The opinion of the court was delivered by: LORD
On October 2, 1957, Charles F. Woll was found guilty by a jury of a violation of 18 U.S.C.A. § 371, which reads in part as follows:
'If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $ 10,000 or imprisoned not more than five years, or both.'
The defendant was employed by Philco Corporation as manager of its Government and Industrial Division. This division worked almost exclusively on government contracts. The price to the Government for this work was arrived at by several types of a cost redeterminable clause, a variation of the familiar cost plus clause. The heart of these clauses was a target price for which Philco would attempt to complete the work. If the target price was exceeded, there would be an increased cost to the Government. If the work was done for less than the target price, the Government would pay proportionately less. Charged to a specific contract would be such costs as materials and direct labor. Other items, such as general factory operations and supervisory time would be charged to a burden or overhead account which would then be allocated pro rata among contracts in progress in the division based on their dollar value.
The gist of the Government's theory is that the time of the employees sent out by the defendant to work on his and his sister's home on company time was thus ultimately charged to the various government contracts, with the result that the Government paid more, and hence there was a fraud against the United States.
The defendant has moved for judgment of acquittal or for new trial. Six points have been advanced in support of that motion. Three of these points appear directed to the motion for new trial, and they shall be considered first.
At the trial, the Government, through Mr. Charles F. Steinruck, Jr., Secretary of Philco Corporation, sought to establish the cost redeterminable features of the government contracts. Because of their classified nature, the contracts themselves were not offered in evidence. However, the cost redeterminable clauses of two of the contracts were made part of the record. In addition, Mr. Steinruck, who was familiar with them, testified that all the contracts had substantially similar clauses.
The first of the defendant's grounds for a new trial is that the admission of these contracts violated the Sixth Amendment to the Constitution in that there was a failure to constitution in with his accusers. The defendant argues that his proved acts and conduct did not bring him into such relation to the contracts as to make them more than hearsay as to him. Salinger v. United States, 1926, 272 U.S. 542, 47 S. Ct. 173, 71 L. Ed. 398. However, it is utterly inconceivable to this Court that a man in Mr. Woll's official position did not know, at least generally, what must be considered of fairly common knowledge, the use of cost redetermination clauses in government contracts. See McGunnigal v. United States, 1 Cir., 1945, 151 F.2d 162, certiorari denied 326 U.S. 776, 66 S. Ct. 267, 90 L. Ed. 469. That Mr. Woll knew his division was working more than extensively on government contracts is clear from his own testimony. Knowing that, he knew all he needed to know for the contracts to be used against him. Accordingly, the Court finds no merit in the defendant's contention that the contracts were hearsay as to him and that his right of confrontation under the Sixth Amendment was violated.
The second ground for a new trial raised by the defendant is that certain 'business records' introduced by the Government were erroneously admitted. These records consisted of the time cards of the various employees who did work at the Woll or Bailey (Mr. Woll's sister) homes during company hours. In addition there was a list purporting to be a breakdown of the time reported on these time cards directly to government contracts, industrial business and burden by these employees during 1953 and 1954, the period covered by the indictment. Mr. Earl R. Genthe, comptroller of the defendant's division at Philco, testified that this breakdown was made under his (Genthe's) supervision from the time cards. The thrust of the objection seems to be that Mr. Woll had no personal supervision over these time cards. Again, however, the Court finds it incredible that the defendant could have been unaware that employees in his charge made out time cards and charged their time in the manner indicated by established company policy. Certainly this knowledge must be imputed to the defendant, and hence no error was committed in admitting these records. As for the breakdown list, since this was merely a compilation of the data shown on the time cards, it was admissible on the same ground as the cards themselves.
The defendant's third ground for the granting of a new trial is the failure of the Court to allow him to inspect the contracts against which the alleged fraudulent charges were made. Because the contracts were classified in nature, the Court refused the defendant's repeated requests to inspect them. Invoking the language of Jencks v. United States, 1956, 353 U.S. 657, 77 S. Ct. 1007, 1 L. Ed. 2d 1103, the defendant argues that the Government cannot deprive the defendant of an opportunity to inspect the contracts and still maintain a prosecution for conspiracy to on the existence of those very contracts on the existence of those very contracts for its validity. However valid this reasoning is in a fact situation similar to Jencks, the Court is not persuaded that this case presents a parallel, if only for the reason that the classified aspects of these contracts in no way affect the defendant's guilt or innocence. It is only the cost redeterminable clauses that are relevant to the theory of the prosecution, and as mentioned above two typical forms of these clauses were made part of the record. It is difficult to see how the denial of the defendant's request to inspect all the contracts in their entirety in any way prejudiced his defense. Consequently, the Court concludes that this denial was not error. Since the three grounds raised by the defendant for a new trial are without merit, this part of his motion must be dismissed.
The motion for judgment of acquittal remains to be considered. The first of the three reasons urged by the defendant to upset the verdict presents little difficulty. Two of the Government's witnesses, Masurat and Dick, mentioned in the indictment as co-conspirators with defendant, testified that no idea of defrauding the Government ever crossed their minds. The defendant argues that a party is bound by the testimony of his own witness, and therefore by the Government's own evidence there could have been no intent to defraud the United States. The best answer to this position is simply that such is not the law in federal criminal cases.
'* * * In prosecutions of federal criminal cases, the government is not bound by the testimony of its witnesses, and the jury may believe part of what a witness says and disbelieve the remainder. * * *' United States v. Gordon, 3 Cir., 1957, 242 F.2d 122, 126.
The defendant's second ground for judgment of acquittal has no more value than the first. He contends that the conspiracy to defraud, if any, was designed against Philco and not the United States, that Philco, not the United States, was charged with the time of Philco's employees working on the Woll and Bailey homes, and that Philco, not he, charged this time to the United States. This same argument was made to the Court of Appeals for the First Circuit in McGunnigal v. United States, 1945, 151 F.2d 162. In that case McGunnigal was employed as a 'counter' by a shipbuilding company exclusively engaged in constructing warships. The 'counter's' duty was to appraise the type of welding done by the welders and make a record thereof on daily tally sheets. These sheets were then used by the shipyard office to compute the welders' pay. McGunnigal and other 'counters' agreed with certain welders to enter on the tally sheets amounts of welding in excess of that actually done. In return the welders would 'kick back' a part of their wages every week to the 'counters'. The result was, of course, that the shipbuilding company billed the United States for this imaginary welding. It will be seen that McGunnigal is thus on all fours with the instant case as far as the question of 'fraud-once-removed' is concerned. In dismissing McGunnigal's argument that no fraud had been committed against the United States, but only against the shipbuilding company, the court said (at page 166):
'They (McGunnigal and others) knew that the ships upon which they had worked were ships of war, they knew that those ships were being built for the United States * * *. Knowing this much, and it being well known generally that the 'cost plus' type of contract was widely used by the Government during the late war, we think it might logically be inferred that the appellants in fact knew, or at least had reason strongly to suspect, that the payrolls which they conspired to pad would ultimately be paid by the United States Government. * * *'
Hence, the Court has no doubt that the indirectness of the alleged fraud in no way vitiates the indictment. See also United States v. Furer, ...