Shepard's?
2000 U.S. Dist. Lexis 22066, *
united states of america, plaintiff, v. EUGENE BURGER, Defendant.
No. CR 99-0439 SI
United states district court for the northern district of california
2000 U.S. Dist. Lexis 22066
June 2, Decided
June 6, Filed
DISPOSITION: [*1] Defendant's motion to dismiss counts 13-45 of indictment GRANTED and defendant's motion for a bill of particulars as moot DENIED.
CASE SUMMARY
PROCEDURAL POSTURE: Defendant moved to dismiss a number of the counts of the indictment against him and moved for a bill of particulars.
OVERVIEW: Defendant was the owner of a property management company which was the management agent for multi-family housing developments. Defendant did not disclose a management fee-splitting agreement to the Department of Housing and Urban Development. Defendant was indicted for theft from a program receiving federal funds, aiding and abetting, money-laundering, violating the Anti-Kickback Act of 1986, and obstruction of justice. Defendant moved to dismiss the kickback counts. The court found that defendant was not provided fair notice of whether his actions in not disclosing the management fee-splitting agreement were considered improper and thus a kickback under the statute.
In order to have amounted to a kickback under the statute, defendant's behavior had to have been improper. Defendant had to have been on notice that the alleged conduct was improper. Because defendant would have been unable to determine that the conduct at issue was improper under the statute, the application of the rule of lenity was required in this case.
OUTCOME: Defendant's motion to dismiss the counts of the indictment was granted and the motion for a bill of particulars was denied as moot.
CORE TERMS: prime, kickback, anti-kickback, contractor, indictment, inspector, fee-splitting, subcontractor, motion to dismiss, directive, rent, legislative history, lenity, aiding and abetting, management fee, favorable, housing, fee splitting, moot, procurement, notice, purpose of obtaining, managing agent, subcontract, indirectly, negotiated, cooperate, rewarding, subsidies, plain language
LexisNexis (R) Headnotes Hide Headnotes
Criminal Law & Procedure Criminal Offenses Crimes Against Persons Bribery Commercial Bribery Elements
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN1 See 41 U.S.C.S.? 53.
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN2 See 41 U.S.C.S.? 52 (2).
Criminal Law & Procedure Scienter Knowledge
Criminal Law & Procedure Scienter Willfulness
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN3 The Anti-Kickback Act of 1986 defines "prime contract" as a contract or contractual action entered into by the United States for the purpose of obtaining supplies, materials, equipment, or services of any kind. 41 U.S.C.S.? 52 (4). Although civil penalties are available, 41 U.S.C.S.? 54 makes the knowing and willful performance of conduct prohibited by the act punishable by fine or not more than 10 years imprisonment. 41 U.S.C.S.? 54.
Governments Legislation Interpretation
HN4 It is a basic tenet of statutory interpretation that a district court must look first to the language in which an act is framed to find its meaning. If the language of the statute is clear, the court need not review other aids of statutory interpretation, including legislative history. Legislative history, no matter how clear, can't override statutory text.
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN5 The Anti-Kickback Act of 1986 states that a federal contract must be for the purpose of obtaining supplies, materials, equipment, or services in order for the federal contract to meet the act's definition of prime contract. However, the statute does not include a requirement that the supplies or services be for the government. Contracts providing goods and supplies to the public may also be prime contracts within the meaning of the statute.
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN6 See 41 U.S.C.S.? 57.
Criminal Law & Procedure Criminal Offenses Crimes Against Persons Bribery General Overview
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN7 Although the Anti-Kickback Act of 1986 states that anti-kickback provisions must be included in a contract covered by the statute, the definition of a prime contract itself does not mandate anti-kickback provisions.
Governments Legislation Interpretation
HN8 Ambiguity concerning the applicable scope of a criminal statute must be resolved in favor of lenity. When more than one reading of a statute is possible, it is appropriate, before a district court chooses the harsher alternative, to require that Congress should have spoken in language that is clear and definite. However, the mere possibility of articulating a narrower construction does not itself make the rule of lenity applicable. Rather, a court may employ the rule of lenity only when the court finds that there is a grievous ambiguity or uncertainty in the statute.
