Opposition Brief — Paxson Electric Co. v. United States

—

PAXSON ELECTRIC COMPANY AND

| WESLEY C. PAXSON, SR., PETITIONERS

ya es

UNITED STATES OF AMERICA

DYNALECTRIC COMPANY AND

‘G.W. WALTHER EWALT, PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

WILLIAM C, BRYSON

Acting Solicitor General

CHARLES F. RULE

Assistant Attorney General

KENNETH G. STARLING

Deputy Assistant Attorney General

JOHN J. POWERS, III

ANDREA LIMMER

Altorneys

Department of Justice

Washingion, D.C. 20530

(202) 633-2217

QUESTIONS PRESENTED

1. Whether a bid-rigging, profit-splitting conspiracy

continues for purposes of the criminal statute of limita-

tions until the conspirators receive their anticipated profits

and payoffs on the rigged contract (Nos. 88-1325 and

88-1328).

2. Whether petitioners were properly convicted of

mail fraud where the indictment charged that they de-

prived their victims of “money” and the jury was in-

structed that it must find that the victims were deprived of

“money” in order to convict (No. 88-1325).

3. Whether it was an abuse of discretion for the dis-

trict court to deny an evidentiary hearing on a claim that

immunized testimony was improperly used by the govern-

ment, where the district court found that the government

made a detailed, thorough, and complete showing that it

had not made any improper use of such testimony, and the

objecting witness failed to demonstrate that an evidentiary

hearing would adduce any information to rebut that show-

ing (No. 88-1325).

4. Whether the district court abused its discretion in

refusing to give certain proposed jury instructions (No.

88-1328).

5. Whether the district court abused its discretion in

refusing to admit certain evidence that it found to be ir-

relevant (No. 88-1328).

(I)

TABLE OF CONTENTS

Page

EI OR es ee ea ee 1

I ER are ee ee 2

al a FE en oe ne era 2

eee eee bet ibe adh banideewsesenee nae 6

ee eee Se Cada w kw KN Wee ee a8 18

TABLE OF AUTHORITIES

Cases:

Atkins v. United States, 307 F.2d 937 (9th Cir. 1962) .... 8

Braswell v. United States, 108 S. Ct. 2284 (1988) ........ 12

Grunewald v. United States, 353 U.S. 391 (1957) ........ 8

Hyde v. United States, 225 U.S. 347 (1912) ............. Pe

Kastigar v. United States, 406 U.S. 441 (1972) .......... 5, 12

Koury v. United States, 217 F.2d 387 (6th Cir. 1954) ..... 8

McNally v. United States, 107 S. Ct. 2875 (1987) ....... 5,9, 10

United States v. A-A-A Electrical Co., 788 F.2d 242 (4th

ee ee occa ce cakcbasdonsdbsccn’ 7

United States v. Baresh, 790 F.2d 392 (Sth Cir. 1986) .... )

United States v. Evans & Assocs. Constr. Co., 839 F.2d

ee in pcan een sn sceeuesdsse 6

United States v. Gibbs, 813 F.2d 596 (3d Cir.), cert.

es i eck cb cee stenwcces y

United States v. Girard, 744 F.2d 1170 (Sth Cir. 1984) ... 7

United States v. Giry, 818 F.2d 120 (ist Cir.), cert. denied,

ka aca Weegaussenceaes )

United States v. Hampton, 775 F.2d 1479 (11th Cir.

i ada du bends sesh ees 13

United States v. Hartness, 845 F.2d 158 (8th Cir.), cert.

Ce )

United States v. Helmich, 704 F.3d 547 (11th Cir.), cert.

CEE 8

United States v. Inryco, Inc., 642 F.2d 290 (9th Cir. 1981),

cert. dismissed, 454 U.S. 1167 (1982) ................ 7

(111)

IV

Cases — Continued: Page

United States v. Kissel, 218 U.S. 601 (1910) ........... 7, 8-9

United States v. Lipkis, 770 F.2d 1447 (9th Cir. 1985) .... 14

United States v. Mennuti, 679 F.2d 1032 (2d Cir. 1982) ... 8

United States v. McDaniel, 482 F.2d 305 (8th Cir. 1973) .. 13

United States v. Nemes, 555 F.2d 51 (2d Cir. 1977) ...... 14

United States v. Northern Improvement Co., 814 F.2d 540

(8th Cir.), cert. denied, 108 S.Ct. 141 (1987) .......... 6-7

United States v. Provenzano, 620 F.2d 985 (3d Cir.), cert.

oe ee ere 14

United States v. Shelton, 848 F.2d 1485 (1988) .......... 11

United States v. Walker, 653 F.2d 1343 (9th Cir. 1981),

cest. denied, 455 U.S. 906 (1962) ................... 7

Statutes:

Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690,

ee re as iw ak ew awe een 12

Criminal Fine Enforcement Act of 1984, Pub. L. No.

