Appendix — LaBar v. United States
Supreme Court brief1982
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JUDGMENT ORDER OF THE UNITED STATES COURT UF
APPEALS FOR THE THIRD CIRCUIT DATED JUNE 10, 1982
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 81-2740, No. 81-2741
No. 81-2742, No. 81-2743
No. 81-2744, No. 81-2745,
No. 81-2746, No. 81-2747
UNITED STATES OF AMERICA,
v.
JAMES C. LaBAR, DONALD J. ROMANOWSKI, LaBAR
ENTERPRISES, INC. and LaBAR TRANSPORTATION
CORPORATION,
Appellants
James C. LaBar,
Appellant ‘a Nos. 81-2740, 81-2741
Donald J. Romanowski,
Appellant in Nos. 81-2742, 84-2743
LaBar Enterprises, Inc.,
Appellant in Nos. 81-2744, 81-2745
LaBar Transportation Corp.,
Appellant in Nos. 81-2746, 81-2747
2a
Judgment Order
(D.C. Crim. Nos. 80-00130-01/02/04/05 - M.D.Pa. - Scranton)
Argued May 28, 1982
BEFORE: SEITZ, Chief Judge, SLOVITER and BECKER,
Circuit Judges.
JUDGMENT ORDER
After consideration of the contentions raised by appeliants,
to-wit, that (1) appellants’ prosecution is a product of selective
enforcement of federal criminal statutes based upon impermissible
criteria and as such is in violation of the first and fifth amendments
to the United States Constitution, (2) appellants were permitted,
under a reasonable interpretation of the contract, statute,
regulations and postal service practices to set up an affiliate fuel
purchasing company and to seek reimbursement from the postal
service for certain fuel costs, (3) the government’s course of
conduct concerning affiliated fuel companies estops it from
prosecuting these appellants, (4) the regulations upon which the
government’s case was premised failed to give fair warning of
what conduct was prohibited and placed unbridled discretion in
the hands of law enforcement officials, (5) appellants’ prosecution
for mail fraud is prohibited by established principles of statutory
constructions, (6) since there was a lack of substantial evidence
showing a scheme and intent to defraud, the trial court should
have entered a judgment of acquittal on the conspiracy and mail
fraud counts and (7) appellants are entitled to a new trial by reason
of the existence of an exculpatory regulation published during
trial directly pertinent to the prosecution, it is
ADJUDGED AND ORDERED thai the judgment of the
district court be and is hereby affirmed.
‘a
DATED: JUN 10 1982
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OPINION OF UNITED STATES DISTRICT COURT DATED
AUGUST 14, 1981
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
Criminal No. 80-00130-01
80-001 30-02
80-001 30-03
80-00130-04
80-001 30-05
UNITED STATES OF AMERICA
APPEARANCES:
For the United States:
Gordon A.D. Zubrod, Assistant
United States Attorney
Post Office Building
Scranton, Pa. 18501
For James C. LaBar:
Ronald F. Kidd, Esq.
Michael M. Mustokoff, Esq.
One Franklin Plaza
Philadelphia, Pa. 19102
For Donald J. Romanowski:
Jack B. Stevens, Esquire
128 North Pitt Street
Alexandria, Virginia 22314
Barnet D. Skolnik, Esquire
1709 New York Avenue, N.W.
Washington, D.C. 20006
For LaBar Transportation
Corp. and LaBar Enterprises,
Inc.
William W. Warren, Jr., Esq.
Penn Security Bank Building
Scranton, Pa. 18503
OPINION
MUIR, District Judge.
I. Introduction.
On March 2, 1981, a jury convicted each of the Defendants
of one count of conspiracy, 18 U.S.C. §371, twenty-one counts
of mail fraud, 18 U.S.C. §1341, and two counts of making a
false statement to a government agency, 18 U.S.C. $1001. At the
close of the Government’s case, the Court granted a motion by
Petroleum Suppliers, Inc. for judgment of acquittal because the
Government failed to prove that any of its officers or agents acted
with an intent to benefit it. The Court also granted all the
Defendants’ motions for judgment of acquittal as to Count 25
because the Court determined that the letter on which that Count
was based was not a false statement under 18 U.S.C. §1001.
Immediately upon the return of the jury’s verdict the Court granted
the Defendants’ motion for judgment of acquittal as to the two
false statement counts.
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Opinion
On March 17, 1981, timely motions for judgment of acquittal,
a new trial, and in arrest of judgment were filed by the Defendants.
On April 3, 1981, the individual defendants were sentenced to
fines and suspended terms of imprisonment and fines were imposed
on the two corporate defendants. Documents supporting the post
trial motions were filed on April 21, 1981 and briefs in support
of the motions were filed on May 1, 1981. The Government filed
briefs in opposition to the motions on June 5, 1981 and the
Defendants filed reply briefs on June 15, 1981. Both sides also
submitted additional documents in support of their positions.
On June 4, 1981, the Defendants filed a motion seeking the
production of two memoranda from the Government that the
Defendants claim are material to their motion for judgment of
acquittal. That motion was granted on June 30, 1981 and the
parties were given until July 20, 1981 in which to file further briefs
which they did. On June 15, 1981, new counsel entered the case
for LaBar and further briefing was permitted, which concluded
on July 21, 1981 when LaBar filed his last brief. All of the post-
trial motions will be denied.
II. Motion for Judgment of Acquittal.
The first of nine grounds asserted in support of the motion
for judgment of acquittal is that the Government failed to produce
sufficient evidence to sustain the convictions. The Defendants
recognize that in ruling on their motion for judgment of acquittal
the evidence must be viewed in the light most favorable to the
Government, see United States vs. Schmidt, 471 F.2d 385, 385-86
(3d Cir. 1972) (per curiam), and that all reasonable and logical
inferences in support of the verdicts must be drawn from the
evidence. See United States v. Trotter, 529 F.2d 806 (3d Cir. 1976).
Utilizing that standard of review, the Court must determine
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Opinion
whether the Government presented evidence to support a finding
of guilt beyond a reasonable doubt.
Defendant LaBar Transportation Corporation was at the
times relevant to the indictment one of the six largest mail hauling
contractors in the United States. Among the multitude of statutory
and regulatory provisions applicable to postal contractors is 39
U.S.C. §5005(b)(1) which provides that the Postal Service with
the consent of the holder of a transportation contract may adjust
the compensation allowed under that contract ‘‘for
increased. . .costs resulting from changed conditions occurring
during the term of the contract.’”’ The Postal Service has
promulgated at least two publications relating to this section.
Section 19-316.21 of the Postal Contracting Manual, Government
Exhibit 1.01, defines changed conditions as those over which the
contractor has “‘little, if any control.”” The Postal Service’s regional
instructions, Government Exhibit 1.02, define changed conditions
as those over which the contractor has “‘little or no control.”’
If a contractor experienced fuel cost increases that met those
definitions of changed conditions, and if the increases amounted
to 3.5% of the amount previously approved, it could seek on
a monthly basis so-called one line adjustments in its contracts
to cover those costs. See Government Exhibit 1.02. It is these
provisions that form the basis for the Government’s prosecution
of the Defendants.
It was the Government’s contention at trial that the
Defendants embarked upon a scheme to defraud the Postal Service
by submitting to the Postal Service records of fuel purchases by
LaBar Transportation that showed prices in excess of the prices
actually paid for the fuel. The Government sought to show that
this scheme was executed in the following manner: The Defendants
agreed in March 1977 to create a corporation to be called
Petroleum Suppliers, Inc., whose sole function would be to
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purchase diesel fuel from suppliers who had been selling the fuel
directly to LaBar Transportation. Petroleum Suppliers would then
resell the fuel at increased prices to LaBar Transportation thereby
providing LaBar Transpotation with documentary evidence to
support its requests for fuel price adjustments under its postal
contracts. The Government further sought to prove that the
Defendants actively misled the Postal Service as to the relationship
between LaBar Transportation and Petroleum Suppliers.
The Defendants have never contended that Petroleum
Suppliers was not created by them for the purpose of providing
fuel to LaBar Transportation at a cost in excess of the costs LaBar
Transportation had previously paid for fuel. They also do not
dispute that they used the Petroleum Suppliers invoices to support
their requests for fuel price adjustments. What they vehemently
contest is that the Government’s evidence proved beyond a
reasonable doubt that the Defendants acted with an intent to
defraud the Government or with an intent to disobey or disregard
the law.
From the evidence produced at trial, the jury could reasonably
have concluded that Petroleum Suppliers had no legitimate
business purpose. The Government’s evidence established that
Petroleum Suppliers purchased fuel from the same suppliers that
had previously sold fuel directly to LaBar Transportation and
that it did so on credit terms no more favorable than those available
to LaBar Transportation. The only new source of supply used
by Petroleum Suppliers was a company in Florida to which
Petroleum Suppliers turned after Colonial Oil, the company that
had been selling fuel to LaBar Transportation, refused to sell to
Petroleum Suppliers because in its view Petroleum Suppliers was
not creditworthy. In all cases, fuel was delivered by the primary
suppliers directly to LaBar Transportation’s trucks or facilities.
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Opinion
Petroleum Suppliers simply received the invoices and billed LaBar
Transportation higher prices for the fuel.
Perhaps the most probative evidence of the lack of a legitimate
business purpose of Petroleum Suppliers relates to the purchase
of fuel with credit cards. Some of the LaBar Transportation drivers
were issued credit cards by LaBar Truck Rental, Inc., a sister
company to LaBar Transportation and both wholly owned by
LaBar Enterprises, Inc. which was wholly owned by LaBar. When
these drivers purchased fuel on the road, the purchases were
charged using the credit cards and LaBar Truck Rental was billed.
LaBar Truck Rental would then send the invoices to Petroleum
Suppliers which would pay the invoices and bill LaBar
Transportation a higher price for the fuel.
The Defendants, in their cross examination of the
Government’s witnesses and by certain documentary evidence
introduced during the Government’s case sought to convince the
jury that Petroleum Suppliers had a legitimate business purpose.
Among that evidence was testimony by Roger Crockford, Vice-
President and General Manager of LaBar Transportation, that
Defendant Conner was a “‘fuel professional’ who was able to
secure fuel when others could not do so. From this testimony,
the Defendants argued that Petroleum Suppliers was a legitimate
business because Conner’s abilities were available if needed to
secure fuel in the event of a recurrence of supply problems that
had been experienced by LaBar Transportation in the years
preceding 1977. The jury, however, was free to disregard this
testimony coming as it did from an interested witness. The jury
was also entitled to look at the other evidence in the case and
reach the conclusion that Petroleum Suppliers did nothing more
than mark up invoices.
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Opinion
From that conclusion, the jury was entitled to draw the further
inference that the price increases charged by Petroleum Suppliers
had no basis and were designed to secure from LaBar
Transportation increased compensation from the Postal Service.
Since Petroleum Suppliers did nothing other than receive invoices
from fuel oil companies, pay those invoices, and then invoice
LaBar Transportation, it was reasonable for the jury to conclude
that Petroleum Suppliers had no legitimate reason to charge LaBar
Transportation prices in excess of what Petroleum Suppliers paid
for the fuel. Since there is no question that Petroleum Suppliers
did charge LaBar Transportation more for the fuel than Petroleum
Suppliers paid for it, the jury was faced with the task of
determining why it did so and why LaBar Transportation paid
the invoices or dealt with Petroleum Suppliers at all.
There was evidence, Defendants’ Exhibit 4, a letter written
by Defendant Romanowski to the corporate attorney for the LaBar
companies, that Conner was involved in the discussions with LaBar
and Romanowski leading to the formation of Petroleum Suppliers.
Defendants’ Exhibit 4 also disclosed that the purpose of using
Petroleum Suppliers was to increase fuel costs. LaBar
Transportation was Petroleum Suppliers’ only customer during
the period covered by the indictment. In addition, it was
Romanowski who directed the Petroleum Suppliers bookkeeper,
who was employed by LaBar Enterprises, as to the fuel prices
to be charged to LaBar Transportation. Defendants’ Exhibit 4
disclosed that the Defendants intended management fees paid by
Petroleum Suppliers to LaBar Enterprises and other miscellaneous
expenses to offset Petroleum Suppliers’ profits. Defendants’
Exhibit 25 disclosed that during its first year of business Petroleum
Suppliers paid in excess of $82,000 in management fees out of
an operating income of approximately $124,000.00. Moreover,
the evidence disclosed that all of the fuel suppliers continued to
Opinion
deal with Romanowski and that Conner was not involved in the
procurement of fuel, with the exception of the one case in which
a new supplier was needed when Coionial Oil refused to sell to
Petroleum Suppliers. From this evidence the jury could conclude
that prices charged by Petroleum Suppliers were determined with
an eye toward how those prices would benefit LaBar
Transportation and LaBar Enterprises in LaBar Transportation’s
dealings with the Postal Service rather than for any business
purpose of Petroleum Suppliers.
Other evidence indicating control by LaBar Transportation
over Petroleum Suppliers was the history of payments from LaBar
Transportation to Petroleum Suppliers. Government Exhibit 79.01
showed a close correlation between the amount of cash paid by
Petroleum Suppliers to its suppliers and the amount of cash paid
by LaBar Transportation to Petroleum Suppliers. The Government
argued from this evidence that LaBar Transportation’s actual
outlay of cash to Petroleum Suppliers was just sufficient to permit
Petroleum Suppliers to pay its suppliers for fuel and that LaBar
Transportation had no intention of ever paying Petroleum
Suppliers its mark-up.
The Defendants argued to the jury that what in fact was
occurring was the extension of credit from Petroleum Suppliers
to LaBar Transportation and that the payment history between
the companies showed that for the most part LaBar
Transportation’s payments were running anywhere from 60 to
105 days behind billings from Petroleum Suppliers. The jury could
have rejected this argument because there was testimony that
Petroleum Suppliers was obtaining its fuel on the same credit terms
that LaBar Transportation had obtained it, namely, payment being
required in 10 to 15 days and because Petroleum Suppliers did
not appear to be in a financial position to extend credit to LaBar
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Opinion
Transportation. Since LaBar Transportation was paying Petroleum
Suppliers amounts that enabled Petroleum Suppliers to pay for
its purchases of fuel and since those amounts were essentially equal
to what LaBar Transpotation had been paying for fuel prior to
the creation of Petroleum Suppliers the jury could have reasonably
concluded that the Government’s interpretation of the payment
history rather than the Defendants’ was accurate.
