NAOMI REICE BUCHWALD, District Judge.
The United States of America ("Government") brings this civil action against defendant Daniel B. Karron ("Karron") to recover damages and civil penalties under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. Before us is the Government's motion for summary judgment on both liability and damages. In that motion, the Government contends that Karron's related conviction under 18 U.S.C. § 666 for intentionally misapplying federal funds precludes Karron from contesting liability in this civil action.
For the reasons stated herein, the Government's motion is granted in part and denied in part.
At all times relevant hereto, Karron was the President and Chief Technical Officer of Computer Aided Surgery, Inc. ("CASI").
CASI's proposal was entitled "Anatomic Computer Modeling for Precise and Accurate Therapies." (R. 56.1 SI 5.) In the proposal, Karron stated that CASI would develop computer applications that would "rapidly generate encrypted, precise, accurate, and variable resolution three dimensional tiled models applicable for diverse applications [such] as radiation therapy, surgical planning, intraoperative guidance, rapid manufacturing of prosthesis" and other uses. (R. 56.1 ¶¶ 5-7.)
Karron also included an estimated budget in the CASI proposal. (R. 56.1 ¶ 8.) In that budget, Karron projected that CASI's costs would total $2,110,500 over a three-year period, of which $2,000,000 would come from ATP. (R. 56.1 ¶¶ 8-10.) Karron also specified in the budget that CASI would enter into a subcontract with the City University of New York's Institute for Software Design and Development ("CUNY"). (R. 56.1 ¶¶ 11-12.) By virtue of this subcontract, CUNY faculty, visiting scientists, and graduate students would work on the CASI project. (R. 56.1 ¶ 12.)
In October 2001, ATP notified Karron that her proposal had been approved. (R. 56.1 ¶ 16.) Thereafter, Karron signed a so-called cooperative agreement, which provided that: ATP would grant CASI $2,000,000 in federal funds over three years; CASI would gain exclusive rights to any intellectual property developed under the cooperative agreement; and CASI would share certain costs during the life of the project. (R. 56.1 ¶¶ 17-21.)
The cooperative agreement also called for CASI to comply with certain federal regulations. (R. 56.1 ¶ 17-18.) These regulations specified, inter alia, the actions that CASI was required to take in connection with its use of ATP funds. First, to access the funds, CASI was obligated to submit a "Request for Advance or Reimbursement" on Form SF-270. (R. 56.1 ¶ 17; Chukran Decl. ¶ 3 (citing 15 C.F.R. § 14.22).) Second, after receiving the ATP funds, CASI was required to submit a "Federal Cash Transactions Report" on Form SF-272 to account for its use of the funds.
Each of the above-mentioned forms required CASI's "Authorized Certifying Official" to certify that the statements on the form were accurate and that CASI had complied with the terms of the cooperative agreement.
ATP conducted a limited audit of CASI in June 2003. (R. 56.1 ¶ 26.) As a result, ATP learned that Karron and CASI failed to comply with the cost share, drew down funds exceeding the amount to which CASI was entitled, failed to enter into a subcontract with CUNY, and made impermissible expenditures. (R. 56.1 ¶¶ 26-31.) On June 27, 2003, ATP suspended its cooperative agreement with CASI. (R. 56.1 ¶ 26.)
In June 2007, Karron was indicted for allegedly violating 18 U.S.C. § 666. The indictment charged, consistent with the language of the statute, that Karron knowingly misapplied more than $5,000 of funds in the care, custody, and control of CASI, a company that received more than $10,000 in federal funds during a one-year period. See United States v. Karron, No. 07 Cr. 541(RPP), 2007 WL 4201529 (S.D.N.Y. filed June 13, 2007) (dkt. no. 1). Nearly a year later, the Government filed a second superseding indictment. In that indictment, the Government again included a single count under 18 U.S.C. § 666 but also included a forfeiture allegation. Id. (dkt. no. 44).
A jury trial commenced on June 2, 2008 and continued for eight days. Id. (dkt. nos. 50-51). During the trial, the Government introduced evidence that:
On June 11, 2008, at the conclusion of the trial, the court instructed the jury to determine whether the Government proved beyond a reasonable doubt that:
(Trial Tr. 1350:5-15.) The court further instructed the jury that:
(Trial Tr. 1351:16-1352:11 (emphasis added).) Later that day, the jury returned a guilty verdict against Karron on Count One of the second superseding indictment. (R. 56.1 ¶ 1.)