98-596, 98 Stat. 3134:

oo cn bn cua dweecseswnduceas y

ee sd eae ewes eu ewe 9

Sherman Act, 15 U.S.C. 1 ef seq.:

Sn ey aM a DZ 2

ce. SUL Sub dmeeeueonkees wees 4

ree ae er 7

2G a oe 2

Pe ee ee ea ys ere e ewes 4

SP Eran ME EI, OU BOUIN cece ccnaceedsvanéave y

18 U.S.C. 3623(c)(1) (Supp. IV 1986) ................. -

Jn the Supreme Court of the Gnited States

OCTOBER TERM, 1988

No. 88-1325

PAXSON ELECTRIC COMPANY AND

WESLEY C. PAXSON, SR., PETITIONERS

Vv.

UNITED STATES OF AMERICA

No. 88-1328

DYNALECTRIC COMPANY AND

G.W. WALTHER EWALT, PETITIONERS

v.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (88-1325 Pet. App.

1a-42a)! is reported at 859 F.2d 1559. The opinions of the

district court (Pet. App. 44a-80a) are not reported.

'! Unless otherwise indicated, “Pet. App.” refers to the appendix to

the petition in No. 88-1325.

(1)

2

JURISDICTION

The judgment of the court of appeals was entered on

_ November 21, 1988. Petitions for rehearing were denied

on January 4, 1989. The petition for a writ of certiorari in

No. 88-1325 was filed on February 8, 1989. The petition

for a writ of certiorari in No. 88-1328 was filed on Febru-

ary 9, 1989. The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1).

STATEMENT

Petitioners were convicted on one count of conspiracy

to restrain interstate trade, in violation of the Sherman

Act, 15 U.S.C. 1, and on two counts of mail fraud, in

violation of 18 U.S.C. 1341. Petitioner Wesley Paxson

was sentenced to six months in prison, to be followed by

18 months’ probation, and was fined a total of $126,000.

Petitioner Paxson Electric Co. was fined a total of

$951,000. Petitioner Dynalectric Company was fined a.

total of $1,501,000. Petitioner Ewalt was sentenced to six

months in prison, to be followed by 18 months’ probation,

and was fined a total of $26,000. The court of appeals af-

firmed. Pet. App. la-42a.

1. Petitioner Paxson Electric Company (Paxson Elec-

tric), petitioner Dynalectric Company (Dynalectric), and a

third electrical contractor, Fischbach and Moore, Inc.

(Fischbach), all planned to submit bids in late 1979 on a $5

million electrical subcontract for a federally funded waste

water treatment project in DeKalb County, Georgia,

known as Snapfinger Creek. Petitioner Wesley C. Paxson,

Sr., was the president of Paxson Electric. Petitioner Ewalt

was the president of Dynalectric.

The evidence at trial showed that petitioners and Fisch-

bach rigged their bids on the Snapfinger Creek project. |

Fischbach’s Atlanta branch manager, Bernard Trepte,

ee Oe

testified that he met with Wesley Paxson and Walther

Ewalt before the bids were to be submitted and agreed to

rig the bids. The purpose of their agreement was to ensure

that Paxson Electric would be the low bidder and would be

selected for the job. In exchange, Paxson Electric agreed

to forgive a pre-existing $89,000 debt that Fischbach owed

it from an earlier project and agreed to give Dynalectric

one-half of the profits that Paxson Electric would receive

on the Snapfinger project. Paxson Electric was selected

for the job and subsequently divided its $1.7 million profit

with Dynalectric. Pet. App. 3a-4a.

Trepte’s account of the bid-rigging agreement was cor-

roborated by Paxson Electric and Dynalectric employees

and by business records. The evidence showed that Dyna-

lectric’s bid was considerably higher than Dynalectric’s

branch manager had estimated that it would be. In addi-

tion, the evidence showed that petitioner Wesley Paxson

directed his accountant to transfer the $89,000 Fischbach

debt to the Snapfinger project and that no attempt was

ever made to collect that debt. The evidence also estab-

lished that Paxson Electric paid Dynalectric $880,000, ap-

proximately one-half of the profits on the Snapfinger

project, even though Paxson Electric’s affiliate, CCC

Electric, had performed all the work and Dynalectric had

not contributed any capital, equipment, or services to the

project. See Pet. App. 4a, 27a-28a; 17 R. 1603-1604; 20 R.

2259, 2389-2391.

