United States v. Pecore

• Decision Date: 30 December 2011
• Docket Number: Nos. 10–2676,10–3599.,s. 10–2676
• Citation: United States v. Pecore, 664 F.3d 1125 (7th Cir. 2011)
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Marshall PECORE and Conrad Waniger, Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

664 F.3d 1125

UNITED STATES of America, Plaintiff–Appellee,

v.Marshall PECORE and Conrad Waniger, Defendants–Appellants.

Nos. 10–2676

10–3599.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 22, 2011.Decided Dec. 30, 2011.

Lisa T. Warwick (argued), Attorney, Office of the United States Attorney, Milwaukee, WI, for Plaintiff–Appellee.

Glenn C. Reynolds (argued), Attorney, Madison, WI, for Defendants–Appellants.

Before BAUER, MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

After a six-year investigation, an additional two-and-one-half years of discovery and pretrial posturing, and a nine-day jury trial, Marshall Pecore and Conrad Waniger (the “defendants”) prevailed against civil charges that they violated the False Claims Act (“FCA”). Unsatisfied with just the trial victory and perhaps disturbed that the government spent nearly a decade chasing about $75,000, the defendants moved for attorney's fees under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412(d)(1)(A), or alternatively, sanctions under Rule 37(c)(2) of the Federal Rules of Civil Procedure. The district court denied both motions. Despite our discomfort with what looks like government overreaching, we find that the district court's ruling was not an abuse of discretion and accordingly, we affirm.

I. Background

The origins of this dispute date back to 2000 when Menominee Tribal Enterprises (“Menominee,” “MTE,” or the “Tribe”), the principal business arm of the Menominee Indian Tribe of Wisconsin, first applied for and received federal funding under the Hazardous Fuels Reduction program (“HFR”). The federal Bureau of Indian Affairs (“BIA”) created HFR as a long-term strategy to gradually reintroduce the beneficial aspects of fire into fire-dependent ecosystems such as densely-wooded forests. To obtain HFR funds, an applicant is required to first submit a proposal for its planned fire reduction work. Unlike previous federal programs, this fire reduction program required approved applicants to request BIA reimbursement only after incurring project costs.

In 2000 and again in 2001, Menominee forest manager Marshall Pecore, and Menominee fire management officer Conrad Waniger, applied for HFR funding on behalf of the Tribe. The application sought federal funds to grade 141 miles of forest roads and to create an additional 273 miles of fuel breaks.¹ To create these fuel breaks, MTE's application represented that it would remove excess vegetation by performing brushing and disking work. As its name implies, brushing removes potentially flammable brush near a forest road. Disking, on the other hand, is the process of mixing organic soil with forest vegetation to eliminate the continuity of vegetation on the forest floor. After obtaining BIA approval, Menominee began HFR work in December 2000, and began invoicing BIA in 2001. Early MTE invoices requested BIA reimbursement totaling a flat fee of $450 for each mile of fuel-break work. As work progressed, MTE abandoned its per-mile, fixed-fee invoices in exchange for invoices that requested reimbursement for actual costs incurred. The purpose of this change was hotly disputed during trial.

The government claimed that problems with the Tribe developed in June 2001, after several MTE staff members told Dave Congos, the BIA forester assigned to the Tribe, that MTE's Roads Department budget was running a deficit. Menominee employees reported that the Tribe purposefully diverted HFR funds to the Roads Department as a way to close the budget shortfall. Prompted by these reports, Congos and Thomas Magnuson, another BIA forester, personally inspected some of the work MTE claimed to have completed. Congos and Magnuson walked the forest roads and compared their observations of work performed to a map prepared by MTE that purported to show completed and invoiced work. Both Congos and Magnuson concluded that the submitted invoices overstated the actual work done. In some cases, Congos felt that the work performed actually increased the risk of fire. Congos reported his findings to his supervisor and discussed the results with Waniger, who agreed to rework certain portions of the forest.