Public Contracts Law Voiding the Contract Bribes, Gratuities & Kickbacks
HN9 See 41 U.S.C.S.? 52 (2).
COUNSEL: For EUGENE BURGER (1), defendant: Marcus S. Topel, Topel & Goodman, San Francisco, CA.
U.S. Attorneys: Miranda Kane, U S Attorney's Office, Criminal Division, San Francisco, CA.
JUDGES: SUSAN ILLSTON, United States District Judge.
Opinion by: susan illston
Opinion: order granting defendant's motion to dismiss counts 13 - 45 of the indictment and denying as moot defendant's motion for a bill of particulars
On May 24, this Court heard argument on defendant Eugene Burger's motion to dismiss counts 13-45 of the indictment against him and a motion for a bill of particulars. Having carefully considered the arguments of the parties and the papers submitted, the Court hereby GRANTS defendant's motion to dismiss and DENIES as moot defendant's motion for a bill of particulars. N1
Footnotes -
N1 On May 26, Burger filed with the Court a Supplemental Memorandum. The government objects to this filing. The Court gives no consideration to this supplemental briefing in the following analysis.
Background
On October 13,1999, a criminal indictment was issued against Eugene Burger ("Burger"), charging six counts of theft from a program receiving federal funds and aiding and abetting (18 U.S.C.? 666 (a) (1) (A) and? 2); six counts of money-laundering and aiding and abetting in violation of 18 U.S.C.? 1956 (a) (1) (B) (i) and? 2; thirty-three counts of violating the Anti-Kickback Act and aiding and abetting (41 U.S.C.? 53 and 18 U.S.C.? 2); and one count of obstruction of justice and aiding and abetting in violation of 18 U.S.C.? 1505 and? 2. The indictment alleges that Burger was the owner of Eugene Burger Management Corporation ("EBMC"), a property management company which was the management agent for 50 - 70 multi-family housing developments in several states. See Indictment P1. The United States Department of Housing and Urban Development ("HUD") approved EBMC as the managing agent for over 50 multi-family properties ("the Projects") that received federal rent subsidies ("? 8 subsidies") from HUD. See id. P2. Several limited partnerships [*3] and corporations ("the organizations") owned the Projects which appointed EBMC as their managing agent. See id. PP3,5, and attached Appendix A. The organizations entered into a Regulatory Agreement ("RA") with HUD, in which HUD agreed to provide mortgage insurance for the Projects and the organizations agreed to provide management services to the Projects at a reasonable cost. Under the RA, the organizations were prohibited from directing Project income or assets to themselves. See id. P3. However, the organizations could disburse "surplus cash" (any money remaining after the payment of the Projects' financial obligations) to themselves. Id.
The organizations also signed a Housing Assistant Payments Contract ("HAP Contract") under which the organizations agreed to provide housing to qualified tenants in exchange for receiving? 8 payments from HUD. See id. P4. HUD specified the rent for the units and required that tenants pay 30% of their income toward rent. The remainder was paid by HUD through? 8 payments disbursed directly to EBMC. EBMC was required to maintain a separate account for each Project. See id.
