U.S. v. Purdy

• Decision Date: 10 June 1998
• Docket Number: No. 96-1817,96-1817
• Citation: 144 F.3d 241
• Parties: UNITED STATES of America, Appellee, v. John M. PURDY, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 241

144 F.3d 241

UNITED STATES of America, Appellee, v. John M. PURDY, Jr., Defendant-Appellant.

No. 96-1817.

United States Court of Appeals, Second Circuit.

Argued Jan. 8, 1998.

Decided June 10, 1998.

Alan M. Dershowitz, Cambridge, MA (Victoria B. Eiger, Dershowitz & Eiger, P.C., New York City, Jacob D. Zeldes and Brian E. Spears, Zeldes, Needle & Cooper, P.C., Bridgeport, CT, of counsel), for Defendant-Appellant.

Mark G. Califano, Assistant United States Attorney (Christopher F. Droney, United States Attorney for the District of Connecticut, of counsel), New Haven, CT, for Appellee.

Before: VAN GRAAFEILAND and WALKER, Circuit Judges, and RAKOFF, District Judge. ^*

RAKOFF, District Judge.

In the idiom of economic crime, a "kickback" is a kind of commercial bribe. "Typically, they are payments made by one business to employees of another in order to induce favorable commercial treatment from [the employees'] company." H.R.Rep. No. 99-964, at 5 (1986), reprinted in 1986 U.S.C.C.A.N. 5960, 5962. In 1946, Congress--concerned that employees of prime contractors on certain government procurement contracts were being bribed to enter into inflated subcontracts for which the government ultimately paid--passed the Anti-Kickback Act, 41 U.S.C. §§ 51-58, to bring such conduct within the purview of federal prosecution. See H.R.Rep. No. 79-212 (1945), reprinted in 1946 U.S.C.C.S. 1081. In 1960, Congress amended the Act so as to apply to all negotiated federal contracts, and in 1986, amended it again so as to apply generally to "all Federal contracts" and thus "to enhance the government's ability to prevent and prosecute kickback practices" that in any way touched the federal procurement process. H.R.Rep. No. 99-964, at 4, 1986 U.S.C.C.A.N. at 5961.

Appellant John M. Purdy, Jr. would now have this Court read the amended statute, contrary to its language, history, and purpose, to preclude prosecution of any kickback-paying subcontractor who did not consciously intend to defraud the government itself. We decline the invitation and affirm appellant's conviction and sentence.

Purdy was President and Chief Executive Officer of The Purdy Corporation ("Purdy Co."), which regularly supplied helicopter parts to the Sikorsky Aircraft Division of United Technologies Corporation ("Sikorsky"). Sikorsky in turn sold the assembled helicopters to a variety of customers, including the United States government. Between May 1989 and August 1990, Purdy paid tens of thousands of dollars in bribes to two Sikorsky purchasing agents, Alexander Bevvino and Bruce Cafasso, in order to obtain increased Sikorsky business for Purdy Co. Of the twenty-two or more purchase orders obtained thereby, at least seven related to government contracts on which Sikorsky was the prime contractor. The bribes only ceased after Purdy learned that Sikorsky employees were being investigated for receiving kickbacks.

Purdy and a confederate, Martin Ferris, were indicted thereafter, pursuant to 18 U.S.C. § 371, ¹ for conspiring with the Sikorsky purchasing agents to violate the Anti-Kickback Act. After a ten-day trial before the Hon. Janet Bond Arterton, United States District Judge, and a jury, Ferris was acquitted and Purdy was convicted. On December 11, 1996, Judge Arterton sentenced Purdy to thirty-seven months in prison, three years of supervised release, a period of community service, and a $250,000 fine.

As his primary point on appeal, Purdy contends that conviction of conspiracy to violate the Anti-Kickback Act requires proof that the defendant specifically intended to obtain favorable treatment on government-related contracts, whereas the proof at trial showed only that Purdy intended to obtain Sikorsky business in general and was insufficient to show a specific intent to obtain government-related business. Because we disagree with the initial premise, we do not reach the issue of the sufficiency of the evidence.

The gravamen of the instant offense is not a conspiracy to defraud the government, which Congress outlawed decades before the Anti-Kickback Act. ² Rather, from the outset, the purpose of the Anti-Kickback Act was to reach beyond intentional frauds perpetrated directly on the government and to secure the subcontracting of government-related contracts from commercial bribery. See generally H.R.Rep. No. 79-212 (1945).

