11-1924 2nd Circuit Govt Brief

7/31/2019 11-1924 2nd Circuit Govt Brief

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11-1924United States Court of Appeals

FOR THE SECOND CIRCUIT

Docket No. 11-1924

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

DANIEL B. KARRON,

Defendant-Appellant.

ONAPPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR PLAINTIFF-APPELLEE

PREET BHARARA,

United States Attorney for the

Southern District of New York,

Attorney for Plaintiff-Appellee.

86 Chambers Street, 3rd Floor

New York, New York 10007(212) 637-2793

To Be Argued By:

MICHAELJ. BYARS

MICHAELJ. BYARS,

SARAH S. NORMAND,

Assistant United States Attorneys,

Of Counsel.

Case: 11-1924 Document: 48 Page: 1 02/21/2012 531229 65


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TABLE OF CONTENTS

PAGE

Preliminary Statement . . . . . . . . . . . . . . . . . . . . . . . 1

Statement of Jurisdiction . . . . . . . . . . . . . . . . . . . . . 4

Issues Presented for Review . . . . . . . . . . . . . . . . . . . 5

Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . 5

Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. The Advanced Technology Project . . . . . . . . 5

B. Karron Obtains ATP Funds Pursuant to a

Cooperative Agreement . . . . . . . . . . . . . . . . 7

C. Karron Misuses the ATP Funds From the

Start of the Project and Falsely Certifies

Compliance with the Terms and Conditions

of the Cooperative Agreement . . . . . . . . . . 10

D. The Award Is Suspended During theProjects Second Year . . . . . . . . . . . . . . . . . 12

E. The Criminal Proceeding . . . . . . . . . . . . . . 13

1. The Government Charges Karron

with Misapplying CASI Funds . . . . . . 13

2. At Trial, the Government Presents

Evidence That Karron Knowingly

Misapplied CASI Funds . . . . . . . . . . . . 14



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PAGE

3. The Jury Convicts Karron of

Misapplying Funds in Violation of

18 U.S.C. 666 .. . . . . . . . . . . . . . . . . . 16

4. The District Court Concludes That

Karron Incurred More Than $120,000

in Inappropriate Expenses . . . . . . . . . 17

5. This Court Affirms Karrons

Conviction .. . . . . . . . . . . . . . . . . . . . . . 19

F. The Civil Action . . . . . . . . . . . . . . . . . . . . . 20

G. The District Courts Decision . . . . . . . . . . . 22

Summary of Argument . . . . . . . . . . . . . . . . . . . . . . 27

ARGUMENT .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

STANDARDS OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . 28

POINT ITHE DISTRICT COURT CORRECTLYHELD

KARRON LIABLE FOR CIVIL DAMAGES AND

PENALTIES UNDER THE FCA .. . . . . . . . . . . . . . . 29

A. Legal Standards for Civil Liability Under

the FCA . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

B. The District Court Correctly Held That

Karron Is Estopped From Challenging

Her Liability Under the FCA .. . . . . . . . . . 31



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PAGE

1. Karron Is Estopped From Contesting

FCA Liability Under Section 3731(e) . 32

2. Karron Is Barred by Collateral

Estoppel From Contesting Her FCA

Liability . . . . . . . . . . . . . . . . . . . . . . . . 36

C. The District Court Correctly Held, in the

Alternative, That There Was No Genuine

Factual Dispute That Karron Is Liable

Under the FCA Because She FalselyCertified the December 2001 Federal

Cash Transaction Report . . . . . . . . . . . . . . 38

POINT IITHE DISTRICT COURT CORRECTLY

AWARDED FCADAMAGES OF THREE TIMES THE

TOTALAMOUNT DRAWN DOWN BYKARRON . . . . 45

A. Where the Government Receives No

Tangible, Ascertainable Value, the

Appropriate Calculation of FCA

Damages Is Three Times the Full Amount

Received . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

B. The District Court Correctly Determined

That a Reduction in Damages Was Not

Appropriate Here . . . . . . . . . . . . . . . . . . . . 52

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56



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PAGE

TABLE OFAUTHORITIES

Cases:

Cifarelli v. Village of Babylon, 93 F.3d 47

(2d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Cook County v. United States ex rel. Chandler,

538 U.S. 119 (2003) . . . . . . . . . . . . . . . . . . . . . . 46

Duch v. Jakubek, 588 F.3d 757 (2d Cir. 2009) . . . . 29

Emich Motors Corp. v. Gen. Motors Corp.,340 U.S. 558 (1951) . . . . . . . . . . . . . . . . . . . . . . 32

