The opinion of the court was delivered by: THOMAS C. PLATT
Defendants have made a voluminous omnibus motion proffering a potpourri of theories mandating the dismissal of part or all of this criminal indictment. The first set of moving papers was addressed to the original indictment. The government superseded that indictment. Defendants then submitted a revised set of motion papers addressed to the superseding indictment. The points raised in both sets of papers that are not moot shall be decided herein. For the sake of congruity, this opinion shall follow the point numbering system utilized by the defendants in their moving papers.
Frequency Electronics, Inc., ("FEI"), is an electronics firm in the business of manufacturing quartz and atomic timing systems for government and commercial satellites and deep space probes. FEI was also responsible for manufacturing the advanced timing devices used to track Iraqi SCUD missiles during Operation Desert Storm.
The current indictment arises out of a series of top secret or Black government contracts for the manufacture of space satellites. The government contracted with a company known as TRW, Inc., ("TRW"), and TRW then subcontracted with a number of subcontractors one of which was FEI. FEI commenced work on what it code named the FOX projects beginning in April of 1987. It identified the six contracts as FEI project numbers 11368, 11369, 11370, 11527, 11494 and 11528.
On February 2, 1988 TRW informed FEI that the government had terminated three of the FOX contracts for its convenience and sought to restructure the remaining three. Pursuant to the express terms of the FOX contracts, upon termination of a contract for the convenience of the government, FEI was required to generate settlement proposals. These proposals were to provide TRW with an accounting of FEI's costs that had been expended to date, in order for FEI to receive compensation for such costs.
FEI submitted settlement proposals to TRW for the fully terminated FEI project numbers 11368, 11494 and 11528 and contract pricing proposals for restructured FEI project numbers 11369, 11370 and 11527. The settlement proposals on the terminated contracts were not accepted by TRW, pursuant to which audits of the same were conducted by TRW employees and also by the Defense Contract Audit Agency ("DCAA"). Negotiations also continued with respect to the restructured contracts. FEI and TRW entered into amended subcontracts for the three restructured contracts on December 13, 1988. Certificates of Current Cost or Pricing Data were submitted to TRW in connection with the terminated contracts up until April of 1989.
The government in its superseding indictment filed on April 6, 1994 alleges inter alia that FEI at the direction of its officers and directors created false and inaccurate time records and accountings of work expended on the FOX contracts and thereafter destroyed the actual time records that had been maintained by its employees in furtherance of a scheme to submit inflated cost outlay claims on the FOX contracts and defraud the United States. The defendants deny any and all allegations of criminal conduct and move to dismiss the indictment.
POINT ONE - ENTRAPMENT BY ESTOPPEL
Defendants assert that the regulatory scheme governing settlement proposals for fixed price contracts terminated at the convenience of the government envisions that upon termination of such contracts, an accounting of cost outlays computed on a best estimate basis must be used. See 48 C.F.R. § 49.201 (c).
With respect to the FOX contracts, the government knew that FEI did not keep accurate records of time spent on each project and thus had to estimate and often transfer costs from one project to another when asked to account for outlays pursuant to a contractual termination. The government responds that the gravamen of the indictment here is not that FEI estimated its costs but rather that it deliberately falsified and inflated its estimates. Further, the truth or falsity of such an allegation is a question of fact to be determined by a jury. This Court agrees.
Solidly etched in our legal foundation is the notion that an indictment need only be valid on its face to withstand a motion to dismiss, irrespective of the extrinsic evidence or lack thereof in support of the charges alleged therein. See Costello v. United States, 350 U.S. 359, 363, 100 L. Ed. 397, 76 S. Ct. 406 (1956), United States v. Critzer, 951 F.2d 306, 307 (11th Cir. 1992). As the government validly points out here, there are many cases involving fixed price contracts that have crowded our criminal court dockets. See, e.g., United States v. White, 765 F.2d 1469 (11th Cir. 1985); Maxwell v. United States, 277 F.2d 481 (6th Cir. 1960). These cases all necessarily involve the critical question of whether the defendants acted with the requisite criminal intent to have engaged in the crime of defrauding the government. As such they constitute questions of fact for a jury and may not properly be determined by the Court on a motion to dismiss.
In Maxwell the United States Court of Appeals for the Sixth Circuit concluded that after a trial on the merits, the District Court should have dismissed the indictment. See Maxwell, 277 F.2d at 510-11. The Court felt that there was absolutely no evidence presented at trial that demonstrated that the claims submitted to the government were the result of an intricate conspiracy to defraud, in violation of 18 U.S.C. § 371. Id. at 501. Thus the Sixth Circuit reversed with instructions to discharge the defendants. Id.
The facts of the Maxwell case are strikingly similar to those at bar. Defendants are accused with conspiring to defraud the government in violation of § 371.
