U.S. v. McGough

• Citation: 510 F.2d 598
• Decision Date: 31 March 1975
• Docket Number: No. 74--1035,74--1035
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Erle W. McGOUGH, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 598

510 F.2d 598

UNITED STATES of America, Plaintiff-Appellant, v. Erle W. McGOUGH, Defendant-Appellee.

No. 74--1035.

United States Court of Appeals Fifth Circuit.

March 31, 1975.

John L. Briggs, U.S. Atty., Jacksonville, Fla., William J. James, Jr., Claude H. Tison, Jr., Asst. U.S. Attys., Tampa, Fla., for plaintiff-appellant.

Charles Luckie, Tampa, Fla., E. B. Larkin, Dade City, Fla., for defendant-appellee.

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

Before BROWN, Chief Judge, and BELL and MORGAN, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

I. FACTS

Erle W. McGough, the vice president and general manager of the Withlacoochee River Electric Cooperative (the Cooperative), was indicted on May 16, 1973, by a federal grand jury on four counts of violating 18 U.S.C. § 1001 ¹ by filing four false financial statements on behalf of the Cooperative with the Rural Electrification Administration (REA). The indictment charged that the financial statements, which were filed on January 20, 1969, February 10, 1970, February 8, 1971, and July 23, 1971, were knowingly false in that McGough had understated the amount of the Cooperative's accounts receivable on each of them.

The government's charges that the accounts receivable were understated were based upon alleged misappropriations of Cooperative funds by McGough. The government contends that McGough's alleged embezzlement created a debt from him to the Cooperative, and that the existence of that debt should have been carried on the Cooperative's financial statements as an 'account receivable.' The amounts involved in individual instances of embezzlement were aggregated to arrive at the alleged amount of the understatement. Thus, the first count alleged an understatement of $44,438.17, based on transactions occurring as early as November 12, 1959, and up to December 31, 1968, the end of the twelve-month period covered by the financial statement filed with the REA on January 20, 1969. The second count alleged an understatement of approximately $49,000, representing the $44,000 understatement on the statement for 1968, plus $5,000 allegedly misappropriated during the twelve-month period ending December 31, 1969. The third and fourth counts similarly aggregated the amount of the understatement. As alleged in count four, it totalled $59,014.90.

McGough's alleged misuse of Cooperative funds came to the attention of the REA in May 1971, when it received unverified information that McGough had arrangements with automobile dealers in Brooksville, Florida, under which he had received automobiles from the dealerships at virtually no cost to himself, while the prices of cars purchased by the Cooperative were inflated to make up the difference. The matter was referred to the Office of the Inspector General, Department of Agriculture (OIG), which thereupon launched a detailed and extensive investigation into the Cooperative's financial affairs. This investigation uncovered numerous other suspected irregularities, including the falsification of expense account claims and the personal use of Cooperative equipment and employees by McGough. In November 1971 the REA notified the Cooperative's Board of Directors of the investigation and its findings thus far, although the investigation was not then complete. McGough was present and represented by two attorneys at the meeting held for this purpose. Several days later he was suspended with pay from his job as general manager of the Cooperative, and in January 1972, he was fired.

In the meantime, the Florida state authorities had begun to take an interest in the situation. McGough was eventually indicted by the state on a total of seventeen counts of grand larceny based upon several of the transactions underlying the federal § 1001 prosecution. A number of the state's charges were eventually dismissed. McGough was acquitted on four charges in July 1972. He was found guilty after another trial in October 1972, on charges arising from his deal with the Brooksville automobile dealers. In October 1974, while this case was being appealed, the Florida Supreme Court reversed McGough's state court conviction holding that the evidence was insufficient to prove McGough's guilt beyond a reasonable doubt.