Falconer v. Meehan, 804 F.2d 72 (7th Cir. 1986) . . 37

New York v. Hendrickson Bros., Inc.,

840 F.2d 1065 (2d Cir. 1988) . . . . . . . . . . . . . . . 31

New York v. Julius Nasso Concrete Corp.,

202 F.3d 82 (2d Cir. 2000) . . . . . . . . . . . . . . . . . 31

OHara v. Natl Union Fire Ins. Co.,

642 F.3d 110 (2d Cir. 2011) . . . . . . . . . . . . . . . . 34

Rock Island, Ark. & La. R.R. Co. v. United States,

254 U.S. 141 (1920) . . . . . . . . . . . . . . . . . . . . . . 45

Rojas v. Roman Catholic Diocese of Rochester,

660 F.3d 98 (2d Cir. 2011) . . . . . . . . . . . . . . 28, 29

Savage & Assocs., P.C. v. K & L Gates LLP

(In re Teligent, Inc.), 640 F.3d 53

(2d Cir. 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Schindler Elevator Corp. v. United States

ex rel. Kirk, 131 S. Ct. 1885 (2011) . . . . . . . . . . 20



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PAGE

Stichting Ter Behartiging Van de Belangen Van

Oudaandeelhouders In Het Kapitaal Van

Saybolt International B.V. v. Schreiber,

327 F.3d 173 (2d Cir. 2003) . . . . . . . . . . . . . . . . 36

United States ex rel. Antidiscrimination Ctr.

of Metro New York v. Westchester County,

No. 06 Civ. 2860 (DLC), 2009 WL 1108517

(S.D.N.Y. Apr. 24, 2009) .. . . . . . . . . . . . . . . . . . 51

United States ex rel. Compton v. Midwest

Specialties, Inc., 142 F.3d 296(D.C. Cir. 1998) .. . . . . . . . . . . . . . . . . . . . . . . . . 46

United States ex rel. Feldman v. Van Gorp,

No. 03 Civ. 8135 (WHP), 2010 WL 1948592

(S.D.N.Y. May 3, 2010) . . . . . . . . . . . . . . . . . . . 51

United States ex rel. Kirk v. Schindler

Elevator Corp., 601 F.3d 94

(2d Cir. 2010). . . . . . . . . . . . . . . . . . . 20, 24, 30, 33

United States ex rel. Kreindler & Kreindler v.

United Techs. Corp., 985 F.2d 1148(2d Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . 31, 45

United States ex rel. Longhi v. Lithium Power

Techs., Inc., 575 F.3d 458 (5th Cir. 2009) . . passim

United States ex rel. Marcus v. Hess,

317 U.S. 537 (1943) . . . . . . . . . . . . . . . . . . . . . . 46

United States ex rel. Mikes v. Straus, 274 F.3d 687

(2d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Canova, 412 F.3d 331(2d Cir. 2005) . . . . . . . . . . . . . . . . . . . . . 50, 51, 54



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PAGE

United States v. Ekelman & Associates, Inc.,

532 F.2d 545 (6th Cir. 1976) . . . . . . . . . . . . 43, 44

United States v. Karron, 348 F. Appx 632

(2d Cir. 2009).. . . . . . . . . . . . . . . . . . . . . 19, 22, 38

United States v. Mackby, 339 F.3d 1013

(9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . 46, 55

United States v. Podell, 572 F.2d 31

(2d Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

United States v. Rogan, 517 F.3d 449(7th Cir. 2008) . . . . . . . . . . . . . . . . . . . . 50, 53, 55

United States v. Science Applications Intl Corp.,

626 F.3d 1257 (D.C. Cir. 2010) . . . . . . . . . . . . . 47

United States v. TDC Mgmt. Corp.,

288 F.3d 421 (D.C. Cir. 2002). . . . . . 49, 50, 53, 55

United States v. Woodbury, 359 F.2d 370

(9th Cir. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Statutes:

15 U.S.C. 278n . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

18 U.S.C. 666 . . . . . . . . . . . . . . . . . . . . . . . . . passim

28 U.S.C. 1291 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

31 U.S.C. 3729(a) . . . . . . . . . . . . . . . . . . . . . . 46, 47

31 U.S.C. 3729(a)(1) (2000) . . . . . . . . . . . . . . passim

31 U.S.C. 3729(a)(1)(B) .. . . . . . . . . . . . . . . . . passim31 U.S.C. 3729(b). . . . . . . . . . . . . . . . . . . . . . . . . . 30



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PAGE

31 U.S.C. 3729(b) (2000). . . . . . . . . . . . . . . . . . . . 30

31 U.S.C. 3730(a) . . . . . . . . . . . . . . . . . . . . . . . . . 34

31 U.S.C. 3731(e) . . . . . . . . . . . . . . . . . . . . . . passim

31 U.S.C. 3732 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

America Creating Opportunities to

Meaningfully Promote Excellence in

Technology, Education, and Science Act,

Pub. L. No. 110-69, Title III, 3012(a), (b),

121 Stat. 593 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Fraud Enforcement and Recovery Act of 2009,

Pub. L. No. 111-21, 123 Stat. 1617.. . . . . . . . . . 20

Omnibus Trade and Competitiveness Act of 1988,

Pub. L. No. 100-418, 5131, 102 Stat. 1107 .. . . 5

Rules and Regulations:

Fed R. Civ. P. 56(c) . . . . . . . . . . . . . . . . . . . . . . 28, 29

15 C.F.R. 295.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 6

15 C.F.R. 295.1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7

15 C.F.R. 295.3(b) . . . . . . . . . . . . . . . . . . . . . . . . . 55

15 C.F.R. 295.8 . . . . . . . . . . . . . . . . . . . . . . . . . 6, 53

15 C.F.R. 295.32(c) . . . . . . . . . . . . . . . . . . . . . . . . 56

55 Fed. Reg. 30140 (Jul. 24, 1990) . . . . . . . . . 5, 6, 53

United States Sentencing Guidelines Manual

2B1.1(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7



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United States Court of AppealsFOR THE SECOND CIRCUIT

Docket No. 11-1924

UNITED STATES OFAMERICA,

Plaintiff-Appellee,

v.

DANIEL B.KARRON,

Defendant-Appellant.

BRIEF FOR PLAINTIFF-APPELLEE

Preliminary Statement

Defendant-appellant D.B. (formerly Daniel) Karron

(Karron) appeals from a judgment of the UnitedStates District Court for the Southern District of New

York (Naomi Reice Buchwald, J.) entered on April 13,

2011. (Special Appendix (SPA) 30).* That judgment

was entered in accordance with a Memorandum and

Order dated March 23, 2011, granting the

* As Karron did not file a joint appendix or special

appendix with her opening brief, plaintiff-appellee theUnited States of America (the Government) is filing

herewith a motion for leave to file these appendices.



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Governments motion for summary judgment. (SPA 1(reported at 750 F. Supp. 2d 480 (S.D.N.Y. 2011)).

The Government brought this action under the

False Claims Act, 31 U.S.C. 3729 et seq. (the FCA),

to recover damages and penalties relating to Karrons

misuse of funds received pursuant to a cooperative

agreement with the Advanced Technology Program

(ATP) of the United States Department of Commerce

(Commerce). The ATP, now known as the Technology

Innovation Program, was designed to spur innovation

by identifying and funding technology research projectsthat are considered high risk but may yield high

rewards. The cooperative agreement provided Karron

$2,000,000 for a three-year research project regarding

the application of mathematics to medical uses. The

research project was to be conducted by Karron and

administered through Computer Aided Surgery, Inc.

(CASI), a New York limited liability corporation of

which Karron was the President, Chief Technical

Officer and ninety-percent shareholder. Karron,

however, spent a substantial portion of the funds on

items that had nothing to do with, and were notauthorized under, the cooperative agreement, including

personal expenses. Meanwhile, Karron submitted

financial reports to the ATP falsely certifying that all

funds were properly spent. From October 1, 2001, until

June 27, 2003, when Commerce officials shut down the

project, Karron drew down $1,345,500 in ATP funds.

For this conduct, Karron was convicted in 2008 of

misapplying CASI funds in violation of 18 U.S.C. 666,

after an eight-day jury trial. Karron received a

fifteen-month custodial sentence and was ordered topay $120,000 in restitution. Following Karrons



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criminal conviction, the Government filed this FCAaction in November 2008 to recover civil damages in the

amount of three times the nearly $1.35 million that

Karron drew down from the ATP (less the amount of

restitution paid) plus penalties for twenty false

certifications made by Karron in order to obtain these

funds. The district court granted the Governments

motion for summary judgment in part, holding that

Karron was liable under the FCA for civil damages of

$4,036,500 (i.e., three times the total amount drawn

down), less the amount of restitution paid, plus a civil

penalty of $5,500 for one certification determined to befalse.

The district courts judgment should be affirmed. As

the district court correctly concluded, by virtue of her

criminal conviction, Karron is estopped from contesting

her civil liability under both the FCAs estoppel

provision, 31 U.S.C. 3731(e), and the common law

doctrine of collateral estoppel as a result of her criminal

conviction. In convicting Karron of misapplying CASI

funds in violation of 666, the jury necessarily found

that Karron knowingly used CASI funds in a mannernot permitted under the cooperative agreement and

thus necessarily determined that Karrons certifications

of compliance with the cooperative agreement were

knowingly false. Because the criminal case and this

case both concern Karrons use of funds under the ATP

cooperative agreement, and thus the same transaction

under Section 3731(e), the jurys determination that

Karron knowingly misused CASI funds is sufficient to

establish that Karron knowingly submitted false claims

to the Government in violation of the FCA. Similarly,

that issue was raised, litigated and necessarily decided

during the criminal case, and Karron had a full and fair



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opportunity to litigate the issue. Thus, the common lawdoctrine of collateral estoppel also bars Karron from

contesting her liability under the FCA.