The indictment alleges that in March 1994 Alvin [*4] Malnik ("Malnik"), the sole general partner for the limited partnership that owned two San Diego Projects, Mount Aguilar Apartments and Penasquitos Gardens, agreed with Burger that EBMC would serve as the management agent to the properties. See id. P20.in consideration for the appointment as management agent, Burger agreed to provide Malnik with three percent of the seven percent HUD management fee otherwise payable to EBMC. See id. On or about April 1,1994, Burger and Malnik signed and submitted to HUD a Project Owner's & Management Agent's Certification for Multifamily Housing Projects for Identity-of-Interest or Independent Management Agents ("Management Certification") for both Projects. See id. P21. The Management Certification provided that (1) in return for performing its management duties, EBMC could receive a management fee from Project income; (2) the management fee required approval by HUD and would be based on a percentage of total rents collected; (3) all Project expenses, including the management fee, must be reasonable and necessary; (4) EBMC must comply with the HAP Contract and the RA; and (5) EBMC must disclose any ownership interest in the Projects [*5] it managed. See id. P5. Burger did not disclose the management fee-splitting agreement. See id. P21. From January 1995 to September 1997, through EBMC, Burger issued 33 checks to Malnik pursuant to the fee-splitting agreement. See id. P22. The government contends that Burger's actions violated both 41 U.S.C.? 53 (Anti-Kick Act) and 18 U.S.C.? 2 (Aiding and Abetting).
Discussion
A. Motion to Dismiss Counts Thirteen Through Forty-Five, 41 U.S.C.?? 51- 58 (Anti-Kickback Act of 1986)
1. Application of the Anti-Kickback Act to HUD Contracts
Defendant Burger contends that the legislative history and case law show that the Anti-Kickback Act of 1986 ("the Act") applies only to federal procurement contracts. Burger argues that the HAP Contract and the RA are "assistance contracts, " and therefore are not subject to the Act's prohibitions. Burger asserts that HUD itself has not treated these contracts as "prime contracts" in the opinions of HUD's Board of Contract Appeals, the actions of HUD's Inspector General, or in HUD's Management Agent Handbook. Moreover, Burger argues that the HUD contracts [*6] do not contain "anti-kickback" provisions as required by the Act.
The government counters that, under the plain language of the statute, all government contracts are covered by the Act. Because the Act defines a prime contract as any "contract or contractual action, " the government argues that the statute's reach is not limited to federal procurement contracts.in addition, the government asserts that the legislative history supports the view that the Act covers all government contracts. Moreover, the government argues that the HUD contracts are prime contracts under the statute, and that the required "anti-kickback" provisions are not intended to limit the government's ability to enforce the Act.
The Anti-Kickback Act of 1986,41 U.S.C.? 53, provides that
HN1it is prohibited for any person (1) to provide, attempt to provide, or to offer to provide any kickback; (2) to solicit, accept, or attempt to accept any kickback; or (3) to include, directly or indirectly, the amount of any kickback prohibited by clause (1) or (2) in the contract price charged by a subcontractor to a prime contractor or a higher tier subcontractor or in the contract price charged [*7] by a prime contractor to the United States.
41 U.S.C.? 53. A "kickback" is defined as
HN2any 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.
41 U.S.C.? 52 (2). HN3The Act defines "prime contract" as "a contract or contractual action entered into by the United States for the purpose of obtaining supplies, materials, equipment, or services of any kind." 41 U.S.C.? 52 (4). Although civil penalties are available, section 54 makes the knowing and willful performance of conduct prohibited by the Act punishable by fine or not more than 10 years imprisonment. See id.? 54.
Burger first argues that the legislative history shows that the statute extends only to federal procurement contracts. However, HN4it is a basic tenet of statutory interpretation that the [*8] Court must look first to "the language in which the act is framed" to find its meaning. Caminetti v. United States, 242 U.S. 470,485, 37 s. Ct. 192,194, 61 l. Ed. 442 (1979). If the language of the statute is clear, the Court need not review other aids of statutory interpretation, including legislative history. See id.; see also American Rivers v. Federal Energy Regulatory Commn., 201 F. 3d 1186,1204 (9th Cir. 2000) ("this Court steadfastly abides by the principle that 'legislative history — no matter how clear — can't override statutory text'").
Defendant asserts that the plain language of the Act defines a "prime contract" as one which the United States enters "for the purpose of obtaining supplies, materials, equipment, or services of any kind." 41 U.S.C.? 52 (4) (emphasis added). Burger states that "obtain" is a synonym for "procure." Burger contends that, because the United States is not seeking to obtain anything for itself by way of the RA and HAP contracts, these contracts are not procurement or "prime contracts" within the meaning of the statute.instead, Burger argues the contracts are mere "assistance grants" [*9] or "assistance contracts" by which the government "provides benefits to certain segments of the public." United States v. Kensington Hospital, 760 F. Supp. 1120,1140 (e.D. Pa 1991).