? Petitioners unsuccessfully argued at trial that the $880,000 pay-

ment was made pursuant to a silent joint venture between Dynalectric

and Paxson Electric that was lawfully formed after the bids were sub-

mitted because Paxson feared that Ewalt would take the job away

from him. !6 R. 1365; 20 R. 2387; 21 R. 2537. The evidence showed,

however, that Paxson knew that his company had been designated as

the electrical subcontractor by the general contractor at the time the

bids were submitted; it also showed that the designation could not be

4

2. Thecourt of appeals affirmed the convictions on all

counts. Pet. App. la-42a. The court first rejected peti-

tioners’ contention that the prosecution was barred by the

five-year criminal statute of limitations, 18 U.S.C. 3282.

Contrary to petitioners’ argument, the court of appeals

concluded that the statute of limitations did not begin to

run on the date on which the rigged contract was

awarded.* Pet. App. 4a-17a. Adopting the position taken

by every other court of appeals that has considered the

issue, the court held “that a criminal conspiracy to restrain

trade by collusive, anti-competitive bidding continues for

the purposes of the five-year statute of limitations until

either the final payments are received under the illegal con-

tract or the final distribution of illicit profits among the

conspirators occurs.” Jd. at 8a-9a.* In this case, Dyna-

lectric received its final payoff from Paxson Electric in

1983, and Paxson Electric continued to receive payments

pursuant to the rigged contract until 1985 (id. at 4a); both

events occurred well within the five-year period preceding

the filing of the indictment.

The court of appeals also heid that petitioners’ mail

fraud convictions were consistent with this Court’s de-

changed without Paxson Electric’s consent. 13 R. 782; 19 R. 2078; 20

R. 2380; 22 R. 2724. The evidence further showed that the supposedly

lawful silent joint venture was carefully kept secret both from the con-

tracting authorities and from employees of Paxson Electric and Dyna-

lectric. 9 R. 86-87: 13 R. 783; 16 R. 1310; 17 R. 1594-1595, 1640; 19 R.

2049; 20 R. 2387-2388; 21 R. 2402, 2436.

3 The contract was awarded on January 14, 1980. The indictment

was filed on September 16, 1986.

+ The court rejected petitioners’ reliance on the civil antitrust statute

of limitations, 15 U.S.C. 15b, noting that it was not the appropriate

statute of limitations in a criminal case. Pet. App. 13a. The court also

found that “a central objective of a conspiracy to restrain trade is to

garner illicit profits” and thus rejected petitioners’ contention that a

restraint of trade ends when the rigged bids are submitted. /d. at 14a.

5

cision in McNally v. United States, 107 S. Ct. 2875 (1987).

Pet. App. 17a-25a. The court pointed out that the indict-

ment and the jury instructions in this case make it clear

that the essence of the bid-rigging scheme was to defraud

the scheme’s victims of money. Unlike in McNally, the

court concluded that the jury in this case must have based

its verdict on a finding that petitioners had schemed to de-

prive their victims of money or property and could not

have based its verdict on any deprivation of “intangible

rights.” Pet. App. 25a.

The court of appeals also rejected Paxson’s contention

that the government improperly used his immunized 1984

grand jury testimony to obtain the indictment and convic-

tion in this case, in violation of Kastigar v. United States,

406 U.S. 441 (1972). Pet. App. 33a-37a. The court con-

cluded that the government had “convincingly demon-

strated an independent source for all portions of the

evidence adduced before the indicting grand jury and at

trial against Paxson which conceivably had any relation to

his immunized testimony.” Jd. at 35a. The court similarly

rejected Paxson’s contention that he was entitled to an evi-

dentiary hearing on the Kastigar issue. The court noted

that the government had made a detailed showing that it

had not used the immunized testimony. In addition, Pax-

son had access to all of the government’s evidence support-

ing that showing. And in spite of having a full opportunity

to do so, Paxson had failed to suggest any basis for chal-

lenging the government’s showing. In those circumstances,

the court of appeals concluded, the district court had not

abused its discretion in denying a hearing. Pet. App.

36a-37a.

Finally, the court rejected petitioners’ contention that

the district court had abused its discretion in excluding cer-

tain evidence at trial. Pet. App. 26a-28a n.19. Petitioners

sought to introduce evidence of instability in the economy

6

and various raw material markets. That evidence, they

suggested, was relevant because it helped explain the seem-

ingly high prices and profits on the Snapfinger project.