The Court recognizes that this is not the only conclusion that
the jury could have drawn from the evidence. There was testimony
from Roger Crockford and Daniel T. McHenry, the
** Administrator’ of LaBar Transportation, to the effect that price
negotiations between Crockford and Conner occurred during the
summer of 1978. While Crockford and McHenry both testified
that such discussions occurred, they placed the discussions at
different times of the year. More importantly, by letter dated June
26, 1978, McHenry represented to the Postal Service that LaBar
Transportation was paying one price for fuel when in fact it had
not paid that price for three months and was then paying less
than represented in the letter. Because of these facts and because
of these witnesses’ obvious ties to the Defendants, the jury could
have disbelieved their testimony about Connor setting the prices.
The evidence concerning the formation of Petroleum
Suppliers, its purpose, method of operation, and the history of
payments to Petroleum Suppliers were sufficient to support the
inference that Conner did not set the prices that were charged
LaBar Transportation and that no negotiations over prices
occurred.
Based on the foregoing, the jury could have concluded beyond
a reasonable doubt that the fuel prices charged by Petroleum
Suppliers and the requests for fuei adjustments based on those
charges were unjustified, that prices charged by Petroleum
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Opinion
Suppliers to LaBar Transportation were determined by the
Defendants for the benefit of LaBar Transportation, and that
Petroleum Suppliers was controlled by LaBar Transportation and
did not operate as a separate entity in its own interests. In short,
the jury could reasonably have concluded that Petroleum Suppliers
did nothing more than act as the nominal purchaser of diesel fuel,
pay for that fuel with funds provided by LaBar Transportation
for that purpose and bill LaBar Transportation for fuel at prices
set at a level sufficiently high to permit LaBar Transportation
immediately to seek increased compensation under its postal
contracts. These conclusions alone, however, are not sufficient
to support the convictions. The Government was also required
to prove beyond a reasonabie doubt that the Defendants acted
with an intent to defraud the Government or with a bad purpose
to disregard or disobey the law.
In its charge to the jury, the Court stated that intent can
be inferred from the surrounding circumstances. Among those
circumstances was evidence from which the jury could conclude
that the entire procedure of increasing the price of diesel fuel by
use of Petroleum Suppliers was nothing more than a series of
paper transactions, the most blatant of which was the way in which
the credit card sales were handled. In an attempt to rebut this
inference, the Defendants attempted to bring before the jury advice
they claimed to have received from the postal consultant, Travis
Henry. One such attempt was Defendants’ Exhibit 4, the letter
from Romanowski to the attorney, in which it is stated that the
decision to establish Petroleum Suppliers was reached after
discussions with, among others, Travis Henry. In addition, the
Defendants estabiished on cross-examination of the Government’s
first witness that the Postal Service had no per se prohibition
against the purchase of fuel from controlled or subsidiary
corporations.
l4a
Opinion
The obvious intent of this testimony was to convey to the
jury that the seemingly unusual method of conducting business
used by LaBar Transportation and Petroleum Suppliers was
permitted by the Postal Service, or so the Defendants believed.
Since the jury was never presented with the substance of the advice
allegedly given by Travis Henry, it was not unreasonable for it
to afford little weight to the attempt by the Defendants to rebut
what was a rather strong inference of intent from the actions taken
by the Defendants. There was, however, more evidence of unlawful
intent.
The Defendants correctly argue that no Postal Service
regulation in effect at the time covered by the indictment required
disclosure to the Postal Service of the relationship between LaBar
Transportation and Petroleum Suppliers or required any of the
Defendants to advise the Postal Service why Petroleum Suppliers
was created or how it operated. The Defendants are also correct
that there were only two written inquiries from the Postal Service
to LaBar concerning these matters. One was a letter dated August
23, 1977, Government Exhibit 25.01, requesting ‘“‘some
explanation”’ of why LaBar Transportation was buying fuel for
a route in Massachusetts from Petroleum Suppliers, a Pennsylvania
company. The other was a letter also dated August 23, 1977 but
from another postal official, Government Exhibit 4.01, relating
that McHenry had not been able to explain why fuel was purchased
from Petroleum Suppliers for a route in Massachusetts or if
Petroleum Suppliers was a subsidiary of LaBar Transportation.
LaBar replied by identical letters dated August 29, 1977,
Government Exhibits 4 and 25 stating that the Pennsylvania
company, Petroleum Suppliers, was a jobber and not a subsidiary.
There were, however, other steps taken to convince the Postal
Service that LaBar Transportation enjoyed no special relationship
with Petroleum Suppliers.
Sa
Opinion
On June 26 and July 19, 1978, McHenry, the
**Administrator’’ for LaBar Transportation, wrote Postal Service
officials in connection with fuel price adjustment requests. These
letters, Government Exhibits 11 and 12, stated in essence that
LaBar Transportation had been attempting to negotiate with
Petroleum Suppliers for a reduction in fuel prices. As indicated
above, because of the discrepancies in McHenry’s and Crockford’s
testimony and the misrepresentation as to the price then being
charged by Petroleum Suppliers, the jury could have reasonably
concluded that no negotiations took place between LaBar
Transportation and Petroleum Suppliers. The jury also could
reasonably have concluded that the representations that they had
taken place were made for the purpose of leading the Postal Service
to believe that LaBar Transportation dealt with Petroleum
Suppliers on an arms iength basis and had no control over the
prices charged LaBar Transportation by Petroleum Suppliers.
There was also evidence from which the jury could have
concluded that the Defendants perceived a reason so to convince
the Postal Service. Government Exhibit 8 is a letter written by
LaBar to the Postal Service in which LaBar quotes a section of
the postal manual relating to cost adjustments which recites that
adjustments are limited to “‘increased. . .costs directly attributable
to changed conditions. . . ."” Changed conditions are defined as
those brought about by external forces over which the contractor
has “‘little if any control. . .’’ That letter is evidence that LaBar
knew that increases were not allowable if the price changes were
caused by the contractor. The Defendants, therefore, had a very
good reason to attempt to convince the Postal Service that they
had no control over the prices charged by Petroleum Suppliers.
The knowledge by the Defendants of the Postal Service’s
position that increased prices caused by the contractor were not
subject to increased compensation undercuts the Defendants’
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Opinion
position that they believed in good faith that they could obtain
cost adjustments under the circumstances that could have been
determined by the jury to have existed, namely, with the
Defendants setting the prices charged by Petroleum Suppliers with
the view toward the benefit to LaBar Transportation rather than
toward any legitimate purpose of Petroleum Suppliers. It further
undercuts the Defendants’ position that they believed in good faith
that they could set up Petroleum Suppliers to do nothing more
than write invoices. While evidence to the effect that for a time
Petroleum Suppliers and LaBar Transportation had the same
mailing address, that both used bookkeeping services provided
by LaBar Enterprises and that Petroleum Suppliers’ books were
not in any way hidden from employees was presented and argued
to the jury as evidence that the Defendants lacked an intent to
defraud, that evidence was not conclusive and did not offset the
other evidence in the case showing unlawful intent.
Having determined that the Government presented sufficient
evidence to warrant the jury in concluding that the scheme to
defraud alleged in the indictment existed, the Court must now
determine whether the Government presented sufficient evidence
to link any of the Defendants to that scheme. In order to sustain
the convictions, the evidence must be sufficient to show that each
defendant had knowledge of the illicit purpose of the scheme and
took at least one step in furtherance of that scheme. Evidence
of that knowledge must be clear, not equivocal. United States
vs. Klein, 515 F.2d 751, 753 (3d Cir. 1975).
Turning first to LaBar, Defendants’ Exhibit 4, the letter of
March 28, 1977 from defendant Romanowski to the attorney
Marshall Jacobson, provides evidence that as of that date LaBar
was involved in the decision to establish a fuel company through
which LaBar Transportation would purchase its diesel fuel. As
outlined in that letter, Petroleum Suppliers would be a subsidiary
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Opinion
of LaBar Enterprises, which in turn was wholly owned by LaBar.
The desirability to LaBar of Petroleum Suppliers being a subsidiary
is evident from Romanowski’s letter as well as from the testimony
of Thomas Weir.
The jury could have inferred from the evidence that the
purpose of forming a subsidiary fuel corporation was to insure
that fuel price increases would exceed 3-1/2% in a given 28 day
certification period. The 3-1/2% level was important because until
fuel cost increases reached that amount, LaBar Transportation
was not entitled to an immediate cost adjustment but would have
to bear the increased costs for a period of 28 weeks at which time
an adjustment could be requested. Testimony of Thomas Weir,
General Manager, Surface Transportation Division, U.S. Postal
Service, N.T. Vol. I, at 53, 73, 92. The use of a subsidiary,
therefore, would enable the Defendants to reduce the time that
LaBar Transportation would have to bear the increased costs of
fuel. The use of a subsidiary had another advantage to LaBar.
Postal regulations provided that at most the increased fuel
costs would be covered by Postal Service dollar for dollar. Weir
testimony, N.T. Vol. I at 57. In other words, if on a given route
LaBar Transportation experienced a 10¢ a gallon increase in fuel,
the most the Postal Service would reimburse LaBar Transportation
would be 10¢ a gallon. In that event, LaBar Transportation would
not be making any more money on its postal contracts than if
there had been no fuel price increase. Defendants’ Exhibit 4 reveals
that the Defendants, including LaBar, hoped for an additional
benefit by the use of a subsidiary company. The letter recites that
**[mjaangement [sic] fees plus other miscellaneous expenses will
offset (the subsidiary’s] profits.’’ From this the jury could have
concluded that LaBar contemplated that in addition to receiving
directly from the Postal Service increased compensation because
of fuel cost increases, LaBar or one of his companies would receive
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additional compensation in the amount of management fees from
the subsidiary. In that way, LaBar as sole owner of LaBar
Enterprises which in turn was the sole owner of LaBar
Transportation would in effect be earning more under the postal
contracts than if fuel costs did not increase.
As recounted above, on August 23, 1977, two different
officials of the Postal Service wrote to LaBar requesting
information concerning Petroleum Suppliers. Government Exhioits
4.01 and 25.01. On August 25, 1977, two days later, Romanowski
wrote to Marshall Jacobson to inform him that Petroleum
Suppliers would not be owned by LaBar Enterprises and that
Robert Conner would be the sole officer. Defendants’ Exhibit
6. On August 29, 1977, LaBar sent the two identical letters,
Government Exhibits 4 and 25, to the postal officials in which
LaBar stated that Petroleum Suppliers was not a subsidiary and
that it was being utilized as a fuel jobber to prevent reoccurrences
of fuel shortages. On November 11, 1977 LaBar wrote a letter
to the Postal Service, Government Exhibit 8, in which he set forth
the portion of the Postal Service regulation that provides for cost
increases only if they are due to circumstances over which the
contractor has “‘little, if any control.”’
The jury could have inferred that when LaBar wrote
Government Exhibits 4 and 25 he knew of the Postal Service’s
requirements that cost increases were not allowable if caused
completely by the contractor. This inference is supported by the
evidence of LaBar’s participation in the decision to form Petroleum
Suppliers in March 1977 and by the evidence of LaBar’s knowledge
of postal regulations disclosed by the November 11, 1977 letter
to the Postal Service, Government Exhibit 8. The March 28, 1977
letter to Jacobson, Defendants’ Exhibit 4, and Weir’s testimony
concerning fuel cost adjustments permitted the jury to infer that
the use of Petroleum Suppliers would be most beneficial to LaBar
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Opinion
if he could be assured that when prices were increased they were
increased by more than 3-1/2% at a time and if he could be assured
that LaBar Enterprises would be receiving management fees. From
this the jury also could have reasonably concluded that the decision
to cause the ownership of Petroleum Suppliers to be by someone
other than LaBar Enterprises was made to dilute the appearance
that LaBar Transportation or LaBar Enterprises exercised contro!
over Petroleum Suppliers, thereby increasing the chances that the
Postal Service would approve the fuel cost adjustments.
LaBar’s attempt in an affidavit attached to his reply brief
filed July 21, 1981 to explain that although he signed Government
Exhibits 4, 8 and 25 but did not prepare them is unavailing. The
jury was certainly entitled to conclude from the fact that LaBar
signed the letters that he wrote them and was aware of their
contents. Those letiers exhibit LaBar’s knowledge of the
contracting process and when taken in combination with the
nominal divestiture of Petroleum Suppliers provide circumstantial
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Opinion
evidence for the jury’s conclusion that LaBar knowingly
participated in the scheme.
The evidence with respect to Defendant Romanowski was
also sufficient to support the convictions. Romanowski was
involved in the day to day operations of both LaBar
Transportation and Petroleum Suppliers. Testimony at trial
revealed that it was he who supplied the LaBar Enterprises
bookkeeper with the prices to be charged LaBar Transportation
by Petroleum Suppliers. Romanowski also signed several of the
fuel cost adjustment forms. The jury could also reasonably infer
that Romanowski was aware of postal regulations regarding cost
increases given his position with LaBar Transportation. The jury,
therefore, could reasonably have concluded that Romanowski had
knowledge that the scheme involved was unlawful and that he
knowingly participated in it.
Defendant Conner’s situation is similar to that of the
defendant Smith in United States vs. Palmeri, 630 F.2d 192 (3d
Cir. 1980), cert. denied, __._U.S.___101 S.Ct. 1484 (1981). That
case involved a scheme to defraud by which certain union officials
used their positions to cause union pension funds to buy certificates
of deposits from certain banks in return for which the banks made
available to the defendants or their nominees unsecured loans with
no meaningful evaluations of the loan applications. United States
vs. Palmeri, 630 F.2d at 195. The defendant Smith was on the
preiphery of the conspiracy; he was a business agent of the union
but did not have any control over the pension funds. His role
in the scheme was to act as the nominal recipient of certain loans.
In affirming his conviction, the Court of Appeals held that Smith’s
receipt of loans together with his knowledge that he was acting
as a nominee for one of the other defendants was sufficient to
support the conclusion that he was a knowing participant in the
scheme. United States vs. Palmieri, 630 F.2d at 204-05.