The defendant cites Kensington for the proposition that the HUD contracts at issue are assistance grants, not prime contracts. The Kensington court found that the relationship at issue in that case, involving Medicaid, was not a traditional contract.
Rather than a voluntary agreement negotiated between two parties, a grant-in-aid program... Is an exercise by the federal government of its authority under the spending power to bring about certain public policy goals. The government acts by inducing a state or private party to cooperate with the federal policy by conditioning receipt of federal aid upon compliance by the recipient with federal statutory and administrative directives.
Kensington, 760 F. Supp. At 1137. Because there was not a contract, the court concluded that there could be no prime contract within the meaning of the statute. See id. However, Kensington dealt specifically with the Medicaid program. N2 Under Medicaid, "states [*10] seeking funds... Must submit a state plan that complies with federal regulations. The states receive the federal monies, and then distribute the funds to approved projects." Id. The contracts at issue in this case differ from those discussed in Kensington. Rather than having states apply for money which the states later distribute, HUD contracts with individual private property owners.
Under these contracts, HUD provides mortgage insurance and rent subsidies to owners in consideration for the individuals' agreement to the specific terms of the contracts, including provision of low-income housing and management services for the properties. N3 See Exhs. 2-5, attached to Dft's Mtn. To Dismiss.
- Footnotes - -
n2 The court did conclude that a contract existed in the Medicare context. However, because the court found that there was no subcontract, no liability under the statute existed. See Kensington, 760 F. Supp. 1120,1138.-
N3 Additionally, to the extent that the Kensington court stressed the difference between voluntary negotiated agreements and grant programs, the Court notes that a stated purpose of the Act's 1986 revision was to broaden the reach of the statute beyond negotiated contracts. See H.R. Rep. No. 99-964, at 8-9 (1986), reprinted in 1986 U.S.C.C.A.N. 5960,5965-65.
HN5The Act does state that the federal contract must be for the purpose of obtaining "supplies, materials, equipment, or services" in order for the federal contract to meet the Act's definition of "prime contract." However, the statute does not include a requirement that the supplies or services be for the government. Contracts providing goods and supplies to the public may also be prime contracts within the meaning of the statute. See United States v. Rozet, 183 F.R.D. 662,1998 WL 838888 at *6 (N.D. Cal. 1998) ("The Act covers all such contracts whether or not the goods and services are provided directly to the government or to a third party.").
Finally, Burger asserts that the RA and HAP Contracts do not contain the anti-kickback provisions required by the statute, and that HUD does not believe that its contracts fall within the scope of? 54. The government claims that these statutory provisions are not elements of the crime charged and are therefore irrelevant to the enforcement of the law.
Title 41 U.S.C.? 57 states that
HN6Each contracting agency shall include in each prime contract awarded by such agency a requirement that the prime contractor [*12] shall have in place and follow reasonable procedures designed to prevent and detect violations of section 53... in its own operations and direct business relationships... [and] shall include in each prime contract... A requirement that the prime contractor shall cooperate fully with any Federal Government agency investigating a violation of section 53...
41 U.S.C.? 57. HN7Although the Act states that such provisions must be included in a contract covered by the statute, the definition of prime contract itself does not mandate the anti-kickback provisions. Neither do the few cases discussed by the parties hold that such provisions must be included in order that an agreement meet the definition of prime contract.
Additionally, although the contracts at issue do not refer to 41 U.S.C.?? 53 and 57, they do contain provisions requiring that the books and records of the Projects be made available to federal inspectors and that the owners cooperate in federal investigations. See, e.G., Exh. 2, PP2,9 and Exh. 3, PP16-19, attached to Dft's Mtn. To Dismiss.
