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U.S. v. Purdy

United States Court of Appeals, Second Circuit
Jun 10, 1998
144 F.3d 241 (2d Cir. 1998)


holding that the appropriate measure of improper benefit was "the difference between the putative untainted prices," determined, for example, by competitive bidding procedures, "and the actual bribe-obtained prices"

Summary of this case from U.S. v. Sergentakis


No. 96-1817

Argued: January 8, 1998

Decided: June 10, 1998

Appeal from conviction and sentence in the United States District Court for the District of Connecticut, Janet Bond Arterton, Judge, for conspiracy to violate the Anti-Kickback Act.


ALAN M. DERSHOWITZ, Cambridge, MA (Victoria B. Eiger, Dershowitz Eiger, P.C., New York, NY, Jacob D. Zeldes and Brian E. Spears, Zeldes, Needle Cooper, P.C., Bridgeport, CT, of counsel), for Defendant-Appellant.

MARK G. CALIFANO, Assistant United States Attorney (Christopher F. Droney, United States Attorney for the District of Connecticut, of counsel), New Haven, CT, for Appellee.

Before: VAN GRAAFEILAND, WALKER, Circuit Judges, and RAKOFF, District Judge.

Honorable Jed S. Rakoff, of the United States District Court for the Southern District of New York, sitting by designation.

In the idiom of economic crime, a "kickback" is a kind of commercial bribe. "Typically, they are payments made by one business to employees of another in order to induce favorable commercial treatment from [the employees'] company." H.R. Rep. No. 99-964, at 5 (1986), reprinted in 1986 U.S.C.C.A.N. 5960, 5962. In 1946, Congress — concerned that employees of prime contractors on certain government procurement contracts were being bribed to enter into inflated subcontracts for which the government ultimately paid — passed the Anti-Kickback Act, 41 U.S.C. §§ 51-58, to bring such conduct within the purview of federal prosecution. See H.R. Rep. No. 79-212 (1945), reprinted in 1946 U.S.C.C.S. 1081. In 1960, Congress amended the Act so as to apply to all negotiated federal contracts, and in 1986, amended it again so as to apply generally to "all Federal contracts" and thus "to enhance the government's ability to prevent and prosecute kickback practices" that in any way touched the federal procurement process. H.R. Rep. No. 99-964, at 4.

Appellant John M. Purdy, Jr. would now have this Court read the amended statute, contrary to its language, history, and purpose, to preclude prosecution of any kickback-paying subcontractor who did not consciously intend to defraud the government itself. We decline the invitation and affirm appellant's conviction and sentence.

Purdy was President and Chief Executive Officer of The Purdy Corporation ("Purdy Co."), which regularly supplied helicopter parts to the Sikorsky Aircraft Division of United Technologies Corporation ("Sikorsky"). Sikorsky in turn sold the assembled helicopters to a variety of customers, including the United States government. Between May 1989 and August 1990, Purdy paid tens of thousands of dollars in bribes to two Sikorsky purchasing agents, Alexander Bevvino and Bruce Cafasso, in order to obtain increased Sikorsky business for Purdy Co. Of the twenty-two or more purchase orders obtained thereby, at least seven related to government contracts on which Sikorsky was the prime contractor. The bribes only ceased after Purdy learned that Sikorsky employees were being investigated for receiving kickbacks.

Purdy and a confederate, Martin Ferris, were indicted thereafter, pursuant to 18 U.S.C. § 371, for conspiring with the Sikorsky purchasing agents to violate the Anti-Kickback Act. After a ten-day trial before the Hon. Janet Bond Arterton, United States District Judge, and a jury, Ferris was acquitted and Purdy was convicted. On December 11, 1996, Judge Arterton sentenced Purdy to thirty-seven months in prison, three years of supervised release, a period of community service, and a $250,000 fine.

18 U.S.C. § 371 reads, in pertinent part: "If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both." Purdy and Ferris were indicted (under the first clause) for conspiring to commit a federal offense, to wit, violation of the Anti-Kickback Act, rather than (under the second clause) for conspiring to defraud the United States.

As his primary point on appeal, Purdy contends that conviction of conspiracy to violate the Anti-Kickback Act requires proof that the defendant specifically intended to obtain favorable treatment on government-related contracts, whereas the proof at trial showed only that Purdy intended to obtain Sikorsky business in general and was insufficient to show a specific intent to obtain government-related business. Because we disagree with the initial premise, we do not reach the issue of the sufficiency of the evidence.