Even apart from estoppel, Karrons FCA liability is

established by the evidence presented at the criminal

trial, and not materially controverted by Karron in this

civil action, showing that just after receiving the first

draw-down of $150,000 in early October 2001, Karron

used $75,000 to pay personal debts. Thus, at a

minimum, Karrons November 2001 certification that

the first $150,000 draw-down was made for thepurpose and conditions of the grant or agreement was

indisputably false.

Liability having been established, the district court

properly awarded the Government treble damages

based on the full amount drawn down by Karron.

Where, as here, government funding is designed to

benefit the public (here, by encouraging scientific

advances), and produces no tangible, ascertainable

benefit to the government, single damages under the

FCA are properly measured by the full amount of the

government funding.

Statement of Jurisdiction

The district court had jurisdiction over the

Governments action pursuant to 31 U.S.C. 3732. On

April 19, 2011, Karron filed a timely notice of appeal

(Appendix for Plaintiff-Appellee (A) 507) of the final

judgment of the district court, entered on April 13, 2011

(SPA 30). Accordingly, this Court has jurisdiction under

28 U.S.C. 1291.



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Issues Presented for Review1.Whether the district court correctly held that

Karron was liable for civil damages and penalties under

the FCA, both under principles of statutory and

common law collateral estoppel and because the

undisputed evidence establishes that Karron presented

at least one false claim to the ATP to obtain payment

under the cooperative agreement.

2. Whether the district court correctly calculated its

damages award by trebling the full amount that Karron

drew down from the ATP.

Statement of the Case

The Government brought this action under the FCA

and common law to obtain damages and penalties

based on Karrons multiple false statements by which

Karron obtained ATP funds. (A 9-10). On June 18,

2010, the Government moved for summary judgment on

its FCA claims pursuant to Rule 56(c) of the Federal

Rules of Civil Procedure. In a Memorandum and Order

filed March 23, 2011, the district court granted theGovernments motion. (SPA 1). Judgment was entered

on April 13, 2011. (SPA 30). This appeal followed.

Statement of Facts

A. The Advanced Technology Project

The ATP was authorized by Section 5131 of the

Omnibus Trade and Competitiveness Act of 1988, Pub.

L. No. 100-418, 102 Stat. 1107, and implemented in

1990. See 15 U.S.C. 278n (note); 55 Fed. Reg. 30140



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(July 24, 1990).* The ATP regulations explain that[t]he purpose of the [ATP] is to assist[ ] United States

businesses to carry out research and development on

high risk, high pay-off, emerging and enabling

technologies. 15 C.F.R. 295.1(a). The technologies

supported by ATP funding are:

(1)High risk, because the technical

challenges make success uncertain;

(2)High pay-off, because when applied

they offer significant benefits to the

U.S. economy; and

(3)Emerging and enabling, because

they offer [a] wide breadth of potential

application and form an important

technical basis for future commercial

applications.

Id. Intellectual property rights arising from research

generally vest in the recipient of the funding. See 15

C.F.R. 295.8; 55 Fed. Reg. at 30143 (ATP funding

recipients will normally be granted the right to take

ownership to these inventions.).**

* The ATP program was replaced by the

Technology Innovation Program in 2007. See America

Creating Opportunities to Meaningfully Promote

Excellence in Technology, Education, and Science Act,

Pub. L. No. 110-69, Title III, 3012(a) (repealing

former Section 278n), (b) (enacting current Section

278n (the America COMPETES Act)), 121 Stat. 593.

** The ATP regulations also contemplate that the

program will employ[ ] cooperative agreements rather



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B. Karron Obtains ATP Funds Pursuant to aCooperative Agreement

Karron holds a Ph.D. from New York University. (A

132). On or about July 6, 2001, and August 6, 2001,

Karron submitted a two-part proposal to the ATP on

behalf of Computer Aided Surgery, Inc., entitled

Anatomic Computer Modeling for Precise and Accurate

Therapies (together, the Proposal). (A 90, 118, 355).

Karron signed the Proposal as CASIs Authorized

Company Representative. (A 91, 119, 355). According

to the Proposal, CASI would

develop a new computer application

server that will take calibrated,

encrypted raw images from a client[s]

medical imaging instrumentation

(MRI, CT, Ultrasound, etc.), over the

Internet. Our system will rapidly

generate encrypted, precise, accurate,

and variable resolution three

dimensional tiled models applicable for

diverse applications [such] as radiationt h e r a p y , s u r g i c a l p l a n n i n g ,

intraoperative guidance, rapid

m a n u f a c t u r i n g o f p r o s t h e s i s ,

verification of surgical results, robotic

than grants because such agreements allow ATP to

exercise appropriate management oversight of projects

and also to link ATP-funded projects to ongoing R & D

at the National Institute of Standards and Technology

[(NIST)] wherever such linkage would increase thelikelihood of success of the project. 15 C.F.R.

295.1(b).