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Opinion
In this case, the evidence was sufficient for the jury to have
concluded that Conner was only the nominal owner of Petroleum
Suppliers, that he acquiesced in that status and that he was willing
to convey to the Postal Service that he was not a nominee but
in fact ran Petroleum Suppliers. Since Defendants’ Exhibit 4
showed that Conner was involved in the discussions relating to
the formation of Petroleum Suppliers, the jury could have inferred
that Conner knew that the success of the scheme depended on
the Postal Service not learning that LaBar Transportation
controlled Petroleum Suppliers. Government Exhibit 10 is a letter
signed by Conner to the Postal Service in which Conner states
that an invoice of Petroleum Suppliers was correctly billed to
LaBar Transportation. The jury was entitled to conclude that in
sending that letter Conner knew that it would help create the
appearance that the invoice was evidence of a bona fide transaction
between independent companies. The jury, therefore, was entitled
to conclude that Conner was a knowing participant in the scheme.
LaBar Transportation argues that the Government failed to
prove that any actions by its employees were taken with an intent
to benefit the corporation and, consequently, the guilty verdicts
against LaBar Transportation must be set aside. See United States
vs. American Radiator & Standard Sanitary Corp., 433 F.2d 174,
205 (3d Cir. 1970), cert. denied, 401 U.S. 948 (1971). LaBar
Transportation’s argument is based on its contention that there
could be no benefit to LaBar Transportation under the scheme
alleged by the Government because the reimbursement from the
Postal Service would never equal the total amount due Petroleum
Suppliers for fuel. LaBar Transportation further argues that under
the scheme alleged by the Government it was nothing more than
‘*an instrumentality enabling the conspirators to funnel increased
revenues to [Petroleum] Suppliers and any other company to which
management fees were paid in excess of services rendered.’’ Brief
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Opinion
in Support of Motion of Defendants for Judgment of Acquittal
at 42.
The Court rejects this argument as being unfounded. Fuel
cost increases were sought on behalf of LaBar Transportation.
From this the jury could reasonably have concluded that employees
of LaBar Transportation processed the fuel adjus’ nent requests
with the intent that they be granted by the Postal Service for the
benefit of LaBar Transportation. In addition, while the evidence
of payments to Petroleum Suppliers by LaBar Transportation is
susceptible of a construction that invoices were paid in full within
a 60 to 105 day period, the jury could have concluded that at no
time was there an intention on the part of LaBar Transportation
to pay in full the ever mounting account due Petroleum Suppliers.
Clearly, if the LaBar Transportation payable to Petroleum
Suppliers was not intended to be paid, that would be a benefit
to LaBar Transportation. Not only were Romanowski and LaBar
shown to have been acting within the scope of their authority
and in the course of their employment with an intent to benefit
LaBar Transportation and LaBar Enterprises, the evidence was
sufficient for the jury to have concluded that Daniel McHenry
was so acting and that he knowingly misled the Postal Service
when he wrote in Government Exhibits 11 and 12 that price
negotiations had occurred between Petroleum Suppliers and LaBar
Transportation. For these reasons, the Court concludes that the
jury could reasonably have found beyond a reasonable doubt that
employees of both corporations acted within the scope of their
authority and with the intent to benefit the corporation.
Consequently, neither corporate Defendant is entitled to a
judgment of acquittal.
The Defendants assert in support of their motion for judgment
of acquittal that they were the victims of selective prosecution.
23a
Opinion
This claim was raised before trial and denied by the Court without
a hearing on the ground that the Defendants had failed to adduce
credible evidence in support of their contention that others similarly
situated were not prosecuted. United States vs. LaBar, 506 F.Supp.
1267, 1272 (M.D. Pa. 1981). In support of their post trial motion,
the Defendants argue that the Court improperly made factual
determinations without a hearing and that they had produced
sufficent evidence to warrant a hearing on their claims. The Court
The Defendants argue that the Court improperly determined
that there were significant differences between LaBar
Transportation and other mail hauling contractors who the
Defendants allege were similarly situated. It is the Defendants’
position that the only characteristic that is relevant to this case
is the purchase of fue! by a mail contractor from a subsidiary
or controlled corporation. From this day they argue that the
Court’s reliance on differences between the business operations
of the other fuel companies and Petroleum Suppliers that were
evident from the Defendants’ submissions in support of their claim
of selective prosecution was misplaced.
Despite the arguments by the Defendants, the Court remains
unpersuaded that the sole factor te .ook at to see if others were
similarly situated is whether the other mail contractors purchased
fuel from subsidiary corporations. At no time has the Government
taken the position that such activity is illegal. None of the evidence
produced by the Defendants indicates that any of the other mail
contractors used essentially paper corporations as vehicles to
increase their fuel prices. The Defendants argue that because the
Postal Service permitted a mark-up from these other subsidiary
corporations to include profit as well as overhead, these subsidiary
corporations are situated similarly to Petroleum Suppliers which
24a
Opinion
the jury could have concluded had no overhead. In addition,
Defendants have failed to produce any evidence that any of the
other contractors who they claim are similarly situated
affirmatively misrepresented the relationship between themselves
and their fuel suppliers as the jury could have concluded was done
in this case by way of McHenry’s letters, Government Exhibits
11 and 12, representing that negotiations were occurring between
LaBar Transportation and Petroleum Suppliers. Finally, the
Defendants have failed to produce any evidence that other
contractors submitted cost adjustment requests knowing they were
not entitled thereto.
The conclusion that a hearing is not warranted on the selective
prosecution claim is supported by the case of United States vs.
Torquato, 602 F.2d 564 (3d Cir. 1979), in which the defendant
Democratic county chairman argued that he was the victim of
select’ ve prosecution because officials of the Republican Party
had engaged in similar conduct and were not prosecuted. The
District Court denied the defendant’s request for an evidentiary
hearing and the Court of Appeals affirmed on the basis that even
though payments by persons who contracted with the Pennsylvania
Department of Transportation had been made to both Democrats
and Republicans, the defendant failed to produce any evidence
showing that the payments made to the Republicans were coerced.
United States vs. Torquato, 602 F.2d at 570 and n. 12. For that
reason the defendant was not similarly situated to the Republican
party officials. United States vs. Torquato, 602 F.2d at 571.
Similarly, the existence of contractors who purchased fuel from
subsidiaries is not sufficient to warrant a hearing on the
Defendants’ claim of selective prosecution when the Defendants
have produced no evidence that these other contractors
manipulated the fuel supply companies as the Government alleged
and proved the Defendants did in this case.
25a
Opinion
As the result of the Court’s June 30, 1981 discovery order,
the Defendants obtained from the Government two memoranda
written by postal officials in February and March of 1978. The
Court’s conclusion that the Defendants are not entitled to a hearing
on their claim of selection prosecution is not altered by those
memoranda. Those communications show only that in considering
requests for fuel price adjustments, a major concern to the Postal
Service was whether the price paid by the contractor was
competitive. The memoranda show that LaBar Transportation
and another contractor submitted requests for fuel cost
adjustments that the local postal official thought were based on
prices that were not competitive. The memoranda do not shed
any light on the crucial issue of whether any other contractor
sought fuel costs adjustments knowing that it had exercised
complete control over the price it paid for fuel. The memoranda,
therefore, do not constitute evidence that other contractors were
similarly situated to the Defendants.
By letter dated July 8, 1981, LaBar Enterprises and LaBar
Transportation raise an additional argument in support of their
contention that the Defendants are the victims of selective
prosecution. The argument is based on the following chronology.
According to an affidavit submitted by LaBar, he met in
Washington with Congressmen Jim Wright and Sam Hall on April
26, 1978 to request a G.A.O. investigation into postal contracting
matters. On May 16, 1978, the two Congressmen made such a
request in writing to the Comptroller General stating that they
had received complaints ‘‘by contract highway mail haulers’’ that
the Postal Service ‘“‘may be putting improper pressure on mail
contractors resulting in their being forced to carry mail at a loss,
contrary to law.”’ The final piece of evidence on this issue is that
according to LaBar postal inspectors began their investigation in
approximately August 1978. From this, the Defendants argue that
they have presented sufficient evidence to warrant a hearing on
26a
Opinion
their claim that Postal Service instituted its investigation of the
Defendants in retaliation for the Defendants having asked two
Congressmen to request the G.A.O. to investigate the Postal
Service.
The problem with the Defendants’ argument, however, is that
they have failed to call to the Court’s attention any competent
evidence that the Postal Service was aware of LaBar’s request
to the Congressmen for an investigation, or that the Congressmen’s
letter was written because of LaBar’s meeting or that the G.A.O.
in fact began an investigation. In the absence of any evidence
showing a causal link between the Congressmen’s letter to the
G.A.O. and the postal inspectors’ decision to investigate the
Defendants, the Defendants nave failed to satisfy the threshhold
requirement for an evidentiary hearing on their claim.
The unique nature of fraud prosecutions requires careful
scrutiny of selective prosecution claims. It is not uncommon for
a fraudulent scheme closely to mirror a legitimate business
operation. In fact, the more closely a fraudulent scheme resembles
a legitimate one, the greater the chances of success to the schemers.
These Defendants have been charged and convicted of defrauding
the government by use of a scheme that involved apparently
legitimate business dealings. To obtain a hearing on a claim of
selective prosecution the Defendants must do more than come
forward with evidence that others have legitimately used the same
business forms in their dealings with the Postal Service. It bears
note that unlike the usual selective prosecution claim in which
the defendant argues that others who have committed the crime
for which he is charged have not been prosecuted, these Defendants
at no time have contended that the contractors who they claim
are similarly situated violated the law. In short, the Defendants
have to date produced evidence that shows nothing more than
27a
Opinion
that other mail hauling contractors purchased fuel from
subsidiaries. That showing is insufficient to require a hearing.
The Defendants also take issue with the Court’s determination
that the internal divisions of the Postal Service prevented any
alleged animosity on the part of personnel in the mail processing
department from infecting the postal inspection service's
investigation into the Defendants’ conduct. The Defendants do
not dispute that such a division of functions exists, but argue
that a hearing is required to determine whether in fact the
separation of functions are observed in this case. This argument
misconstrues the burden of the respective parties as to this issue.
In opposition to the Defendants’ pre-trial motion raising the
claim of selective prosecution, the Government submitted affidavits
which showed that this investigation was handled routinely, that
the decision to investigate was made by the postal inspection service
and, more importantly, that the decision to seek a grand jury
indictme t was made solely by the United States Attorney. To
date the Defendants have presented no evidence to contradict these
assertions. In United States vs. Erne, 576 F.2d 212, 216-17 (9th
Cir. 1978), the Court of Appeals for the Ninth Circuit held that
a separation of functions employed by the Internal Revenue Service
similar to that used by the Postal Service was sufficient to remove
any taint that might have existed in other branches of the service.
Similarly in this case, even if the initial request for investigation
to the Postal inspection service was motivated by improper reasons,
the autonomy of the postal inspection service and of the United
States Attorney uncontradicted by the Defendants, makes any
taint immaterial.
For these reasons, the Court declines to hold an evidentiary
hearing on the claim of selective prosecution and will not enter
Opinion
judgments of acquittal on the basis that the Defendants are victims
of selective prosecution.
The Defendants argue that they are entitled to judgment of
acquittal because their actions were reasonable under the Postal
Service contracts and regulations and as such cannot form the
basis for a prosecution to defraud the Government. The Defend-
ants argue with respect to fuel price increases that all the contracts
and postal regulations required was a certificate showing a
statement of the names and locations of suppliers of fuel and
the average price paid per gallon during the prior month. The
Defendants contend that the certifications supplied with respect
to purchases from Petroleum Suppliers met that requirement. In
addition, the Defendants contend that when asked by Postal
Service officials for “‘some explanation’’ of the request for
adjudgment, Government Exhibit 25.01, LaBar wrote explaining
that LaBar Transportation was using a fuel jobber which was
not a subsidiary. Government’s Exhibit 25. In dismissing Count
25 of the indictment, the Court found as a matter of law that
LaBar’s letter was not a false statement within the meaning of
18 U.S.C. §1001 because Petroleum Suppliers was not at the time
of the letter a subsidiary. The Defendants argue from this that
since they supplied a certification as required by the Postal Service
and provided an explanation that was not a false statement they
are entitled to acquittal on the remaining counts charging
conspiracy and mail fraud.
This argument is based primarily on the case of United States
vs. Race, 632 F.2d 1114 (4th Cir. 1980), which involved conspiracy
as well as false statement charges. The opinion in that case,
however, deals exclusively with the false statement charges and
does not address the conspiracy charge. That case, therefore, is
of limited value to a determination of whether conduct including
29a
Opinion
statements that are not false statements under 18 U.S.C. §1001
may properly form the basis for conspiracy and mail fraud
The Defendants’ argument in this regard requires the Court
to conclude as a matter of law that the fuel certifications submitted
by LaBar Transportation were bona fide. There was, however,
ample evidence from which the jury could have concluded that
prices charged by Petroleum Suppliers were determined by LaBar
Transportation, that such prices were never in fact paid by LaBar
Transportation and for that reason the certifications were not
bona fide. This case is not like the situation in Race in which
the Court of Appeals held that the defendant’s interpretation of
the applicable contractual provisions was reasonable and for that
reason the statements presented to the Government were not false.
United States vs. Race, 632 F.2d at 1119.
The Defendants support their argument that their
interpretation of postal regulations was reasonable by relying on
the two memorand. exchanged between the Jacksonville, Florida
Transportation Management Office (TMO) and the regional office
of the logistic division of the Postal Service that the Defendants
obtained as a result of the Court’s June 30, 1981 discovery order.
The Defendants argue that since the Jacksonville TMO was unsure
as to how to process LaBar’s request for a fuel increase, the
Defendants cannot be prosecuted because they submitted fuel price
increases in excess of the market price. The flaw in this argument
is that it rests on the false premise that the Defendants were
prosecuted for submitting fuel certifications showing that they
purchased fuel for prices in excess of the market price. The
Government’s attempt to show that the prices certified by LaBar
Transportation were in excess of the market price was precluded
when the Court sustained the Defendants’ objection to such
evidence. The basis of the Government’s charge against the
Opinion
Defendants is that contrary to Postal Service regulations, LaBar
Transportation sought fuel price increases when it controlled those
increases and that the Defendants caused LaBar Transportation
to do so knowing that the conduct was in violation of applicable
Postal Service regulations.
