Petition for Writ of Certiorari — Barnard v. United States

'

8 ¥ . :

. fy INTHE - f) sui 21

SUPREME COURT OF THE U

° OCTOBER TERM, 1958.

192:

WILLIAM LLOYD BARNARD, JOHN W. DAILEY, CHARLES. W.

HUMPHREY, DONALD HENRY SMALLIGAN, PETER

— SMEDES and ROY HENRY STORES, Petitioners,

vs. .

UNITED STATES OF AMERICA, Respondent.

JOHN W. DAILEY, ROBERT E. LUKENS and JAMES F. BOGUE,

Petitioners,

-

VS. :

UNITED STATES OF AMERICA, Respondent.

«WILLIAM LLOYD ‘BARNARD, WALTER H. MORSE and

a HOMER A. KELLEY, Petitioners,

¥- vs. :

’ UNITED STATES OF AMERICA, Respondent.

;DONALD HENRY. SMALLIGAN, PETER JOHN SMEDES and -

: ¢

bahar LLOYD BARNARD, Petitioners,

“VS. ,

‘UNITED STATES, OF AMERICA, ee a

PETITION FOR WRIT OF CERTIORARI TO THE. |

UNITED STATES COURT OF APPEALS

' FOR THE TENTH CIRCUIT.

DANIEL L. BRENNER, J. A. DICKINSON;

JAMES E. LOCKWOOD, : IJAVID PRAGER,

Roscoe C. VAN VALKENBURGH, 608 New England. Buildings:

800 Lathrop Building, Topeka, Kansas, Me

‘Kansas City, Missouri,: Patrick J. WARNICK, J

Avvin C. RANDALL, * 1008 Union Natl. Bank Bldg.,

WILLIAM S. HOGSETT, Wichita. Kansas,

1122 Rialto Building,

Kansas City, Missouri, ° Epwaxp F. ARN, So

KE EA ster ° _ 200-11 Beacon Building

‘DWIiN KNS ot +s are Ge :

. ; : ' Wichita, Kansas,

322 Professional. Building, . ; 8 McD ;

a ree

Kansas City, Missouri, Le OSEPH 52. BEC OWEEL,

8 * 511 Huron Building,

. Kansas City, Kansas,

Attorneys for Petitioners.

o

a 0 ee

Fo oL Mespesuare. Pee, 1108 Onk Street, Kansas City 6, Mo, HArrison 1.2020

5

INDEX

Opinions Below

Jurisdiction

Questions Presented

Statutes Involved ~ ;

Statement of Case . ; -4

Reasons Relied On for Cesiean the Writ 8.

I. The Tenth Circuit Court, of Appeals has decided

an important question of Federal defense con-

tract law and regulation, not yet decided by this

Court, which decision is in conflict with deci-

sions of other circuits, and with Acts of Congress

. and Executive Regulation, as well ‘as the con- ~

tract itself “—

II. The opinion below, in “holding ‘that the > Thdict-

ments were sufficient even though they failed

‘to allege knéwledge by defendants of the nature

of the prime contract, conflicts with prior deci-

sions of this court and with opinions of other

own *s wn

circuits i 9

Conclusion . t2

Appendix A—Opinion of the Court of Appeals for the

— Tenth Circuit «- JA

Appendix B—Title 41, U.S.C., Sections 5land54 . 13A

Appendix C—Code of Federal Regulations, Title.32 1I5A

¥

TABLE OF CASES

Automatic Canteen Compan} of America v. Federal

Trade Commission, 346 U.S. 61, 73 S. Ct. 1017, 97

L. Ed. 1454 See 10

Commissioner of Internal-Revenue v. Wheeler, 65 S.

Ct. 799, 324 U.S. 542 , ° 7

II INDEX

Crank United States, 61.F.2d 620 | 10 +

. Hanis v. United States, 246 F.2d 781 : 9,10,1)) |

Hewitt v. Speyer, 250 Fed--367,162.C.C-A.437 7

Moens v. Wnised States, 267 Fed. 317 | oo Gre

Morisette v. United States, 342 U:S. 246, 72 S. Ct. 240,

96 L. Ed. 288 | 10, 11

Pettibone v. United States, 148 US. 147, 13 S. Ct. 542, .

ae 8 RE eS oe eat pe ae ae

Sheridan-Wyoming Coal Co. v. Krug, 172 F.2d 282 aor,

St. Josep prvckyares v. United States, 187 Fed. 104. 10

* Symington Co. v. C.1..R., 33. F.2d 372 ee a

United States v. Carll, 105 U.S. 611, 26 L. Ed. 1135 10

United States v. Cruikshank, 92 U.S. 542, 23 L. Ed. 588 10

United States v. Twelve Miami aiower Slot Machines,

213 F.2d 918 » —~—

. STATUTES CrrED = are

- 32 Code of Federal Regulations 3.403, 3.404, om

1.403 (a) a 3, 4, 15A.

R. S. 161, 5 U.S.C. 22, 62 Stat.,21, Sec. 638, 66 Stat. 537. 3

Title 41, U.S.C. 151- 162 (now Title 10, Sec. 2301-2314)

a, 1am; ©, ‘IBA

IN THE

SUPREME COURT OF THE UNITED STATES

: OCTOBER TERM, 1958.

No.

WILLIAM LLOYD BARNARD, JOHN W. DAILEY, CHARLES W.

HUMPHREY, DONALD HENRY SMALLIGAN, PETER

JOHN SMEDES and ROY HENRY STORES, Petitiorers,

VS.

‘UNITED’ STATES OF AMERICA, Respondent.

JOHN W. DAILEY, ROBERT E. LUKENS ‘and JAMES F. BOGUE, .

Petitioners, i

VS.

UNITED STATES OF AMERICA, Respondent.

WILLIAM LLOYD BARNARD, WALTER H. MORSE ‘and

: HOMER A. KELLEY, Petitioners,

VS.

