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UNITED STATES v. DIBONA

March 21, 1985

UNITED STATES OF AMERICA
v.
JOSEPH G. DiBONA, et al.



The opinion of the court was delivered by: KELLY

KELLY, J.

 MEMORANDUM AND ORDER

 Presently before the court is defendants' motion for reconsideration of my January 15, 1985 order denying their motion for a protective order. The defendants state two reasons why the January 15th order should be vacated. First, the information the government needs to discover is not relevant. Second, the government is relying upon "grand jury materials" in contravention of Fed. R. Crim. P. 6(e). After careful consideration of both these issues, the court will deny defendants' motion for the reasons set forth below. The facts of this instant action have been set out in detail in my Memorandum and Order of November 9, 1984. Each of the issues will be addressed separately.

 DISCUSSION

 A. Are the documents sought to be produced relevant?

 Fed. R. Civ. P. 26(b)(1) provides that the parties "may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . . ." The parties will be given broad discretion as to what materials can be discovered.

 In the instant action, the government seeks to obtain testimony from RDL employees concerning their labor and material records on a series of defense contracts undertaken by RDL. They also seek some of RDL's personnel and business records. Defendants argue that discovery should be limited to only the two contracts which are the basis of this action against them. The information which plaintiff seeks is relevant in calculating and proving that it suffered damages. The government is attempting to compare labor hours on other contracts to those that were logged on the ones now in question. Defendants have not named any specific objections as to why this information should not be discovered or if it is overly burdensome or any other legal reason for reversing my order. Reconsideration on this basis will be denied.

 B. Is the discovery request based upon information derived from the illegal use of grand jury material?

 The government is in possession of two audits conducted by the Defense Contract Audit Agency (DCAA). These audits were performed on the two contracts that are the subject of this civil action. The history of how the audit was conducted will be helpful in understanding why the defendants' contention must be rejected.

 The DCAA is responsible for auditing defense contract projects as required by the Department of Defense. The two contracts which underlie this civil action for false claims were the subject of an audit in 1979. The agency conducts audits in accordance with legislative power delegated to it by 32 C.F.R. 7-104.41(A)-(C). Subsection (b) *fn1" authorizes the contracting officer or his representatives to examine the books and business records of the contractor to determine if they properly reflect all direct and indirect costs associated with performing it. The DCAA has the right to examine the records at all reasonable times.

 The audits conducted by DCAA in 1979 were incomplete because the defendants withheld access to certain key records. As a result, the DCAA issued a "qualified audit" report noting that certain information was lacking.

 In 1982 a grand jury indicted RDL, Inc. and Messrs. Rights and DiBona for, inter alia, submitting false and fictitious statements to the government along with obstructing the DCAA audit.

 As part of the grand jury process, the business records detailing the labor and material costs of two defense projects were subpoenaed. A DCAA agent, at the request of the government, examined these records and based on their information he was able to complete the 1979 audits of RDL's contract work. The irregularities the audits revealed were instrumental in securing the convictions of Messrs. Rights and DiBona. The use of the business records in the antecedent criminal action is not challenged by the defendants. They do, however, object to the use of the audit in the subsequent civil action believing that it constitutes illegal use of grand jury material.

 The Federal Rules of Criminal Procedure provide that matters occurring before the grand jury may not be disclosed unless otherwise provided for by the rules. Rule 6(e)(2). Rule 6(e)(3)(B) states that "grand jury material" shall not be utilized except to assist the attorney for the government in the performance of his duties to enforce federal ...


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