The Court rejects the Defendants’ attempt to construe the
two memoranda as establishing as the Postal Service’s complete
policy on cost increases the requirement that they be based on
competitive prices. While the competitiveness of prices is one factor
that the Postal Service considers when determining whether to
permit fuel costs adjustment, it is not the only factor. Postal
regulations clearly provide that cost increases are not available
if they are brought about by circumstances within the contractor’s
complete control. The evidence presented in this case prevents
the Court from concluding as a matter of law that the Defendants’
conduct as it could have been found by the jury was a reasonable
interpretation of postal regulations because that evidence supports
the conclusion that LaBar Transportation exercised complete
control over the prices charged by Petroleum Suppliers. Moreover,
the Court cannot conclude as a matter of law that it was a
reasonable interpretation of Postal Service regulations for the
Defendants to have concluded that they could cause Petroleum
Suppliers to set its prices at levels high enough to permit LaBar
Transportation to seek immediate cost adjustments from the Postal
Service. Since the evidence did not permit the Court to conclude
as a matter of law that the fuel adjustment requests complied
with applicable regulations, the case properly was submitted to
the jury and the jury could properly have rejected the Defendants’
argument that the Defendants believed their conduct was
permissible.
The Defendants next argue that they were affirmatively misled
by the Postal Service into believing that their conduct was proper.
3la
Opinion
They argue that there was a long-standing practice of the Postal
Service authorizing mail haulers to purchase fuel from subsidiaries
and that there was no regulation reouiring disclosure of such
purchasers. Under this state of affairs, the defendants argue they
could not reasonobly have expected that their actions would be
grounds for prosecution. The Defendants rest this argument on
the cases of United States vs. Pennsylvania Industrial Chemical
Corp., 411 U.S. 655 (1973), and United States vs. Insco, 496 F.24
204 (Sth Cir. 1974). Neither those cases nor the evidence of record
supports the Defendants’ position.
As indicated above, the Defendants did not present any
evidence as to what advice they received from Travis Henry or
others concerning the legality of their plan. In United States vs.
Pennsv!vania Industrial Chemical Corp., 411 U.S. at 673-75, the
case was remanded in order to give the defendant an opportunity
to present evidence of its reasonable reliance on certain regulations
promulgated by the Army Corps of Engineers. In this case, the
Defendants were not prohibited from attempting to show reliance
on Postal Service practice or expert advice; instead, they chose
for tactical reasons not to present such evidence.
United States vs. Insco involved a prosecution under 18
U.S.C. §612 which requires political candidates to affix attribution
clauses to campaign materials. The defendant in that case was
charged with failing to have done so with respect to bumper
stickers. The indictment was dismissed on the ground that the
statute was inartfully drawn and did not give fair warning that
the conduct was illegal. This lack of fair warning was increased
by the fact that there had been no prosecutions for the practice
for 29 years and that the lack of attribution clauses on bumper
stickers was ‘‘a universally accepted omissive practice among
federal candidates.’’ United States vs. Insco, 496 F.2d at 209.
32a
Opinion
The conspiracy and mail fraud statutes involved in this case,
however, are not subject to the same attacks. While the
Defendants’ reliance on advice and what they thought other
contractors were doing would have been probative on the issue
of good faith, no such evidence was offered. In addition, there
was no evidence that the Postal Service affirmatively misled the
Defendants into believing that they could engage in the conduct
disclosed by the evidence which included the use of a shell
corporation to generate marked up invoices and then affirmatively
to mislead the Postal Service as to the relationship between LaBar
Transportation and Petroleum Suppliers.
In their reply brief the Defendants request a hearing to show
that their reliance on alleged Postal Services practices was
reasonable and a ground to prevent their prosecution. A hearing
at this stage of the proceedings is not appropriate. The Court
rejects the Defendants’ attempt to divorce this issue from those
that were the proper subject of the jury’s determination and to
have the Court now hear their defense. Stripped to its core, the
Defendants’ argument is that they believed what they were doing
was legal. Evidence on that issue could properly have been
presented to the jury but the Defendants chose not to do so.
Uniied States vs. Insco is not to the contrary. While it is
true that in Jnsco the Court of Appeals dismissed the indictment
for the reasons stated above, it observed that the case involved
“‘extraordinary facts, unlikely of repetition in other contexts. . . .””
United States vs. Insco, 496 F.2d at 209. The Defendants have
failed to show that this case presents factual circumstances so
similar to Jnsco as to warrant the ¢’-missal of the indictment.
The Defendants next argue that the convictions must be set
aside because they are offensive to the due process clause of the
Fifth Amendment since the regulations upon which the
33a
Opinion
Government’s case was based failed to give the Defendants fair
warning of what was prohibited and placed unbridled discretion
in the hands of law enforcement officials. It is the Defendants’
position that the postal regulations involved in this case permitted
fuel price increases only if they were attributable to external forces
over which the contractor had “‘little, if any control.’’ Postal
Contracting Manual, §19-316.21, Government Exhibit 1.01, or
from “‘economic conditions’ over which the contractor had “‘little
or no control.’’ Regional Instructions, Part 500 Transportation,
1008-T-164 Filing No. 523, Sept. 27, 1977, §1IB, Government
Exhibit 1.02. It is the Defendants’ contention that the
Government’s fraud theory is that the Defendants falsely and
fraudulently represented to the Government that the fuel price
increases were proper under postal regulations and that the
increased prices were brought about by circumstances over which
LaBar Transportation had “‘little, if any control’’ or “‘little or
no control.’’ Defendants argue from this that the phrases “‘little,
if any control”’ and “‘little or no control” are too vague to provide
the Defendants with notice of what degree of control over prices
they could properly exercise.
The Government takes the position that even if the applicable
postal regulations are vague, the Defendants can still pr erly
be convicted of conspiracy and mail fraud because the elements
of those offenses in the context of this case did not require proof
that Postal Service regulations were violated. The Government’s
position is that the jury could have found that the Defendants
acted in a manner “reasonably calculated to deceive persons of
ordinary intelligence and comprehension.’’ United States vs.
Pearlstein, 576 F.2d 531, 535 (3d Cir. 1978).
The Court finds the Government’s attempt to divorce this
Prosecution from the postal regulations to be unpersuasive. The
Court in its opinion denying the Defendants’ pre-trial motion to
34a
Opinion
dismiss the indictment on this ground stated at that time that the
indictment charged conspiracy and mail fraud and did not charge
the Defendants with violating Postal Service regulations. United
States vs. LaBar, 506 F.Supp. at 1274. At that time, the Court,
of course, could not know the manner in which the Government
would attempt to prove its case against the Defendants. Now that
the trial has been completed, the Court agrees with the Defendants’
contention that the phrases ‘“‘little or no coutrol’’ and “* little,
if any control’”’ are crucial to the Government’s case. The
Government’s entire theory of the case was that the Defendants
sought fuel cost increases to which LaBar Transportation was
not entitled under applicable regulations.
Having concluded that the postal regulations relating to price
increases were crucial to the Government’s case, the Court will
confront the Defendant’s vagueness argument. In a case such as
this that involves no First Amendment freedoms, the Defendants’
vagueness challenge must be determined in the light of the facts
of the case. United States vs. Powell, 423 U.S. 87, 92 (1975).
A statute regulating commercial activity is unconstitutionally vague
if it “‘proscribes no comprehensible course of conduct at ail.”’
United States vs. Powell, 423 U.S. at 92.
Such a statute was in issue in United States vs. Cohen Grocery
Co., 255 U.S. 81, 89 (1921). That statute prohibited anyone from
“‘willfully. . .makefing] any unjust or unreasonable rate or charge
in. . .dealing in or with any necessaries. . .”’ In explaining the
Court’s finding of unconstitutionality in the Cohen case, the
Supreme Court in Powell explained that:
[t]he sugar dealer in Cohen. . .could have had no
idea in advance what an ‘‘unreasonable rate’’
would be because that would have been determined
35a
Opinion
by the vagaries of supply and demand, factors over
which he had no control.
United States vs. Powell, 423 U.S. at 92-93.
In Powell, Cohen was contrasted to the case of Sproles vs. «
Binford, 286 U.S. 374, 393 (1932), in which a vagueness challenge
to a statute providing that certain oversize loads must be
transported by the ‘‘shortest practicable route’’ was rejected. In
that case, the Court found that the carrier had been given ‘‘clear
notice that a reasonably ascertainable standard of conduct [was]
mandated; it [was] for him to insure that his actions [did] not
fall outside the legal limits.’’ United States vs. Powell, 423 U.S.
at 92.
In Powell itself, the Supreme Court held that 18 U.S.C. §1715,
which proscribed the mailing of any ‘‘firearm capable of being
concealed on the person’’, was not unconstitutionally vague when
applied to a case involving the mailing of a 22-inch-long sawed
off shotgun. United States vs. Powell, 423 U.S. at 93.
The Court concludes that regulations at issue in this case
are closer to the statu‘es at issue in Powell and Sproles than they
are to the statute condemned in Cohen. The regulations in issue
fairly apprise postal contractors that they may not seek cost
adjustments when their costs have been increased by their own
actions. ‘‘While doubts as to the applicuvility of the language
in marginal fact situations may be conceived, we think that the
[regulations] gave [the Defendants] adequate warning’’ that their
attempt to seek fuel price adjustments under circumstances in
which a jury could find beyond a reasonable doubt that they
exercised complete control over those prices was unlawful. See
United States vs. Powell, 423 U.S. at 93.
36a
Opinion
It bears emphasi=ing that at no time did the Defendants seek
to argue to the jury that they failed to understand the meaning
of “‘little, if any control’’ or “‘little or no control.’’ The Supreme
Court has recognized that such misunderstandings are proper to
bring before the jury in a case, such as this, that requires a knowing
violation of the law. See Bryson vs. United States, 396 U.S. 64,
69 (1969). Further, the Defendants did not request of the Court
an instruction to the jury as to the meaning of the phrases “‘little,
if any control”’ or “‘little or no control.’’ The requirement that
the Government prove beyond a reasonable doubt that the
Defendants acted knowingly also does much to undercut the
Defendants’ vagueness argument. See Colautti vs. Franklin,
—___U.S.___, 99 S.Ct. 675, 685 & n.13 (1979). For these reasons,
the Court concludes that the postal regulations at issue fairly
apprised these Defendants that the conduct they engaged in was
result of unbridled prosecutorial discretion.
The Defendants, relying on United States vs. Tarnopol, 561
F.2d 466 (3d Cir. 1977), argue that the individual mailings alleged
in counts 2 through 22 of the indictment were not sufficiently
related to the alleged mail fraud scheme to support the mail fraud
convictions. It is the Defendants’ position that the mailing of the
fuel cost adjustment forms anv supporting documentation alleged
in counts 2, 3, 5. 6, 7, and 9 were routine communications
intrinsically innocent and required by law to have been made to
the Postal Service. The Defendants do not address the other
mailings alleged and proved in the case such as the letters relating
to the fuel price increases alleged in Counts 4, 8, 10, 11 and 12
or any of the checks received by LaBar Transportation, the
mailings of which are alleged in counts 13 through 22. The Court
finds the Defendants’ reliance on Tarnopol misplaced as to the
fuel adjustment requests and certifications and finds the case
inapplicable to the other mailings alleged and proved in this case.
37a
Opinion
Tarnopol involved a scheme to defraud whereby the
defendants, record company executives, failed to record on the
books of their companies the proceeds of certain cash sales of
records and used the cash accumulated as a slush fund out of
which to pay disc jockeys and radio program directors in order
to induce them to play the companies’ records. The records
involved were actually produced by a third corporation which
also filled orders for the records. Upon filling the orders, a copy
of the packing slip was sent to the companies owned by the
defendants. In the instances of sales for other than cash, the
defendants routed the packing slips in the normal course to the
bookkeeper who made the appropriate entries in the books. The
packing slips generated by cash sales were retained by the
Defendants, thereby preventing those sales from being recorded
in the companies’ books.
In holding that the mailings of the packing slips were not
sufficiently related to the defendants’ scheme to defraud, the Court
of Appeals noted that the mailings were initiated by a third party,
not the defendants, and that each mailing took place before the
first action was taken to execute the fraud. United States vs.
Tarnopol, 561 F.2d at 473. In this case, however, the mailing
of the fuel adjustment requests were initiated by the Defendants
in their attempt to secure additional compensation from the
Postal Service. Moreover, each mailing arose after the scheme
to defraud had been put into operation. Finally, far from being
only a convenience to the Defendants, as the Court of Appeals
determined the use of the packing slips was to the defendants
in Tarnopol, fuel certifications were an essential element in the
Defendants’ scheme in that they served as the basis for the
increased compensation and the fact that the Postal Service
required those forms in order to process the requests does not
remove their mailing from the impact of the mail fraud statute.
38a
Opinion.
The Defendants do not contend that the letters referred to
in Counts 4, 8, 10, 11 and 12 were routine mailings required by
the Postal Service. Each of those letters in some way conveyed
to the Postal Service the impression that LaBar Transportation
was dealing with Petroleum Suppliers at arms length and that
LaBar Transportation was indeed entitled to fuel cost adjustments
it sought. These letters, therefore, could reasonably have been
found by the jury to have been mailed in furtherance of the scheme
to defraud.
The same observation applies with respect to the checks
referred to in Counts 13 through 22. Each of those checks
represented compensation including fuel price adjustments. It
defies logic to argue that mailings by the victim to the Defendants
of the proceeds of the scheme to defraud are not mailings in
furtherance of that scheme.
The Defendants contend that they are entitled to acquittal
because the opening statement delivered by the prosecutor failed
to mention that the Government would prove that the venue for
each crime lay in this district. The Defendants do not argue that
the evidence was insufficient to support such a finding. They cite
no case in support of their contention that in an opening statement
the Government must tell the jury that it will prove each element
of the crime. What case law there is on the subject is to the
contrary.
The Courts have approved a procedure whereby a prosecutor
waives his opening statement. United States vs. Holland, 526 F.2d
284, 285 (Sth Cir. 1976), a 1 situations in which the prosecutor
has failed to advise the jury t Florida law forms the underlying
illegality that was allegedly promoted in a prosecution under the
Travel Act, 18 U.S.C. §1952. Hanley vs. United States, 416 F.2d
1160, 1164 (Sth Cir. 1969), cert. denied, 397 U.S. 910 (1970).
