United States v. Medico Industries, Inc.
| Decision Date | 28 March 1985 |
| Docket Number | No. 80 C 6434.,80 C 6434. |
| Citation | 609 F. Supp. 98 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | UNITED STATES of America, Plaintiff, v. MEDICO INDUSTRIES, INC., Defendant. |
Frank Rapoport, Washington, D.C., for plaintiff.
Glade F. Flake & Associates, Washington, D.C., Arnold H. Craine, Levy & Craine, Chicago, Ill., for defendant.
This is a civil action brought by the United States of America for declaratory judgment under 28 U.S.C. § 2201. Specifically, the United States alleges that Edward F. Hill, a former government employee, violated the conflict of interest prohibition contained in 18 U.S.C. § 207 by representing Medico in negotiating a contract on which Medico is currently pressing a claim for equitable adjustments before the Armed Services Board of Contract Appeals (ASBCA). The government therefore seeks to declare the contract void and unenforceable. The facts are undisputed and the matter is currently before the court on the cross-motions of both parties for summary judgment. For the reasons stated below, the court enters judgment for the plaintiff.
Hill was a contracting officer for the United States Army Munitions Command (ARMCOM) from 1967 until his resignation in August 1973. On May 31, 1973, Hill was the contracting officer for two government contracts, (Nos. DAAA09-72C-0055 and DAAA09-73-C-0259), awarded to defendant Medico Industries, Inc. for the manufacture and delivery of M49A3 60mm projectiles. Hill was also the contract officer for Contract No. DAAA09-73-C-0115, under which the government agreed to purchase a different quantity of M49A3 60mm projectiles from Airport Machining Corporation. On both of these contracts, Hill was assisted by Mrs. Donna Freels.
When Hill left the government in August 1973, he formed a consulting firm offering consulting services and claims preparation assistance for contractors who deal with the government. Sometime shortly thereafter, Medico and its subcontractor, National Extruded Metal Products Co. (NEMPCO), retained Hill to prepare their requests for Extraordinary Relief in connection with Contract Nos. 0259 and 0055. (Defendant's Response 66 to Plaintiff's First Set of Requests for Admissions). Hill consulted with both Medico and NEMPCO and aided them in preparing requests for relief which were presented to the government in September and October of 1973.
In December 1973, before the deliveries for contract 0259 were completed, Hill assisted Medico in preparing an unsolicited proposal for further production of M49A3 projectiles in response to Invitation for Bid DAAA09-73-B-0149. (Plaintiff's Appendix, p. 7). As explained in the proposal, Medico was concerned by the adverse financial impact of a break in production between Contract 0259 and a new contract, and therefore submitted an unsolicited proposal. Medico was also aware of an urgent government need for 60 mm projectiles due to the Vietnam war effort and shortages caused by repeated defaults on the part of Airport Machining Corporation, which had entered bankruptcy in June 1973. (Defendant's Response 89 to Plaintiff's First Set of Admissions; Hill Deposition p. 122-23). The December 1973 proposal incorporated all terms and conditions of contract 0259 except where expressly revised.
During late December 1973 and January 1974, Hill negotiated the Medico proposal by telephone with Freels, his former subordinate, and with Marv Jothen, the successor contracting officer. (Hill Dep. 124-25). They discussed matters such as quantities, monthly rates, and equipment availability. Hill was the chief spokesman on behalf of Medico in all areas except delivery schedules. (Hill Dep. 125-26). Throughout these negotiations, Hill was careful to avoid all discussion of the existing contract.
On January 23, 1974, the Government terminated for default its contract with Airport Machining Corporation. On January 31, 1974, Medico was awarded a portion of Airport Machining's terminated requirements. As evidenced by the initial proposal and the minutes of a January 29, 1974 ARMCOM Board of Awards meeting, the government considered Medico's request as a new contract proposal. However, due to the time and costs which would be incurred in drafting a new contract, the procurement was executed as a Modification (P0002) to the already existing contract. (Defendant's Exhibit G). The Modification was for 1,815,000 projectiles at a unit price different from that of Contract 0259, with deliveries to begin on June 30, 1974.
