USA. v. Gamma Tech Industries
| Decision Date | 12 September 2001 |
| Docket Number | Nos. 99-50730,99-50731,DEFENDANT-APPELLANT,00-50009,PLAINTIFF-APPELLEE,DEFENDANTS-APPELLANTS,s. 99-50730 |
| Citation | 265 F.3d 917 |
| Parties | (9th Cir. 2001) UNITED STATES OF AMERICA,v. GAMMA TECH INDUSTRIES, INC., UNITED STATES OF AMERICA,v. MICHAEL J. GALLEGOS; TIDELANDS TESTING, INC., UNITED STATES OF AMERICA,v. DEAN STANLEY, |
| Court | U.S. Court of Appeals — Ninth Circuit |
[Copyrighted Material Omitted]
[Copyrighted Material Omitted] Howard B. Frank, San Diego, California, for the defendant-appellant Gamma Tech Industries, Inc.
Timothy K. MacNeil, San Diego, California, for the defendants-appellants Michael J. Gallegos and Tidelands Testing, Inc.
Gregory D. Obenauer, San Diego, California, for the defendant-appellant Dean Stanley.
Patrick O'Toole, United States Attorney, George D. Hardy, Assistant United States Attorney, San Diego, California, for plaintiff-appellee United States. Robert D. Rose and Frank J. Polek, San Diego, California, for amicus curiae Pacific Ship Repair & Fabrication, Inc.
Appeal from the United States District Court for the Southern District of California Rudi M. Brewster, District Judge, Presiding D.C. Nos. CR-96-01930-RMB; CR-96-01929-RMB; CR-96-01928-JH
Before: Alex Kozinski, Thomas G. Nelson and Kim McLane Wardlaw, Circuit Judges.
The district court, as part of its sentence, ordered the defendants to pay restitution totaling close to $1 million. The government did not ask for restitution; in fact, it objected. The district court nevertheless ordered restitution at the behest of a private party who claimed it was damaged by the defendants' criminal misconduct. We consider whether, and subject to what limitations, the district court may order restitution when the government does not initiate the restitution request.
Defendants were convicted on charges arising out of the payment of kickbacks during the years 1991 to 1994 on contracts involving the maintenance and repair of three United States Navy aircraft carriers based at the North Island Naval Air Station in Coronado, California. Defendant Stanley was, at the time of the crimes, employed by Pacific Ship Repair & Fabrication, Inc. ("Pac Ship"), which had a contract with Navy to perform repairs on the carriers. Stanley, who was responsible for overseeing Pac Ship's contracts with both sub-contractors and Navy, conspired with four subcontractors to receive kickbacks in return for selecting them to perform work on the carriers. Defendants Gamma Tech Industries, Inc. ("Gamma Tech") and Tidelands Testing, Inc. ("Tidelands") were two of these subcontractors.1 Defendant Michael J. Gallegos was part owner of Gamma Tech and the owner of Tidelands, and paid kickbacks to Stanley on behalf of both companies.
The kickbacks Stanley received were generally a fraction of the total payments to the subcontractors, usually 10 percent. Gamma Tech, generally through Gallegos, ultimately paid him approximately $29,000. Gallegos left Gamma Tech and founded a new company, which became Tidelands, and continued to pay kickbacks to Stanley. Tidelands, again through Gallegos, ultimately paid Stanley a total of approximately $170,000 in kickbacks.2
During the course of the kickback scheme, Pac Ship and Navy operated within an indefinite delivery type contract (IDTC). An IDTC sets a price schedule for repairs Navy may need in the future, detailing these potential repairs as "line items." One IDTC may contain hundreds of line items, including everything from repairing boilers to resurfacing the flight deck. Even though the line items are described and their prices are set in advance, an IDTC is indefinite because the parties don't know what repairs will actually be ordered until the ships return from service. An IDTC creates a fixed-price shopping list for repairs with an indefinite quantity to be ordered, obviating the need for Navy to seek out bids each time a ship requires work.
As the prime contractor under the IDTC, Pac Ship attempted to make money by setting the fixed price for the line items high enough to cover its own cost plus a profit margin. Because IDTC fixes the line item prices in advance, any increase in Pac Ship's costs of performing a particular service would necessarily decrease its profit margin on that line item.
