U.S. v. Service Deli Inc.

• Decision Date: 16 July 1998
• Docket Number: No. 97-50241,97-50241
• Citation: 151 F.3d 938
• Parties: 98 Cal. Daily Op. Serv. 5583, 98 Daily Journal D.A.R. 7797 UNITED STATES of America, Plaintiff-Appellee, v. SERVICE DELI INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 938

151 F.3d 938

98 Cal. Daily Op. Serv. 5583, 98 Daily Journal

D.A.R. 7797

UNITED STATES of America, Plaintiff-Appellee, v. SERVICE DELI INC., Defendant-Appellant.

No. 97-50241.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 9, 1998.

Decided July 16, 1998.

Steven D. Gordon, Holland & Knight, Washington, DC, for defendant-appellant.

Andrea Limmer, United States Department of Justice, Washington, DC, for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California; Leland C. Nielsen, District Judge, Presiding. D.C. No. CR-96-01792-LCN.

Before: LAY, ^* GOODWIN and REINHARDT, Circuit Judges.

LAY, Circuit Judge:

Service Deli, Inc., appeals its jury conviction and sentence (five years probation, $64,000 fine) for filing a false statement with the U.S. Defense Commissary Agency (DeCA) in violation of 18 U.S.C. § 1001. ¹ The government charged Service Deli with making a false statement of material fact to government investigators regarding collusion and price-sharing with a bid competitor, in order to obtain contracts to supply deli products on several military bases. For the reasons stated below, we reverse the judgment of conviction and grant the defendant a new trial.

I. Background

This appeal arises out of a bid letting by the DeCA in May 1993 to supply and operate delicatessens, bakeries and pizza carts at several military commissaries. Service Deli and a second company, Eurpac Special Markets (ESM), were each awarded half the contracts, worth $4.8 million and $5 million respectively.

Service Deli's president, Gunther Ditzel, worked for ESM from 1972 until 1989, when he left to work for Service Deli. While Service Deli and ESM had a large percentage of common ownership, the record indicates that they were operated as separate entities and competed for the same contracts.

In July 1993, the DeCA received complaints from unsuccessful bidders, alleging that ESM and Service Deli shared core pricing information prior to submitting their bids. The DeCA then contacted Service Deli regarding the allegations. Ditzel responded with a letter that stated: "I was responsible for all bids and have never talked to anyone at Eurpac about pricing. I would swear to that."

Based on Ditzel's denial and a lack of any other evidence, the DeCA discontinued its inquiry and maintained the contracts. However, the DeCA referred the matter to the Justice Department for further investigation. Initially, Ditzel continued to deny Service Deli shared any price information with ESM. Eventually, however, Ditzel testified that he spoke with ESM's president on several occasions leading up to the 1993 bids, and told him the prices Service Deli intended to bid. He stated he lied to DeCA investigators initially because he did not want to lose the contracts.

At trial, the jury returned a verdict finding Service Deli guilty of filing a false statement in violation of 18 U.S.C. § 1001. Service Deli requested a judgment of acquittal after the presentation of evidence, and a judgment notwithstanding the verdict following the conviction. Both motions were denied. This appeal followed.

Service Deli maintains that the district court erred by (1) refusing to grant a judgment of acquittal or a judgment notwithstanding the verdict on the question of materiality; (2) refusing to give Service Deli's requested jury instruction regarding materiality; (3) curtailing cross-examination of Ditzel and another government witness; and (4) refusing to require production of all the government's handwritten interview notes pursuant to Federal Rule of Criminal Procedure 16.

II. "Materiality" of Service Deli's false statement

Service Deli's main contention is that the alleged false statement Ditzel made to the DeCA was not "material" as required under § 1001, and therefore the district court erred in refusing to grant an acquittal. Denials of a judgment of acquittal and a judgment notwithstanding the verdict are reviewed de novo. See, e.g., United States v. Hernandez, 105 F.3d 1330, 1332 (9th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 227, 139 L.Ed.2d 160 (1997).

The Supreme Court has stated that whether a false statement is material to an agency decision is a mixed question of fact and law typically resolved by juries. See United States v. Gaudin, 515 U.S. 506, 512, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995). Materiality is an essential element of the offense under § 1001 of making false statements and, therefore, a district court may not determine the materiality of a statement as a matter of law. See Gaudin, 515 U.S. at 522-23, 115 S.Ct. 2310; United States v. Taylor, 66 F.3d 254, 255 (9th Cir.1995) (per curiam), cert. denied, --- U.S. ----, 117 S.Ct. 1105, 137 L.Ed.2d 307 (1997).

