United States v. Bowling

• Decision Date: 26 May 2015
• Docket Number: No. 7:14–CR–98–D.,7:14–CR–98–D.
• Citation: 108 F.Supp.3d 343
• Parties: UNITED STATES of America v. James BOWLING, Craig Kolhagen, and Dennis Pennington, Defendants.
• Court: U.S. District Court — Eastern District of North Carolina

108 F.Supp.3d 343

UNITED STATES of America

v.James BOWLING, Craig Kolhagen, and Dennis Pennington, Defendants.

No. 7:14–CR–98–D.

United States District Court, E.D. North Carolina, Southern Division.

Signed May 26, 2015.

Evan Rikhye, U.S. Attorney's Office, Raleigh, NC, for United States of America.

ORDER

JAMES C. DEVER III, Chief Judge.

On November 5, 2014, a federal grand jury in the Eastern District of North Carolina indicted James Bowling, Craig Kolhagen, and Dennis Pennington [D.E. 1]. The indictment charges all three defendants with conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349 (count one), wire fraud and aiding and abetting in violation of 18 U.S.C. §§ 1343 and 2 (count two), and major fraud against the United States and aiding and abetting in violation of 18 U.S.C. §§ 1031(a) and 2 (count three). See Indictment [D.E. 1] 1–15. The indictment also charges Kolhagen with disclosing source selection information in violation of 41 U.S.C. § 2102(a) (count four). Id. 15–16. Finally, the indictment charges Bowling and Pennington with obtaining source selection information in violation of 41 U.S.C. § 2102(b) (count five). Id. 17.

On February 2, 2015, defendants Bowling and Pennington ("Valour defendants") moved to dismiss counts one, two, three, and five, pursuant to Federal Rule of Criminal Procedure 12(b) and the Fifth Amendment. See Valour Defs.' Mot. Dismiss [D.E. 28]. On February 13, 2015, the United States ("government") responded in opposition to the Valour defendants' motion to dismiss [D.E. 35]. On February 18, 2015, the Valour defendants replied [D.E. 37–2]. On February 19, 2015, Kolhagen moved to dismiss counts one, two, three, and four, pursuant to Federal Rule of Criminal Procedure 12(b) and the Fifth Amendment. See Kolhagen Mot. Dismiss [D.E. 47]. On March 2, 2015, the government filed a surreply to the Valour defendants' reply [D.E. 57]. On March 11, 2015, the government responded in opposition to Kolhagen's motion to dismiss [D.E. 60]. On May 4, 2015, the court heard oral argument. As explained below, the court grants defendants' motions to dismiss and dismisses the indictment without prejudice.

I.

Valour, LLC Leading Edge Solutions ("Valour") is an aircraft and helicopter maintenance company. Indictment ¶ 1.¹ Pennington is Valour's CEO and Bowling is Valour's president. Id. ¶¶ 3–4. Pennington and Bowling are former members of the United States Marine Corps. Id. Kolhagen is a Chief Warrant Officer with the United States Marine Corps and, during all relevant times, served as the Contracting Officer's Representative ("COR") for the HMX–1 squadron (the squadron "responsible for providing helicopter transport for the President and Vice President of the United States"). Id. ¶¶ 2, 5. Bowling and Kolhagen worked together as helicopter mechanics in the HMX–1 squadron from 1998 to 2001. Id. ¶ 6.

In July 2010, the chief mechanic of the HMX–1 squadron asked the Department of the Navy to award a sole-source contract for maintenance of the HMX–1 squadron helicopters to Valour.Id. ¶ 14. Valour was the sole bidder and won the three-year contract, which was valued at $3.28 million. Id. ¶¶ 14–15.

In July 2011, the Marine Corps appointed Kolhagen the COR for the HMX–1 squadron. Id. ¶ 12. In this capacity, Kolhagen oversaw the performance of contracts related to aviation maintenance for the squadron and provided assistance with acquisition planning and the contracting process. Id. Soon after becoming COR, Kolhagen, working with Bowling, asked the Navy to increase the annual contract value to Valour by over $300,000. Id. ¶ 16. The Navy agreed to modify the contract. Id.

In spring 2013, Kolhagen learned that the contracting authority for the HMX–1 squadron had been transferred to the Marine Corps Installations East Contracting Department ("MCI–East") at Camp Lejeune in North Carolina and that the next maintenance contract would be competitively awarded. Id. ¶¶ 17–18. Kolhagen disclosed this nonpublic information to Bowling. Id. ¶ 18. On April 29, 2013, Bowling, the incumbent contractor's president, sent Kolhagen an email in which he told Kolhagen how to draft the statement of work and the technical requirements for the next contract. Id. ¶ 19. Kolhagen did not disclose to officials at MCI–East that Bowling provided suggestions concerning the drafting process for the next contract. See id. ¶¶ 19, 26. Kolhagen also requested that the bidding be limited to designated Service Disabled Veteran Owned Small Businesses, of which Valour was one. Id. ¶ 20.