‘UNITED STATES OF AMERICA, Respondent.

DONALD HENRY SMALLIGAN, PETER JOHN SMEDES and

WILLIAM LLOYD BARNARD, Petitioners,

vs.

UNITED STATES OF AMERICA, mesponaent.

PETITION FOR WRIT OF CERTIORARI TO THE —

UNITED STATES COURT OF APPEALS . a,

POR THE TENTH CIRCUIT. :

Petitioners. ‘in the above described snmadiiiianes cases,

by-their attorneys, respectfully pray that a writ of cer-

tiorari be issued out of and under the seal’ of this Court

to review the judgment of the ‘United States Court of |

Appeals for the Tenth Circuit, entered in | these causes on

— 2, 1958.

e

OPINIONS BELOW.

The United States District Court for-the District of

Kansas sustained motions to dismiss the indictments against.

petitioners without opinion on August 26, 1957. After ap-

_ peal by the United States, the various cases were con-

solidated by order of the Court of Apneals January 9, 1958.

The opinion of the Court of Appeals has not yet be@fi re-

ported, but appears in the record on Certiorari at pages

4 to 19,..and a printed copy thereof is appended to this —

petition. No opinion was rendered. by. the Court of Ap-

peals in denying the Petition for Rehearing.

- JURISDICTION.

The prernner of the Court of Appeals for the Tenth a

Circuit sought to be reviewed, was dated May 2, 1958, and

entered.on the same date (R. 20). Petition for rehearing.

was denied on May 23, 1958 (R. 26):. Time within which

to file petition for certiorari was extended by this Court

on June 22 to July 22, 1958.

The jurisdiction of this Court As invoked under 28

USC., Section 1254(1).

QUESTIONS PRESENTED.

1. Does a “gost-reimbursable” contract under the

anti-kickback statute include a contract which provides for

the payment of a unit price’ and which does not require a

‘that the government reimburse costs?

~ 1Certified record‘on certiorari is hereinafter referred to and.

identified as “R.”’. Certified copy-of the record printed for use

in the Court of Appeals. is hereinafter referred to and identified

as “PR.” :

®

| 3 et | :

2. Does the Code of Federal Regulations have the

force of law t ine or limit the provisions of a contract

for military aircraft between the: United States and a prime.

contractor, and determine whether | it it 8 cost-reimbursable.

or @ fixed- fee contract, and does the _ Code so limit the :

_ negotiating authority of- contracting ai

3. May an accused be charged aitd: nahi of the

crime of conspiracy to violate the anti-kickba ‘statute .

without allegation and proof that he knew that*the con-

tractual relationship between the prime contractor and the

government was a prohibited one under the statutes?

STATUTES INVOLVED.

Title 41, U.S.C. 151-162 (now Title 10, Sec. 2301-2314),

the pertinent parts of which are set out in Appendix B.

32 Code of Federal Regulations 3. 405, 3.404, 1.400, 1.403 (a)

(Appendix C): .

_ RS. 161, 5 USC. 22, 62 Stat. 21, Sec. 638, 66 Stat. 537,

gives Secretary of Defense authority to. promulgate regu-- .

lations to govern PennEe, and are not reproduced

verbatim. herein.

- STATEMENT OF CASE.

The District Court dismissed the indictments in these

cases. The judgment which this Court is now asked -to

review is that of the Tenth Circuit Court of Appeals re-

versing the District Court judgment ‘and remanding the: °

cases.

a ate se sa and (PR. 1-7, 105-108, 117-120, “199. -130)

are founded on alleged violations of Title 41, U. S. C., Sec-.

tions 51, 52, and 54, commonly. called the Anti-Kickback

Oo:

4.

Statute (Appendix B). In general it prohibits the giving of

gifts or gratuities by subcontractors to employees of a prime

_ contractor having a contract with the United. States, when.

- such prime contract is on a “Cost-plus-a-fixed-fee, or other

_ cost reimbursable basis.”’ ai

In the indictments it: is alleged that the contract in ;

question, AF 33 (038 )-18503, is a “fixed price reimbursable” —

contract.' The pertinent portions of this contract are-re-

produced in the record which was printed for the use of

the court below (PR. 9-94). In order that the District

Court could determine whether the prime contract in

question was of the type contemplated by the statute, it

was, by agreement of the parties, submitted to the Court

prior to its ruling on the motions to dismiss.

. It is a contract between the United States Air Force

are subcontractors who furnished supplies ( tools) to Gen-

eral Motors and are charged- with giving gifts. and ©

gratuities to certain employees of General.Motors, the em-

ployees being the other defendants.

- and General Motors Corporation. Some of the defendants”

“The Air Force contract is designated throughout as a

“Fixed Price Contract.” (For example, PR. 57, 61, 65, 69, -

87). It is classified under the Code. of Federal Regulations

as a type of “fixed-price” contract (appendix G). The

indictments call it a “fixed price reimbursable” contract

it carried a “Restricted” security classification (PR. 9).

* Contract No. AF 33(038)-18504 is not in issue here, as it is

agreed by the Government that defendants were in no way con-

nected with the performance of that contract. However, note

that the indictments refer to it, in the language of the statute,

as “cost reimbursable”, whereas they refer to the contract with

which defendants were concerned as “fixed price reimbursable”,

which is not covered by the statute (PR. 2, 97, 106, 118).

' (PR. 2, 97, 106, 118). Furthermore, until recently released,

O

)

Of course, none of the defendants was a party to said con-

tract. It provides for a retrospective renegotiation of

prices after the completion of the first 71 airplanes built.