Throughout the period of the negotiations over the Modification, Medico was still making deliveries on Contract 0259. The final deliveries under that original contract were made on February 5, 1974.1
On June 14, 1974, Hill wrote a letter to the Commanding General of the Army Armament Command explaining Hill's new employment and soliciting the General's opinion regarding possible conflicts of interest in the Medico transactions. The government never responded.
On November 25, 1974, Medico filed with the government a claim, amended February 20, 1975, requesting equitable adjustment for additional costs incurred in the performance of its obligations under the Modification. This claim, which Hill helped prepare, alleged that the government specifications, identical to those contained in Contracts No. 0055 and 0259, were defective, in breach of the government's implied warranty, and commercially impracticable to produce. The claim listed Vertex Consultants, Hill's company, as Medico's representative. On June 10, 1977, the government denied Medico's claim and Medico appealed that denial to the Armed Services Board of Contract Appeals. This suit followed sometime thereafter.
Conflict of Interest Under § 207
The chief question for resolution is whether Hill violated the conflict of interest provisions of 18 U.S.C. § 207 in representing Medico with respect to a Modification P0002. The applicable statutory provision in effect at the time of the events underlying this lawsuit2 reads as follows:
As indicated by the legislative history, § 207 was aimed at lessening the "unconscionable use of inside information against the Government by a present or former employee" while simultaneously easing some of the deterrents to government service that the predecessor statute imposed. S.Rep. No. 2213, 87th Cong., 2d Sess., reprinted in 1962 U.S.Code Cong. & Ad. News 3852, 3854. Specifically, Congress eased the ban on former public employees appearing before the government in connection with matters unrelated to the employee's particular area but expanded the range of activities otherwise subject to the prohibition. In addition, Congress created a lifetime ban on former government employees representing private interests against the government with respect to matters in which the employees had directly participated while in public service.
The parties do not dispute that the effect of a § 207 violation is to render any contract tainted with such conflict unenforceable. Kearney & Trecker Corp. v. Giddings & Lewis, 452 F.2d 579 (7th Cir. 1971), cert. denied, 405 U.S. 1066, 92 S.Ct. 1500, 31 L.Ed.2d 796 (1972). Medico has argued, however, that the statute is inapplicable because Modification P0002 was in substance and effect a separate and distinct procurement from Contract 0259. This court has already determined that a violation of § 207 may not be predicated on the technicality that the Modification is part of the Contract, but depends on the materiality of the original contract provisions incorporated by reference in the Modification. United States v. Medico Industries, Inc., No. 80 C 6434 (N.D.Ill. January 4, 1984). In other words, the question is whether the Contract and Modification are sufficiently similar that Hill's participation in both on opposite sides of the fence presents the sort of danger § 207 was meant to address.
As explained in this court's January 4, 1984 opinion, the differences between the Modification and the Contract are in many ways substantial. The Modification was in effect a new agreement to purchase a substantial additional quantity of projectiles at a different unit price. Only due to the exigencies of time and money did the parties forego the execution of a new contract. On the other hand, the Contract and Modification both concern identical products, plans, specifications, and Government-furnished equipment. These production related matters — not the quantity, price, or delivery terms — form the subject of Medico's claim for equitable adjustment. The government therefore argues that even if the Modification is a separate contract for § 207 purposes, it nonetheless involves the same "particular matter" as the Contract, and that Hill's involvement in both therefore violates the statute.
The case law under § 207 is unclear on the precise construction to be afforded the words "particular matter." Medico argues that § 207 is a penal statute and therefore must be narrowly construed. The government, on the other hand, argues that "even penal statutes should be `given their fair meaning in accord with the evident intent of Congress.'" United States v. Mississippi Valley Co., 364 U.S. 520, 552, 81 S.Ct. 294, 310, 5 L.Ed.2d 268 (1938), quotin...
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