The federal investigation by the OIG continued throughout most of the period during which McGough was standing trial on the state charges. The OIG's final investigative report was referred to the United States Attorney in August 1972. The government concedes that it did not pursue indictments against McGough then because it was aware of the state prosecutions pending against him and it wanted to await the outcome of those prosecutions before deciding whether federal prosecution was justified. The decision to prosecute was made in November 1972, after McGough decided to appeal the state court conviction, but the matter was not taken to the federal grand jury until May 1973. After the return of federal indictments, the case was set for trial in September 1973, then reset for December 1973 on motion of the trial court. On November 2, 1973, McGough filed a motion to dismiss the indictment, alleging either a violation of his right to a speedy trial under the Sixth Amendment or a deprivation of due process under the Fifth Amendment by virtue of the delay. He alleged numerous grounds for prejudice resulting from the government's delay, including the death of several witnesses. The trial court granted the motion to dismiss the indictment on November 28, 1973, ruling that the indictment was fatally defective in its failure to sufficiently allege materiality, an essential element of a § 1001 offense. In addition, the court determined that an unusual combination of factors and circumstances warranted the evocation of the due process clause to insulate McGough from further prosecution by the United States for the offenses charged in the indictment.

The government instituted this appeal from the order dismissing the indictment, pursuant to 18 U.S.C.A. § 3731 (Supp.1975). For the reasons discussed below, we hold that the trial court erred in holding that the indictment was insufficient and in its application of the due process clause to the facts of this case.

II. MATERIALITY

The district court dismissed the indictment against McGough for its failure to explicitly allege the materiality of the false document, or to allege facts sufficient to show materiality, relying on Gonzales v. United States, 286 F.2d 118, 121 (10th Cir. 1960), cert. denied, 365 U.S. 878, 81 S.Ct. 1028, 6 L.Ed.2d 190, a case very similar to this one in its underlying facts. During the course of two oral hearings on McGough's motion to dismiss, the district court expressed great concern over the ultimate question of whether the charges against McGough met the materiality requirement of a § 1001 offense as a matter of law. However, its order of dismissal was explicitly based solely on the facial insufficiency of the indictment's allegation of materiality. ² Thus we have before us only the narrow preliminary question of whether materiality was sufficiently alleged in the indictment, not the question of whether McGough's understatement of the Cooperative's accounts receivable is, as a matter of law, a materially false representation to the government. ³

The 'false writing or document' portion of § 1001 under which McGough was indicted does not contain the wood 'material,' but this court has held that materiality is an essential element of every § 1001 violation. Rolland v. United States, 200 F.2d 678 (5th Cir. 1953), cert. denied, 345 U.S. 964, 73 S.Ct. 950, 97 L.Ed. 1383. Therefore it is necessary, in order to state an offense, that the indictment either expressly allege materiality or otherwise indicate that the falsity charged is allegedly material. In the context of § 1001, materiality means that the false statement must have a natural tendency to influence, or be capable of affecting or influencing, a government function. United States v. Krause, 5th Cir. 1975, 507 F.2d 113; Freidus v. United States, 96 U.S.App.D.C. 133, 223 F.2d 598, 601 (1955). The statement or representation need not have actually influenced an action of a government agency. Gonzales v. United States, 286 F.2d 118, 122 (10th Cir. 1960), cert. denied, 365 U.S. 878, 81 S.Ct. 1028, 6 L.Ed.2d 190.

The proper question to ask, therefore, in determining whether an indictment sufficiently alleges materiality is whether the statement or representation alleged to be false could conceivably have a tendency or capacity to influence or affect a government function; that is, whether it is potentially capable of being proved material by the government at trial. If the facts alleged in the indictment warrant an inference that the false statement is material, the indictment is not fatally insufficient for its failure to allege materiality in haec verba. Dear Wing Jung v. United States,312 F.2d 73 (9th Cir. 1962). The district court however, appears to have applied an unrealistically harsh standard in determining the sufficiency of this indictment's allegation of materiality. Relying upon the language from Gonzales, supra, 286 F.2d at 121, which states that a § 1001 indictment which does not expressly allege materiality must allege facts sufficient to 'show' materiality, the district court apparently viewed it as necessary for the indictment to allege an array of facts which would enable it to conclusively determine whether the false statement was material. ⁴

The word 'show' in Gonzales is indeed misleading in that it fails to draw a clear distinction between an allegation of materiality and proof of materiality. ⁵ A clearer statement of the requirement, and the approach we follow here, is that stated in Bins v. United States, 331 F.2d 390, 392 (5th Cir. 1964), that the indictment need only allege materiality 'in substance.'

The four counts of the indictment in this case...