United States v. Kates

• Decision Date: 30 June 1976
• Docket Number: Civ. A. No. 75-151.
• Citation: 419 F. Supp. 846
• Parties: UNITED STATES of America v. Lewis KATES.
• Court: U.S. District Court — Eastern District of Pennsylvania

419 F. Supp. 846

UNITED STATES of America v. Lewis KATES^*.

Civ. A. No. 75-151.

United States District Court, E. D. Pennsylvania.

June 30, 1976.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Mark A. Cymrot, Dept. of Justice, Washington, D. C., for plaintiff.

Joseph R. Livesey, Louis W. Fryman, David Kanner, Gerald S. Segal, Jerome R. Richter, Ellis Cook, Robert S. Grodinsky, Wm. J. Brady, Jr., John Rogers Carroll, Stanley Bashman, Yale B. Bernstein, Philadelphia, Pa., for defendants.

OPINION

DITTER, District Judge.

This is a civil fraud action in which the government has moved for partial summary judgment asserting that prior criminal proceedings established the liability of certain defendants.¹ These defendants were either convicted of conspiracy to defraud the United States by rigging bids for services in connection with urban renewal projects or admitted their culpability at the criminal trials. For the reasons that follow, the government's motion will be granted.

The complaint in this matter is based on the False Claims Act, 31 U.S.C. § 231, common law conspiracy, and a theory of unjust enrichment. It charges that defendant moving companies, their principals, and officials of Philadelphia's Redevelopment Authority (RDA) submitted and procured false and inflated claims in connection with the relocation of displaced businesses. Pursuant to agreements between RDA and the Department of Housing and Urban Development (HUD), these claims were paid, in part at least, with federal funds.

To satisfy the dual requirements for summary judgment, lack of a genuine issue of material fact and entitlement to judgment as a matter of law,² the government relies on the results of antecedent criminal proceedings involving these same defendants and the same conspiracy, United States v. Lewis Kates, et al., Crim. No. 73-151 (E.D.Pa.). In that case, defendants Jack Simons, Leland Lamar, Hunting Park Moving & Storage Co., Stanley Salkowitz and Liberty Trucking Co.³ were convicted by a jury of conspiracy to defraud the United States in violation of 18 U.S.C. § 371 through the submission of false and fraudulent moving claims to RDA.⁴ John Ammazzalorso, who was charged in the same indictment, became ill during the criminal trial and was severed. He later pleaded nolo contendere to the indictment. Defendants Morton Borowsky, Sydney Benjamin and Samuel M. Niglio⁵ were granted immunity from prosecution pursuant to 18 U.S.C. § 6001 et seq. and were required to testify against the other defendants.

The government advances two grounds in support of its motion for partial summary judgment. First, it contends that the defendants convicted in United States v. Kates, supra, are barred by the doctrine of collateral estoppel from contesting their liability in the instant suit. Secondly, the government argues that admissions made by the unconvicted defendants either directly (in the case of individuals) or through their principals (in the case of the entities) during testimony at the criminal trials supply the necessary prerequisites to summary judgment against them. Since these grounds are distinct, I will deal separately with each.

I. The Convicted Defendants

As noted, five of the defendants against whom summary judgment is sought were previously convicted of criminal conspiracy.

In Oklahoma v. Texas, 256 U.S. 70, 85, 41 S.Ct. 420, 422, 65 L.Ed. 831 (1921), the Supreme Court delineated the doctrine of collateral estoppel as follows:

The general principle, applied in numerous decisions of this court . . . is, that a question of fact or of law distinctly put in issue and directly determined by a court of competent jurisdiction as a ground of recovery or defense in a suit or action between parties sui juris is conclusively settled by the final judgment or decree therein so that it cannot be further litigated in a subsequent suit between the same parties or their privies whether the second suit be for the same or a different cause of action.