Because the Court concludes that, under the plain language of the [*13] statute, the RA and HAP Contracts are "contracts or contractual actions" which constitute prime contracts under the Act, defendant's motion to dismiss on this ground is DENIED.
2. The Rule of Lenity
Burger argues that the DOJ's construction of the statute denies him due process, because neither the statute, the indictment, nor the actions of HUD provide fair notice of what aspect of defendant's conduct is considered "improper, " thereby constituting a "kickback" under the statute. Accordingly, defendant asserts that the Court should apply the rule of lenity and strictly construe the statute against the government. The government contends that because both the language of the statute and the documents provided by HUD make clear that Burger's actions were improper, defendant had adequate notice of the fact that the Act was applicable to his conduct. The Court agrees with defendant.
The Supreme Court has ruled that HN8ambiguity concerning the applicable scope of a criminal statute must be "resolved in favor of lenity." Bell v. United States, 349 U.S. 81 83,75 s. Ct. 620,622, 99 l. Ed. 905 (1955). When more than one reading of a statute is possible, "'it is appropriate, [*14] before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.'" Jones v. United States, 529 U.S. 848 WL 645885 at *6 (quoting United States v. Universal C.I.T. Credit Corp., 344 U.S. 218,221-22,73 s. Ct. 227,97 l. Ed. 260 (1952). However, "the mere possibility of articulating a narrower construction... Does not itself make the rule of lenity applicable." Warren v. Crabtree, 185 F. 3d 1018,1023 (9th Cir. 2000) (citations and quotation marks omitted). Rather, a court may employ the rule of lenity only when the court finds that "there is a grievous ambiguity or uncertainty in the statute." Muscarello v. United States, 524 U.S. 125,139, 118 s. Ct. 1911,1919, 141 l. Ed. 2d 111 (1998) (citations and internal quotation marks omitted).
The Anti-Kickback Act defines a "kickback" as
HN9any 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 [*15] or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract.
41 U.S.C.? 52 (2) (emphasis added). Although the historical and statutory notes provide that the terms "favorable treatment" and "kickback" are to be construed broadly, the Committee notes that "the term 'improperly' [was included] to ensure that exchange [sic] made under acceleration provisions, or for other permissible purposes, such as innocent or incidental favors, are not included under the definition of 'kickback.'"
The Committee's list explicitly leaves open the possibility of "other permissible purposes." Consequently, the government's argument that defendant's actions were improper because they constituted a kickback reflects circular reasoning.in order to amount to a kickback under the statute, the behavior must be "improper." Therefore, a defendant must be on notice that the alleged conduct is "improper." The Court concludes that Burger was not provided fair notice of whether his actions were considered improper.
The government contends that a December 1994 HUD Handbook modification, which articulated a [*16] new policy requiring "that no payments have been made to the owner in return for awarding the management contract to the agent and such payments will not be made in the future, " placed Burger on notice of the impropriety of his alleged acts.inspector General Memo., at 2, attached as Exh. 10 to Dft's Mtn. To Dismiss. However, the indictment alleges that Burger was appointed managing agent and entered into fee-sharing arrangements on or about April 1,1994. See Indictment P21. As a result, the Management Certifications signed by Burger did not contain the December 1994 disclosure requirement. See id. P21.
Additionally, while the Handbook was modified in December 1994, the parties agree that the actual Management Certification forms themselves were not modified to include the 1994 policy until May 28,1996. See Inspector General Memo., at 2, attached as Exh. 10 to Dft's Mtn. To Dismiss. Moreover, in December 1996, HUD announced that owners and agents would be exempted from providing the certification and disclosure required by the 1994 Handbook if owners and agents merely provided "a statement of disagreement with the requirement." Legislative Proposals to Improve Program [*17] Enforcement, Enhance Operation Safe Home, Increase Accountability in Awarding Financial Assistance, and Reform Wasteful or Ineffective Features in Certain Programs, Office of Inspector General, U.S. Dept. Of Housing and Urban Development (Feb. 1997) (hereinafter "Proposal"), at 2, attached as Exh. 9 to Dft's Mtn to Dismiss. Therefore, the Court rejects the government's argument that defendant should have been "on notice" that his April 1994 agreement potentially fell within the disclosure requirement of December 1994.