The Air Force isnot required by the terms uf the contract

to reimburse General Motors for its costs. It only permits

_ the consideration of costs, along with all other data usually -°

considered in negotiating prices under a new contract (PR.-

Whether it be the original price, or a renegotiated

price, it is a price of so much per unit, under the terms of .

the contract, and is not controlled by the amount of the

eontractor’s costs. ’

Lastly, nowhere do the indictménts charge that the

. defendants had. any, knowledge that the contract between

General Motors and the Air Force was of the ‘‘cost-reim+

bursable” type so as to render. ‘criminal the practice of |

giving gratuities in the hope of obtaining contracts.

The. opinion of the Tenth Circuit Court. of Appeals

(appendix A) holds that it is not necessary to charge that:

defendants had knowledge of the nature of the prime con-

/ tract; that, despite the fact that the parties'.to the prime

contract designated it a fixed price contract, and. despite

’ the fact that the Code of Regulations define it as. such, it

- in fact “partakes” of the characteristics of both a fixed

price and a cost reimbursable sr taallaat that defend-

ants must stand trial.

6

REASONS RELIED ON FOR GRANTING THE WRIT.

: ew ae ;

~ e,

‘The Tenth Circuit Court of Appeals has decided an

‘important question of Federal defense contract law~and

regulation; not -yet decided by this Court, which decision is

in conflict with decisions of other circuits, and with Acts.

. of Congress. and Executive Regulation, as well as the.

contract itself. :

1. The Tenth Circuit Court of Appeals ~“ in this

matter-decided an important question of Federal law which

has not yet been settled by this Court, and which is in dis- ¢~

agreement with the decision reached by District Courts in

_other circuits as well as with the duly adopted regulations

of the Defense Department. A decision by this Court weuld

end any inconsistencies or ambiguities existing and intro-

duce certainty into the interpretation. of government con-

rar

a

+)

“>

- tracts for war materiel, and in defining the area of authority °

of contracting officers, and their power. to bind the govern- |

‘ment.’ An answer would relieye the government of any un- _

’ certainty as to its position in billions of dollars worth. of con-

tract liability with which it must deal in providing for na-'

_ tiohal defense and other purposes. Av failure to provide’

“sn answer might mean a great and otherwise unnecessary

increase in the expense of the’ defense establishment and -

would also increase the uncertainties of the citizen who

deals with the government, in knowing whether he Kas: a

valid contract -and can rely on the Federal Regulation, or

is at the mercy of some: oversight by the government repre-

sentative, over whose decisions he has no control. ‘The | |

effect of the decision of the Circuit Court is to strike down *

the Code of Federal Regulations promulgated by the ‘De-

fense Department under authority of the Acts of Congress,

‘\

i

eae cee

‘s 4 : ; y

* now Title 10, J. S.C. A. 2301-2314, which prescribes the

. form and limitations of the various contracts for, defense

-materials and establishes the» ean of procurement of

these supplies. me

—

_ The decision of the Court of Appeals,” ‘in question,

reached an incorrect conclusion entirely contrary to the in-

tent of Congress and of the Regulations. It has long been

‘the rule that regulations adopted by an executive depart-

ment under legislative authority have:all the force of law,

as this Court deejared in Cofninissioner of Internal Rev-

enue v. Wheeler, 65 S. Ct. 799, 324 U.S. 542. The opinion

below is inconsistent with the. Wheeler decision, and also

with the decision in Sheridan-Wyoming Coal Co. v. Krug,

172 F.2d 282, and with the decision of the Second Circuit

in Hewitt v. Speyer, 250 Fed. 367, 162 C. GC. A. 43

The’ United States is bound in- contract only when the

contract is adopted pursuant to the applicable provisions of

statute authorizing the activity or expenditure, and/a. gov-

ernmental representative has no carte blanche to Wind the

' government: he represents to. any«contract he may

to negotiate. The Court of Appeals has stated (Opini

page 17) that the Regulation is valid ‘for civil purposes but

_ not criminal. There is an obvious inconsistency here that °

this Court should correct, else the Regulation means “fixed

price” for all purposes of. contract’ negotiation and civil

performance, and “cost reimbursable” fér criminal pur-

poses. The words should mean the same in either situa-

tion, and the contracting party which is “conducting this

prosecution has already declared the definition of this as a

“fixed price’ contract. Further, Section 51, Title 41, U.S.

-C. A., does not repeal the Regulation. Consequently, the

; Court of Appeals _ erréd here. “é |

The regulations and the law are a part of the con-

tract for all purposes and there is no conflict between

see fit

as)

a]

0

the civil and the ériminal phases. Section 51, Title 41,

‘ simply operates on the contract situation as it is determined

\ under the regulations and- statfites. The inconsistency

-~ereated by the Court of Appeals should be eliminated.

_ 2. In holding that the contract is both a “‘cost’ reim-

bursable”’ a “fixed price” contract, the Court of Ap-

. peals has again introduced an.element of: inconsistency and

confusion into the field of government contfact law which

‘this Court. has not yet passed upon, but which this Court

could clarify by a decision. The contract itself is every-

where marked and designated «a. “fixed price” contract

(PR. 42) (PR. 43) (PR. 57) (PR. 61)*and further contains

these restrictions (P.R. 32, 33): : |

(d) Negotiations—(1) Upon the filing of the

statements and data required by paragraph (c) of this

Clause, the Contractor and the Contracting Officer will

negotiate promptly in good faith to agree upon prices

for items to -be delivered or®and after the effective

‘date. of the price revision. Negotiations for price re-

visions under this Clayse shall be conducted on the

basis; 5, employing the same types of data (includ-

“ing, without limitations, comparative prices, compara-

-stive costs, and trends thereof) as in the negotiation

-of prices under a: New Department: of the Air Force

contract. —s.. Fi / _ 4

| by

(2) After each negotiation the agreement reached

will be @yidenced by a supplemental agreement -stat-_

ing the revised prices to be effective with respect to

deliveries on and after the effective date of ‘the price

revision (or such other later date as the parties may

\ fix in such stipplemental agreement.

f

j

L Furthermore, the decision below is in conflict with the

decision of the Second Circuit-in Symington Ca. v. €...&.,

33 F. 2d 372, upholding the petitioners’ ‘contention in this.

" matter. Nowhere in the contract is there any formula eéx-.