39a
Opinion
Moreover, there is no requirement that the prosecutor’s opening
statement include a recital of the evidence he intends to rely on
or that he state a prima facie case in his opening. United States
vs. Levine, 372 F.2d 70, 73 (7th Cir.), cert. denied, 388 U.S. 916
(1967); Chatman vs. United States, 557 F.2d 147, 149 (8th Cir.),
cert. denied, 434 U.S. 863 (1977). While it appears that the Court
has the power to dismiss the indictment if the prosecutor’s opening
is insufficient, Hanley vs. United States, 416 F.2d at 1164, the
Court rejects the Defendants’ contention that it is obliged to order
their acquittal because of the Government’s failure specifically
to say in its opening that it would prove that venue is proper
in this district.
The Defendants’ final argument in support of their motion
for judgment of acquittal is that since the fuel cost adjustment
forms provided by the Postal Service state that failure to answer
truthfully may give rise to prosecution under 18 U.S.C. §1001,
the Government is barred from prosecuting these defendants under
the mail fraud statute. This claim was raised in the Defendants’
pre-trial motion and rejected at that time by the Court, United
States vs. LaBar, 506 F.Supp. 1267, 1274-75 (M.D. Pa. 1981),
and the Court rejects it at this time for the same reasons.
III. Motion for New Trial.
Having determined that the Defendants are not entitled to
the entry of judgments of acquittal, the Court will now turn to
their motion for a new trial. In support of that motion, the
Defendants argue that the Court made three evidentiary errors,
improperly prohibited the Defendants from using certain charts
during closing argument and that the prosecutor’s rebuttal
argument was unfair and requires a new trial. The Court concludes
that none of its rulings was erroueous, did not result in unfair
40a
Opinion
prejudice to the Defendants, and does not require a new trial.
In addition, the Court concludes that the prosecutor’s closing
remarks were proper and are not a ground for a new trial.
The Defendants argue that the admission of the Government
Exhibits 39 and 41 was improper under Fed.R.Evid. 403 because
the probative value of those exhibits was substantially outweighed
by the danger of unfair prejudice to the Defendants and that the
prejudice suffered was such that a new trial is required.
Government Exhibits 39 and 41 are documents prepared by
Colonial Fuel Oil Company in response to a letter and phone
calls from Defendant Romanowski that his name be removed from
invoices and that the invoices be sent to Petroleum Suppliers and
not to LaBar Transportation. It was the Government's position
that this evidence was relevant because it tended to show that
Romanowski wanted to make it appear that he had no connection
with Petroleum Suppliers. The reason for this wish, according
to the Government, was the Defendants’ awareness of the Postal
Service’s practice of investigating fuel cost increases resulting from
purchases from a subsidiary or a controlled corporation more
closely than other fuel adjustment requests. Part of this intensified
scrutiny included checking with the companies who sold fuel to
the contractor’s supplier.
The Defendants argue that this evidence was cumulative
because Government Exhibit 38, a letter written to Colonial Oil
by Romanowski, instructs Colonial to ‘‘eliminate’’ Romanowski’s
name and Walter Nickelson, sales manager of Colonial Oil,
testified at trial that Romanowski had told him to remove
Romanowski’s name from the invoices. The Defendants argue
that the admission of Exhibits 39 and 41 was prejudicial because
they contain the word ‘‘delete’’ which the Defendants argue has
a more urgent connotation than the word “‘eliminate’’ used by
Romanowski in his letter to Nickelson, Government Exhibit 38.
4la
Opinion
The Court does not view the admission of Exhibits 39 and
41 to have been ‘‘needless presentation of cumulative evidence’’,
Fed. R.Evid. 403, but properly admissible to show that Colonial
took steps to comply with Romanowski’s request and that
Romanowski made the request at least twice. In addition, the
Court does not see any significant difference between the word
“‘eliminate,’’ used by Romanowski in Government Exhibit 38,
and the word ‘“‘delete’’ used by Colonial Oil and for that reason
rejects the Defendants’ claim that they were prejudiced by the
admission of Government Exhibits 39 and 41. The admission of
Government's Exhibits 39 and 41 was not, therefore, error and
not a ground for a new trial.
The Defendants’ next argument with respect to the admission
of evidence relates to testimony concerning the Government
Exhibit 11, a letter from Daniel T. McHenry to the Postal Service
concerning a request for a fuel adjustment. That letter stated that
LaBar Transportation had ‘‘task [sic] ourselves to negotiate with
Petroleum Suppliers a reduction in rate. . ."’ and that LaBar
Transportation was then paying 66.9¢ per gallon for fuel. The
Defendants objected to the inquiry concerning the representation
of the current price charged by Petroleum Suppliers on the ground
that its probative value was substantially outweighed by its
prejudicial impact and because it was not part of the scheme
charged in the indictment. The Court, after reviewing the
indictment and the bill of particulars iiled by the Government,
overruled the objections and permitted the testimony.
The Government Exhibit 11 can fairly be said to contain two
alleged misrepresentations, the first relating to negotiations
between LaBar Transportation and Petroleum Suppliers and the
second relating to the then present price being paid by LaBar
Transportation for fuel. It was the second representation that the
42a
Opinion
Defendants objected to. Among other allegations, the indictment
alleges on page 8,42, that “‘the Defendants. . .did prepare and
disseminate. . .by use of the mails, materially false and misleading
information to the U.S. Postal Service. . . alleging that through
the period from July 1, 1977 through December 31, 1978, LaBar
Transportation Corporation was charged higher prices per gallon
for diesel fuel to operate its Postal Service contracts than it actually
was being charged.’’ The Defendants were thereby put on notice
that among the false representations allegedly made were ones
relating to the amount actually being charged for fuel. Moreover,
page 3 of the Government’s bill of particulars states that
**Government’s Exhibits 11 and 12 are additionally false in that
the so-called ‘negotiations’ were a sham because LaBar
Transportation Corporation had not been billed by Petroleum
Suppliers, Inc. at a rate of 66.9¢ per gallon since March of
1978. . . .”” The Court, therefore, was correct in its conclusion
that a misrepresentation with respect to the then current price
was alleged in the indictment and that the Defendants had adequate
notice that the Government would attempt to prove such a
misrepresentation. For that reason, the admission of the testimony
relating to that aspect 6 “wovernment Exhibit 11 was proper and
not a ground for a new trial.
The Defendants also argue that the admission into evidence
of Government Exhibit 79.01 was error requiring a new trial. That
exhibit, a portion of which is reproduced below, was a schedule
showing the amount paid to primary suppliers by Petroleum
Suppliers, the amount billed to LaBar Transportation by
Petroleum Suppliers, and the amount paid to Petroleum Suppliers
by LaBar Transportation Corporation.
3, 108-110
1,
4, 102-115
1, 116
6, 117-122
1, 123
8, 124-131
1, 132
6, 133-138
4, 139-142
12, 143-155°
Transportation Co.
Amount Paid Amount
to Primary Billed to
Suppliers by LTC by
indices PS!
ee 5
$51,765.61 $54,769.57
11,151.56 11,816.06
35,938.42 37,946.55
48,967.10 $5,555.22
93.07
48,898 80 55,604.26
10,020.42 13,860.58
59,596.31 67,439.49
46,004.19 48,328.15
75,772.44 89,771.60
40,063.83 47,947.54
56,129.81 66,656.32
82,824.49 114,037.58
123,188.84 190,740.24
Ada
Opinion
The Government had initially sought the admission of an
Exhibit 79 which was identical to 79.01 except that it had a ninth
column which showed the difference between the amount billed
to LaBar Transportation by Petroleum Suppliers and the amount
paid by LaBar Transportation to Petroleum Suppliers. The Court
excluded that exhibit on the ground that the ninth column was
argumentative in that it set forth the Government’s position as
to the nature of the relationship between the companies, namely
that LaBar Transportation paid only enough cash to Petroleum
Suppliers to enable Petroleum Suppliers to meet its cash
requirements.
The Defendants argued at trial and renew their argument
now that Exhibit 79.01 was inaccurate because it shows both cash
flow and accounts receivable of Petroleum Suppliers without
showing LaBar Transportation’s account payable to Petroleum
Suppliers and without showing LaBar Transportation
Corporation’s account receivable from the Postal Service. Thus,
according to the Defendants and their expert witness, the schedule
failed to give an accurate picture of the business relationship of
the companies.
Fed.R.Evid. 1006 permits a summary of voluminous writings
which cannot conveniently be examined in court. Government
Exhibit 79.01 accurately sets forth the information on which it
was based. Moreover, contrary to the Defendants’ contentions,
it is not unfairly presented. By itself, this schedule shows the dates
on which payments were made by Petroleum Suppliers, bills were
submitted to LaBar Transportation Corporation, and the dates
and amounts of payments by LaBar Transportation Corporation
to Petroleum Suppliers. It was proper argument on the part of
the Government to suggest to the jury that what was revealed
by these transactions were payments from LaBar Transportation
to Petroleum Suppliers in amounts just sufficient to permit
Petroleum Suppliers to pay its suppliers. The schedule also
45a
Opinion
accurately reflected the Defendants’ contention that the history
of payments demonstrated an extension of credit of Petroleum
Suppliers to LaBar Transportation. The Court, therefore, cannot
conclude that the probative value of the chart, which summarized
voluminous records, was substantially outweighed by the prejudice
to the Defendants.
The Court’s conclusion that Exhibit 79.01 was properly
admitted is not effected by the fact that two jurors performed
calculations indicating that by the end of 1978 LaBar
Transportation owed Petroleum Suppliers in excess of $200,000
or that the prosecutor made the same argument to the jury. The
Defendants do not dispute that such is the case; rather, they argue
that it was not proper for the jury to be able to discover that
fact by the use of Exhibit 79.01 or for the Government to argue
from that fact that LaBar Transportation controlled Petroleum
Suppliers. Yhe Defendants ably argued their position that the
history of payments was consistent with an extension of credit
to LaBar Transportation by Petroleum Suppliers. The jury was
free to reject that inference and adopt the Government's inference,
particularly in light of the facts that Petroleum Suppliers was
obtaining its oil on terms requiring payment within 10 days, that
it had no other customer, and that it was thinly capitalized. The
jury could properly have concluded that Petroleum Suppliers was
not in a position to extend credit to LaBar Transportation and
that there was no intention on the part of any of the Defendants
that the growing account receivable would ever be satisfied. For
these reasons, admission of Government Exhibit 79.01 was proper
and not a ground for a new trial.
The Defendants argue they are entitled to a new trial because
the Court prevented them from using 10 charts in their closing
to the jury. Those charts were shown to the Government and the
court only several minutes before the defense was to use them.
46a
Opinion
Although defense counsel represented that the information
contained in the charts was a summary of that previously provided
the Government, a representation that the Government now
concedes was accurate, the Defendants proposed to use the charts
without giving the Government or the Court an opportunity to
determine whether they were accurate or representative of the
evidence in the case. The Court offered the Defendants a recess
and hearing to determine whether the charts were an accurate
reflection of the evidence, N.T. Vol. VII at 109, and the Court
stated that defense counsel could present pictorially anv evidence
which they could demonstrate was in the record. Both proposals
were rejected by defense counsel. N.T. Vol. VII at 109, 112.
The charts were not permitted to be used in the Defendants’
closings because neither the Court nor Government counsel had
an opportunity to determine whether they were within the bounds
of proper argument. Just as one counsel has a right to object
to statements made by opposing counsel in a closing argument
because they are clearly unsupported by the facts in the case, it
was a reasonable exercise of this Court’s discretion to require
the Defendants to give the Government the opportunity to
determine whether to object or to prepare arguments in opposition
to those contained in the charts. The cases cited by the Defendants
are not to the contrary.
In United States vs. Parenti, 326 F.Supp. 717, 728-29 (E.D.
Pa. 1971), «“f'd 470 F.2d 1175 (3d Cir. 1972) (per curiam), cert.
denied, 4\' U.S. 965 (1973), the summary charts had been
explained in detail by a Government witness during the trial, and
both sides had ample opportunity to study the charts. Similarly,
in United States vs. Goichman, 407 F.Supp. 980, 998-99 (E.D.
Pa.), aff'd 547 F.2d 778 (3d Cir. 1976) (per curiam), the charts
were permitted because witnesses had established the basis for
their use and the charts were cross-referenced to exhibits that had
47a
Opinion
been received in evidence. The Court had an obligation to insure
that the charts were not confusing, misleading, grossly inaccurate,
or completely irrelevant. See United States vs. Altruda, 224 F.2d
935, 938-39, 942 (2d Cir. 1955). It was, therefore, a reasonable
exercise of this Court’s discretion to prohibit the use of the charts
under the circumstances as they then existed.
Defendan*s have also failed to show how they were prejudiced
by the Court’s refusal to permit the use of the charts. The fir...
five charts would have been used to show that payments from
the Postal Service t LaBar Transportation were generally
unchanged during the period covered by the indictment. The last
five charts would have been used to demonstrate the prices billed
by Petroleum Surpliers to LaBar Transportation and requested
from the Postal Service were merely the beginning point in a
process of negotiation, that the Postal Service routinely paid
substantially less to LaBar Transportation than it had requested
and that the payments were less than the amounts being paid by
LaBar Transportation to Petroleum Suppliers.
The Court fails to see how the first group of charts is relevant
because it is not prot-ive of any issue in the case whether the
Defendants succeeded in their attempt to obtain more
compensation than that to which they were entitled.
As to the second group of charts, at no point during the
trial did the Defendants seek to base a defense on the proposition
that it was permissible to seek compensation in excess of that
to which they were entitled because negotiations would inevitably
follow and result in a payment of a lower and presumably correct
amount. Having been rebuffed in their attempt to use the argument
charts, the Defendants failed even to attempt to argue these
propositions to the jury. The Court, therefore, cannot determine
how that argument may have been adversely affected by the lack
48a
Opinion
of the charts. Consequently, Defendants cannot now seek a new
trial on the ground that the charts were improperly excluded.
The Defendants’ final argument in support of their motion
for a new trial is that the prosecutor in rebuttal argument
improperly argued and implied to the jury that defense counsel
were deliberately seeking to avoid the facts of the case. In rebuttal,
the Assistant United States Attorney stated:
[Defense lawyers’] statements are interesting for
what they say and they are equally interesting for
what they did not say. And this is my recollection:
I did not hear anything on how the negotiations
in June and July of 1978 could have taken place
when there was nothing to negotiate. Was there
any attempt to explain that? It appears to me that
the defense lawyers avoided the question of the
August 9th mailings. . . . It appeared to me that
they avoided much of the discussions of the
primary suppliers. (N.T. Vol. VII, 191-2).