This crime requires willful misconduct. Should a trial of the charges alleged in the superseding indictment prove that the defendants did not act with the requisite criminal intent, this Court will have no difficulty in granting a motion for a directed verdict at that time. Any such direction prior to a trial of the issues on the merits, however, would be premature and improper.
POINT TWO - COUNTS TWO THROUGH FIVE ARE BARRED BY THE EX POST FACTO CLAUSE
The defendants argue that Counts Two through Five of the superseding indictment violate the Ex post facto clause of the United States Constitution in that they charge the defendants with criminal conduct that was committed prior to the enactment of the Act that criminalized such conduct. Specifically, defendants note that the Major Frauds Act was enacted on November 19, 1988. The superseding indictment charges the defendants with executing or attempting to execute a scheme to defraud the United States by submitting false claims for payment in conjunction with the FOX contracts that defendants claim were fully submitted as of August 25, 1988. Thus defendants argue that an ex post facto violation has occurred. The government alleges that the scheme to defraud here extended beyond November 19, 1988, by reason of the submission of two false invoices on April 19, 1989, one requesting payment on FEI Project No. 11368 (Count Two) and the other on FEI Project 11494 (Count Three) and signing restructured subcontract papers (Counts Four and Five) on December 13, 1988. This Court agrees.
The Ex post facto clause of the United States Constitution
embraces the notion that individuals must be accorded fair warning of what type of conduct shall subject them to criminal punishment. See Marks v. United States, 430 U.S. 188, 191-92, 51 L. Ed. 2d 260, 97 S. Ct. 990 (1977); Cummings v. The State of Missouri, 71 U.S. 277, 325-26, 18 L. Ed. 356 (1867). It mandates that a law criminalizing conduct have solely a prospective effect. See Weaver v. Graham, 450 U.S. 24, 29-30, 67 L. Ed. 2d 17, 101 S. Ct. 960 (1981). A law will be ex post facto if it applies to events occurring before its enactment and is detrimental to the offender. See Lindsey v. Washington, 301 U.S. 397, 401, 81 L. Ed. 1182, 57 S. Ct. 797 (1937). Any ex post facto analyses then must focus on the inquiry of whether the law attempts to change the consequences of acts completed before its effective date.
The controversy articulated in the context of this case arises over the terms "execute" or "attempt to execute." Defendants allege that the submission of the original settlement proposals on May 16 and August 25, 1988 constituted the final and finite actus reus of any execution or attempted execution of an alleged scheme to defraud the United States. Thus to charge them with a violation of an Act that was passed on November 15, 1988, well after the scheme was over, would unequivocally violate the Ex post facto clause. This Court disagrees.
The analysis herein must begin with the definition of the scheme as alleged in the indictment. The government has charged the defendants with knowingly devising and engaging in a scheme to defraud the United States and to obtain money and property by means of false and- fraudulent pretenses. Sup. Ind. P 71. This charge mirrors the precise wording of the Act. The government further charges that it was a part of said scheme to "submit and cause others to submit claims to TRW in connection with the [FOX] contracts . . . for payment for costs which were not actually all incurred in connection with said contracts." Sup. Ind. P 72. Essentially then the indictment charges the defendants with executing or attempting to execute a scheme to defraud the United States on the FOX contracts by obtaining remuneration from the government in excess of what it actually deserved.
Black's Law Dictionary defines the term execute as, inter alia, "to fulfill . . . the purpose of, . . . ." Black's Law Dictionary 509 (5th edition 1979). This Court shall adopt this definition of the term "execute" and hold that whatever acts taken or attempted by FEI in order to fulfill the purpose of a scheme to defraud the United States on the FOX contracts may properly be called executions of that scheme under the Major Frauds Act.
Turning to the facts at bar, upon termination, the FOX contracts required FEI to submit proposals to TRW in order for the corporation to receive payment for costs it had incurred. Should TRW accept these proposals, it would then forward the remuneration requested by FEI. Should the proposals be rejected, however, negotiations on the amount of remuneration would continue until the amounts were approved. Rejection of the original proposals generally would result in a DCAA audit of FEI's records and the submission of Certificates of Current Cost and Pricing Data invoices setting forth the amount of hours expended by FEI on each of the FOX contracts. Such Certificates would be submitted to TRW in an attempt to verify that the information provided by FEI was accurate, complete and current and to prompt TRW to proffer payment accordingly.
FEI's original proposals were rejected by TRW, thus it did not receive payment for work it alleges it had done on the FOX contracts. Further documentation was submitted thereafter in an attempt by the defendants to support the proposals and elicit payment. Negotiations with respect to the claims submitted by FEI on the FOX contracts continued up until at least April 25, 1989 when the "final settlement[s] against termination claim[s]" on the terminated contracts were submitted, and until December 13, 1988 when FEI signed restructured contracts with TRW.
Since executions or attempted executions with respect to the FOX contracts occurred after the enactment of the Major Frauds Act, defendants' conduct violated the Act. Any ex post ...