The court of appeals affirmed the district court’s ruling

that the proffered evidence was irrelevant because “there

was no evidence that any of the people who actually pre-

pared the bids relied on the purported volatility” of market

prices in preparing their bids. Jbid. The court also noted

that the government had been barred from using evidence

of unreasonably high prices and profits to establish the

antitrust conspiracy. [bid.°

ARGUMENT

1. Petitioners contend (88-1325 Pet. 11-14; 88-1328

Pet. 13-21) that the statute of limitations barred their pros-

ecution because the indictment was returned more than

five years after they submitted their rigged bids and the

contract was awarded. The court of appeals correctly re-

jected that contention. It concluded that the bid-)igging

conspiracy continued until the conspirators received and

divided their anticipated profits on the illegal contract.

Pet. App. 9a-10a. That ruling is in accord with the deci-

sions of every other court of appeals that has addressed

the question. United States v. Evans & Assocs. Constr.

Co., 839 F.2d 656, 661 (10th Cir. 1988); United States v.

Northern Improvement Co., 814 F.2d 540 (8th Cir.), cert.

5 The court of appeals rejected numerous other challenges as well,

several without discussion. Among the latter was the Dynalectric peti-

tioners’ contention that the district court erred in failing to instruct the

jury on their defense that they acted pursuant to a lawful silent joint

venture. 88-1328 Pet. 21-24. See Pet. App. 72a (district court ruling

that petitioners’ proposed instructions were “superfluous and confus-

ing” and that the jury had properly been instructed that it must find

that the charged bid-rigging agreement was made before the bids were

submitted).

7

denied, 108 S. Ct. 141 (1987); United States vy. A-A-A

Electrical Co., 788 F.2d 242, 244-246 (4th Cir. 1986);

United States v. Inryco, Inc., 642 F.2d 290, 293-295 (9th

Cir. 1981), cert. dismissed, 454 U.S. 1167 (1982).°

The principles governing the scope of a Sherman Act

conspiracy were first enunciated by this Court in United

States v. Kissel, 218 U.S. 601 (1910). In that case, the

Court explained that a conspiracy is a partnership for

criminal purposes that continues until its success or aban-

donment. Jd. at 608, 610; accord Hyde v. United States,

225 U.S. 347, 369 (1912) (a conspiracy continues “until full

fruition be secured”). Where there is no abandonment of

6 The Dynalectric petitioners rely on dicta in the Jnryco case to sug-

gest that the Ninth Circuit adheres to the narrower view that only

overt acts that themselves restrain trade have the effect of continuing a

Sherman Act conspiracy. 88-1328 Pet. 15-16. Although the Jnryco

court pointed out that there were such overt acts in the case before it,

neither in Jnryco nor in any other decision has the Ninth Circuit held

that such acts are necessary for the conspiracy to continue. Moreover,

in United States v. Walker, 653 F.2d 1343 (9th Cir. 1981), cert.

denied, 455 U.S. 908 (1982), the Ninth Circuit held, under the general

conspiracy statute, 18 U.S.C. 371, that if a conspiracy contemplates

the division of the profits of an illegal scheme, the conspiracy con-

tinues for purposes of the criminal statute of limitations, regardless of

whether the act of dividing the profits is itself illegal. Jd. at 1350. The

court in Walker also noted that that “seems to be one of the theories

applied in United States v. Inryco.” Ibid. Petitioners’ suggestion

(88-1328 Pet. 16 n.22) that a Sherman Act conspiracy is different from

other conspiracies for statute of limitations purposes is baseless. The

same statute of limitations applies, and the courts of appeals before

and after Jnryco and Walker have correctly found no reason to adopt

that distinction. See Hyde v. United States, 225 U.S. 347, 369 (1912)

(applying the statute of limitations rationale of United States v. Kissel,

218 U.S. 601 (1910), a Sherman Act conspiracy case, to the general

conspiracy statute). In short, petitioners’ suggestion that the decision

in the present case conflicts with the view of the Ninth Circuit is

incorrect.

8

the goals of the conspiracy, it is the scope of the conspira-

torial agreement that determines when the statute of

limitations begins to run. Grunewald v. United States, 353

U.S. 391, 397 (1957).’

In this case, the indictment charged and the evidence

showed that the agreement to rig bids included an agree-

ment to divide the profits on the project.* The indictment

7 Grunewald does not hold that only conspiratorial objectives that

are “criminal” serve to toll the statute of limitations. In Grunewald,

the Court held only that proof that the conspirators concealed their il-

legal activities after the conspiracy had accomplished its objectives did

not, by itself, establish that the concealment was part of the con-

spiracy. 353 U.S. at 402. Grunewald does not suggest that a con-

spiracy cannot be continued by acts that are legal and that it neces-

sarily terminates on the last date on which the conspirators commit an

act that is itself illegal.