On October 8, 2013, an MCI–East official internally distributed an Independent Government Cost Estimate ("IGCE"). Id. ¶ 21. The IGCE indicated an estimated annual cost of approximately $840,000 for the next three-year maintenance contract for the HMX–1 squadron. Id.

On October 9, 2013, Kolhagen emailed the IGCE to Bowling and Pennington. Id. ¶ 22. On October 11, 2013, Pennington and Bowling replied to Kolhagen and gave him data suggesting the need to increase the annual labor costs in the IGCE by approximately $560,000. Id. ¶ 23. Kolhagen suggested to officials at MCI–East to raise the IGCE from $840,000 annually to $1.4 million annually. Id. ¶ 24. Kolhagen did not disclose to his superiors or to officials at MCI–East that he had disclosed the IGCE to Bowling or Pennington. See id. ¶ 25. Officials at MCI–East agreed to increase the IGCE to approximately $1,196 million annually. Id. ¶ 27.

On November 6, 2013, MCI–East publicly issued its solicitation for the new contract. Id. ¶ 28. Six aviation maintenance companies, including Valour, submitted bids. Id. ¶ 29. On December 5,2013, Valour submitted a bid with an annual price of $1,142 million. Id. ¶ 32.

After receiving the bids, the Marine Corps convened a source selection board at Camp Lejeune. Id. ¶ 33. The purpose of the source selection board was to review and grade the bids based on the bidders' responses to the technical criteria and the statement of work. Id. Price was a secondary consideration to technical competence. Id. The source selection board would then make a recommendation to the senior contracting official at MCI–East, who had the authority to award the contract. Id.

Kolhagen's command told him not to participate in the source selection board because of his personal relationship with Valour's officers. Id. ¶ 34. Nevertheless, on December 10, 2013, Kolhagen traveled to Camp Lejeune to participate in the source selection board. Id. ¶ 35. Such participation is normally appropriate for the COR of the Marine unit receiving service from the contract.Id. ¶ 34.

At the board meeting, Kolhagen rated Valour disproportionately higher than other competitive firms despite specific and serious past performance concerns. Id. ¶ 37. Because of Kolhagen's high rating for Valour, the chair of the source selection board discarded Kolhagen's ratings and input. Id. ¶ 38. The source selection board did not recommend Valour and instead recommended a different firm that offered superior technical qualifications and a significantly lower bid price. Id. ¶ 39.

When Kolhagen learned of the source selection board's decision to recommend another firm, he called board members and officials at MCI–East and demanded that the contract be given to Valour. Id. ¶ 40. MCI–East officials refused to change their recommendation. Id. On December 26, 2013, Bowling emailed Kolhagen and asked him to try to convince the senior contracting official to reject the source selection board's recommendation. Id. ¶ 41. Bowling instructed Kolhagen how to convince the senior contracting official to reject the recommendation. Id. Kolhagen spoke with the senior contracting official but failed to convince the official to award Valour the contract. Id. ¶ 42.

II.

"A motion to dismiss an indictment tests whether the indictment sufficiently charges the offense the defendant is accused of committing." United States v. Vanderhorst, 2 F.Supp.3d 792, 795 (D.S.C.2014) ; Sampson, 371 U.S. at 78–79, 83 S.Ct. 173. An indictment "must be a plain, concise, and definite written statement of the essential facts constituting the offense charged." Fed.R.Crim.P. 7(c)(1). "[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense." Hamling v. United States, 418 U.S. 87, 117, 94 S.Ct. 2887, 41 L.Ed.2d 590 (1974) ; see United States v. Williams, 152 F.3d 294, 299 (4th Cir.1998). "It is generally sufficient that an indictment set forth the offense in the words of the statute itself," but the statutory language "must be accompanied with such a statement of the facts ... as will inform the accused of the specific offence ... with which he is charged." Hamling, 418 U.S. at 117–18, 94 S.Ct. 2887 (quotation omitted).

A district court may dismiss an indictment for nonconstitutional errors or irregularities in the grand jury proceeding where there is actual prejudice to the defendant. See, e.g., United States v. Brewer, 1 F.3d 1430, 1433 (4th Cir.1993). In order to demonstrate such prejudice, a defendant must show that (1) "the irregularity substantially influence[d] the decision to indict," or (2) "there is grave doubt that the decision to indict was free from the substantial influence of such irregularities." Id. (quotation and alteration omitted); see Bank of Nova Scotia v. United States, 487 U.S. 250, 256, 108 S.Ct. 2369, 101 L.Ed.2d 228 (1988). Such an error or irregularity may be "an infirmity of law in the prosecution." United States v. Engle, 676 F.3d 405, 415 (4th Cir.2012) (quotation omitted). In other words, the defendant must "demonstrate that the allegations [in the indictment], even if true, would not state an offense." United States v. Thomas, 367 F.3d 194, 197 (4th Cir.2004) ; see also Russell v. United States, 369 U.S. 749, 768 & n. 15, 82 S.Ct. 1038, 8 L.Ed.2d 240 (19...