The gravamen of the instant offense is not a conspiracy to defraud the government, which Congress outlawed decades before the Anti-Kickback Act. Rather, from the outset, the purpose of the Anti-Kickback Act was to reach beyond intentional frauds perpetrated directly on the government and to secure the subcontracting of government-related contracts from commercial bribery. See generally H.R. Rep. No. 79-212 (1945).

See the second clause of 18 U.S.C. § 371 (not here utilized), supra n. 1, criminalizing any conspiracy "to defraud the United States." See generally Abraham Goldstein, Conspiracy to Defraud the United States, 68 Yale L.J. 405 (1959).

As the Congress that enacted the 1946 Act recognized, the government, though not directly defrauded, ultimately pays for such commercial bribery as occurs at the subcontracting level. Since many "prime contractors are reimbursed by the United States for the cost of all subcontracts and purchase orders performed thereunder, the Government undoubtedly bears the ultimate costs of such fees, commissions, and gratuities without receiving any benefit therefrom." Id. Congress therefore sought to punish all those whose commercial bribery had an adverse impact on the federal treasury, regardless of whether their intent was only to defraud their immediate customer. If, in the process, deterrence was extended not only to those who specifically contemplated the government relationship in their fraud but also to other commercial bribers who thereby assumed the risk that their wrongful deeds might result in federal prosecution, so much the better.

The 1960 and 1986 amendments of the Anti-Kickback Act sought to broaden its coverage even to instances of bribery not directly impacting the federal treasury. As the House Committee that authored the 1986 amendment stated: "Whatever form they take, all kickbacks serve to undermine Federal procurement. . . . Furthermore, inflated contract pricing is not their only effect. Kickback activity corrupts the Federal procurement system. It drives out honest competitors and destroys the markets in which the government must bargain." H.R. Rep. No 99-964, at 5 (1986). Accordingly, Congress substantially rewrote the statute in 1986 with the express purpose of extending the scope of the statute to any commercial bribery occurring anywhere within the federal procurement system. See id. at 10.

The language of the amended statute lays bare this purpose. The section defining "Prohibited conduct" makes it unlawful, without qualification, for any person "to provide, attempt to provide, or offer to provide any kickback" or "to solicit, accept, or attempt to accept any kickback." 41 U.S.C. § 53. "Kickback," in turn, is defined as "any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract." Id. § 52(2). Since "prime contractor" means "a person who has entered into a prime contract with the United States," id. § 52(5), and "subcontractor" means any other person "who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract," id. § 52(8), the result is to impose liability on any person who makes a payment to any other person involved in the federal procurement process for the purpose of obtaining favorable treatment.

Purdy, however, argues that an offender must have the more specific purpose of obtaining favorable treatment on a government-related contract (tantamount to a specific intent to defraud the government). To support this interpretation, he would, first, interpret the word "purpose" in § 52(2) to modify everything in the definition of "kickback" that follows thereafter, making the language about "in connection with a prime contract or . . . subcontract" part of the intent element rather than simply an objective requirement in its own right. Second, Purdy would modify the intent requirement to include language that forms no part of § 52(2) itself but can only be found in the further definition of "prime contract," to wit, "a contract or contractual action entered into by the United States." 41 U.S.C. § 52(4).

This strained interpretation — which would create an additional, artificial burden to effective implementation of a statute Congress sought to broaden and streamline — finds no support in either the other language of the statute or the purpose of the law. Rather, it is directly refuted by the pertinent legislative history, which states that the "purpose" language "is intended to expand the coverage of the existing Act to kickbacks made in the Federal procurement process for any improper purpose," H.R. Rep. No. 99-964, at 11 (1986), and is not intended, as Purdy argues, to narrow the pre-existing interpretations of the Act that did not make knowledge of any of the terms of the prime contract an element of liability, see Hanis v. United States, 246 F.2d 781, 784-86 (8th Cir. 1957). Indeed, the Committee Report expressly treats the portion of the definition of kickback relating to connection with a prime contract or subcontract not as part of the "purpose" provision but rather as "intended to ensure the Act's broad coverage over kickbacks that may be made by subcontractors who are in any contractual relationship related to the performance of the government's prime contract." H.R. Rep. No. 99-964, at 12 (1986).