In October 2008, the court sentenced Karron to seven and one-half months of imprisonment, to be followed by three years of post-release supervision (which included a period of monitored home confinement). The court also ordered Karron to pay $120,000 in restitution. See United
Karron appealed her conviction to the Court of Appeals for the Second Circuit. On appeal, Karron argued that: (1) the district court erred when it instructed the jury to determine whether Karron "intentionally misapplied funds," rather than instructing the jury that "intent to defraud" is an element of the crime; and (2) 18 U.S.C. § 666 was void for vagueness. The Second Circuit rejected Karron's arguments and affirmed her conviction by summary order dated October 7, 2009. United States v. Karron, 348 Fed.Appx. 632, 633 (2d Cir.2009).
On November 24, 2008, the Government commenced this civil action against Karron. The complaint includes two causes of action under the FCA and four state law causes of action for conversion, unjust enrichment, fraud, and payment made under mistake of fact.
Following Karron's release from custody, the Government filed the instant motion for summary judgment. As noted above, the Government seeks a judgment: (1) holding Karron liable under the FCA; (2) awarding damages equal to three times the amount of funds that Karron drew down from ATP; and (3) awarding civil penalties for twenty false statements allegedly made by Karron when she obtained these funds.
Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)); see also Quarles v. Gen. Motors Corp., 758 F.2d 839, 840 (2d Cir.1985). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
On a motion for summary judgment, the initial burden rests with the moving party to make a prima facie showing that no
The Government argues that the doctrine of collateral estoppel precludes Karron from denying liability for her false statements. Specifically, the Government argues that two related doctrines apply: first, that Karron is precluded from denying liability under the federal common law principle of collateral estoppel; and second, that Karron is precluded from denying liability under the provision of the FCA that specifically prohibits an individual convicted of fraud or false statements from denying liability for false statements in a subsequent civil action. In opposition, Karron argues that these doctrines do not apply and that summary judgment should be denied.
The preclusive effect of a criminal conviction on future civil proceedings is well established. See, e.g., Allen v. McCurry, 449 U.S. 90, 104 n. 22, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980); Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558, 568-69, 71 S.Ct. 408, 95 L.Ed. 534 (1951). Indeed, "[a] criminal conviction, whether by jury verdict or guilty plea, constitutes estoppel in favor of the United States in a subsequent civil proceeding as to those matters determined by the judgment in the criminal case." New York v. Julius Nasso Concrete Corp., 202 F.3d 82, 86 (2d Cir.2000); see also Stichting ter behartiging van de belangen van oudaandeelhouders in het kapitaal van Saybolt Int'l B.V. v. Schreiber, 327 F.3d 173, 180 (2d Cir. 2003). Under the federal common law principle:
Stichting, 327 F.3d at 180 n. 2 (citing NLRB v. Thalbo Corp., 171 F.3d 102, 109 (2d Cir.1999)).
For claims arising under the FCA, an analogous principle of collateral estoppel is codified at 31 U.S.C. § 3731(e). Pursuant to this provision:
31 U.S.C. § 3731(e).
As described above, the essential elements of the offense of which Karron was convicted are: (1) Karron was an agent of CASI; (2) in a one-year period, CASI received a federal grant in excess of $10,000; (3) Karron without authority intentionally misapplied the grant money; (4) the misapplied grant money was under the care, custody, or control of CASI; and (5) the value of the money that Karron intentionally misapplied was at least $5,000. Moreover, as the court instructed the jury, the "misapplication must have been the product of the defendant's conscious objective to spend the money for an unauthorized purpose, rather than the product of a mistake or accident or some other innocent reason."
As noted above, the Government has brought claims under former § 3729(a)(1) and § 3729(a)(2), the latter of which was subsequently redesignated as § 3729(a)(1)(B). Under former § 3729(a)(1), the Government must establish that Karron:
See United States ex rel. Mikes v. Strauss, 274 F.3d 687, 695 (2d Cir.2001); see also 31 U.S.C. § 3729(a)(1)(2003) (liability attaches under the FCA where a person "knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval"). Under current § 3729(a)(1)(B), the Government must establish that Karron "knowingly ma[de], use[d], or cause[d] to be made or used, a false record or statement material to a false or fraudulent claim." Id. § 3729(a)(1)(B). "Material" is statutorily defined as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." Id. § 3729(b)(4).