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surgery trajectory planning, patientcommunication, education and other

customer specific applications[.] The

novel idea[] that enables this

technological leap forward is Digital

Morse Theory (DMT).

(A 355; see also A 118). The Proposal included an

estimated three-year budget that, as later revised,

projected CASIs costs at $2,110,500, with $2,000,000 of

that expected to come from the ATP ($800,000 in year

one, and $600,000 in each of years two and three). (A356; see also A 139). The remaining $110,500 was to

come from Karron (the cost share). (A 74, 139).

The Proposal specified that CASI would subcontract

with the City University of New Yorks Institute for

Software Design and Development (CUNY) to draw

upon the expected unique contribution of the faculty,

visiting scientists, and PhD graduate students. (A 92-

93, 356). The total amount of the subcontract with

CUNY was to be $420,000, including $200,000 in the

first year. (A 92-93, 356). The Proposal listed fourteen

team members, naming Professors George Wolberg

and James L. Cox as Core Members along with

Karron. (A 92-93, 356). The Proposal also noted the

potential for the project to yield widespread economic

and social benefits, including through the creation of

new markets, improvement of medical treatments, and

reduction of medical costs, employee sick leave, medical

malpractice litigation and insurance costs. (A 94-95,

113-14, 356).

In October 2001, the ATP notified Karron that the

Proposal had been approved. (A 135, 356). Karron then

signed the cooperative agreement, agreeing that Karron



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would comply with certain regulations* as well as otherstandard provisions and special conditions. (A 136,

357). The regulations required Karron to file three

types of financial reports in order to draw down ATP

funds and to certify the accuracy of those reports. (A 32-

34 (discussing requirements imposed by 15 C.F.R. Part

14)).**

While the cooperative agreement permitted some

flexibility in administering the funds, it required

advance approval by the ATP Grants Officer of the

transfer of funds among direct cost categories in the

* These included 15 C.F.R. Part 14 (Uniform

Administrative Requirements for Grants and

Agreements with Institutions of Higher Education,

Hospitals, Other Non-Profit, and Commercial

Organizations) and 48 C.F.R. Part 31 (Contract Cost

Principles and Procedures).

** These forms required Karron to certify as follows:

I certify that to the best of my knowledge and belief

the data on the reverse are correct and that all outlayswere made in accordance with the grant conditions or

other agreement and that payment is due and has not

been previously requested.(A 33, 40-57 (Form SF-270));

I certify to the best of my knowledge and belief that

this report is true in all respects and that all

disbursements have been made for the purpose and

conditions of the grant or agreement.(A34, 58-64 (Form

SF-272)); and I certify to the best of my knowledge and

belief that this report is correct and complete and that

outlays and unliquidated obligations are for thepurposes set forth in the award documents. (A34, 65-68

(Form SF-269)).



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approved budget if the transfer exceeds 10% of theapproved total annual budget. (A 75 (emphasis in

original)). The cooperative agreement also incorporated

certain standard terms and conditions (A 136),

including the following limitation on the amount of

disbursements:

Advances . . . shall be limited to the

minimum amounts necessary to meet

immediate disbursement needs.

Advanced funds not disbursed in a

timely manner must be promptlyreturned . . . . Advances shall be for

periods not to exceed 30 days.

(A 180). In addition, the cooperative agreement

anticipated that the Government would be

substantial[ly] involve[d] in the project, including by

reserving the right to concur in sole source

procurements in excess of $100,000 and to [a]pprov[e]

. . . key personnel specified in the proposal. (A 73). The

cooperative agreement also recognized that Karron

would retain certain intellectual property rights arising

from the project. (A 79).

C. Karron Misuses the ATP Funds From the Startof the Project and Falsely CertifiesCompliance with the Terms and Conditions ofthe Cooperative Agreement

Karron applied for and received an initial draw-

down of $150,000 from the ATP in early October 2001.

(A 240, 358). Karron immediately diverted $75,000 of

this amount to pay personal expenses, including debts

to family members and her credit card bills. (A 241-42,358). Over the first year of the project, Karron also paid



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herself $60,000 in rent, including for periods that pre-dated the project. (A 233, 275, 285, 286, 359).* Karrons

justification for paying herself rent was that she had

cancelled the contract with CUNY and instead used her

apartment as a research facility staffed by unpaid

students, despite the ATPs instruction that this

arrangement was not proper. (A 237-40, 323, 359).

During the projects first year, Karron improperly

spent ATP funds on utility bills (A 233, 275, 359), meals

(A 233, 359) and cleaning expenses (A 233, 359). She

also spent more than $40,000 on other categories ofunauthorized expenses (A 233, 359), including,

according to testimony at the criminal trial, purchases

of a blender, a GPS navigation system, a digital

camera, a drill set and a dustbuster. (SPA 6-7).