However, a judge may rule that a false statement is not material as a matter of law, that is, that the evidence is insufficient for the jury to find the statement is material. See United States v. Gaudin, 28 F.3d 943, 951 (9th Cir.1994), aff'd, 515 U.S. 506, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995). Therefore, the issue before this court is whether substantial evidence was presented to support the jury's verdict on materiality.

This court has had many opportunities to address the question of what constitutes "materiality" within the context of § 1001. We have stated that the materiality requirement of a § 1001 violation is satisfied if the statement is capable of influencing or affecting a federal agency. See, e.g., United States v. Boone, 951 F.2d 1526, 1545 (9th Cir.1991); United States v. Rodriguez-Rodriguez, 840 F.2d 697, 700 (9th Cir.1988). The false statement need not have actually influenced the agency, see, e.g., Boone, 951 F.2d at 1545; United States v. Vaughn, 797 F.2d 1485, 1490 (9th Cir.1986), and the agency need not rely on the information in fact for it to be material. See, e.g., Rodriguez-Rodriguez, 840 F.2d at 700. In other words, "the test is the intrinsic capabilities of the false statement itself, rather than the possibility of the actual attainment of its end as measured by collateral circumstances." United States v. Salinas-Ceron, 731 F.2d 1375, 1377 (9th Cir.1984) (internal citations omitted), vacated on other grounds by 755 F.2d 726 (9th Cir.1985).

The Supreme Court's analysis of materiality in Kungys v. United States, 485 U.S. 759, 772, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988), is relevant to our discussion. In Kungys, the Supreme Court established that a false statement is considered material if it has "a natural tendency to influence the decisions of the [agency]." ² Here, there is no question that Service Deli's misrepresentation regarding the price sharing satisfied the applicable standard. At trial, a DeCA contracting officer testified that she relied upon Ditzel's denial of price sharing in making her decision to terminate the agency's inquiry. Had Service Deli admitted to sharing prices, she testified, she would have forwarded the information to DeCA legal counsel for further investigation.

Service Deli maintains that its statement cannot be considered material because an investigation by DeCA would not have revealed any wrongdoing. That is, if DeCA had pursued its investigation, the outcome would have been the same because the price sharing that took place was completely legal. While it may be correct that in some cases a misrepresentation may be immaterial because an investigation would have revealed no impropriety, that is not the situation here.

The record before us merely demonstrates that price sharing among related companies is proper in some circumstances, not that price sharing was proper in these circumstances. Whether or not price sharing is proper in the case of commonly owned companies is a fact-intensive question. An investigation would have revealed the appropriate answer, but that investigation was never conducted. Accordingly, we conclude that Service Deli's denial of its price sharing conduct was, in the circumstances of this case, a material misrepresentation.

III. Proposed jury instructions on materiality

Service Deli claims it was "hamstrung" in presenting its materiality defense when the district court refused to instruct the jury that (1) it is permissible for commonly owned companies to share prices and coordinate their bids, and (2) a federal agency cannot cancel a contract because of price sharing. ³ The company argues that without this instruction, "the jury was forced to determine this essential element of the offense ... in ignorance of the applicable procurement law...." Appellant's Br. at 37.

A defendant is entitled to an instruction concerning his or her theory of defense, if it is supported by law and has some foundation in the evidence. See United States v. Mason, 902 F.2d 1434, 1438 (9th Cir.1990). A district court's formulation of jury instructions is reviewed for abuse of discretion. See, e.g., Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1213 (9th Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 1560, 140 L.Ed.2d 792 (1998); United States v. Ramos-Oseguera, 120 F.3d 1028, 1037 (9th Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 1094, 140 L.Ed.2d 149 (1998).

We find the district court properly refused to give Service Deli's proposed jury instruction. The instruction contained an inaccurate statement of the law, because it implied that price sharing between commonly owned companies is always permissible. However, price sharing is only permissible in some circumstances. Therefore, giving the proposed instructions would have misled the jury in a material respect. See United States v. Del Muro, 87 F.3d 1078, 1081 (9th Cir.1996) ("A defendant is entitled to an instruction on his theory of the case 'provided that it is supported by the law and has some foundation in the evidence.' " (internal citation omitted)).

IV. Production of hand-written notes

Service Deli claims that the district court erred by refusing to...