We agree with the Government that Karron's prior criminal conviction precludes her from denying the essential elements of both of these civil causes of action.
Turning first to statutory estoppel, Karron was convicted following a jury trial and her conviction is now final. See United States v. Karron, 348 Fed.Appx. 632 (2d Cir.2009), cert. denied, ___ U.S. ___, 130 S.Ct. 1555, 176 L.Ed.2d 153 (Feb. 22, 2010). Additionally, the present civil action and the prior criminal action plainly stem from the same conduct—namely, Karron's drawing down government funds based on false information, using the funds for unauthorized purposes, and falsely accounting for her use of the funds.
After reviewing the trial transcript and the jury instructions from the criminal case, it is clear that the jury's verdict is more than sufficient to establish liability on these elements. Specifically, the jury found that Karron intentionally misapplied the grant, that it was Karron's conscious objective to do so, and that Karron's actions did not result from mistake or other non-culpable conduct. Additionally, Karron was required to certify that her use of the ATP funds was proper before gaining access to the funds and again after the expenditures were made. As a result, the jury's finding that Karron's misuse was intentional and not a product of mistake specifically precludes Karron from contending that she was not aware that her certifications were false. Moreover, Karron does not dispute that her statements to the Government were false. However, even assuming that Karron were to now argue that her statements to the Government were true, the jury's verdict would preclude such an argument.
In addition, we find that Karron is statutorily estopped from contesting liability in connection with the second FCA cause of action. See 31 U.S.C. § 3729(a)(1)(B) (imposing liability for "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim."). For the reasons
Additionally, the criteria for estoppel under federal common law are plainly satisfied for both of the FCA claims: the criminal and civil cases both presented the same issues of Karron's misuse of government funds and the falsity of her submissions to the Government; Karron had a full and fair opportunity to litigate the relevant issues in the criminal action, when she was represented by counsel; and the issues relevant to the civil action were actually litigated, actually decided, and were necessary to support the jury's verdict. Thus, we likewise conclude that Karron's conviction "forecloses all questions relevant to civil liability" under the general doctrine of collateral estoppel. See United States v. Diamond, 657 F.Supp. 1204, 1205 (S.D.N.Y.1987).
Karron raises a number of arguments in opposition to the Government's motion. First, Karron argues that her statements were not knowingly false but that the forms were "fraught with uncaught technical errors, and other mistakes ..." (Memorandum of Law in Opposition to Plaintiffs Motion for Summary Judgment ("P. Mem.") at 9.) However, this argument is necessarily foreclosed by the verdict because the jury was charged that, in order to convict, "[Karron's] misapplication must have been the product of [her] conscious objective to spend the money for an unauthorized purpose, rather than the product of a mistake or accident or some other innocent reason."
Second, Karron argues that any misstatements were harmless because Karron contributed funds to CASI from her after-tax salary. (P. Mem. at 14-15.) We decline to address this argument because the jury was specifically charged that criminal liability for the misapplication of funds does not apply to bona fide wages, salary, or other benefits. Moreover, this argument is more properly construed as a challenge to damages, and for the reasons discussed in Section III-A, infra, whether Karron contributed her own funds to CASI does not bear on the proper damages calculation.
Third, Karron contends that estoppel is unwarranted because the FCA and common law fraud claims require proof of intent to defraud and her conviction did not require any such proof. (P. Mem. 15-19, 28-32.) However, the common law fraud claim is not presently before us and the FCA claims require no proof of intent to defraud. See 31 U.S.C. § 3729(b)(1)(B) ("For purposes of this section ... the terms "knowing" and "knowingly" ... require
Fourth, Karron argues that any false statements were "mooted" by the fact that ATP later excused CASI from certain filing requirements. However, there is simply no principled reason to conclude that Karron's false statements to the Government were rendered accurate because of ATP's later amendment of the cooperative agreement.