Although the Defendants objected to this remark at the conclusion
of the argument, they did not do so contemporaneously and did
not seek a mistrial or a curative instruction. Although the Court
could perhaps properly decline to consider the contention further
because of the Defendants’ failure to seek a mistrial or a curative
instruction the Court will not do so because in its view there is
nothing improper about the prosecutor’s remarks.
In his closing argument, Mr. Skolnik accused Government
counsel of ‘‘tossing and juggling and shuffling and twisting’’ the
facts of the case to produce a crime. N.T. Vol. VII at 142. He
also stated that the Defendants were being prosecuted because
the Government did not like the way they did business, N.T. Vol.
49a
Opinion
VII. at 168-70 and in addition accused Government counsei of
distorting the evidence. N.T. Vol. VII at 154. It is the Court’s
view that Government counsel’s remarks, which merely pointed
out to the jury that for all their passion defense counsel failed
to address certain key factual issues in the case, were entirely proper
and showed restraint in light of the tone of some of the defense
counsels’ closings.
Based on the foregoing, the Court concludes that the
Defendants are not entitled to a new trial.
IV. Motion in Arrest of Judgment.
The Defendants’ motion in arrest of judgment contends that
the indictment fails to allege an offense »ecause a scheme to
defraud the Government is not prohibited by 18 U.S.C §1341,
and because crimes involving false claims and false statements
to the Government must be prosecuted under 18 U.S.C. §§287
and 1001. The Defendants also contend that the indictment fails
sufficiently to notify them of the nature of the charges and is
not a plain, concise statement of essential facts as required by
Fed.R.Crim.P. 7(c)(1) and that the indictment fails to allege an
offense by the corporate defendants because it does not charge
that the actions of their employees were within the scope of their
authority and in the course of employment. The Defendants also
contend that the Court was without jurisdiction because venue
does not lie in the Williamsport division of the Middle District
of Pennsyivania. None of these contentions has any merit. All
of the arguments on behalf of the individual defendants, with
the exception of the venue argument, were raised in the
Defendants’ pre-trial motion to dismiss and rejected by the Court
in its denial of that motion, United States vs. LaBar, 506 F.Supp.
1267, 1274, 1277 (M.D. Pa. 1981), and the Defendants have not
convinced the Court that its earlier decision was erroneous.
50a
Opinion
The argument on behalf of the corporate defendants was
raised prior to trial and rejected in an unreported order filed
January 21, 1981. As the Court there stated, an indictment
sufficiently alleges an offense against a corporation if it either
alleges that the corporation acted knowingly or absent such an
allegation sets forth facts showing a knowing violation, namely
an act done by a corporate agent within the scope of his authority
and with the intent to benefit the corporation. See United States
vs. American Radiator & Standard Sanitary Corp., 433 F.2d 174,
205 (3d Cir. 1970), cert. denied, 401 U.S. 948 (1971); Standard
Oil Company of Texas vs. United States, 307 F.2d 120, 130 (Sth
Cir. 1962). The indictment in this case alleges that the defendant
corporations acted knowingly. In addition, the acts of the
individual officers and agents of the Defendant corporations are
set forth in the indictment. For these reasons, the Court concludes
that the indictment adequately alleges offenses by the corporation
defendants.
in their reply brief the Defendants have intensified the attack
on the Government’s use of the mail fraud statute to punish what
the Defendants claim are crimes already punishable under the false
claims act, 18 U.S.C. §287 or the false statements act, 18 U.S.C.
§1001. For this reason, the Court will address this claim more
fully than in its earlier opinion.
The Defendants rest their argument that the indictment fails
to allege an offense under 18 U.S.C. §1341 on the Supreme Court’s
decisions in Busic vs. United States, _..U.S.___., 100 S.Ct. 1747
(1980), and Simpson vs. United States, 435 U.S. 6 (1978), and
on an opinion by the United States District Court for the Eastern
District of Virginia in United States vs. Computer Sciences
Corporation, Criminal No. 80-158-A (March 5, 1981), which in
turn relied on Busic and Simpson. Because this Court concludes
that Busic and Simpson involved issues not applicable to this case,
it rejects the Defendants’ position.
Sla
Opinion
Busic and Simpson required the Supreme Court to determine
the relationship between 18 U.S.C. §924(c), a statute that provides
for increased penalties for the use of firearms during the
commission of a federal felony, and two other sections of the
United States Code that contained their own provisions for
enhanced punishment in the event firearms or dangerous weapons
were used. In Simpson, the other statute was 18 U.S.C. §2113(d),
which concerns bank robberies while in Busic the other statute
was 18 U.S.C. §111, which prohibits assaults on federal officers.
In both cases the defendants were convicted of using firearms
in the commission of the federal felonies. Busic received an
enhanced punishment under §111 and an additional sentence under
§924(c). Sirapson received an enhanced punishment under §2113(d)
as well as an additional sentence under §924(c). In Simpson the
Supreme Court held that as a matter of statutory construction
only one enhanced penalty could be provided and held in Busic
that the enhancement was governed by the section creating the
underlying felony rather than the general enhancement provision
of §924(c). The Court did so on the basis of congressional intent
in enacting §924(c) as well as principles of statutory construction
requiring that ambiguity in criminal statutes be resolved in favor
of lenity and the principle that the more specific statute be given
precedence over a more general one. Busic vs. United States,
—___.U.S. at ___., 100 S.Ct. at 1753.
The Court in Computer Sciences used this analysis to dismiss
mail and wire fraud charges asserted against the defendants when
the same conduct, absent the requirement of mailing, would
constitute offenses under either 18 U.S.C. §287 or §1001. The
Court held as a matter of statutory construction that the more
general mail fraud statute had been supplanted insofar as
fraudulent claims against the United States were concerned by
the false claims act, 18 U.S.C. §287, and the false statements act,
18 U.S.C. §1001. The additional element of mailing was not
sufficient to permit the Government to nrosecute under the mail
52a
Opinion
fraud statute because Treasury Department regulations required
that the mails be used to send checks to claimants.
What the Defendants’ reliance on Busic and Simpson ignores
is the crucial f, + that in both cases identical conduct was subject
to enhancement under two different statutes. In this case, however,
although the defendants seek to trivialize it, the Government was
required to prove the use of the mails in furtherance of the scheme
to defraud. It is not unreasonable to ascribe to Congress an intent
to punish more severely frauds involving use of the mails than
other false claims on or false statements to the Government.
Moreover, the Defendants have pointed to no legislative history
that shows that Congress was concerned of potential overlap of
the mail fraud statute and either the false claims act or the false
statements act at the time cach was passed or that Congress
intended to forbid the use of the mail fraud statute when false
claims were mailed to the Government as part of a scheme to
defraud. See United States vs. Weatherspoon, 581 F.2d 595, 599
(7th Cir. 1978). Such cognizance on the part of Congress played
a large part in the Supreme Court’s determination of legislative
intent in Busic and Simpson. Finally, the Government proved more
than that the Defendants submitted false claims to the Postal
Service. It proved the Defendants embarked on a scheme actively
to conceal from the Postal Service the falsity of the claims.
Because the conduct for which the Defendants have been
convicted is not identical to conduct punishable under either 18
U.S.C. §287 or §1001 and because the legislative history
surrounding the statutes in question does not show a congressional
intent to forbid prosecution under the mail fraudstatute, the Court
finds the Defendants’ arguments based on Busic and Simpson
to be unpersuasive as it does the Computer Sciences case also
relied on by the Defendants.
53a
Opinion
The Defendants’ attack on the venue of the Court is similar
to one raised before trial seeking to transfer the trial to Scranton
and rejected by the Court in an unreported order of January 29,
1981. The Defendants cite no case in support of their contention
that venue for constitutional purposes requires that they be tried
in any given division of a district or that the petit jury be drawn
from the same geographical division as was the grand jury. This
district has no divisions. It is undisputed that the acts giving rise
to the indictment took place within the Middle District of
Pennsylvania and the trial of that indictment in any part of the
District was constitutional. See Zicarelli vs. Gray, 543 F.2d 466,
479 (3d Cir. 1976), United States vs. Joyner, 494 F.2d 501, 504-05
(Sth Cir.), cert. denied, 419 U.S. 995 (1974); Jeffers vs. United
States, 451 F.Supp. 1338, 1347 (N.D. Ind. 1978).
Since the Court concludes that the Court had jurisdiction
to try the case and that the indictment charged offenses, the motion
in arrest of judgment will be denied.
On July 23, 1981, Defendants filed a motion for a new trial.
The motion was supported by a brief filed August 3, 1981. As
of this time, no brief in opposition to the motion has been filed,
nor is one due before August 21, 1981. Accordingly, the motion
is not ripe for disposition and will not be addressed at this time.
An appropriate order will be entered.
s/ Muir
MUIR, U.S. District Judge
DATED: August 14, :981
Sda
GOVERNMENT EXHIBIT 1.02 — REGIONAL
INSTRUCTIONS — PART 500, TRANSPORTATION,
1008-T-164, #523 DATED SEPTEMBER 27, 1977
HIGHWAY CONTRACTS
ECONOMIC CHANGE PAY ADJUSTMENTS —
Ill.
ADVERTISED CONTRACTS
Filing No. 523
AUTHORITY
Section 5005 (b\(1) of Title 39, U.S.C., as enacted by the
Postal Reorganization Act, is the authority for adjustment
of contract rates.
POLICY GUIDELINES
The law provides that the Postal Service, with the consent
of the holder of an advertised surface or water
transportation route, may adjust the compensation allowed
under that coptract for increased or decreased cost resulting
from changed conditions occurring during the term of the
contract.
It is the policy of the Postal Service to allow contractors
an adjustment in rate of compensation as provided for
in these instructions when changed economic conditions
occur over which the contractor has little or no control.
ADMINISTRATIVE INTENT
These instructions are applicable only to the processing
of contractor’s request for an adjustment in rate of
compensation when changed e._ ~omic conditions occur.
IV.
55a
Regional Instructions
Changed conditicns brought about because of significant
service changes are to be negotiated with the contractor
in advance of the Contracting Officer’s ordering the service
change. Therefore, significant service changes are not
subject to economic cost adjustments.
LIMITATIONS AND RESTRICTIONS ON
ADJUSTMENTS
Rate of compensation paid the holders of advertised
transportation contracts is adjustable only to the extent
of the effect of changed conditions occurring during the
contract term. Therefore, a change in rate of compensation
to correct bid errors or omissions in the contractor’s cost
statement is not allowable except as provided for in Section
2-406 of the Postal Contracting Manual.
Adjustment will not be allowed before the beginning of
the 14th accounting period after an initial award of a
contract, or the beginning of the 8th accounting period
after the effective date of a renewal contract or
subcontract. Exceptions are: increases in operating costs
resulting from fuel price increases; pre-scheduled increases
in wage determination rates or the incorporation of a new
wage determination in the contract; changes in service
effected under Clause 12, Form 7407, Basic Transportation
Services Contract General Provisions; enactment of a
Statute or ordinance; or the adoption of lawful regulations
by any Federal, State or local agency. Any adjustments
during the first 13 accounting periods of a new contract,
or during the first 7 accounting periods of a renewal
contract or subcontract are further restricted to those items
which could not reasonably have been anticipated at the
S6a
Regional Instructions
time of the bid submission. Adjustment in rate of
compensation for fue) price increases will be allowed in
accordance with instructions contained in Section VIII of
these instructions. Adjustments in rate of compensation
for any reason other than those listed above may be made
only with the prior written approval of the Director,
Transportation Services Office (TSO), Mail Processing
Department.
INITIATING REQUEST FOR ADJUSTMENT
The contractor must initiate the request for an adjustment
in the rate of compensation by completing the appropriate
forms as follows:
a. | Contractors holding contracts with annual rate of
compensation of $20,000 or over, and employing
regular service employees in the performance of
service required by the contract must complete Form
7463, Cost Statement — Highway Transportation
_ Contracts. (See VIII-G for details).
b. | Contractors who hold contracts of any amount, but
do not employ any regular service employees in the
performance of service required by the contract must
complete Form 7464, Cost Statement (Short Form)
— Highway Transportation Contracts.
é Contractors holding contracts with an annual rate
of compensation of less than $20,000, and
employing regular service employees in the
performance of service required by the contract may
complete either Form 7463 or 7464.
57a
Regional Instructions
COMPARATIVE COST STATEMENTS (FORMS 7463
AND 7464)
1.
Forms 7463 and 7464 are designed to identify the
contractor’s operating cost items at the beginning
and ending of the period for which an adjustment
is requested by the contractor.
In cases of suspected fraud, a written report from
the region is necessary, accompanied by supporting
evidence. In cases where there is evidence the
contractor is not paying his employees the
compensation shown on Form 7463 or 7464, a
complete report must be made to the TSO,
Headquarters. This includes cases in which the
Department of Labor indicates that a contractor
is not paying his employees wages required by the
terms of the Service Contract Act.
When Form 7463 or 7464 is submitted, it becomes
the basis not only for the requested adjustment, but
also for comparison with future costs.
THEREFORE, IT IS MANDATORY THAT ALL
COST ITEMS BE SHOWN ON FORM 7463 OR
7464.
Only increased costs applicable to the specific
contract services may be considered. When an
increase is realized by the contractor from traffic
other than mail carried on the same trip(s), any
increased cost incurred by the contractor in Items
58a
Regional Instructions
2 through 10 must be prorated according to
percentage of income realized from mail
transported.
NOTE: Do not consider adjustment in contract rate
to cover deficiency in income if a bid was based
on commingled revenue which did not materialize,
or if such revenue was procured through contractor
initiative and later lost without any contract revision
by Postal Service.
A contractor cannot be told how or when to
purchase his supplies and equipment, but he is
expected to conduct a reasonably efficient operation.
Decreases in cost of specific items due to
contractor’s initiative will be used to offset increases
in other items only to the extent increases were
previously granted for these specific items during
the contract term.
B. Non-Allowable Increases
1.
increased annual vehicle cost resulting from a
contractor’s election to replace equipment by
purchasing or leasing a larger vehicle than required
by the contract.
Cost increases for items which were omitted in the
original or renewal cost statement.