As late as June 20,1996, HUD Inspector General Susan Gaffney issued a memorandum requesting that "the Office of Housing immediately issue a policy directive prohibiting all fee splitting practices." Inspector General Memo., at 1, attached as Exh. 10 to Dft's Mtn. To Dismiss. She argued that fee-splitting was "an indefensible practice that does not benefit multifamily projects" and which is "essentially a kickback scheme" that "enables owners to circumvent regulatory agreement restrictions on direct distributions to owner of project profits." She noted, however, that HUD staff has suggested that "HUD has no right to restrict a management agent's use of its earned fees, [*18] " and cited to statements by Office of Housing staff that "earned management fees are the 'property of the agent to do with as they see fit' and that an agreement to split fees is 'beyond the scope of HUD oversight.'" Id. At 2. For these reasons, the Inspector General urged that HUD immediately issue a new policy directive prohibiting all fee splitting. Accordingly, it appears that in 1996 even the agency itself did not believe that fee splitting was prohibited by the December 1994 HUD Handbook addition, which the Inspector General noted was itself "not strictly enforced." Id. At 2.
In February, 1997, HUD's Office of the Inspector General provided Congress with a legislative proposal. See Proposal, attached as Exh. 9 to Dft's Mtn to Dismiss.in a memorandum accompanying this proposal, the agency stated that it was "unclear whether any civil remedy currently exists to challenge fee splitting arrangements because management fees, once earned by the agent, are not regarded as project assets or income." Id. At 3. Accordingly, the Inspector General's Office "proposed that the Congress settle the matter by creating a remedy to deter these kickback schemes." Id.
Thus, [*19] although it appears that some HUD members believed fee-splitting to be a disfavored practice, HUD documents confirm that the practice was not considered sufficiently improper to promulgate prohibitive policy directives. Nor did HUD believe fee-splitting was a criminal violation. Furthermore, HUD did not even view its 1994 Handbook modification as a policy directive prohibiting the practice. With the impropriety of fee-splitting in flux even within HUD as late as 1997, the Court cannot conclude that defendant was on notice that his fee-sharing agreements were "improper" under the Anti-Kickback Act of 1986. N4
N4 This is particularly true, given the enhanced scienter required by the statute. Section 54 provides that "any person who knowingly and willfully engages in conduct prohibited by section 53 of this title shall be imprisoned for not more than 10 years or shall be subject to a fine in accordance with Title 18, or both." The House Report committee notes to the 1986 Act state that "In light of the bill's stiff criminal penalties and broad scope, the Committee believes the high standard of conscious culpability — willfulness — must be shown to impose the criminal sanctions."
Because defendant would have been unable to determine that the conduct at issue was "improper" under the statute, the Court concludes that the application of the rule of lenity is required in this case. Accordingly, defendant's motion to dismiss Counts 13-45 is GRANTED.
B. Motion for Bill of Particulars
Defendant requests a bill of particulars clarifying the meaning of "improperly" in the Act's phrase "for the purpose of improperly obtaining and rewarding favorable treatment in connection with a contract entered into by the United States..." in the indictment. 41 U.S.C.? 52. As a result of the Court's disposition on defendant's motion to dismiss, this motion is moot. Accordingly, the motion is DENIED. N5
N5 The parties also briefed various issues regarding discovery. Because counsel have indicated their intent to resolve these matters without judicial intervention, the Court will not rule on the motion for discovery at this time.
Conclusion
For the foregoing reasons, [*21] the Court GRANTS defendant's motion to dismiss counts 13-45 of the indictment and DENIES defendant's motion for a bill of particulars as moot.
It is so ordered.
Dated: June 2
Susan illston
United States District Judge
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