Finally, Karron devotes much of her memorandum of law and supporting affidavits to the argument that she properly used and accounted for every dollar of ATP funds. However, the jury verdict precludes Karron from relitigating this issue as well.
Accordingly, for the reasons stated herein, we conclude that Karron's prior conviction is entitled to preclusive effect and that entry of summary judgment in favor of the Government is proper.
Pursuant to § 3729(a), a person who violates the FCA is liable for "3 times the amount of damages which the Government sustains because of the act of that person." 31 U.S.C. § 3729(a). The Government argues that Karron is liable for three times the amount that CASI received from ATP—or three times $1,345,500—less any amount that Karron has paid or will pay to the Government in restitution.
In computing actual damages, the Supreme Court of the United States has held that "[t]he Government's actual damages are equal to the difference between the market value of the [items] it received and retained and the market value that the [items] would have had if they had been of the specified quality." United States v. Bornstein, 423 U.S. 303, 317 n. 13, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976). However, where the Government has not received assets with an ascertainable value, a number of circuits have held that the above measure of damages does not govern. According to these courts, the proper measure of damages in that context—prior to trebling—is the full amount of the grant or amount received by the defendant. See, e.g., United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 472-73 (5th Cir.2009) (affirming award of damages based on full amount of Government grant without offset); United States v. Rogan, 517 F.3d 449, 453 (7th Cir.2008) (affirming award of damages based on total amount that defendant received from Government without offset); United States v. Mackby, 339 F.3d 1013, 1018-19 (9th Cir. 2003) (rejecting damages offset where the Government had received no asset of ascertainable value), cert. denied, 541 U.S. 936, 124 S.Ct. 1657, 158 L.Ed.2d 356 (2004); United States v. TDC Mgmt. Corp., Inc., 288 F.3d 421, 427-28 (D.C.Cir. 2002) (same).
The courts that have directly addressed this issue have reasoned that when a grant is provided to a disqualified participant, the government loses all benefit of its bargain. For example, in Longhi, the Fifth Circuit stated that:
575 F.3d at 473; see also TDC Mgmt., 288 F.3d at 428 ("Once [defendant] deviated
Although the Second Circuit has not directly addressed this issue, a number of courts in this Circuit have adopted the above reasoning. See United States ex rel. Feldman v. Van Gorp, No. Civ. 8135(WHP), 2010 WL 1948592, at *2 (S.D.N.Y. May 3, 2010) (denying defendant's motion for reconsideration in an FCA action and noting that the fact-finder "may properly conclude that the measure of damages is the total amount the government paid"); United States ex rel. Antidiscrimination Ctr. of Metro New York, Inc. v. Westchester County, No. 06 Civ. 2860(DLC), 2009 WL 1108517, *2-3 (S.D.N.Y. Apr. 24, 2009) (granting plaintiff's motion in limine in an FCA action and precluding defendant from arguing to the jury that plaintiffs damages should be reduced by the "benefit" defendant conferred on the government); United States ex rel. Resnick v. Weill Med. Coll., Civ. 3088(WHP), 2009 WL 637137, at *3 (S.D.N.Y. Mar. 5, 2009) (approving settlement in an FCA action and noting that "substantial risks" to continuing the action include the risk that defendant will be exposed to damages based on the whole value of the grant).
We agree that Karron cannot establish that the Government received any ascertainable benefit from its relationship with CASI. Even assuming that CASI in fact met various milestones and provided reports to the Government, such actions yielded no tangible benefit to the Government. This point is underscored by the fact that CASI, not the Government, retained exclusive rights to any technology developed under the cooperative agreement. Likewise, if CASI and Karron develop a successful product in the future, they, not the Government, will retain the benefit. Accordingly, we grant this portion of the Government's motion for summary judgment on damages and conclude that the proper damage award is three times $1,345,500—or $4,036,500—less any amount that Karron has paid or will pay to the Government in restitution.
Liability under the FCA also triggers the imposition of civil penalties. See
The Government argues that Karron is subject to penalties for each false report or certification that she made to the Government. The Government further asserts that Karron submitted "at least twenty false statements to the ATP," including nine Requests for Advance or Reimbursement on Form SF-270, seven Federal Cash Transactions Reports on Form S272, and four false Financial Status Reports on Form SF-269A. Karron argues that some of the documents are duplicative or are revisions of prior submissions and thus penalties should not be imposed for each of the twenty documents.