Increased labor cost resulting from a contractor’s
choice to hire a driver or supervisor in lieu of
personal operation during the term of the contract.
Cc.
Vil.
VIII.
59a
Regionai Instructions
4. Rate of pay on emergency contracts.
Adjustment Limits
1. Adjustments in rate of compensation for owner-
Operator route or routes with an annual rate of
$20,000 or less (using Form 7464) are limited to an
amount that does not exceed the Consumer Price
Index (all items) except for fuel, labor costs, and
contractor’s wages as Outlined in Section VIII-H,
Item 4-d.
2. For adjustments in rate of compensation for routes
other than owner-operator routes (using Form 7463)
contractor must provide documented evidence of
actual increased costs on those items requiring
documentation.
AUTHORITY TO APPROVE ADJUSTMENTS
After review by the Regional Finance Department, the
Manager, Transportation Management Office (TMO), is
responsible for approving or disapproving all contract pay
adjustments covered by this Regional Instruction. One line
fuel and general economic cost adjustments filed on Form
7464 will be approved or disapproved without the Regional
Finance Department’s review. (In all cases where the
Regional Finance Department reviews the requested
adjustment, a copy of the review will become a part of
adjustment file.)
PROCESSING ADJUSTMENT REQUESTS
Questions relating to the interpretation of these instructions
at the TMO level will be referred to the Regional! General
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Regional Instructions
Manager, Logistics Division, for clarification. Questions
arising at the Regional level will be referred to
Headoua"ters.
All adjustment requests must be processed so an initial
offer may be made to the contractor within 28 calendar
days after receipt. The initial offer will be made only on
the facts submitted. In complex cases, ar interim
adjustment may be made. (See Section XII-D.)
Upon receipt of contractor’s request for an adjustment,
the TMO manager will return three copies of the Form
7463 or 7464 to the contractor. Line 1, Column | of these
forms will be completed by the TMO manager to show
the date of bid closing, renewal, subcontract, or date of
last approved cost adjustment, whichever is the later.
Period of Comparison
The period of comparison for economic pay adjustments
will be from the effective date of the latest economic pay
adjustment, solicitation bid closing, contract renewal, or
subcontract, whichever is the latter, to the effective date
of the new request, except as noted in specific line item
instructions.
Verification
Review Form 7463 or 7464 to ensure that all items
appearing in column | are the approved items and amounts
on file as the last approved cost statement. If these items
are not identical, they are to be corrected by the TMO.
6la
Regional Instructions
F. Review of Cost Statement
1.
Prepare Form 5496, Adjustment Analysis and
Report, in triplicate to supplement the cost data on
Form 7463 or 7464. Form 5496 provides a summary
of changes that have occurred. Do not enter data
in ‘“‘Present Date’’ column if no changes have
occurred.
After initial review of Form 7463 by the TMO
Manager, send the entire file to the regional Finan-e
Department in accordance with Section VII of these
instructions. The file will contain:
All forms, correspondence, and
documentation concerning the request. (Form
7463 must be dated and signed by the
contractor.)
Last economic cost adjustment file (complete
file) or copy of cost statement at time of
award, renewal, or subcontract.
Copy of current statement of service.
Copy of Form 5443, Contract Route
Statement Schedule and Specifications.
Form 5496 (original and two copies)
completed as outlined in instructions on back
of form.
Last negotiated service change cost statement.
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Regional Instructions
G. Analysis of Form 7463
Item 1, Fixed and Operational Costs
Line 1A, Column 1.
The annual vehicle cost should reflect the sum of
depreciation and interest paid on vehicle(s) as shown
on last approved cost statement or negotiated service
change.
The annual cost divided by current scheduled miles
will equal rate per mile. An increase in this unit
cost (rate per mile) is subject to adjustment only
when new (or different) equipment is purchased to
use on the route. When contractor changes
equipment on the route, the allowable rate per mile
increase is limited to percentage change in CPI ‘‘All
Items’’ since date of purchase of replaced
equipment, bid closing, or subcontract, whichever
is the later. Exception: general managers, Logistics
Divisions, are authorized to approve an increase in
excess of CPI for equipment replacement cost in
unusual or unique situations. Complete
documentation justifying an exception must be
provided by the contractor.
Unit cost or rate per mile shown in Column I and
Column III should be carried to five decimal places.
Approved unit cost, rate per mile, shown in Column
III, times scheduled miles of service, will equal
approved annual vehicle cost. (No documentation
required except when replacement equipment is
purchased.)
63a
Regional Instructions
Line 1B. This line includes cost of repairs, repair labor,
tires, and other miscellaneous operational cost not carried
in other items on this form. The allowable increase in this
line item ‘s the amount determined by using procedures
outlined in Section IX. (No documentation required.)
Item 2, Taxes. This item should show cost incurred by
contractor for personal property tax on vehicles used in
providing service required on the route. Documentation
in the form of a tax receipt or tax bill is required.
Item 3, Vehicle Registration. This item should show only
state and local vehicle registration fees. Any increase in
cost incurred by contractor as a result of increased
registration fees are allowable when satisfactorily
documented.
Item 4, Bond. Cost for bond does not change during the
contract term. Therefore, this is not an adjustable item.
Item 5, General Overhead Cost. General overhead should
include all management expenses not included in other
items. It will include such items as supervision and all
related supervisory costs; telephone; office expenses; garage
rents; parking fees; bulk fuel handling cost; terminal cost;
interest and insurance, except interest and insurance on
vehicles, etc. The allowable increase in this line item is
the amount determined by using procedures outlined in
Section [X.) (No documentation required.)
Item 6, Gasoline and Diesel Fuel.
a. All adjustments for fuel will be based on actual cost
per gallon. The contractor must furnish a
64a
Regional Instructions
certification which reflects cost of fuel purchased
for use on the route. This certification will be a
statement showing names and locations of suppliers
of fuel and average price paid per gallon for fuel
purchased during the prior month. If fuel was
purchased from more than one supplier, the
contractor must specify the number of gallons of
fuel purchased from each supplier for use on the
route.
b. _ Imcreases or decreases for the line item fuel cost will
be based on the allowable gallons, as reflected on
the last approved cost statement, times average cost
per gallon for the previous month as shown on the
certification.
c. Contractors may file for a fuel adjustment in the
form of a “‘one line item request’’ when the average
price of fuel for the immediate preceding month
increases by 3.5% more than the unit cost allowable
in the last approved cost statement. These ‘‘one line
item’’ requests must be accompanied by a
certification statement as required above.
d. The TMO manager may require a contractor to
provide actual documentation of fuel cost when
deemed necessary or appropriate.
Item 7, Oil. The adjustment for increased cost of oil will
be based on number of miles per unit as shown on bid
subcontract or last approved cost statement. An increase
in number of units used will be allowed only to the extent
of additional oil required in performing service added in
an insignificant service order. Allowable increase or
65a
Regional Instructions
decrease in cost of oil will be adjusted to reflect actual
per unit cost incurred by the contractor for the last month
prior to the request for adjustment.
Item 8, Insurance. This item is to reflect cost of insurance
on vehicles used in the performance of service on the route.
(Insurance coverage carried by contractors for terminal
facilities, key-man insurance coverage, etc., should be
included in General Overhead Cost, Item 5.) An adjustment
will be allowed only when there is an increase in cost of
“‘same coverage’ as reflected in last approved cost
statement. Cost of additional coverage purchased at the
option of contractor is not allowable. Also, no adjustment
will be allowed for the higher cost of ‘‘assigned risk’’
insurance caused by the contract.r’s high accident rate.
Item 9, Miscellaneous Road Taxes. This item should show
cost incurred by contractor for federal highway use tax,
state highway use tax, state mileage tax, and state road
tax. Any increase in cost incurred by contractor as a result
of imposition of additional taxes by state or federal
government is allowable.
Item 10, Tolls. Increased cost to the contractor for toll
fees is allowable when fees are increased or newly added.
Item 11, Total Fixed and Operational Cost. Sum of Items
1 through 10.
Item 12 and 13, Straight Time and Overtime.
a. _ An increase in contractor’s rate of compensation
may be adjusted to offset increased driver cost
resulting from applicability of new ‘‘wage
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Regional Instructions
determinations,’’ employee/employer collective
bargaining agreement or other increased cost of
labor (drivers) resulting from necessary salary
adjustments by contractor to ensure employment
of qualified and reliable drivers.
It is not possible to establish minimum or maximum
allowable percentage increases, but it is expected
that increases be restricted to an amount that would
maintain a reasonable and competitive rate for
service provided, and at the same time allow
contractor to pay his employees a reasonable salary.
The percentage increases reflected in successive
annual issuances of wage determinations may be
used as a guideline for contractors who do not have
collective bargaining agreements with their
employees.
The amount of allowable adjustment for this item
will be determined by multiplying the allowable
hours times hourly straight time and overtime rate.
The allowable hours are those hours shown on the
cost statement of original bid, renewal contract,
subcontract, last approved adjustment, or negotiated
service change, whichever is the later, plus an
increase in hours necessitated by insignificant service
change orders, new or revised statutes, and other
changed conditions affecting hours required to
perform the service.
Likewise, insignificant service change orders, new
or revised statutes, or other changed conditions
which enable the contractor to reduce paid hours
67a
Regional Instructions
will reduce the allowable hours and offset allowable
increases in other items.
Payroll journals which reflect hours paid and gross
amount paid employees will normally constitute
sufficient documentation to support increased cost
for these items. If the contractor has a collective
bargaining agreement with his employees, that
document should normally be sufficient to document
employees’ salary scale. The incorporation of a new
wage determination in a contract constitutes a
requirement on the part of the contractor to pay,
as a minimum, the new wage rate. Therefore, a
request for adjustment when a new wage
determination is incorporated in a contract should
be allowed without immediate further
documentation, but continuation of the increased
rate will be subject to the contractor’s furnishing
copies of payroll journals within 90 days after
effective date of increased wage rate.
Terminal employees’ or supervisors’ wages are to
be included in Item 1.B or Item 5, and, therefore,
are not to be considered in this item.
Item 14, Payroll Taxes.
This item should reflect cost incurred by contractor
for Federal or state payroll taxes paid on salaries
of drivers. Contractor’s rate of compensation may
be adjusted to offset any increased cost incurred
by the contractor for payroll taxes.
Social Security tax paid by employer is based on
5.85% of each employee's earnings up to $16,500
Regional Instructions
annually. Workmens’ Compensation tax, and
Federal and state unemployment compensation tax
are based on the experience factor of the employer,
and, therefore, cost may vary from year to year and
contractor to contractor.
e Contractor must furnish adequate documentation
to support cost of Workmens’ Compensation and
Federal and state unemployment compensation tax
when a request for an economic cost adjustment
is filed.
d. Self-employment tax paid by the contractor is noi
an adjustable item.
Item 15, Fringe Benefits. This item should show the cost
of employee health and welfare, pension benefits,
vacations, and holidays, if applicable, based on the number
of employees shown in Items 12 and 13. Allow the
increased cost incurred by the contractor for fringe benefits
resulting from new wage determination or negotiated
employee agreements. Fringe benefits are computed on
the basis of hours paid employees, up to a maximum of
8 hours per day or 40 hours per week, unless specified
otherwise in a collective bargaining agreement. In cases
where an employee does not perform 40 hours per week,
the fringe benefits will be prorated according to the number
of hours of work performed.
Item 16, Total Operational Labor Cost. Item 16 total is
the sum of Items 12 through 15.
Item 17, Contractor’s Wages. The allowable increase in
this line item is the amount determined by using procedures
outlined in Section IX. (No documentation required.)
Regional Instructions
Item 18, Total Cost. Item 18 is the sum of Items 11, 16,
and 17.
Item 19, Return on Investment. Return on investment may
be adjusted only when vehicles used on a route are
replaced, and an increase is allowable in Line 1.A. The
allowabie increase in return on investment is limited to
10% of the increase allowable in Line 1.A.
Item 20, Contract Rate. This item reflects sum of amounts
in Items 18 and 19.
Item 21, Amount of Increase Requested. This item shoula
be the difference between Column | and Column 2 of Item
20.
Analysis of Form 7464
Item 1, Operational Cost. An increase in contractor’s rate
of compensation will be allowed, to offset increased
operational cost resulting from insignificant service change
orders or other changed service conditions or requircments.
Request for adjustment in compensation based on changed
economic conditions will be allowed. The allowable
increase is determined by multiplying the rate per mile
for this item as determined from last approved cost
statement times percentage increase in CPI “‘All Items’’
since bid closing, renewal, subcontract or last economic
cost adjustment, whichever is the later.
Item 2, Fuel.
a. | Contractors who employ regular service employees,
and whose annual contract rate is less than $20,000,
70a
Regional Instructions
may request fuel adjustments on Form 7464.
Certification as to cost of fuel must be furnished
by the contractor. (See VIII-G, Item 6.)
Contractors who do not employ regular service
employees (owner-operator) may be allowed fuel
adjustments based on the following instructions:
Allowable increase for fuel adjustment request will
be based on percentage change in CPI index for
regular gasoline as reflected in the Labor
Department’s monthly report for 23 selected areas.
A contractor will be allowed an increase or reduction
equal to an amount reflected by percentage index
change since date of last adjustment for fuel. This
request must be filed as a general economic
adjustment including other items, or when the
applicable fuel index changes by at least 3.5% from
the index used to compute last allowable fuel
adjustment.
Use to Adjust Owner-Operator
Area Index Routes in States Indicated
CENTRAL REGION
Cleveland OH routes 440...thru 447...
Cincinnati OH routes 430...thru 439...
OH routes 448...thru 458...
KY
St. Louis
Kansas City
San Francisco
Los Angeles
Tla
CA routes 936...thru 961...
CA routes 900...thru 918...
CA routes 922...thru 935...
AZ
72a
Regional Instructions
San Diego CA routes 920...thru 921...
Dallas NM
co
Honolulu HI
SOUTHERN REGION
Atlanta GA
NC
sc
T™N
AL
MS
FL
Dallas OK
AR
TX except routes 770...thru 779...
Houston TX routes 770...thru 779..., and
LA
EASTERN REGION
Buffalo NY State routes 130...thru 149...
Philadelphia NJ routes 080...thru 087...