Karron directed her project manager, Elisha

Gurfein, to create financial reports that were false

insofar as they did not reflect actual expenditures, but

only the amounts of funds received, and Karron signed

these reports for submission to the ATP. (A 246-47,

358). Karron submitted at least twenty such reports to

the ATP to enable CASI to obtain the first years ATP

funds. These reports were submitted on one of three

types of forms, each certifying CASIs compliance with

the terms of the cooperative agreement: the Request for

Advance or Reimbursement (SF-270), the Federal Cash

Transactions Report (SF-272) and the Financial Status

* A Commerce audit found that the improper rentcharges included $18,000 from Karrons first draw-

down of funds from the ATP. (A 180).



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Report (SF-269 or SF-269A). (A 40-68, 357).* Theseforms required Karron to enter the amounts of project

funds spent (ATP funds as well as cost-share funds) and

thus Karrons certifications of compliance applied to all

uses of CASI funds, regardless of the source of the

funds. (A 40-68).

D. The Award Is Suspended During the ProjectsSecond Year

On June 27, 2003, the ATP suspended Karrons

award after a limited scope audit confirmed that

Karron had failed to comply with the cost-share

requirement and had drawn down more than $200,000

above the amount authorized under the cooperative

agreement. (A 144-48, 171, 358). By that date, Karron

had drawn down the entire $800,000 available from the

ATP during the first year, and $545,500 of the $600,000

available during the second year, for a total ATP

disbursement of $1,345,500. (A 171, 358). Shortly

thereafter, on August 13, 2003, Karron submitted

revised Financial Status Reports admitting that the

actual amount of CASIs cost-share payments was zero.(Compare A 149 ($12,320 cost share), 151 ($17,796.22

total cost share to date), 153 ($26,523.06 total cost

share to date), 155 ($29,500 total cost share to date)

with A 150 ($0 cost share), 152 ($0 cost share), 154 ($0

cost share), 156 ($0 cost share); see also A 157-59 ($0

* On July 24, 2002, the ATP notified Karron that

funds could be drawn down through an automated

payment system known as ASAP, and thus Karron no

longer needed to file the Request for Advance orReimbursement or Federal Cash Transaction Report

forms. (A 37).



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cost share)).* An audit report dated August 25, 2004,concluded, inter alia, that Karron had made $547,426

in expenditures that were either unallowable,

unallocable or [in excess of] budget limitations

established in the ATP award. (A 169, 358-59).

E. The Criminal Proceeding

1. The Government Charges Karron withMisapplying CASI Funds

In June 2007, Karron was arrested for allegedly

violating 18 U.S.C. 666 by knowingly misapplyingmore than $5,000 of funds under the care, custody and

control of CASI, which received more than $10,000 in

federal funds during a one-year period from the ATP.

See United States v. Karron, 07 Cr. 541 (RPP),

unnumbered docket items dated June 20, 2007, docket

item no. 1 1. A Second Superseding Indictment

restated the Section 666 charge, see id., docket item no.

44 1, and also included a forfeiture allegation seeking

forfeiture of all real and personal property derived from

proceeds traceable to the alleged Section 666 violation,including some $390,000 in cash and Karrons interest

in an apartment on East 33rd Street in Manhattan, see

id. 2.

* Karron submitted at least two further, and

contradictory, revisions of the cost-share information in

her opposition to the Governments summary judgment

motion. (Compare A 397 (reflecting a total Recipient

share of outlays for year one of $29,493) with A 408-15(reflecting a total Recipient share of outlays for year

one of $78,204)).



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2. At Trial, the Government PresentsEvidence That Karron KnowinglyMisapplied CASI Funds

The Section 666 charge against Karron was tried to

a jury over eight days in June 2008. At trial, the

Government established the nature and extent of

Karrons misapplication of funds through the testimony

of Commerce personnel and former CASI employees, as

well as extensive documentary evidence. This evidence

included the following:

Karron used $75,000 of the initial

disbursement of ATP funds to pay for her

personal debts. Karron took this action despite

warnings from her business manager that such

use was unauthorized. (A 241-43, 358; SPA 6

(citing Trial Tr. 1271:23-1272:8)).

Karron and her business manager originally

had to co-sign all expenditures over $250.

However, within one week of receiving ATP

funds, Karron stripped her business manager ofsigning authority and vested herself with sole

signing authority. (A 142, 243-45; SPA 6 (citing

Trial Tr. 1271:9-24)).

Karron unilaterally, and without

authorization from the ATP, decided not to enter

into the contract with CUNY. Instead, Karron

set up CASIs business location in her own

apartment and then spent approximately

$60,000 of ATP funds on rent. Again, Karron

took this action despite receiving warnings thatsuch use was unauthorized. (A 237-38, 359;



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SPA 6 (citing Trial Tr. 1266:23-1267:23,1272:9-1273:13, 1318:8-1319:16)).