8 Petitioners suggest (88-1325 Pet. 12, 13; 88-1328 Pet. 15) that the

statute of limitations began to run no later than the day that the bid-

ding was completed, because after that date trade was no longer being

“restrained” within the meaning of the Sherman Act. That suggestion

is doubly wrong. First, as long as the conspiratorial agreement encom-

passed the receipt of profits on the rigged contract, acceptance of

those profits continued the illegal conspiracy. Where a criminal con-

spiracy contemplates the receipt of illicit profits, the conspiracy con-

tinues until those profits are received, whether or not the charging

statute makes the receipt of those profits illegal. United States v.

Girard, 744 F.2d 1170, 1172 (Sth Cir. 1984); United States v. Helmich,

704 F.3d 547, 549 (llth Cir.), cert. denied, 464 U.S. 939 (1983);

United States v. Mennuti, 679 F.2d 1032, 1035 (2d Cir. 1982); Atkins

v. United States, 307 F.2d 937, 940 (9th Cir. 1962); Koury v. United

States, 217 F.2d 387, 388 (6th Cir. 1954).

Second, trade was “restrained” every time DeKalb County and the

federal agency involved in the project, the Environmental Protection

Agency, made payments on the artificially set contract price. Peti-

tioners might have abandoned their illegal enterprise at any time by

giving notice of the fraud, making possible rescission of the illegal

contract. Had they done so—thereby abandoning the conspiracy — the

statute of limitations would have started to run at that time. United

9

was filed on September 19, 1986. Paxson Electric con-

tinued to receive its payments on the Snapfinger Creek

project until at least January 1985, and it gave one-half of

its anticipated profits to Dynalectric no earlier than 1983.

The court of appeals was therefore correct in holding that

the five-year statute of limitations did not bar this prose-

cution.?

2. Petitioners Paxson and Paxson Electric contend

(88-1325 Pet. 14-18) that their mail fraud convictions are

inconsistent with the decision in McNally v. United States,

107 S. Ct. 2875 (1987), which held that the mail fraud

Statute is not violated by a scheme to defraud citizens of

their intangible right to honest government services. The

court of appeals correctly rejected that contention.

States v. Kissel, 218 U.S. at 610. Instead, petitioners continued to ac-

cept payments on the contract until 1985 and thereby continued their

participation in the conspiracy. See Hyde v. United States, 225 U.S. at

369 (“Having joined in an unlawful scheme, having constituted agents

for its performance, scheme and agency to be continuous until full

fruition be secured, until he does some act to disavow or defeat the

purpose he is in no situation to claim the delay of the law.”).

* Because petitioners’ offense continued until at least January 1985,

when the last check was mailed to CCC Electric on the project (see

Pet. App. 8a), Dynalectric’s claim (88-1328 Pet. 17-18) that its

sentence is unconstitutionally retroactive is also incorrect. Prior to its

repeal, the “Alternative Fines” provision of the Criminal Fine En-

forcement Act of 1984, 18 U.S.C. 3623(c)(1) (Supp. IV 1986), under

which Dynalectric’s enhanced fines were imposed, applied to “offenses

committed after December 31, 1984.” Pub. L. No. 98-596, §§ 6(a), 10,

98 Stat. 3137, 3138 (1984). Because the conspiracy continued past the

effective date of Section 3623, the crime was within the coverage of

that provision. See United States v. Hartness, 845 F.2d 158, 163 (8th

Cir. 1988), cert. denied, 109 S. Ct. 308 (1988); United States v. Giry,

818 F.2d 120, 134-135 (Ist Cir. 1987), cert. denied, 108-S. Ct. 162

(1987); United States v. Gibbs, 813 F.2d 596, 601-602 (3d Cir. 1987),

cert. denied, 108 S. Ct. 83 (1987); United States v. Baresh, 790 F.2d

392, 404 (Sth Cir. 1986).

10

The indictment in this case charged that the defendants

- committed mail fraud by defrauding DeKalb County and

the United States Environmental Protection Agency of

both “money” and “their right to free and open competi-

tion for the bidding on the electrical construction portion

of the Snapfinger Creek project * * *.” 88-1328 Pet. App.

63a. In charging the jury on the mail fraud counts, more-

over, the district court defined a scheme to defraud to in-

clude “any plan or course of action intended to deceive

others and to obtain by false or fraudulent pretenses

money or property from the persons so deceived.” 24 R.

3326. As the court of appeals observed (Pet. App. 24a),

the charge did not include any instruction on an “intangi-

ble rights” theory of mail fraud. The record thus reflects

that, in this case, unlike McNally, the indictment charged

that the victims were defrauded of “money,” and the trial

court charged the jury that a scheme to defraud includes

an intent to “obtain * * * money or property” by false

pretenses. The convictions did not rest on an “intangible

rights” theory of mail fraud, as did the convictions in

McNally.