In short, kickbacks made at any point in the government procurement process for the purpose of improperly obtaining favorable treatment are prohibited by the Act, regardless of whether or not the offender knew of the government involvement. Cf. United States v. Feola, 420 U.S. 671, 684 (1975) (defendant need not know that victim a federal officer to be guilty of assaulting a federal officer within 18 U.S.C. § 111). It follows from this conclusion that Purdy's claim that the evidence was insufficient to establish his intent to obtain government-related business is entirely irrelevant. There is no dispute that some of the subcontracts embraced within his conspiracy were in fact connected to prime contracts with the United States, and that is sufficient to bring Purdy within the Anti-Kickback Act. Likewise, Purdy's fallback argument, that Judge Arterton failed to instruct the jury adequately as to his "defense" that he was indifferent as to whether his kickback-procured contracts were government-related or not, is likewise irrelevant, for it was not a lawful defense.

Purdy's only other appellate objection to Judge Arterton's jury charge — that the charge on statute of limitations failed to convey adequately his theory of defense on this aspect — is likewise unavailing. As Purdy concedes, the charge was "technically accurate." The only portion of Purdy's requested charge on limitations that the district court declined to give was his one-sided summary of the evidence on this issue, which he argued to the jury on summation, thus fully apprising the jurors of how the defense believed the court's charge should be applied to the facts of the case.

Purdy also assigns as error the district court's refusal to let him call as a witness one Carol Voss, an agent of the Defense Contract Audit Agency, who had assisted the Government in preparing its case and who would have testified, according to Purdy, that only seven of the twenty-two purchase orders that the Government contended were the fruits of the conspiracy related to prime contracts with the United States. While this fact was already before the jury through other evidence, Purdy argues that the testimony of a Government agent on this issue would have: (i) corroborated Purdy's defense that he had no specific intent to procure government-related business; (ii) impeached the credibility of a material Government witness, Bevvino, who had testified that some of the other fifteen orders might also be government-related; and (iii) impugned the "integrity" of the prosecution's case.

Although a defendant has the burden of alerting the court to his theory of relevance, see United States v. Scotti, 47 F.3d 1237, 1248 (2d Cir. 1995), the first of these three arguments was not squarely raised before the district court and the second, although raised, was promptly abandoned. Indeed, when queried by Judge Arterton as to the relevance of Voss's proffered testimony, defense counsel responded that "[t]he important thing is I think for ruling on this point is can [defendant] show a lack of integrity in the Government's case." District courts are entitled to hold counsel to their representations of what is important. Accordingly, we think the first two relevancy arguments were not preserved for appeal.

Even if Purdy had not waived these two arguments, however, the first argument — that Voss's testimony would have supported Purdy's defense that he had no intent to procure government-related business — is rendered moot by our holding above that no such defense is legally cognizable. It also follows that any value the Voss testimony would have had for Purdy's second purpose — the impeachment of Bevvino's testimony that many of the twenty-two purchase orders were government-related — would relate to a collateral issue. Extrinsic evidence offered for impeachment on a collateral issue is properly excluded. See, e.g., Berkovich v. Hicks, 922 F.2d 1018, 1025 (2d Cir. 1991); Atlas Marine Co. v. Forsikrings-Aksjeselskapet Norske Triton, No. 92 Civ. 4746 (RPP), 1995 WL 498822, at *6 (S.D.N.Y. Aug. 22, 1995).

Purdy's third argument — that the jury was entitled to hear Voss's testimony in order to assess whether the Government's investigation and the ensuing prosecution were conducted with "integrity" — would, if accepted as a general rule, replace the focused, truth-seeking processes of federal jury trials with invitations to rampant speculation and prejudicial diversion. In support of his claim that such testimony should be admitted for such a purpose, Purdy places heavy reliance on dictum in United States v. GAF Corp., 928 F.2d 1253 (2d Cir. 1991). This reliance is misplaced.

In GAF, this Court found error, given the "unusual history and circumstances of [the] case," in the trial court's ruling that the defendant, who was being prosecuted for the third time, was not entitled to introduce a bill of particulars from the first of his trials that was inconsistent with the position the Government took at the third trial. Id. at 1255. The GAF Court stated:

We think that the same considerations of fairness and maintaining the integrity of the truth-seeking function of trials that led this Court to find that opening statements of counsel and prior pleadings constitute admissions also require that a prior inconsistent bill of particulars be considered an admission by the government in an appropriate situation.