During the projects first year, Karron spent

approximately $18,000 of ATP funds on utility

bills and approximately $2,000 of ATP funds on

meals. Again, Karron made such expenditures

despite warnings that these were not authorized

uses. (A 233; SPA 6-7 (citing Trial Tr.

1267:25-1269:9, 1320:14-18)).

Karron used more than $5,000 of ATP fundsto compensate her cleaning lady. Karron also

spent more than $40,000 of ATP funds on other

categories of unauthorized expenses. The items

that Karron purchased with federal funds

included a blender, a GPS navigation system, a

digital camera, a drill set and a dust buster. (A

233, 359; SPA 7 (citing Trial Tr. 1273:13-21,

1320:19-1321:25)).

According to the testimony of Karrons

business manager, Karron directed him to create

false financial reports that did not reflect actual

expenditures. Karron signed these reports and

submitted them to ATP. (A 247-50, 358; SPA 7).

A 2004 audit concluded that Karron had

misspent $547,426 of the $1,345,500 drawn

down from the ATP. (A 169, 358-59).



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3. The Jury Convicts Karron of MisapplyingFunds in Violation of 18 U.S.C. 666

At the conclusion of the trial, the jury was

instructed to determine whether the evidence showed,

beyond a reasonable doubt:

First, at the time alleged in the

indictment, the defendant was an

agent of Computer Aided Surgery, Inc.,

or CASI;

Second, in a one-year period, CASI

received a federal grant in excess of

$10,000;

Third, during that one-year period,

the defendant without authority

intentionally misapplied the grant

money;

Fourth, the misapplied grant money

was under the care, custody, or control

of[ ] CASI; and

Fifth, the value of the money

intentionally misapplied by defendant

was at least $5,000.

(A 252). With respect to the third element, the court

instructed the jury to decide whether the Government

had established, beyond a reasonable doubt, that

Karron

use[d] money under the control of CASI

knowing that such use [was]

unauthorized or unjustifiable orwrongful. Intentional misapplication



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includes the wrongful use of the moneyfor a purpose the defendant knew was

unauthorized, even if such use

benefited CASI in some way.

In this case, to intentionally misapply

money means to intentionally apply the

grant money received by CASI in a

manner which the defendant knew was

unauthorized under the terms and

conditions of the grant. Misapplication

of money, however, does not apply tobona fide salary, wages, fringe

benefits, or other compensation paid, or

expenses paid or reimbursed, in the

usual course of business.

(A 253-54).

On June 11, 2008, the jury returned a guilty verdict

against Karron on the Section 666 charge. (A 354).

4. The District Court Concludes That Karron

Incurred More Than $120,000 inInappropriate Expenses

Following Karrons conviction, Karron received a

15-month custodial sentence (half of which was to be

served in a federal facility and half in home

confinement) and was ordered to pay $120,000 in

restitution. (A 355). At sentencing, the district court

found that more than $120,000 was lost through

inappropriate expenses. (A 344; see alsoA 345 (It is



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true that the loss is at least $120,000 . . . .).* Thedistrict court also expressed concern about whether it

should base its determination of the proper offense level

under U.S.S.G. 2B1.1(b)(1) on the loss amount or on

the amount gained by Karron. (A 299-300). The district

court noted that [i]n a sense, the whole thing, the

whole agreement was a loss to the [G]overnment. (A

300).

Karrons counsel countered by arguing that the

[G]overnment g[ot] their moneys worth because

certain milestones purportedly were met, and thewhole concept was that if something was developed, Dr.

Karron and CASI would keep all the profits for

themselves. (A 307). Karrons counsel also observed

that [s]ociety would benefit from the success of the

project, not the Government, and that the Government

had no vested interest financially in the product of

[Karrons] research. (A321). Thus, according to

Karrons counsel, the loss from Karrons failure to

complete the project was Karrons, not the

Governments.

The district court ultimately arrived at the $120,000

restitution amount by totaling the categories of

Karrons expenditures during the first year of the

project that did not appear on the approved budget, an

alternative calculation proposed by the Government:

* Under the applicable sentencing guidelines, a

loss of $120,000 corresponds to a level increase of 10,

with the next increase beginning at a loss of$200,000. See U.S. Sentencing Guidelines Manual

2B1.1(b)(1)(F), (G) (2001).



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[Government Counsel]: . . . . [A]t thevery least, if you look simply at the

nonbudgeted categories, things that

were not approved by NIST at all,

which are those things that I

mentioned beforerent, utilities,

capital improvement[s], cleaning,

meals, and otherthen we have a loss

amount that is at a minimum just two

levels less than whats in the PSR.

(A 280; see also A 312-13 (THE COURT: I am going tomake the findings on the basis that [Government

Counsel] suggested.)). In the first year of the

cooperative agreement, these non-budgeted categories

included the $60,000 in rent paid to Karron (which

Karrons counsel agreed was clearly improper (A

285)), as well as $9,832 in fringe benefits, $11,248 in

capital improvements to Karrons apartment, $5,019 in

cleaning expenses, and $43,592 in other unauthorized

expense categories. (A 359; see also A 233).