As the Congress that enacted the 1946 Act recognized, the government, though not directly defrauded, ultimately pays for such commercial bribery as occurs at the subcontracting level. Since many "prime contractors are reimbursed by the United States for the cost of all subcontracts and purchase orders performed thereunder, the Government undoubtedly bears the ultimate costs of such fees, commissions, and gratuities without receiving any benefit therefrom." Id. Congress therefore sought to punish all those whose commercial bribery had an adverse impact on the federal treasury, regardless of whether their intent was only to defraud their immediate customer. If, in the process, deterrence was extended not only to those who specifically contemplated the government relationship in their fraud but also to other commercial bribers who thereby assumed the risk that their wrongful deeds might result in federal prosecution, so much the better.

The 1960 and 1986 amendments of the Anti-Kickback Act sought to broaden its coverage even to instances of bribery not directly impacting the federal treasury. As the House Committee that authored the 1986 amendment stated: "Whatever form they take, all kickbacks serve to undermine Federal procurement.... Furthermore, inflated contract pricing is not their only effect. Kickback activity corrupts the Federal procurement system. It drives out honest competitors and destroys the markets in which the government must bargain." H.R. Rep. No 99-964, at 5 (1986), 1986 U.S.C.C.A.N. at 5962. Accordingly, Congress substantially rewrote the statute in 1986 with the express purpose of extending the scope of the statute to any commercial bribery occurring anywhere within the federal procurement system. See id. at 10.

The language of the amended statute lays bare this purpose. The section defining "Prohibited conduct" makes it unlawful, without qualification, for any person "to provide, attempt to provide, or offer to provide any kickback" or "to solicit, accept, or attempt to accept any kickback." 41 U.S.C. § 53. "Kickback," in turn, is defined as "any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract." Id. § 52(2). Since "prime contractor" means "a person who has entered into a prime contract with the United States," id. § 52(5), and "subcontractor" means any other person "who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract," id. § 52(8), the result is to impose liability on any person who makes a payment to any other person involved in the federal procurement process for the purpose of obtaining favorable treatment.

Purdy, however, argues that an offender must have the more specific purpose of obtaining favorable treatment on a government-related contract (tantamount to a specific intent to defraud the government). To support this interpretation, he would, first, interpret the word "purpose" in § 52(2) to modify everything in the definition of "kickback" that follows thereafter, making the language about "in connection with a prime contract or ... subcontract" part of the intent element rather than simply an objective requirement in its own right. Second, Purdy would modify the intent requirement to include language that forms no part of § 52(2) itself but can only be found in the further definition of "prime contract," to wit, "a contract or contractual action entered into by the United States." 41 U.S.C. § 52(4).

This strained interpretation--which would create an additional, artificial burden to effective implementation of a statute Congress sought to broaden and streamline--finds no support in either the other language of the statute or the purpose of the law. Rather, it is directly refuted by the pertinent legislative history, which states that the "purpose" language "is intended to expand the coverage of the existing Act to kickbacks made in the Federal procurement process for any improper purpose," H.R.Rep. No. 99-964, at 11 (1986), 1986 U.S.C.C.A.N. at 5968, and is not intended, as Purdy argues, to narrow the preexisting interpretations of the Act that did not make knowledge of any of the terms of the prime contract an element of liability, see Hanis v. United States, 246 F.2d 781, 784-86 (8th Cir.1957). Indeed, the Committee Report expressly treats the portion of the definition of kickback relating to connection with a prime contract or subcontract not as part of the "purpose" provision but rather as "intended to ensure the Act's broad coverage over kickbacks that may be made by subcontractors who are in any contractual relationship related to the performance of the government's prime contract." H.R.Rep. No. 99-964, at 12 (1986), 1986 U.S.C.C.A.N. at 5969.

In short, kickbacks made at any point in the government procurement process for the purpose of improperly obtaining favorable treatment are prohibited by the Act, regardless of whether or not the offender knew of the government involvement. Cf. United States v. Feola, 420 U.S. 671, 684, 95 S.Ct. 1255, 1263, 43 L.Ed.2d 541 (1975) (defendant need not know that victim a federal officer to be guilty of assaulting a federal officer within 18 U.S.C. § 111). It...