Id. at 1260. GAF is plainly distinguishable from the case at hand. Whereas the bill of particulars at issue in GAF was a binding legal admission by the Government, here the Government made no prior admission that Voss's testimony would have confirmed or contradicted. The Government's theory of how many of the twenty-two purchase orders related to government contracts may have changed over the course of its investigation, but an earlier investigative theory is hardly the equivalent of a bill of particulars or other formal admission in an earlier trial. To bind the Government forever to a preliminary investigative theory to which it never formally committed would only discourage further investigation and thereby impede the truth-finding process.

Here, the Government, having allegedly begun with the belief that all twenty-two purchase orders were related to prime Government contracts, narrowed its approach by the time of trial to the contention that only seven of the purchase orders in question were definitely so related (although it still maintained that others were inferentially so related). Nothing in this modest narrowing of the Government's approach — which did not contradict a single prior representation made by the Government to the district court — opened the door to defense proof of the Government's having previously entertained a broader theory.

Moreover, even assuming arguendo that Voss's testimony were admissible for the foregoing purpose, Judge Arterton's ruling could not be deemed reversibly erroneous, as "judges are accorded `wide latitude' in excluding evidence that poses an undue risk of `harassment, prejudice [or] confusion of the issues' or evidence that is `repetitive or only marginally relevant.'" United States v. Blum, 62 F.3d 63, 67 (2d Cir. 1995) (quoting Delaware v. Van Arsdall, 475 U.S. 673, 679 (1986)); see also Fed. R. Evid. 403. In the instant case, evidence of how the Government's ultimate theory had been narrowed from its initial theory would merely have distracted the jury from the central issues of the case and from its fact-finding functions. In short, under any analysis, the exclusion of Voss's testimony provides no ground for reversal on appeal.

Purdy next claims that the district court's dismissal of one of the jurors constitutes reversible error. On the fourth day of trial, defense counsel alerted the court that a person who had been present in the courtroom during the trial had approached both Purdy's wife and Purdy's co-defendant Ferris, identified himself as the husband of a juror named Stallman, and expressed views that were sympathetic to the defense. Judge Arterton then questioned juror Stallman, who stated that she did not know her husband had spoken to Ferris or Mrs. Purdy and that she had not discussed the case with him. Although Judge Arterton indicated that she did not have reason to doubt the veracity of these responses, she discharged juror Stallman, over Purdy's objection, and replaced her with an alternate. In so doing, the district court noted that the juror's husband had been present in the court when evidence was discussed out of the jury's hearing and stated that "the risk of a mistrial in this case is so evident from the nature of the juror's husband's communications, which go to the essence of his belief on the merits or purpose of this case, and it just defies any reasonable view of human nature to think that [the husband] is not going to convey in some way or another to this juror his views, and conceivably the existence of evidence that has not been admitted in this case."

After the district court excused this juror and inquired whether any relatives of other jurors were present in the courtroom, the husband of another alternate juror, Vars, responded that he was staying to watch the proceedings. Judge Arterton told him that he had a right to be there, cautioned Mr. Vars and alternate juror Vars not to discuss the case with each other, and proceeded with the evidence. Alternate juror Vars never became a full member of the jury and thus played no part in the jury's deliberations.

Purdy argues that the district court should have handled juror Stallman the same way that it handled juror Vars — by cautioning her again not to discuss the case — or should have taken steps short of discharge, such as the sequestration of the jury. According to Purdy, the discharge of Stallman prejudiced him significantly, both because of the "interest of an accused in retaining a chosen jury," Crist v. Bretz, 437 U.S. 28, 35 (1978) (dictum), and because the Government was probably eager to have juror Stallman removed because of the risk that she independently held views similar to those held by her husband.

District courts, however, have broad discretion under Federal Rule of Criminal Procedure 24(c) to replace a juror at any time before the jury retires if there is reasonable cause to do so, and a reviewing court will only find abuse of that discretion where there is "bias or prejudice to the defendant." United States v. Gambino, 951 F.2d 498, 503 (2d Cir. 1991) (internal quotation marks omitted); see also United States v. Agramonte, 980 F.2d 847, 850 (2d Cir. 1992) (per curiam). "Prejudice" in this context exists when the discharge is without "factual support, or for a legally irrelevant reason." United States v. Fajardo, 787 F.2d 1523, 1525 (11th Cir. 1986) (quoting United States v. Rodriguez, 573 F.2d 330, 332 (5th Cir. 1978)) (internal quotation marks omitted).