Petitioners Paxson and Paxson Electric argue for re-

versal (88-1325 Pet. 16-18) on the ground that the jury

was not expressly instructed that it must find that the vic-

tims of the scheme actually suffered a deprivation of

money or property. As the court of appeals ruled (Pet.

App. 29a-3la), however, the mail fraud statute does not

require that the fraudulent scheme actually succeed. More-

over, as we have explained, the instructions were adequate

to ensure that the jury actually found a scheme to defraud

DeKalb County and the federal government of money or

property. Furthermore, to show a fraudulent deprivation

of money it is sufficient to demonstrate that the victims

parted with money under false pretenses. Cf. McNally,

107 S. Ct. at 2882 (condemning absence of jury instruction

11

that “petitioners obtained property by means of false rep-

resentations”).'° In this case, DeKalb County awarded the

contract on the false representation that the bids were

competitive.!!

'0 In fact, the court of appeals found that there was sufficient

evidence that the victims of the fraud were actually “overcharged,” in

that Paxson Electric received more money than it would have received

under a competitively bid contract. Pet. App. 26a-28a. Petitioners’

claim that there was no overcharge is based largely on the district

court’s explanations that the jury could not infer bid rigging from the

size of the bids or the profits received. See 88-1325 Pet. 17. In addition

to the direct evidence of overcharge, however, once the jury found

fram co-conspirator testimony and documentary proof that the bids

in fact were rigged, the inference was clear that the prices resulting

from the rigged bids were higher than prices that would have resulted

from competitive bidding.

'! Contrary to petitioners’ contention (88-1325 Pet. 15), the court of

appeals’ holding does not conflict with the Tenth Circuit’s decision in

United States v. Shelton, 848 F.2d 1485 (1988). There, as in McNally,

the defendant was a public official, and the mail fraud count was

based on the allegation that, through the receipt of illegal kickbacks

from road and bridge building suppliers, the defendant had deprived

the citizens of Muskogee County of their right to honest government.

848 F.2d at 1495. The Tenth Circuit concluded that when the jury in-

structions were “read together,” they permitted the jury improperly to

convict the defendant, not on the ground that he had deprived his vic-

tims (the citizens) of money (because the kickbacks came from sup-

pliers), but merely on the ground that he had deprived the citizens of

their intangible right to honest government. Jd. at 1496. In contrast,

both the indictment and the jury charge in this case make plain that

the verdict was based on the finding that petitioners schemed to

defraud the victims — DeKalb County and the federal government — of

money.

More generally, as the court of appeals noted (Pet. App. 19a-20a),

the task of determining whether a particular jury in a particular case

might have improperly relied on a theory precluded by McNally has

not proved “impossible” (88-1325 Pet. 16) for the courts of appeals.

Of course, the problem is of ever-diminishing importance, as it arises

12

3. Petitioners Paxson and Paxson Electric renew their

_ argument (88-1325 Pet. 6-11) that the district court should

have held an adversarial hearing on the claim that im-

munized testimony was improperly used at trial in viola-

tion of Kastigar v. United States, 406 U.S. 441 (1972). The

court of appeals correctly rejected that argument.'?

On September 28, 1984, Paxson testified pursuant to a

grant of immunity before a grand jury that had been in-

vestigating bid rigging in the electrical construction in-

dustry for more than two years. Paxson was asked about

bid rigging generally and about the Snapfinger Creek proj-

ect in particular. He denied any knowledge of or involve-

ment in rigging any jobs, including Snapfinger Creek. As

the court of appeals noted (Pet. App. 36a), Paxson’s testi-

mony “drew the Snapfinger investigation to a halt for thir-

teen months” until Bernard Trepte was called before the

grand jury and “revealed substantial inconsistencies with

Paxson’s immunized testimony about the Snapfinger proj-

ect.” Trepte’s testimony, together with information that

the grand jury had gathered in the two years before Pax-

son testified, led to the present prosecution.

In response to Kastigar motions, the government took

steps to meet its burden of showing that its evidence

against Paxson was independently derived. The govern-

ment supplied the court with a 65-page affidavit and 50

only out of pre-McNally trials. For the future, Congress has over-

turned McNally by amending the federal fraud statutes to cover

schemes to deprive others of the intangible right to honest services.

Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, § 7603, 102 Stat.

4508.

12 This argument is, of course, open only to petitioner Wesley Pax-

son and not to petitioner Paxson Electric, because Wesley Paxson’s

immunized testimony could have been freely used against the com-

pany without violating any right of the company’s. See generally

Braswell v. United States, 108 S. Ct. 2284 (1988).