Following their initial meeting in 2001, Waniger submitted revised maps to Congos that again purported to show portions of the forest where HFR fire prevention work had been completed and invoiced. In one memorandum submitted by Waniger documenting 2001 fire reduction accomplishments, Waniger claimed that fuel breaks were created for 96.2 miles. Of those 96 miles, 54 miles were fully completed and the remaining 42 miles were 95% complete. Maps and memos in hand, Congos inspected Tribal grounds for a second time to determine whether the actual work performed reconciled to what MTE had billed. Congos's inspections confirmed his belief that the defendants were submitting false invoices for work that was never completed or completed in a way that did not meet HFR standards. This inspection, in part, subsequently served as the basis for the government's False Claims Act suit.

In July 2002, Congos and Magnuson contacted Joseph Schwartz in the Office of Inspector General (“OIG”) for the Department of Interior. Based on Congos's report, Schwartz initiated an investigation into Menominee's billing practices that included employee interviews and a review of subpoenaed records. During the investigation, the government also identified what it believed were instances of falsified time cards relating to HFR funds. Namely, the government alleged that Tribe management required certain employees to code time worked to fire reduction efforts even though these employees were actually working on unrelated projects.

By 2005, the government formally contacted MTE to discuss the results of the OIG investigation. Throughout the next several months, the parties communicated regularly and even appeared close to a settlement. But in 2006, the defendants refused the government's settlement offer and broke off negotiations. At that time, the defendants maintained their innocence and principally argued that the allegations were all one big misunderstanding. Had government investigators spent more time discussing the allegations with Pecore and Waniger, the defendants argue that the protracted litigation could have been avoided.

With a settlement off the table in April 2007, the United States filed suit against MTE, Pecore, and Waniger alleging violations of the FCA, 31 U.S.C. §§ 3729–33. MTE, Pecore, and Waniger all filed motions to dismiss. The district court denied the motions as to Pecore and Waniger, but granted MTE's motion because it was not a “person” within the meaning of the FCA. Subsequently, the district court rejected the remaining defendants' and the government's partial motions for summary judgment.

At trial, the defendants claimed that the government was unclear about the standard fuel-break width it would use to evaluate whether MTE complied with HFR protocols. The defendants construed this silence and subsequent confusion about the fuel-break standard as evidence of a simple misunderstanding rather than evidence that the defendants knowingly submitted false invoices. There was further confusion about whether Menominee employees were properly recording time to HFR projects. The defendants conceded that one employee had truly misclassified his time, but this fabrication was nothing more than an isolated anomaly. All other time-card discrepancies were really a proper internal-reporting scheme designed to reclassify time between certain departments. Again, had the government investigators explicitly discussed these discrepancies with the Tribe, there would have been no need for litigation. The defendants considered their ace-in-the-hole to be a 2009 inspection prepared by Ken Sloan, a retired forester.² The defendants hired Sloan to independently inspect portions of the forest to determine whether Menominee had actually conducted appropriate brushing and disking work between 2000–2002. In response, the government conducted its own reinvestigation in October 2009. Congos testified at trial that the Sloan photographs showed some evidence of cutting, but that it was not evidence of cutting related to the HFR program. Additionally, Congos testified that other locations evaluated by Sloan continued to show no signs of any fire prevention work.

At the close of the government's evidence, the defendants moved for judgment as a matter of law, which the district court denied. After a nine-day trial, the defendants' theory prevailed. Following their trial victory, the defendants moved for attorney's fees under EAJA or alternatively, sanctions under Rule 37(c)(2). The district court denied both motions, and the defendants filed this timely appeal.³

II. Analysis

Pecore and Waniger present two related issues for our review. The defendants first contend that the district court erred by rejecting their post-trial motion for EAJA attorney's fees. Similarly, Pecore and Waniger challenge the district court's refusal to impose Rule 37 sanctions against the government. We review both of the district court's decisions for an abuse of discretion. Pierce v. Underwood, 487 U.S. 552, 559–60, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988) (reasoning that in EAJA cases, “the district court may have insights not conveyed by the record, into such matters as whether particular evidence was worthy of being relied upon, or whether critical facts could easily have been verified by the Government.”); Johnson v. Kakvand, 192 F.3d 656, 661 (7th Cir.1999) (finding that Rule 37 decisions are reviewed deferentially because “[d]istrict courts possess wide latitude in fashioning appropriate sanctions and evaluating the reasonableness of the attorneys' fees requested”).

A. EAJA Attorney's Fees

The defendants principally contend that the district court abused its discretion by rejecting their motion for EAJA attorney's fees. A district court may award such...