LA

9°

pressed for the determination of any margip of profit to

the prime contractor, nor is there any provision requiring

reinibursement to the prime contractor of its cost, but it re-

quires only that the partion negotiate.

“The trial court in these cases was of the opinion that

the matter should be dismissed. The United States Dis- |

trict Court for the Eastern District of Pennsylvania*in an

unreported opirffon in United States of America against

James SamuelMorris et al., 18535, dismissed a case and

discharged thé defendants, where the contract was identical

to the one in the case. at bar. The Court ordered a copy

of his reriarks transmitted to the.Attorney General of the

United States in the event that. he wished to approach

Cangress on the subject of changing the law to include this

particular type of contract.

II.

° The opinion below,.in holding that the i ts

were sufficient even though they failed to allege knowledge

*

by defendants of the nat of the prime contract, conflicts -

_with prior decisions of ‘this court and with opinions of

other circuits.

The decision below should be iain because it up-

holds the sufficiency, of the indictments even though they-

fait to allege, and thus eliminate the necessity of proof, that

the defendants tendered or received the alleged’ gratuities

prohibited under. Section 61, Title 41, U.S.C., kRowing that

General Motors was a prime contractor with a department

of the United States ona cost-plys-a-fixed-fee or other cost-

reimbursable basis. .

*

In so hofding, the Tenth Circuit Court of Appeals fol-

lowed without. additional reasoning thé opinion of the

Eighth.Circuit in Hanis v. United States, 246 F.2d.781, and

4

&

10 =

thus perpetuated a dangerous concept of the requirements

of “guuty knowledge’”’ necessary to convict, going far be-

yond boundaries heretofore established. 1 Sa

The decision below in this regard is | eaketine Riis in’

conflict with the prior decisions of this court in United

States v.: Cruikshank, 92 U.S..542, 23 L. Ed. 588; United

_ States v. Cart 105 U.S. 611, 26 L. Ed. 1135; Pettibone v.

‘United States, 148 U.S. 147, 13 S. Ct. 542, 37 L.. Ed. 419;

Automatic Canteen Company of America v. Féderal Trade

-Commission, 346 U.S. 61, 73 S. Ct. 1017, 97 L. Ed. 1454, and

Morisette v. United States, 342 U.S. 246, 72 S. Ct. 240,.96 L.

Ed. 288. Furthermore, the opinion below and the opinion

of the Eighth Circuit in Hanis v. United States, supra, also

conflict with the opinion of the Fifth Circuit Court of Ap-

peals in United States v. Twelve Miami Digger Slot Ma-

chines, 213 F.2d 918, the Court of Appeals of District of

_. Columbia in Moens ‘v. United States, 267 Fed. 317, and the.

"Ninth Circuit in Crank v. United’ States, 61 F.2d 620. In.

fact, the opinions in the court below and in the Hanis case

cannot be reconciled with the prior Eighth Circuit opinion

in St. Joseph Stockyards v. United States,.187 Fed. 104. °

The indictments uniformly allege that the various de-

fendants, knowingly conspired to violate the.,provisions of

_ the “‘anti-kickback” statute (PR. 1, 5, 6, 105, 117, 119, 120,

+29). The indictments then recite that General Motors Cor-

poration was a prime contractor with. the United States -

under a “fixed. price reimbursable contract with a price

'/ redetermination clause.”. Continuing, the. indictments

- charge that defendants, either as" suppliers of General |

Motors or as employees of General Motors paid or received

various gifts or compensation for the purpose of obtaining

and procuring the award of subcontracts.

At no place. ‘do the indictments further charge that the

defendants gave or received the — gifts — that

ee

General Motors was a prime contractor with the United

States under a cgst-plus or cost- reimbursable contract. ”

If the Court of Appeals. decision’ ‘is pertnitted to stand,

these defendants may be convicted ofa serious felony of- |

fense punishable by penitentiary sentence up to ten years

and never have had any knowledge - or notice that their

activities were prohibited.

The practice of showering favors on purchasing agents

with hope of obtaining orders is perfectly acceptable in pri-

vate industry and is likewise lawful where the prime ‘con-

tractor is supplying the United States, so long as the con-

tract between the two ds not a cost-plus-a-fixed-fee con-

tract or ,other cost-reimbursable contract. It is the exist-

ence of this type contract which makes criminal a practice

otherwise neither malum prohibitum or malum in se. Thus,

it is an essential element of intent or mens rea that the

accused be charged with, and the proof disclose, knowledge

of the existence and character of the prime. contract ‘with

the United States so as to put him on notice that the prac-

tice, dtherwise lawful, isa crime.

p |

The failure of the Tenth Circuit Guineas be-

_ low or the Eighth Circuit in Hanis v. United States, supra,

to require the allegation and proof of guilty knowledge as

required by the express language of Section 54 is contrary

to the opinion of this court in Morisette v, United States,

supra. In that case it was charged that defendant ‘did un-

lawfully, wilfully’and knowingly steal and convert” prop- -

erty of the United States. The evidence disclosed that the de-

fendant had taken-shell casings from a tract of uninhabited

land upon which the government had established a bomb:

ing range, which he discovered while hunting deer and *

-which he believed to be abandoned. This court held that

a ‘knowing conversion” as required by the statute re-

quired-more than mere knowledge that the defendant was

t

_- Kansas City, Missouri,

12

taking, the propert? into his possession. “He must have

had knowledge of the facts, though not necessarily the law,

that made the taking a conversion.” (l.c. 271).