13

exhibits that “meticulously linked the independent sources

of evidence * * * to each piece of evidence presented to the

indicting grand jury and to be adduced against Paxson at

trial.” Pet. App. 34a. The magistrate, the district court,

and the court of appeals, all of whom reviewed those sub-

missions, concluded that the government had met and ex-

ceeded its heavy burden of showing that Paxson’s self-

serving, exculpatory grand jury testimony had not been

used directly or indirectly in his criminal prosecution. Jd.

at 37a, 35a.'3

Given the strength of the government’s showing on the

Kastigar issue in this case, the courts below correctly con-

cluded that no useful purpose would have been served by

'? Relying on United States v. McDaniel, 482 F.2d 305 (8th Cir.

1973), the Paxson petitioners assert that the government’s burden

under Kastigar is particularly heavy when a government attorney

familiar with immunized testimony participates in the prosecution of

the case. 88-1325 Pet. 8. As petitioners recognize (88-1325 Pet. 8 n.5),

however, the Eleventh Circuit is not in disagreement with the Eighth

Circuit on this point. See Pet. App. 34a n.26; United States v. Hamp-

ton, 775 F.2d 1479, 1485-1486 (11th Cir. 1985). ~

The Eleventh Circuit simply concluded that the government had

met its heavy burden in this case. Pet. App. 35a-36a. The facts here

are quite different from those in McDaniel. There, the defendant had

given three volumes of highly inculpatory evidence to a state grand

jury, and the federal prosecutors, not knowing that the testimony had

been given under a grant of immunity, prosecuted the defendant after

reviewing the incriminating testimony. 482 F.2d at 307-308. Stressing

the unusual circumstances of that case (id. at 312), the court held that,

because the United States Attorney “could have perceived no reason to

segregate McDaniel’s [incriminatory] testimony from his other sources

of information * * * the government is confronted with an insur-

mountable task in discharging the heavy burden of proof imposed by

Kastigar.” Id. at 311. In this case, by contrast, Paxson’s grand jury

testimony was exculpatory, and all of the government aitorneys who

reviewed it knew that it was immunized and could not be used in any

subsequent criminal prosecution.

14

granting Paxson the evidentiary hearing that he had re-

- quested. By the end of the trial, Paxson had reviewed all

of the government’s submissions detailing the independent

sources for its trial evidence and had heard all of the evi-

dence adduced at trial. Nonetheless, he could not point to

anything in the record to support his contention that the

government had violated Kastigar.'* In these circum-

stances, the court of appeals properly held that the denial

of a “full-blown post-trial evidentiary hearing” was not an

abuse of discretion. Pet. App. 36a-37a; see United States

v. Provenzano, 620 F.2d 985, 1006 (3d Cir.), cert. denied,

449 U.S. 899 (1980); United States v. Lipkis, 770 F.2d

1447, 1451 (9th Cir. 1985).'° =

4. The Dynalectric petitioners contend (88-1328 Pet.

21-24) that the district court improperly failed to instruct

the jury on “the role of the Paxson-Dynalectric joint ven-

14 The Paxson petitioners state that an adversarial evidentiary hear-

ing would have enabled them to “probe what uses may have been

made of [Paxson’s] testimony” (88-1325 Pet. 9), and they speculate

that an unspecified, non-evidentiary use might have been made of the

immunized testimony by unspecified government employees (id. at

8-9). A hearing that amounts to a fishing expedition is not wa:ranted

based only on such speculation. Through its pretrial and post-trial af-

fidavits, the government demonstrated that it had independent

sources for all of the evidence it adduced at trial, whether on direct or

cross-examination, and petitioners offered nothing that cast doubt on

that showing.

'S The Paxson petitioners state that “long-established practice has

been to grant adversarial hearings on Kastigar motions.” 88-1325 Pet.

10. The only decision cited, however, United States v. Nemes, 555

F.2d 51 (2d Cir. 1977), does not support that contention. Nemes

ruled, in this respect, only that where the government had satisfied the

trial court “that the evidence presented to the federal grand jury and to

the trial jury was derived from [independent] sources * * *,” the

government’s burden under Kastigar was satisfied. Id. at 55 (footnote

omitted). at

15

ture” (id. at 22) or on the “lawfulness of the joint venture”

(id. at 24). The instructions petitioners proposed, how-

ever, were misleading.