Our concern is more fundamental. We are not persuaded that summary judgment is proper at this stage on the issue of civil penalties because the Government has failed to specify the precise aspect of each of the twenty documents that is false. To clarify, the Government has established that Karron made false statements as a general matter and has unquestionably established at least one false statement.
Accordingly, we impose a civil penalty of $5,500 for the false claim discussed herein and otherwise deny the Government's motion for summary judgment with respect to the imposition of civil penalties.
For the foregoing reasons, the motion (docket no. 17) is granted in part and denied in part. Additionally, based on the Government's statement at oral argument that a finding for the Government on the FCA claims would eliminate the need to address the pending state law claims, we dismiss the remaining state law claims.
Within two weeks, the Government shall advise the Court in writing about its proposed course of action regarding its request for civil penalties. If the Government determines not to pursue its claims for additional civil penalties, it shall submit a judgment on notice.
In construing the retroactivity provision, the Second Circuit has concluded that FERA applies to all legal claims (i.e., cases) pending on or after June 7, 2008. See id. Although other circuits have reached an alternative conclusion—namely, that the FERA amendments apply to claims for payment made to the government on or after that date—we are bound by Schindler Elevator. Thus, because this action was pending after June 7, 2008, it involves the application of former § 3729(a)(1) and current § 3729(a)(1)(B). We reject Karron's arguments that the application of the FERA amendments in this case is unconstitutional. Nevertheless, for reasons discussed herein, the outcome of the case would be the same under either version of the statute.
In this context, we address Karron's challenges. First, we find Karron's Double Jeopardy challenge to be unfounded. Such an analysis turns on whether the legislature intended the penalty to be criminal or civil in nature. Here, damages imposed under the FCA have a legitimate compensatory component and we remain unconvinced that the damages are "so punitive in form and effect as to render them criminal despite Congress' intent to the contrary." Hudson v. United States, 522 U.S. 93, 103-05, 118 S.Ct. 488, 139 L.Ed.2d 450 (1997); see also Rogan, 517 F.3d at 453-54 (rejecting Double Jeopardy challenge); United States v. LaManna, 114 F.Supp.2d 193, 197-98 (W.D.N.Y.2000) (same). Second, we reject Karron's Excessive Fines Clause argument. It is well-settled that punitive damages do not constitute "fines" for the purpose of an Eighth Amendment analysis, Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 259-60, 109 S.Ct. 2909, 106 L.Ed.2d 219 (1989), and, as discussed above, treble damages under the FCA are distinct from traditional punitive damages. Chandler, 538 U.S. at 130, 123 S.Ct. 1239. Thus, it follows that a damages award in this action would not run afoul of the Excessive Fines Clause. See Rogan, 517 F.3d at 453-54 (rejecting challenge under the Excessive Fines Clause); United States v. Inc. Vill. of Island Park, No. 90 Civ. 992(ILG), 2008 WL 4790724, at *6 (E.D.N.Y. Nov. 3, 2008) (same). Third, we reject Karron's argument that the damages imposed would violate the Due Process Clause of the Fifth Amendment. The statute is clear that courts must impose both civil penalties and treble damages for violations of the FCA. See 31 U.S.C. § 3729(a)(1). Additionally, we are not aware of a successful due process challenge to the FCA's scheme of damages, which has been in place since Congress amended the FCA in 1986 to "facilitat[e] enforcement generally." See Graham County, 130 S.Ct. at 1415 n. 7 (Sotomayor, J., dissenting); see also Rogan, 517 F.3d at 454 (rejecting due process challenge). Moreover, because we decline to impose civil penalties in connection with 19 of the 20 claims at this stage of the case, the total damage award at present is just over three times actual damages, which is not "grossly excessive" under State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418-25, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). Furthermore, even if the Court imposed the maximum civil penalty for the remaining 19 claims, the additional penalties would not change the damages award in a way that would trigger due process concerns. Finally, although we agree with the Government that any damage award imposed would be well within constitutional limits, we comprehend Karron's concern about the imposition of additional penalties and therefore encourage the Government to consider whether it is necessary to further pursue civil penalties.