¢

Since fundamental principles of liberty are at stake,

it is important that this court. review the decision below

so as tq guide the policies of the multitude of businessmen

engaged either directly or indirectly in the vast govern-

mental spending program. Particularly is this true when,

as here; the decision sought to be reviewed is so repugnant —

to the historical concept of justice and fair play as to per-

mit conviction and imprisonment of meh who have no

knowledge of the facts which make criminal] their engaging

in practices that are accepted throughout private industry

and lawful even where the government is the ultimate

purchaser, except in the limited instances where the con-

tract between the prime contractor and the government .

is on a cost-plus-a-fixed-fee or other cost-reimbursable

basis. . . | an”

CONCLUSION.

' For the foregoing reasons, this petition for a writ

of certiorari should be granted. ~

| V4 ty Respectfully submit,

: DANIEL L. BRENNER, J. A. DICKINSON,

JAMES E. LocKwoop, : DAVID PRAGER,

Roscoe C. VAN VALKENBURGH, ' 608 New England Building,

800 Lathrop Building, ; Topeka, Kansas,

Kansas City, Missouri, PATRICK J. WARNICK,

.. VIN C. RANDALL, — 1008 Union-Natl. Bank Bldg.

WILLIAM S. HOGSETT, de Wichita, Kansas,

1122 Rialto Building, Epwarp F. ARN

a 200-11 Beacon Building

Epwin EARNSHAW, .. Wichita, Kansas, ~

322 Professional Building, son

ae JOSEPH H. MCDOWELL, %

- Kansas City, Missouri, ™

511 Huron Building, .

Kansas City, Kansas,

Attorneys for Petitioners.

APPENDIX A.

UNITED STATES COURT OF APPEALS

| ‘TENTH CIRCUIT.

MARCH TERM—1958.

UNITED’ STATES OF AMERICA, i

i . Appellant,

VS.

WILLIAM LLOYD BARNARD, JOHN W. ¢ Number 5786.

DAILEY, CHARLES W. HUMPHREY,

DONALD HENRY SMALLIGAN, PETER

JOHN SMEDES and ROY HENRY STOUT,

we | Appellees. J)

UNITED STATES OF AMERICA, - 5

* Appellant,

Ws ‘\ Number. 5787.

JOHN W. DAILEY, ROBERT E. LUKENS,

and JAMES F. BOGUE,

Appellees. }

UNITED STATES OF AMERICA, 7

7 —

= > Number 5788.

WILLIAM LLOYD BARNARD, WALTON H.

MORSE, and HOMER A.. KELLEY, ;

iz Appellees. 3

UNITED STATES OF AMERICA, i;

: , Appellant,

- VS. ;

“DONALD HENRY’ SMALLIGAN, PETER (-Number 5789.

JOHN SMEDES, and WILLIAM LLOYD

BARNARD,

Appellees. J

. ‘ nd -

APPEALS FROM THE PISTRICT COURT OF THE UNITED STATES.

' FOR THE DISTRICT OF KANSAS. _

oe |

Milton P. Beach, Assistant United States Attorney (William ©

C. Farmer, United. States Attorney, was with him on

- the brief), for Appellant.

J. A. Dickinson and Patrick a, Warnick (David Prager,

William W. Dimmitt, Jr., Sam A. Crow, Donald C.

Little; Alvin C. Randall, Edwin Earnshaw, Roscoe C.

' Van Valkenburgh, ‘James E. Lockwood, Arn & Mul-

lins, and Joseph H. McDowell: were with them on the

brief), for en

"Before BRATTON, Chief Judge, and | HUXMAN and MUR- ’

RAH, Circuit Judges, ©

°

BRATTON, Chief Judge:

- These four criminal cases present for determination

questions of law common to all of them and therefore the

cases may he considered together.

In the first case, William Lloyd Barnard, John W.

Dailey, Charles W. Humphrey, Donald Henry Smalligan,

Peter John Smedes, and Roy Henry Stout were defendants;

- in the second case, John W. Dailey, Robert E. Lukens, and

James F. Bogue were defendants; in the third case, Wil-

liam Lloyd Barnard, Walton H. Morse, and Homer A.

Kelley were defendants; in the fourth case, Donald Henry

_Smalligan, Peter John Smedes, and William Lloyd Barnard

were defendants; and for convenience, reference ‘will be

made to the several defendants as Barnard, Dailey, Hum-

phrey, Smalligan, Smedes, Stout, Lukens, Bogue, Morse,

and Kelley; i a

3A

The indictment in the first case contained five counts.

The first count charged that all of the defendants in‘ that

case entered into a conspiracy to violate Sections 51, 52, and

54, Title 41, United. States Code, in the manner and by ‘the

means therein set forth. This was the manner and these

were the means. set forth in- the count. General Motors

Corporation was the pre contractor with the United .

States Air Force under a fixed price reimbursable contract

with a price redetermination clause for the furnishing of

airplanes. The prime contract was supplemented by a spe-

cial facilities contract providing for cost reimbursement

for the tools and equipment necessary to perform the con-

tract to build airplanes. Barnard was employed by General

Motors as head tool buyer, in which capacity he adminis- .

tered subcontracts and purchase orders awarded to other

‘manufacturers and suppliers for the purchase of tools,

equipment, and materials to be used in completing and

.. furnishing the airplanes under the prime contract. Dailey

\was employed by General Motors as‘a tool buyer; later he

became head tool buyer; and in such capacities, respec-

tively; he administered subcontracts and purchase orders

awarded to other manufacturers and suppliers for the pur-

chase of tools, equipment, and materials to be used in com-

pleting and furnishing airplanes under the prime contract.

Stout was an employee--of General Motors. He resigned .

such position and became one of the owners of Plastic

Tooling, Inc., a manufacturer and supplier of tools, equip-

~ ment, and materials to General Motors which were used

in the manufacture of airplanes under the prime contract.

