Opinion
No. 15610.
October 10, 1942.
Leo V. Silverstein, U.S. Atty., and Perry H. Taft, Sp. Atty., Dept. of Justice, both of Los Angeles, Cal., for the Government.
Byron C. Hanna, of Los Angeles, Cal., for the defendants.
Proceeding by the United States of America against Roy Walburg and Odell McConnell for an alleged conspiracy to defraud the United States. On defendants' demurrer to indictment.
Order in accordance with opinion.
The Indictment against the defendants reads:
"The Grand Jurors of the United States duly impaneled, sworn, and charged in the District Court of the United States for the Southern District of California, Central Division, at the February 1942 Term of said Court and inquiring within and for said District and Division at said Court, do, upon their oaths, find and present as follows:
"1. The following persons are hereby indicted and made defendants herein: Roy Walburg and Odell McConnell. At all times herein mentioned, both of said defendants have been residents of the county of Los Angeles, State of California, and have been partners operating under the firm name and style of Cork Spray Company of Los Angeles, California.
"2. The United States of America, as of the 18th day of April, 1941, did make and enter into certain contracts with the Los Angeles Shipbuilding and Drydock Corporation, Inc., a California corporation, (hereinafter called the Contractor). Said contracts, designated and known as NOd-1515 and NOd-1577, provide for the construction and outfitting by said Contractor of certain Naval vessels at the shipyard facilities of said Contractor, and provide, among other things, that said Contractor shall in the shortest possible time furnish the labor, materials, tools, equipment, facilities, and supplies not furnished by the Government, in consideration of the undertaking of the United States of America to compensate said Contractor in the following manner:
"(a) By reimbursement for all expenditures by said Contractor, as provided in said contracts, and
"(b) By the payment of fixed fees of eight hundred and fifty thousand dollars ($850,000) and eight hundred and one thousand dollars ($801,000).
"3. On March 13, 1942, said Contractor did request bids for cork spraying work to be performed on those certain Naval vessels provided for in said contracts NOd-1515 and NOd-1577. On April 3, 1942 bids were submitted to said Contractor as follows: Warren and Bailey Company, of Los Angeles, 17 cents per square foot; Cork Spray Company, of Los Angeles, 32 cents per square foot; Korktone Company, of Los Angeles, 38 cents per square foot.
"4. Beginning on or about April 27, 1942, and continuously thereafter up to and including July 6, 1942, the defendants, in the County of Los Angeles, State of California, did unlawfully, wilfully, knowingly, corruptly, and feloniously conspire together to defraud the United States of America, that is to say, defendants combined, confederated, and agreed upon a plan, scheme, and device to deprive the United States of America, acting by and through said Contractor, of the right and duty to let subcontracts by means of competitive bidding to the lowest responsible bidder, for the purpose and with the intended effect of benefiting the defendants and partially substituting their performance for that of the existing low bidder.
"5. To effect the objects of said conspiracy, the defendants have committed and performed the following overt acts:
"(a) On April 27, 1942, at Los Angeles, defendant Roy Walburg asked John Birnie, sole proprietor of the Korktone Company to cooperate and participate in a plan previously agreed upon by the defendants Roy Walburg and Odell McConnell. It was part of the plan and purpose of the said conspiracy that the Korktone Company and the Cork Spray Company would submit collusive and non-competitive bids and Warren and Bailey Company would be asked to default on its bid on the cork spraying work, referred to in Paragraph 3 of this Indictment.
"(b) On May 22, 1942, at Los Angeles, defendant Roy Walburg asked one Charles T. Butts, Manager of Warren and Bailey Company, to withdraw its low bid for cork spraying work, alleged in Paragraph 3 hereof, and offered to compensate Warren and Bailey Company for any loss suffered.
"(c) On June 6, 1942, at Los Angeles, defendants Roy Walburg and Odell McConnell asked the Korktone Company to agree not to ask said Contractor to request new bids should Warren and Bailey Company default on their bid.
"(d) On June 6, 1942, at Los Angeles, defendants Roy Walburg and Odell McConnell asked the Korktone Company to permit the Cork Spray Company to act ostensibly as subcontractor, while the Korktone Company would actually furnish the materials and equipment should Warren and Bailey Company default on its bid.
"(e) On June 17, 1942, defendants Roy Walburg and Odell McConnell at Los Angeles prepared a written memorandum of said bidding arrangement, and caused said memorandum to be placed in the United States Post Office at Los Angeles, California and to be sent and delivered through the United States mails to the Korktone Company. All of the foregoing conduct was and is contrary to the form of the Statute in such case made and provided, and against the peace and dignity of the United States of America."
The defendants demurred upon the ground that the indictment did not charge an offense against the United States. Specifically, it was argued that the acts which resulted in stifling competition in the letting of the contracts did not constitute a fraud against the United States unless it were alleged that the defendants knew that the contracts between the Government and the Ship Building Corporation were on a cost-plus basis.
The demurrer of the defendants to the indictment is overruled and submitted.
The doubt as to the sufficiency of the indictment which I expressed at the oral argument was occasioned by the absence from the indictment of an allegation to the effect that the defendants knew of the cost-plus contract between the United States and the Los Angeles Ship Building and Dry Dock Corporation, Incorporated. The principle I had in mind was that in fraud, whether it is made the basis of a civil or of a criminal action, the scienter must be alleged and proved. Southern Development Co. v. Silva, 1888, 125 U.S. 247, 250, 8 S.Ct. 881, 31 L.Ed. 678.
However, the charge here is not the offense of defrauding the United States, but conspiracy to defraud. Hence this case comes under those rulings which hold that, while the essential elements of a substantive offense must be charged with particularity, this is not necessary when conspiracy is charged. More particularly, the indictment here falls within the cases which hold that the allegation that persons conspired is, in itself, a charge of criminal intent. See, Frohwerk v. United States, 1919, 249 U.S. 204, 209, 39 S.Ct. 249, 63 L.Ed. 561; Wong Tai v. United States, 1927, 273 U.S. 77, 81, 47 S.Ct. 300, 71 L.Ed. 545; Craig v. United States, 1936, 9 Cir., 81 F.2d 816, 820.
Paragraph 4 of the Indictment charges the conspiracy, its object and the means to to achieve it, with sufficient certainty to satisfy the requirements of due process. When it is alleged that the defendants conspired to deprive the United States, acting by and through the contractor, of the right to competitive bidding, we have adequate pleading of not only the criminal object, but of the criminal intent and means of achieving it.
It is not necessary, in addition, to charge that the defendants knew of the existence of the cost-plus contract, even if it be true that, without such knowledge, the offense is not committed.
Hence the above ruling.
The cause is returned to the Criminal Calendar Department for further hearing.