Here, the situations of juror Vars and juror Stallman were entirely different from one another. Unlike Stallman's husband, Vars's husband, although present in the courtroom, had not expressed any particular views about the case or approached the defendants or their relatives and discussed the case with them. Mr. Stallman's actions in these respects, and his obvious interest in the merits of the case, gave the district court ample reason to infer that Mr. Stallman, someone who had no sworn duty and over whom the court had no control, would press his views upon his wife, regardless of any protestations she might have made. Furthermore, even if juror Stallman never discussed the case with her husband, she would inevitably have been distracted from her duty and less able to weigh the evidence independently once she understood through the district court's questioning that her husband held a certain view of the merits of the case. These circumstances amply justified the district court's exercise of discretion in removing juror Stallman. See Agramonte, 980 F.2d at 850; Rodriguez, 573 F.2d at 332-33.

As his final point on appeal, Purdy contends that the district court erred in its interpretation and application of section 2B4.1 of the Sentencing Guidelines and thus imposed an unlawfully high sentence. Under section 2B4.1 of the Guidelines, the base offense level for kickbacks and commercial bribery is eight, and the offense level is then adjusted upward, using the table in section 2F1.1, in accordance with the "value of the bribe or the improper benefit to be conferred" (whichever is greater). U.S. Sentencing Guidelines Manual ("U.S.S.G.") § 2B4.1(b)(1) (1996). However, if the value of the benefit cannot be determined, the value of the bribe must be used. See id. § 2B4.1 Commentary Background.

As further commentary to the Guidelines suggests, the "benefit to be conferred" is normally calculated in such situations on the basis of the profits realized (or intended to be realized) on sales obtained by bribery. Lacking appropriate data to make this calculation, however, the district court instead calculated the "benefit to be conferred" by taking initial internal price estimates prepared for each of the twenty-two sales to Sikorsky and subtracting these amounts from the ultimate prices negotiated with Sikorsky — there being testimony that the bribes enabled Purdy Co. not only to obtain the contracts but also to inflate the price estimates submitted to Sikorsky. Applying this approach to all twenty-two purchase orders in evidence, the court calculated the "improper benefit to be conferred" in this case as $1,176,155, yielding an eleven-level increase in Purdy's offense level.

Neither side disputes that, for purposes of sentencing, all 22 purchase orders embraced by the conspiracy should be considered, even if not all related directly to government prime contracts. This is also fully consistent with the view we take of the broadening effect of the 1986 amendment to the Anti-Kickback Act.

The approach taken by the district court was fully supported by evidence introduced at trial and well within the court's discretion. While Purdy strenuously challenges the accuracy and reliability of the initial price estimates, these same challenges were raised at trial and the district court was in a position to assess their validity. We see no error, much less clear error, in the district court's findings. We note, moreover, that under section 2B4.1, the "improper benefit conferred" need not be determined with perfect accuracy. See United States v. Hang, 75 F.3d 1275, 1284 (8th Cir. 1996); U.S.S.G. § 2B4.1 Commentary Background (noting that the amount may be "estimated").

In only one respect was the district court's approach logically flawed, but the error is harmless. Specifically, had the initial price estimates been submitted directly to Sikorsky without the antecedent bribes, they undoubtedly would have been negotiated downward (except in the case of two contracts that were obtained by competitive bidding), so that the difference between the putative untainted prices and the actual bribe-obtained prices would have been even greater than the district court determined. But since correction of this error could only have further disadvantaged the defendant, and the Government has not chosen to appeal the sentence, the error is harmless and the sentence is affirmed.

Accordingly, we affirm the district court's judgment in all respects.

Summaries of

U.S. v. Purdy

United States Court of Appeals, Second Circuit
Jun 10, 1998
144 F.3d 241 (2d Cir. 1998)

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Case details for

U.S. v. Purdy

Case Details


Court:United States Court of Appeals, Second Circuit

Date published: Jun 10, 1998


144 F.3d 241 (2d Cir. 1998)

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