Smalligan and Smedes were the owners: of Tri-Arts Indus-

tries, Inc.; and after a specified date, Smalligan, Smedes,

and Stout became the owners of Plastic Tooling, Inc., each

of which firms was’a manufacturer and supplier of tools,

equipment, and materials -to General Motors which were

used in the manufacture of airplanes under the prime con-

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tract, Humphrey was one of the ewners or officers of Sum-_

mit Engineering Company, a manufacturer and supplier of

tools, equipment, and materials to General Motors which

- were used in the manufacture of airplanes under. the prime

contract. Stout was one of the owners of Magic Circle Tool

Engineering Company, a manufacturer and supplier of

- ‘tools, equipment, and materials to General Motors which

were used in the manufacture of airplanes under the prime

contract. And it was the plan and purpose of the conspiracy

that Barnard and Dailey would accept payments of fees,

* commissions, gifts, gratuities, and compensations paid by

Humphrey, Smalligan, Smedes, and Stout as inducements

for the aid and assistance of Barnard and Dailey in obtain-

ing and procuring the award of purchase orders and sub-

contracts in favor of the firms mentioned in the indictment.”

The second count charged that Smalligan, Smedes,

and Stout, knowingly and unlawfully on behalf of a sub-

.contractor, gave to Dailey, an officer, employee, and agent.

of a prime contractor holding a contract entered into by.a

‘department, agency, and establishment of the United States

for the furnishing of supplies, equipment, materials, and

services on a cost reimbursement basis, and Dailey, know- .

ingly and unlawfully received, an automatic clothes washer .

and a ¢lothes drier, as an inducement for the awarding of —

subcontracts or orders from the prime contractor and as

* an acknowledgment of subcontracts and orders previously

awarded. The third count charged that Smalligan and

Smedes, on behalf of a subcontractor, knowingly and unlaw-

fully, gave to Barnard, an officer, employee, and agent of

a prime contractor holding a contract entered into by a

department, agency, and establishment of the United States

for the furnishing of supplies, equipment, materials, and

' services on a cost reimbursement basis, and Barnard, know-

_-ingly.and unlawfully received, the sum of: $3,004.20 as an

“BAS

inducement for the awarding of subcontracts or orders

from the prime contractor and as an.acknowledgment of

subcontracts and orders previously awarded. The fourth

count charged that Stout, on behalf of a subcontractor,

knowingly and unlawfully gave to Dailey, an officer, em-

ployee, or agent of a prime contractor holding a contract-

entered into by a department, agency, and establishment

' of the United States, and Dailey, knowingly and unlaw-

fully received, an automatic dishwasher of the value of

$260 as an inducement for the awarding of subcontracts or

orders from the prime contractor and as an acknowledg-

ment of.subcontracts and orders previously awarded. And

the fifth count charged that Stout} on behalf % a’ subcon-

tractor, kn ingly and unlawfully, gave to, Dailey, an of-

ficer, employee, or agent of a prime contractor holding a

contract entered into by a department, agency, and estab-

lishment of the United States for the furnishing of supplies,

equipment, materials, and services on a cost reimburse-

ment basis, .and Dailey, knowingly and unlawfully received, |

$610 as an inducement for the awarding of subcontracts or

orders from the prime contractor and as an _acknowledg-

ment.of subcontracts and orders previously awarded.

The indictment in the second: case contained only one .

count; It charged that Dailey, Lukens, and Bogue conspired

to violate Sections 51, 52, and 54, supra. The substance of

_ the conspiracy as pleaded was that General Motors entered

into the contract with the Air Force to furnish the. air-

planes; that Dailey was employed by General Motors as a

tool buyer; that in such capacity he.administered subcon-

tracts and purchase orders awarded to other rnanufacturers

and suppliers for the purchase ‘of tools, equipment, and

materials to be used in completing and furnishing the air-

planes; that Lukeas was president and Bogue was sales

manager ‘of Laken Aluminum Corporation, and Lacorp’

all

@ oy we 6A ia Jf

Machine Toél Company; that each firm was ‘@ manufac-_

turer and supplier of tools,* equipment, and’ materials. to <

General Motors which were used sin the manufacture of *~ |

airplanes under the contract; that Lukens and Bogue, on

behalf of Lukens Aluminum Corporation and Lacorp Ma-

chinegand Tool Company, solicited and received orders to

furnish tools,. equipment, and materials to General Motors;.

and that it was the plan and. purpose that Dailey would

accept from Lukéns and Morse payments of fees, commis-

‘sions, gifts, gratuities, and compensations as an inducement

for the aid and assistance of Dailey in. obtaining and pro-

curing the award of purchase - ‘orders and subcontracts in

favor of Lukens Aluminum Corporation and ‘Lacorp Ma-

chine and Tool Company.

The indictment in. the third case sinteinei three

counts. . The first count ‘charged that Barnard, Morse, and

| Kelley conspired to violate Sections 51, 52,,and 54, supra. .

The substance of the conspiracy as pleaded was that Gen-

.eral Motors and the Air Force entered into the contract.

for the furnishing of airplanes; that Barnard was employed ;

by General Motors as tool buyer, in which capacity he

_ administered subcontracts and purchase. orders awarded —

<3

to other manufacturers and suppliers for the purchase of

tools, equipment, and materials to be: used in completing

and furnishing the airplanes; that Morse and Kelley were

partners in the Mead Manufacturing Company, a manu-.

facturer and supplier of tools, equipment, and materials

_to General Motors which were used in the manufacture

of the airplanes; that Morse and Kelley, on behalf of Mead

Manufacturing Company, solicited orders to furnish tools,

‘equipment, and. materials to General Motors and received

orders. which orders were produced and supplied; and

os that it was. the plan. and: purpose that Barnard would .c-

_ cept payments of fees, commissions, gifts, gratuities, and

\

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compensations paid by Morse and Kelley as an inducement

for his aid and assistance in obtaining and procuring the.