In particular, the Dynalectric petitioners’ proposed

“joint venture” instructions would have misled the jury in-

to believing that, if an arrangement could be called a

“joint venture,” the bid-rigging agreement would be

lawful. For example, the Dynalectric petitioners’ proposed

Instruction No. 18 would have required acquittal if

Ewalt’s bid-rigging agreement was “accompanied by or

part of a legitimate joint venture or partnership with Pax-

son.” 4 R. Doc. 92 at 28. Even if there was a “legitimate”

joint venture between Paxson Electric and Dynalectric,

however, that agreement was not a license for the two of

them to rig bids with Fischbach, which was never alleged

to be part of any “joint venture.” Similarly, proposed In-

struction No. 15 stated that “[i]t is also not illegal for con-

tractors to bid for a job or to perform work as a legitimate

joint venture. In a joint venture, two or more contractors

join together and submit a single bid on a project.” Jd. at

22-23. In this case, however, Paxson Electric and Dynalec-

tric did not submit “a single bid”; they submitted two

separate bids, which led the letting authorities to believe

the bids were independently derived. Thus, the requested

instruction had no basis in the record.

In any event, the district court properly charged the jury

on the elements of the Sherman Act offense. In order to

convict, the jury was required to find (24 R. 3319,

3322-3323) “that a conspiracy to rig bids as alleged was

knowingly formed and was existing at or before submis-

sion of the bids on September 7, 1979”; “that the con-

spiracy continued at least until September 20, 1981[;] and

that one or more members of the conspiracy committed

acts in furtherance of the conspiracy * * * on or after that

date.” Contrary to petitioners’ claim (88-1328 Pet. 23),

16

therefore, the charge did not “amount{ ] effectively to a

directed verdict against the defendants on the statute of

limitations issue.”'® Nor did the instructions “force[ } the

jury to treat the joint venture itself as a per se Sherman

Act offense.” Jbid. The jury could not have returned a

guilty verdict unless it found that the defendants agreed to

rig bids.

5. Finally, the Dynalectric petitioners argue (88-1328

Pet. 24-27) that the court of appeals erred in affirming the

district court’s refusal to admit portions of petitioners’

economic evidence. That argument is without merit. The

evidence in question was irrelevant to the issues on which

it was offered.

The district court gave petitioners the opportunity to

show that their bids were legitimately prepared and were

not “excessive” through evidence showing how their bids

were prepared and showing the factors they took into ac-

count in bidding. The court refused, however, to prolong

the trial with economic evidence of fluctuating copper

prices and general market conditions, to be introduced

from sources that had no familiarity with or personal

knowledge of the Snapfinger bidding. Such evidence was

properly excluded because no one who had prepared the

bids claimed to have relied on copper prices and general

market factors. 19 R. 2089-2098; 20 R. 2145-2151; 21 R.

2602-2613; 16 R. 1457-1460. Indeed, petitioner Ewalt ad-

mitted that there was no reference to fluctuating copper

prices during the preparation of Dynalectric’s bid. 16 R.

16 While the district court rejected petitioners’ generalized “joint

venture” instructions as “superfluous and confusing” (Pet. App. 72a),

the instructions actually given clearly required that, to convict, the

jury must find that the agreement to rig bids was made before the sub-

mission of the bids. It was immaterial whether the exact amount of

consideration Dynalectric would receive was specified at that time.

Compare 88-1328 Pet. 22 n.29.

17

1456. Hence, the evidence was not relevant to explaining

why the bids were set as they were.'”

Moreover, contrary to petitioners’ suggestion (88-1328

Pet. 25), the government did not rely on the size of the

bids or the profits as circumstantial proof of the existence

of the conspiracy. The district court ruled in that context

that it would not permit either petitioners or the govern-

ment to argue the reasonableness or unreasonableness of

prices and profits. 20 R. 2157. And the jury was expressly

charged: “neither the amount of profits made by any of

the defendants on the Snapfinger jobs nor the form in

which those profits were ultimately paid or realized are

relevant to the issue of whether the defendants agreed to

fix or rig the bids. Rather, the proper focus is whether an

agreement to rig the bids was made as alleged.” 24 R.

3320. In these circumstances, there was no abuse of discre-

tion in the district court’s refusal to admit some of peti-

tioners’ economic evidence.

‘’ That other courts permit defendants to introduce “relevant eco-

nomic data” to support a claim that there was no agreement (88-1328

Pet. 26 (emphasis added)) does not create a conflict with the decision

in this case, where the court held the particular economic evidence to

be irrelevant.

18

CONCLUSION

The petitions for a writ of certiorari should be denied.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor General

CHARLES F. RULE

Assistant Attorney General

KENNETH G. STARLING

Deputy Assistant Attorney General

JOHN J. POWERS, III

ANDREA LIMMER

Altorneys

MARCH 1989

a i A GO UNOS CP La ls oe ae Seo

vy U.S. GOVERNMENT PRINTING OFFICE: 1989—241-699/00157