There can be no question that this doctrine in general applies to decisions in both civil and criminal proceedings, see Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 71 S.Ct. 408, 95 L.Ed. 534 (1951); Sealfon v. United States, 332 U.S. 575, 68 S.Ct. 237, 92 L.Ed. 180 (1948); Local 167, etc., Teamsters, etc., v. United States, 291 U.S. 293, 54 S.Ct. 396, 78 L.Ed. 804 (1934), and in particular applies in suits brought under the False Claims Act to preclude relitigation of matters previously determined by a criminal conviction, see Sell v. United States, 336 F.2d 467 (10th Cir. 1964); United States v. Zulli, 418 F.Supp. 252 (E.D.Pa. filed Oct. 2, 1975); United States v. Levinson, 369 F.Supp. 575 (E.D.Mich.1973); United States v. American Precision Products Corp., 115 F.Supp. 823 (D.N.J.1953). The task in each case is to determine precisely from "an examination of the record, including the pleadings, the evidence submitted, the instructions under which the jury arrived at its verdict, and any opinions of the courts" what "questions were `distinctly put in issue and directly determined' in the criminal prosecution." Emich Motors, supra, 340 U.S. at 569, 71 S.Ct. at 414, quoting Frank v. Mangum, 237 U.S. 309, 334, 35 S.Ct. 582, 590, 59 L.Ed. 969 (1915); see Williams v. Liberty, 461 F.2d 325, 327 (7th Cir. 1972).

An examination of the entire record in United States v. Kates, supra, reveals that the conspiracy for which these five defendants were convicted is the same conspiracy charged here. Their convictions, therefore, amount to a final judgment that they entered into the unlawful scheme described by the present complaint. Essential to an understanding of this conspiracy is an appreciation of the workings of the relevant RDA relocation program. From 1965 through 1972,⁶ certain parts of the City of Philadelphia were designated as urban renewal areas and placed under the jurisdiction of RDA. Plaintiff, acting through HUD and pursuant to statutory authority, provided financial assistance to implement renewal projects in these areas by entering into "Loan and Capital Grant" agreements with RDA. In carrying out various urban renewal projects, RDA condemned certain commercial properties in the designated areas. Pursuant to the agreements with HUD, RDA was required to reimburse condemned businesses for their actual expenses incurred in relocating. In order to assure competitive bidding, HUD regulations required that at least fifteen days prior to the move the condemnee obtain and submit to RDA bids from three separate movers covering the actual cost of the move. RDA then had the option of soliciting a fourth bid from a mover of its choice. The condemnee could select the mover to be used, but RDA would pay no more than the lowest bid or the mover's actual costs, whichever was less. All claims for reimbursement had to be accompanied by appropriate invoices and other documentary proof. RDA employed inspectors whose job it was to conduct periodic on-site inspections to insure that the movers were in fact employing the men, trucks and other equipment during the times claimed.

The operation of the conspiracy has been succinctly stated by the Court of Appeals:

When one of the conspiring movers desired a particular job, he would determine what his own estimate would be and would then contact two other movers in the conspiracy and ask them to submit "courtesy bids" higher than his so that he would be the low bidder. When he learned that RDA would solicit a fourth bid, he would ask that mover to submit an inflated bid also. Often, he would pay a cash bribe, equal to ten percent of the estimated cost, to Edward Cavanaugh, RDA's Deputy Director of Commercial Relocation, so that the latter would select one of the conspirators as the fourth bidder. The mover who obtained this particular contract would reciprocate by submitting "courtesy bids" on contracts sought by other conspiring movers. He would also make further cash payments of five percent each to two RDA inspectors, Jack Simons and Leland Lamar, so that he could inflate his costs to bring them up to the estimate.

United States v. Kates, supra, 508 F.2d at 309-10.

Since both the criminal and these civil proceedings involve the same conspiracy, the jury's verdict of guilty conclusively establishes all of the factual issues as to the liability of the convicted defendants under the False Claims Act conspiracy count of the complaint, Count I. The prior conviction does not, however, conclusively establish the defendants' liability under the common law conspiracy count. The reason for the distinction is this: To find the convicted defendants guilty of a criminal conspiracy in violation of 18 U.S.C. § 371 the jury necessarily had to find only that they entered into the unlawful agreement and that some overt act, not necessarily in itself harmful to the government, was committed in furtherance of the conspiracy.⁷ In short, the conviction under Section 371 did not require proof that the conspiracy had ever been effectuated or that the government had suffered any actual damages. The third clause of the False Claims Act provides in relevant part:

Any person . . . who enters into any agreement, combination, or conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim . . . shall be liable.

31 U.S.C. § 231. There is no requirement in the above language of proof that any false or fraudulent moving claims were actually submitted to or paid by the government. Thus, like Section 371, the False Claims Act proscribes the conspiracy itself, regardless of whether or not it was ever effectuated.⁸ See United States v. Ben Grunstein & Sons Co., 127 F.Supp. 907, 912 (D.N.J.1955). Mere establishment of the existence of the conspiracy—here accomplished by the jury's verdict—without proof of damages entitles the United States to recover...