award of purchase orders and subcontracts in favor of

_ Mead Manufacturing Company. The second count charged

that Morse and Kelley, on behalf of a subcontractor, know-

ois many and unlawfully paid to Barnard, an officer, employee,

angpeent of a prime contractor for the furnishing of sup-"

_ plies, materials, equipment, “arid services on a cost reim- .

bursable kasis, -and Barnard, knowingly and- unlawfully

received from Morse and Kelley, the sum of $587 as an

inducement for the award of subcontrapts or orders from _ .

the prime contractof and a an acknowlédgment of sub-

contracts or orders previously awarded. And the third

count charged that Morse and Kelley knowingly and un-,

lawfully paid to: Barnard, and Barnard knowingly and.

unlawfully received from Morse and Kelley, $522 as. an

inducement for the award of ‘subcontracts or orders ‘and

as acknowledgment of subcontracts and orders previously

awarded. |

And the indictment in the fourth case contained a,

‘ single count. It chatged that Smalligan and Smedes, on

behalf of a subcontractor,-knowingly and unlawfully gave

to Barnard, formerly an officer, employee, and agent of a

. prime contractor holding a contract entered into by a de- -

partment, agency, and establishment of the United States

for the furnishing of supplies, equipment, and materials,

and services on a cost reimbursement basis, and Barnard,

knowingly and unlawfully received@ the sum of $3,004.20

as‘an acknowledgment of subcontracts and orders awarded.»

during the time Barnard was acting as such officer, em-

ployee, and agent.

aa .

Motions were filed to dismiss the several indictments.

The substance of the motions in the ‘first, second, and

‘third cases was in each instance that the indictment failed

’ closed upon its face that it was a “fixed: price” contract. .

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to state facts sufficient to constitute an offense against

the United States; that the indictment was fatally defec- —

tive for failure to allege the existence of a ‘‘cost-plus-a-

fixed-fee or other cost reimbursable basis’ contract; and

that upon production and examination, the contract. dis-

and not a “cost-plus-a-fixed-fee or other cost reimbursable

basis” contract. The motion to dismiss the indictment in the

fourth case is not in the record before us. The motions

were sustained; the indictments were dismissed; and the

United Sfates appealed. -

Sections 51, 52,“and 54, supra, relate to kickbacks oa:

Government contracts. Section 51 forbids the payment of

any fee, commission, or compensation of any kind, or the

granting of any gift or gratuity of any kind, directly or

indirectly, by or on behalf of a subcontractor, as defined

in section 52, to any officer, partner, employee, or other

agent of a prime contractor holding a contract entered into

by any départment, agency, or establishment of the United

States for the furnishing of supplies, materials, equip-

ment, or services of any kind on a cost-plus-a-fixed-fee or .

cther cost ‘reimbursable “easis; or to any such prime con-

tractor or to any officer, partner, employee, or agent of a

higher tier subcontractor holding a subcontract’ under the

prime contractor, or to any such subcontractor, either as an

inducement r theeaward of a subcontract or order from

the prime contractor or any subcontractor, or .as an ac-

knowledgment of -.a subcontract or order previously

awarded. Section 52 defines the term “subcontractor”: for

the purposes of sections 51-54. And section 54 provides

that any person who shall knowingly, directly, or indi-

rectly, make or receive any such prohibited payment shall

be punished as therein specified. Considered together,

these statutes are penal in character and should therefore

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be eons diet. They cangot be enlarged by implica- ;

tion or intendment beyond the fair meaning of the lan-

guage used. But the object of all construction, whether

of penal or other statutes, is to ascertain the legislative

intent. And the rule of strict construction does not re-

quire that a penal statute be strained or. distorted in order

to exclude from its reach acts or conduct which the legis-

lative body intended to bring within its scope. Th€ ex-

actions of the rule are met in full measure if the language

is given its fair meaning in accordance with the obvious

intent of the legislative body. Osaka Shosen Kaisha Line

v. United States, 300 U.S. 98; United States v. Raynor, 302

U.S’540, 552; United States v. Alpers, 338 U.S. 680.

Section 51, supra, is limited in reach to kickbacks given

stil réceived in connection with contracts on a cost-plus-a-

fixed-fee or other cost reimbursable basis. And therefore

unless the prime contract awarded to General Motors was

of that kind, the indictments were fatally infirm and “were

‘providently dismissed. In a document or certificate seem-

"ingly issued in connection with a letter contract which

preceded.the execution of the formal prime contract, it was

stated in substance that a fixed price contract was contem-

plated. The prime contract contained several references

to it being a fixed price contract. Several supplements

were designated as supplemental agreements to fixed price

contract. And the prime contract provided in each in-

stance specified unit prices for various units of aircraft and

parts produced. But it did not provide that it was in-

tended or understood to be a fixed price contract. And it

- provided for .redetermination of prices, both prospectively

and retrospectively. It*provided tliat upon the acceptance

. of the seventy-first airplane, the parties should negotiate

io revise the prices of all items theretofore or thereafter

delivered. It further provided that after acceptance of the

~

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two hundred and ninety- -ninth airplane, the parties should

negotiate to revise the prices of all items thereafter to be

eo It further provided that the’ contractor should

submit to the contracting officer accounting data for con-

. Sideration in connection with negotiations looking toward

- the revision in prices.. It further provided that the parties

should negotiate promptly . and in good faith. And it fur-

ther provided that.after each negotiation, the agreement |

reached should be evidenced by a supplemental agreement

stating the revised prices to be effective with respect to

deliveries on and after the effective date of the price revi-

sion. No limitation was fixed upon the range of redetermi-__.