One wrinkle in the administration of an IDTC is what is known as a modification. A modification occurs when Navy has ordered a particular line item but, in the course of doing the work, the contractor discovers that completion of the item may not be warranted. In such a case, the prime will submit a report recounting what it has found and recommending what should be done instead of finishing the line item repair. These reports often list not only discoveries that will result in more work for the contractor, but also those that will reduce the scope and cost of the work required.
Once the report is submitted, both Navy and the prime estimate a cost for the modification, which may be more or less than the cost of the original line item; negotiations follow until the parties agree upon a price. Although modifications are part of the overall IDTC, and therefore not subject to competitive bidding, the price Navy pays for modifications is not fixed in advance, but is determined on a case-by-case basis. A significant portion of the work on the carriers under Pac Ship's IDTC appears to have started out as line items but later became modifications.
In completing Navy's job orders, Pac Ship often hired sub-contractors to accomplish different tasks. Gamma Tech and Tidelands were two subs hired to perform what is called non-destructive testing (NDT). There are several NDT techniques, such as X-ray and ultrasonic testing, that are designed to confirm the quality of a particular part or repair without damaging the subject of the test. For example, if Navy requests that a section of pipe be replaced, it may require X-ray examination of welded joints to ensure the new welds are up to standard. NDT is generally not its own line item in an IDTC, nor is it the sole object of a modification. Rather, it is only a sub-part of the job, usually described in Navy's specifications for successful completion of a particular line item or modification.
In 1993, Pac Ship received an anonymous tip that Stanley was receiving kickbacks from subcontractors. It conducted an internal investigation, which proved inconclusive. Pursuant to its agreement with the government, Pac Ship also notified Navy, and the Naval Criminal Investigative Services advised Pac Ship that it would be investigating the tip. Pac Ship placed Stanley on administrative leave in late 1994, thus ending the kickback scheme, and fired him soon after.
Stanley was indicted on 128 counts, including charges of conspiracy to provide and receive kickbacks on Navy contracts, in violation of 18 U.S.C. §§ 371; soliciting and accepting kickbacks on Navy contracts, in violation of 41 U.S.C. §§§§ 53, 54; and filing false income tax returns, in violation of 26 U.S.C. §§ 7206(1). Tidelands and Gallegos pleaded guilty to conspiring to provide and receive kickbacks on Navy contracts, and paying kickbacks on Navy contracts. Tidelands also pleaded guilty to filing false income tax returns. Gamma Tech pleaded guilty to a single count information charging it with the payment of kickbacks on Navy contracts. Stanley ultimately pleaded guilty to conspiracy and filing a false tax return. None of the plea agreements provided for restitution to any victim.
The district court held a sentencing hearing for Gamma Tech, Tidelands and Gallegos.3 After the government and the defendants made their sentencing recommendations, and before the district court pronounced sentence, counsel for Pac Ship asked to be heard as to restitution. Neither the presentence report nor the government had identified Pac Ship as a victim to whom restitution would be appropriate, even though Pac Ship had previously discussed its claims with the government. The district court postponed sentencing in order to allow Pac Ship to file a formal request for restitution.
At the subsequent hearing on Pac Ship's restitution request, defendants and the government argued that Pac Ship had no standing to bring its request because only the government and the probation office are permitted to identify victims of a criminal offense and bring requests for restitution on their behalf. The district court rejected this contention, allowed Pac Ship to present evidence of alleged losses it had suffered as a result of the kickback scheme and gave the defendants an opportunity to present their own evidence in response. The subsequent hearings, fourteen in all, involved the presentation of extensive testimonial and documentary evidence, substantially prolonging the sentencing process.
At the conclusion of the hearings, and after further briefing, the district court granted Pac Ship's "petition for restitution," issuing an order detailing the amounts of restitution to which Pac Ship was entitled. The government subsequently filed a motion for reconsideration contesting the district court's finding that Pac Ship had constitutional standing to intervene in the case. The district court denied the government's motion; it concluded that, whether or not Pac Ship had standing in the strict sense of the word, the court nonetheless had authority to consider Pac Ship's request. The defendants were then sentenced, and the district court's judgments included the amounts of restitution it had determined in its earlier order. The court ordered Gamma Tech and Gallegos to pay, jointly and severally, $167,231, representing the losses caused by Gamma Tech's payment of kickbacks to Stanley. The court ordered Tidelands and Gallegos to pay,...
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