PA 170...thru 194...DE
73a
Regional Instructions
Pittsburgh PA 150...thru 169...coutes WV
Baltimore MD
Washington DC and VA
NORTHEAST REGION
Boston ME
NH
VT
MA
RI
CT
New York, NJ routes 070...thru 079..., and
No. East, NJ NJ routes 088...thru 089
NY routes 100...thru 129
Inasmuch as there is not a published index to reflect
gasoline cost changes in Puerto Rico, Virgin Islands,
Alaska, Guam and Trust Territories, owner-operator
contractors in those areas may apply for fuel adjustments
in the same manner as non-owner operator contractors.
Item 3, Payroll Cost.
TMO managers are authorized to approve one-time
payments to contractors when illness forces the
contractor to employ a driver temporarily. Any
reasonable increase over the hourly rate the
contractor was receiving for his own driving time
may be approved. The one-time payment is limited
74a
Regional Instructions
to an amount cf increased cost incurred for a time
period not exceeding 30 days.
Except as outlined in a., any allowable increase in
payroll cost must be documented and such increased
costs are to be allowed consistent with instructions
contained in Sections VI-B-3 and VIII-G, Items 12
and 13.
Item 4, Contractor’s Wages — Personal Driving.
The allowable increase in contractor’s wages granted
solely for changed economic conditions is limited
to amount shown on last approved cost statement
times percentage increase in CPI ‘‘All Items’’ since
contract award, renewal, subcontract or last
approved economic cost adjustment, whichever is
the later.
Adjustment in rate of compensation to cover
changed service conditions requiring additiona!
hours on box delivery routes will be allowed to the
extent of additional hours required of the contractor
to process and deliver mail to the added boxes.
The amount of increase to be allowed will be
determined by multiplying the hourly rate times the
appropriate CPI multiplier, times the allowable
hours shown on last approved cost statement or
adjusted hours allowable as outlined in the preceding
paragraph.
Adjustment in contractor’s wages may be increased
in all cases to allow contractor as a minimum the
75a
Regional Instructions
“‘minimum wages’’ as outlined in the Fair Labor
Standard Act (as amended), provided operational
and fuel cost are properly allocated and not
considered excessive.
Item 5, Contract Rate. This item should be the sum of
Items 1 through 4.
Item 6, Requested Annual Rate. Self-explanatory.
Item 8, Amount of Increase Requested. This amount
should reflect results of Item 5, Column 1, subtracted from
Item 6, Column 2.
Last Approved Cost Statement
This is the most recent Form 7463 or 7464, which outlines
the line item allocation of cost. This cculd be the cost
statement at time of contract award, renewal, subcontract,
an economic cost adjustment, or negotiated service change,
whichever is the later. (Every negotiated service change
must have a cost statement prepared to add or subtract
the amount from each line item affected by the service
change.)
CONSUMER PRICE INDEX
The Surface Transportation Division, Mail Processing
Department, will publish Consumer Price Index (CPI)
changes for ‘‘All Items’’ and ‘‘Regular Gasoline” monthly.
The contractor will be allowed an amount equal to the
percentage change in the CPI for those items adjustable
by CPI changes. The percentage change will be determined
as follows: |
76a
Regional Instructions
Divide the CPI of the month prior to the effective
date of adjustment by CPI for the month prior to
the start of the comparison period. The results of
this division multiplied by the item amount shown
in Column III of last approved cost statement will
be the allowable adjusted amount for that line item.
Example: effective date of adjustment June 18,
1977, following comparison period started
December 4, 1977. May 1977 CPI (180.6)
divided by November CPI (173.8) = (1.03913);
(1.03913) times last approved line item cost
($2,641.23) = ($2,744.58) new allowable amount.
CHANGES WHILE ADJUSTMENT IS PENDING
If a route is subcontracted while a contractor’s adjustment
is pending, any adjustment allowable will be allowed to
the subcontractor.
If a contractor dies before completion of a pending
adjustment, the estate of the deceased contractor or next
of kin should be given an opportunity to complete the
adjustment case. Any adjustment thus allowed will be
allowed to the subcontractor if the route is subcontracted.
If a contractor defaults or is removed while an adjustment
is pending, process the adjustment if possible so that the
surety in charge or subcontractor will be allowed the
increased rate.
EFFECTIVE DATE
Adjustments solely for economic reasons, including
contractor’s wages, may not be granted more frequently
than every seven accounting periods (196 days).
77a
Regionai [nstructions
The effective date of an adjustment will be on the first
day of the accounting period in which completed Form
7463 or 7464 is received, except as noted in C and D below.
One line fuel adjustment may be aliowed owner-operators
effective at the beginning of the accounting period in the
month following a 3.5% change in regular gasoline price
index. For non-owner operated routes, an adjustment may
be allowed at the beginning of the first accounting period
in the month following a 3.5% change in average cost
per gallon a contractor pays for fuel. This request for
adjustment must be filed within two months following the
month in which a 3.5% change is reflected in the index
(for owner-operators) or a 3.5% change in actual cost for
non-owner operators, the effective date will be at the
beginning of the accounting period in which the adjustment
is filed.
Request for adjustment in rate of compensation for
increased cost contractor incurs because of new wage
determinations, new labor contracts, or new or revised
statutes will be effective on the date the contractor actually
incurs these increased costs, provided the adjustment
request is received within 60 days after the increased costs
are incurred. {f the adjustment request is not received
within 60 days, the effective date will be the first day of
the accounting period in which the request is received.
Adjustments for a combination of any or all reasons cited
above may be made effective on different dates as
prescribed in those sections.
XII.
78a
Regional Instructions
COMPLETING ACTION
Approval
After Form 5496 has been completed and approved, the
Transportation Management Office will:
Issue order on Form 7440, Contract Route Service
Order, only when the full amount of request is
approved without making an offer on Form 5492,
Request For Pay Adjustment Highway
Transportation Contracts. Enclose a copy of Form
7463 or 7464 when order is furnished to the
contractor. Return all original documents to the
contractor.
Issue offer to the contractor on Form 5492 when
amount approved is less than requested. Furnish
explanation of evaluation, enclosing copy of Form
7463 or 7464 showing amount allowable. Upon
acceptance, issue order on Form 7440. Return all
original documents to the contractor.
The 28-day clause for reply to an offer is intended
to prevent excessive retroactivity. If no reply is
received during this period and an acceptable
explanation is not furnished, a new effective date
will be established based on the date of the
contractor’s reply.
NOTE. One copy of Form 5496 will be made
a part of the case file. The other copies will
be sent to the regional Finance Department
794
Regional Instructions
and Postal Data Center with Form 7440
authorizing the adjustment.
B. Denial
When an adjustment request is denied, advise the
contractor of the reason for this action. A detailed
explanation is mandatory.
C. Protest
1.
When a contractor makes a request for adjustment
in compensation for economic reasons, and the
Contracting Officer’s offer is less than that
requested, the Contracting Officer will advise the
contractor in writing of each item disallowed in
whole or part and the specific reasons for such
disallowance. If the offer for adjustment is rejected
by the contractor, the case may be appealed to the
next higher level of contracting authority. The
contractor will address the appeal, in writing, to
the next higher level contracting authority by sending
it through the Contracting Officer. The contractor
must specify exactly what disallowed items are
subject to appeal and the reasons why he claims
the Contracting Officer’s disallowance of these items
was wrong or was arbitrary and capricious in view
of the evidence submitted to support such items.
The Contracting Officer will review the appeal,
attach the complete adjustment file with the
supporting reasons for rejecting the contractor’s
requested adjustment and include his
recommendation as to the final action to be taken.
Regional Instructions
The Contracting Officer will forward the appeal and
attached file to the next higher level contracting
authority within 10 days after receipt of the appeal.
Following review of the file, the next higher level
contracting authority will render a written decision
with the reasons the efor, and return the complete
file to the contracting officer within 30 working
days.
The Contracting Officer within 10 days after receipt
of the final decision will advise the contractor, in
writing, of the decision, stating reasons therefor.
In so informing the contractor, the Contracting
Officer will include the following statement:
**This decision is final. Your
attention is invited to Clause 2. C,
Form 7407, Basic Transportation
Services Contract General
Provisions.”’
D. Interim Payments
The TMO manager may approve a contractor’s
request for an interim adjustment when he concludes
that there will be a delay in processing the
contractor’s request.
Qualify all interim adjustments with a statement on
Form 7440 that the amount is not final and subject
to modification after final approval of the
adjustment request.
XIll.
Regional Instructions
FORM 5479, CONTRACT ADJUSTMENTS -
ACCOUNTING PERIOD REPORT
. The Transportation Management Office will prepare
separate listings at the end of the third week of each
accounting period by contract number in the order received
under the headings, ‘Cases On Hand Ai Beginning of
A/P,”’ and “‘New Cases’ at the beginning of each
accounting period.
Enter increase for wage adjustment approved, adjustment
amount, and order number for each individually completed
case as cases are completed.
Report any denial or withdrawal in the ‘‘Total Approved
Adjustment’’ column for the individual case involved.
. Total all cclumns under each listing where applicable and
distribute the report as follows:
Original Regional Controller
Second and Third General Manager, Logistics
Copies Division, Region
Fourth copy Posta; Data Center
Fifth copy File copy
The regional office will summarize the TMO’s reports and
forward the detail and summary report to General
Manager, Surface Transportation Division, Washington,
DC. The summary report must contain the following
information:
4.
$.
Regional Instructions
Total number of cases on hand at beginning of A/P.
Number of new cases received during the A/P.
Number of cases approved during the A/P. (Note:
Approved means with orders written and signed.)
Amount of allowance approved during the A/P.
Wage portion of approved allowance during A/P.
XIV. EFFECTIVE DATE
All requests for adjustments in rate of compensation
received on and after July 1, 1977, will be processed in
accordance with these instructions.
XV. RESCISSION
These instructions recind Regional Instruction 876-T-158,
dated January 2, 1976, Filing No. 523, and Regional
Instruction 949-T-162 dated October 29, 1976, Filing No.
$23 Amend. #1.
s/ E. V. Dorsey
Senior Assistant Postmaster General
Operations
83a
OFFICE OF TRANSPORTATION SERVICES BULLETIN, NO.
81-4 DATED FEBRUARY 25, 1981
OFFICE OF TRANSPORTATION SERVICES BULLETIN
Bulletin No. 81-4 U.S. POSTAL SERVICE Date 2/25/81
FUEL ADJUSTMENTS
A number of contractors or companies holding highway mail
transportation contracts purchase fuel from a business enterprise
owned (or substantially controlled) by principles holding the
transportation contracts. Such relationships present special dangers
of excessive and unjustified costs possibly being passed on to the
Postal Service, unless the contracting officer is aware of and is
vigilant in his examination of such arrangements or relationships.
This is not to imply that such relationships are illegal or improper.
In fact, most such relationships provide mutual advantages;
namely, such arrangements result in overall lower contract costs
and at the same time, enables the bidder/contractor to be successful
in the competitive bidding process. The danger arises when the
contractor uses this relationship for success in bidding and then
uses the same or subsequently established relationship to escalate
the contract rate by means of purchasing fuel from the controlled
company at increased prices influenced by other than market
conditions.
Basic policy underlying the highway contract cost adjustment
instructions for fuel contemplate allowing contractors rate increases
to offset increases in costs they experience in “‘arms-length”’
purchases of fuel — and then, only to the extent that such increased
costs are beyond the control of the contractor.
In processing highway contractor’s fuel cost adjustment requests,
contracting officers are hereby instructed to secure full disclosure
Xda
Bulletin No. 81-4
of any common interest supplier/user relationship that they have
reason to believe exists before allowing adjustments in contract
rates due to fuel costs.
ALL CONTRACTING OFFICERS
All contracting officers must certify for payment of damage claims
submitted by contractors, or contractor’s representatives, within
30 days from the date of receipts of the claim. The contractor
or his representative will be required to certify that damage did
not occur prior to delivery into the custody of the U.S. Postal
Service, and shall include the following citation:
“U.S. Code, Title 18 (Crimes and Criminal
Procedure), Section 1001, makes it a criminal
offense to make a willfully false statement or
representation herein.”’
DEATH OF A CONTRACTOR
The attention of contracting officers is directed to the fact that
pending publication in the Postal Contracting Manual, procedures
for administering highway contract routes after the death of, or
a court determination of a contractor’s incompetence, wem
published in Postal Bulletin 21249 dated June 12, 1980.
Several interesting provisions are:
1) The representative of the estate may elect to
continue to operate the route with permission from
the contracting officer.
2) If the administrator or executor is performing
the service on the date of expiration of the contract,
Bulletin No. 81-4
the contract may not be renewed and the service
must be resolicited. If next of kin (surviving spouse
oz child) is performing the service, the contract
may be renewed in the name of that individual.
3) Representatives of the estate authorized to
operate the route who desire to sublet the contract
may do so in accordance with Section 19-317,
Postal Contracting Manual and permission of the
contract officer.
STATE BOUNDARIES
Management Instruction PO-410-80-6 established a policy
whereby, ‘‘all delivery areas must be realigned to conform with
state boundaries.’’ In keeping with the policy all contract box
delivery routes which operate in two or more states must be
reviewed to ascertain that this policy is being followed.
SOLICITATIONS - TEAM DRIVERS
Reference to posting of solicitation for 60 days in paragraph 4
of our letter of October 9, 1979, Solicitations - Team Drivers,
is rescinded. See Section 19-130 (c) Postal Contracting Manual
for appropriate instructions for posting of solicitations.
James E. Orlando, Director
Office of Transportation Services
Mail Processing Department
020-JRS:sjy
HTC #72012 and #72016
May 14, 1973
Log #6493
File 12-K-8
Reference is made to your memorandum of May 10, 1973
regarding the captioned subject.
You suspect that a star route contractor has an interest in two
corporations from which he rents trucks and buys gasoline.
Recently, the corporation supplying gasoline has increased their
prices by 2¢ per gallon, and the contractor has requested a public
law adjustment upward based on this increase. You ask if we
are obligated to allow this request for an adjustment.
A corporation is a legal entity and is considered to be a separate
person from individuals and other corporations, therefore, a
corporation can legally contract with one of its shareholders.
It is possible that the prices charged by the corporation to the
individual contractor may not be a competitive price; therefore,
pains should be taken to verify the market price of the product
being sold in such cases.
s/ James R. Strong
James R. Strong
Assistant Regional Counsel
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.