nation or revision of prices; upward or downward. No

ceiling or floor was specified beyond which the revised or

redetermined prices could not go, The provision that upon

the acceptance of the seventy-first airplane, the parties

should negotiate in good faith respecting the prices of all

‘itemis theretofore or thereafter delivered reasonably and

impliedly contemplated that instances could and perhaps

would arise in the course.of fixing revised prices for items

theretofore delivered which would involve reimbursement

of the prime contractor for costs incurred. In other words,

the provision reasonably contemplated that in the course

of renegotiation and revision in prices for items thereto-

fore delivered, reimbursement for costs incurred would

be made in some instances. Not only did the provision con-

template reimbursement for costs in some instances, but

the expressed obligation resting upon the Government to

negotiate in good faith respecting revisions in price for

items theretofore furnished impliedly required the. Govern-

ment to reimburse the prime contractor for costs incurred

_ when the fa¢ts justified reimbursement. When all of. the

provisions in the contract are considered together as con-

stitutent parts of a harmonious whole, it cannot be said

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Ir ’

that the contract was exclusively a fixed price contract as

rs

distinguished from a cost reimbursable basis contract. It ~

‘ .partook of both aspects. It was in substance and effect a

fixed price and ‘other reimbursable basis contract”. And _

partaking in part of an “other reimbursable basis contract”,

it came within the range of section 51, supra.

Reliance is placed upon regulation 3.403-3, 32 C.F.R.

$3.403-3, promulgated by the Secretary of Defense to place

or classify the prime contract awarded to General Motors

-in the class-of a fixed price type of contract and therefore

outside the purview of section 51, supra. -It is the well

settled rule of law that a regulation promulgated by an

‘administrative agency charged with the administration of

an act has the force and effect of law if it is reasonably

adapted to the administration and enforcement of the act

and does not contravene some statutory provision. Mary-

land Casualty Co. v. United States, 251 U.S. 342; United

States v. Stanolind Crude Oil Purchasing Co., 113 F.2d 194.

‘But the regulation referred to was one ‘of comprehensive

general regulations promulgated for the purpose of estab-

lishing and promoting uniform policies and procedures re-

lating to the procurement of supplies and services under

the authority of the Armed Services Procurement Act of

1947, 62 Stat. 21, as amended. It was not promulgated under

section 51, supra. It is completely unrelated to the stat-

ute. And therefore it is without probative effect here.

The indictments did not charge that the donors or

recipients of the kickbacks knew of the existence of the

fixed price cost reimbursable basis contract between Gen-

eral Motors and the Air Force. Section 51,.supra, forbids

the “knowingly” giving or receiving of kickbacks. And

the indictments: charged the “knowingly” giving and re-

ceiving of the 7 therein referred to. But the

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statute does not limit its application to persons having

knowledge of the nature of the prime contract. In other

words, the statute does not make knowledge of the terms

of the prime contract an essential element of the offense

to be charged in the. indictment. Hanis v. United States,

246 F.2d 781.

The judgments are severally reversed and the causes

are remanded with directions to deny the motions. to dis- ©

miss the indictments.

3A

APPENDIX B.

>

Title 41, U.S.C. Section 51: .

; “The payment of any fee, commission, gr compensation

of any kind or the granting of any gift or gratuity of any

kind, either’ directly or indirectly, by or on behalf of a —

subcontractor, as defined in section 52 of this title, (1)

to any officer, partner, employee, or agent of a prime

contractor holding a contract entered into by any depart-

ment, agency, or establishment of the United States for

the furnishing of supplies,.materials, equipment or serv- |

ices of any kind whatsoever, on a cost-plus-a-fixed-fee or

other cost reimbursable basis; or to any such prime con-

tractor or (2) to. any officer, partner, employee, or. agent

of a higher tier subcontractor holding a subcontract under

the prime contract, or to any such subcontractor either

as an inducement for the award of a subcontract or order

from the prime contractor or any subcontractor, or as an

acknowledgment of a subcontract or order previously

awarded, is prohibited. The amount of any such fee, com- —

mission, or compensation or the cost or expense of any such

| gratuity. or gift, whether heretofore’ or hereafter paid or

_ incurred by the subcontractor, Shall not be charged, either

’ directly or indirectly, as a part of the contract price charged

by the subcontractor to the prime contractor or higher

tier subcontractor. The amount of any such fee, cost,

or expense shall be recoverable on behalf of the United

States from the subcontractor or the recipient thereof by

set-off of moneys otherwise owing to the subcontractor

either directly by the United States, or by a prime con-

tractor under any cost-plus-a-fixed-fee or cost reimburs-

able contract, or by an action in an appropriate court of

the United States * * *.”

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Section 54:

‘Any person who shall knowingly, directly or indirectly

make or receive any such .prohibited payment shall be

firied not more wian $10,000 or be imprisoned for not more

than two years, or both.”

power

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APPENDIX C.

Code of Federal Regulations, Title 32. }

Sec. 3.403 Types of Contracts—Fixed-Price type of contract.

| 3.403.1- Firm fixed price contract.

3.403-2 Fixed price ‘with escalation clause.

3.403-3 Fixed price contract providing for the redetermi-

nation ef price.. Under this type of fixed price

contract five types of redetermination are pro-

vided. '

(1) Prospective periodic price redetermination at

‘ted intervals.

(2y Prospective price redetermination on request.

i . - - . , . 7

—~ (3) Retrodctive and prospective price redetermi- —

nations at a stated time prior to completion.

(4) Retroactive and prospective price redetermi-

_ nations-including further sii anaiie rede-

termination on request.

(5) Retroactive price redetermination after com-

oe pletion.

_ 3.403-4 Fixed price incentive contract.

The regulations then proceed to provide for cost-reim-

bursement type contract under 3.404, entitled “Cost reim-

bursement type contracts,” under which three types - con-

tracts are listed as follows:

Sec. 3.404 Cost reimbursement contracts.

3. 404-1 Cost contract.

3. 404-2 Cost sharing contract.

3.404-3 Cost-plus-a-fixed-fee contract.