of these contentions has merit, and we therefore affirm all convictions.

FACTS

Kenny was the proprietor of a now-defunct firm in San Diego known as Ocean Market Consultants ("OMC"). OMC provided a variety of research, technical writing and document preparation services to government and industrial clients in the area.

The remaining defendants were civilian employees at the Naval Electronics Laboratory Center ("NELC") at nearby Point Loma. During the time period covered by the indictment, appellant Parker was the supervisor of NELC's Security Systems Programs Office, a section internally designated "Code 1500." Appellant Oelberg, along with defendants Warren and Lab, worked under Parker as members of the Code 1500 staff.

OMC obtained a substantial quantity of business from NELC, primarily through contracts let and supervised by Code 1500 personnel. A typical OMC-NELC contract, billed on a "time and materials" basis, called for OMC to prepare studies or manuals concerning Navy projects using raw data provided by the Navy. Once the final product, known as the "deliverable," was prepared and presented to NELC, an invoice would be sent showing the total hours worked at various billing rates, along with charges for materials and expenses.

Oelberg, Lab, and Warren shared adjoining offices at NELC, a few doors away from Parker's office, during most of their employment there. All four of these Code 1500 employees worked closely together and frequently signed for each other on NELC contracting documents. OMC personnel frequently visited Code 1500, and vice versa. OMC employees testified to seeing Parker, Oelberg, Lab, and Warren meet with Kenny individually in closed-door sessions.

From time to time during the period covered by the indictment, all four had contracting relationships with OMC. Navy records showed total payments to OMC totalling approximately $1.5 million between 1972 and 1976. The evidence indicated that many of these contracts and tasks were false in various respects, resulting in overcharges to the Navy, and consequent illicit profits to Kenny and OMC, of substantial sums of money. The evidence further indicated that in consideration for the issuance and approval of the fraudulent contracts and tasks, Kenny paid cash and check bribes to the defendants employed in Code 1500, as well as furnishing them with other items of value.

A. Parker's Activities.

Parker, in his role as head of Code 1500, set the stage for later illegal activities by arranging for the Navy to award three major contracts to OMC. Parker assured that OMC would receive the contract awards by representing to Navy contracting officials that OMC was a uniquely qualified "sole source" for the services required, bypassing any competitive bidding procedures. With respect to one contract, Parker was able to obtain the Navy's approval in about ten days, when normal contracting procedures would have take between 90 and 120 days, by misrepresenting that the contract was of extremely high priority calling for "Quick Reaction Capability." Similar misrepresentations were made with respect to the other two.

Under these contracts, Code 1500 personnel had at their disposal lump sums of money, out of which they contracted for individual "tasks" from time to time. OMC, in turn, would bill the Navy for "time and materials."

The evidence showed that OMC could quote on and bill for services under these tasks with very little scrutiny outside of Code 1500, and painted a devastating picture of overcharges and sharp practices by OMC, at Navy expense. The Government showed instances where billable hours invoiced on an OMC project vastly exceeded both the reasonable time required to complete such a project and the hours actually devoted to it by OMC. Other evidence showed forged and altered time cards, billings for employees that did not exist, and multiple billings for the same subcontractors' or employees' charges on several contracts. It appeared that Kenny had diverted a substantial amount of OMC revenues to his personal use. ²

Kenny, testifying in his own defense, admitted that the employee manhours reflected on OMC's cost summary sheets were false, but claimed that this "paperwork adjustment" was necessary because OMC either started work before a task was actually issued or had cost overruns on issued tasks. Parker, in turn, asserted that slow government contracting procedures hindered his efforts to provide fast response to his "customers" within the government, requiring him to employ previously existing contracts to finance new projects. This factor, along with ominous references to national security needs, purportedly accounted for task statements and invoices that did not match work done. However, neither Kenny nor any of the Code 1500 employees had any records to substantiate the claims of early starts or cost overruns, nor could they explain or justify the charges reflected on the OMC invoices.

The prosecution presented evidence showing that a group of tasks issued by Parker to OMC, totalling nearly $158,000, was largely fraudulent. In one case, involving a $58,000 contract to produce manuals for a pair of information-gathering devices on Navy submarines, the Washington, D.C. sponsor for the programs testified that he had never heard of OMC or Kenny, that the manuals called for were not appropriate at that point in time, and that he had neither authorized the tasks nor received any of the deliverables called for in the task. In another, a Washington D.C. sponsor for Navy nuclear intelligence projects reviewed three tasks (the subjects of three false claims counts), totalling $24,000, relating to underseas nuclear intelligence. He testified that no funds were ever made available to Parker for nuclear intelligence, that he had never heard of OMC or Kenny nor was he aware of any work done by OMC in that field, and that he had never authorized the tasks nor received the deliverables mentioned in the task statements. Both witnesses found it unusual that the tasks called for "one original no copies." Furthermore none of the OMC employees who testified could recall working on any of the tasks.

Although the record does not disclose the exact nature of any arrangement Kenny and Parker may have had, the Government brought out a number of questionable facts indicating kickbacks or bribery. Parker was given an OMC telephone credit card, on which, from the partial telephone records available, he was shown to have charged over $1,000 worth of long-distance calls. ³ Both Kenny and Parker testified that Parker had repaid the bills in cash, although there was no evidence that any such repayment had occurred.

The Government also showed that Parker received business cards and stationery for a personal stamp trading business, magazine subscriptions, and a safe, all purchased for Parker by OMC, for which there was no evidence of repayment.

Parker purchased at least $18,000 worth of stamps between late 1971 and 1974. This activity coincided with the time period in which OMC received expanded business from NELC. Three witnesses recalled that once during 1974, they saw Parker in possession of a large sum of cash following a luncheon engagement with Kenny that preceded a scheduled trip by Parker to the East Coast. The prosecutor implied that cash converted into stamps would be difficult to trace.

B. Activities of Oelberg, Lab, and Warren.

As part of their official duties at NELC, Oelberg, Lab, and Warren each handled various projects for the government and arranged to contract for outside services such as those provided by OMC to aid in completing the projects. More significant, however, was an after-hours enterprise engaged in by these defendants.

1. Self Control Systems and Gray Gryphon Associates.

In March, 1972, Lab and Oelberg formed a partnership named "Self Control Systems" ("SCS") as a moonlight business to develop and market bio-feedback machines. Warren initially acted as an employee of SCS; later, in April, 1973, Lab withdrew from the partnership and Warren took his place.

Kenny, approached by the SCS principals, offered his assistance. At various times Kenny paid for materials or services supplied to SCS, ⁴ primarily through checks drawn on a shell corporation of Kenny's named "Gray Gryphon Associates,"...