5. This Court Affirms Karrons ConvictionKarron appealed her conviction, asserting that (I)

the jury was erroneously instructed to determine

whether Karron intentionally misapplied funds, and

instead should have been instructed that an intent to

defraud is an element of misapplication of funds, and

(ii) Section 666 is void for vagueness. See United States

v. Karron, 348 F. Appx 632, 633 (2d Cir. 2009). This

Court rejected these arguments and affirmed Karrons

conviction by summary order dated October 7, 2009.See

id.



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F. The Civil ActionOn November 24, 2008, the United States brought

this action pursuant to the FCAs former 3729(a)(1)

and (2), and also asserted common law claims not at

issue in this appeal. (A 9). After the complaint was filed

in this action, Congress enacted the Fraud Enforcement

and Recovery Act of 2009 (FERA), Pub. L. No. 111-21,

123 Stat. 1617 (May 20, 2009), which amended and

renumbered the subsections of former 3729(a) and

provided for retroactive application of current

3729(a)(1)(B) to claims brought under former

3729(a)(2).*

Former 3729(a)(1) subjects an individual to civil

liability if he or she

knowingly presents, or causes to be

presented, to an officer or employee of

the United States Government or a

member of the Armed Forces of the

* See Pub. L. No. 111-21, 4(f), 123 Stat. 1617,1625 (FERAs amendments apply to conduct on or after

the date of enactment, except that amendments to

3729(a)(2) and to another section of the FCA not

relevant here take effect as if enacted on June 7, 2008,

and apply to all claims under the [FCA] pending on or

after [June 7, 2008]); see alsoUnited States ex rel. Kirk

v. Schindler Elevator Corp., 601 F.3d 94, 113 (2d Cir.

2010) (applying former 3729(a)(1) and current

3729(a)(1)(B) in case filed before, and still pending on,

June 7, 2008), revd on other grounds sub nom.Schindler Elevator Corp. v. United States ex rel. Kirk,

131 S. Ct. 1885 (2011).



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United States a false or fraudulentclaim for payment or approval.

31 U.S.C. 3729(a)(1) (2000). Current 3729(a)(1)(B)

subjects a person to civil liability if he or she

knowingly makes, uses, or causes to be made or used,

a false record or statement material to a false or

fraudulent claim. 31 U.S.C. 3729(a)(1)(B). The

complaint alleged that Karron submitted false or

fraudulent claims to the Government, to obtain

payment in connection with cooperative agreements

under the ATP to CASI, a limited liability corporationof which Karron was the President and Chief

Technical Officer, as well as a 90% shareholder. (A 9-

10). The complaint further alleged that, despite being

warned repeatedly, Karron willfully violated the terms

of the [cooperative agreement], misapplying nearly half

a million dollars towards unauthorized expenses and

then lying about it, in violation of 18 U.S.C. 666. (A

14). Based on these allegations, the complaint sought

recovery of treble damages and statutory penalties

under the FCA, as well as remedies at common law. (A

18-22).

By Order dated March 16, 2009, the district court

denied Karrons request to stay this action pending an

appeal of her criminal conviction. (A 24 (the March 16

Order)). On April 17, 2009, Karron appealed from the

March 16 Order. (A 2, 26). On May 15, 2009, the

district court denied Karrons requests to certify the

March 16 Order for interlocutory appeal and to proceed

in forma pauperis, noting that the Government already

had proved Karrons guilt in the criminal proceeding

and thus had exceeded the standard of proof in the civilcase. (A 26-27). The district court also advised that it



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was prepared to adjourn briefing on the Governmentsproposed summary judgment motion pending Karrons

release from custody. (A 27). On August 28, 2009, this

Court dismissed Karrons appeal from the March 16

Order for lack of appellate jurisdiction. (A 29).

On June 18, 2010, Karrons conviction having been

affirmed, 348 F. Appx 632, and Karrons custodial

sentence having been satisfied, the Government moved

for summary judgment. In its motion, the Government

asserted that Karron was estopped from denying

liability under both the FCAs estoppel provision, 31U.S.C. 3731(e), and the common law doctrine of

collateral estoppel. The Government also set forth

admissible evidence from the criminal trial and

provided a declaration from the ATP attaching twenty

of the forms certified by Karron that the Government

asserted to be false. (A 31). The Government sought

statutory penalties with respect to each of these false

certifications. It also argued that Karron was liable for

treble damages pursuant to 31 U.S.C. 3729(a)(1) in

the amount of three times the $1,345,500 drawn down

in ATP funds, based on Karrons non-compliance withthe terms and conditions of the cooperative agreement.

The Government contended that no reduction in the

damages amount was appropriate because Karron had

provided the Government with no ascertainable,

tangible benefit.

G. The District Courts Decision

After hearing oral argument (A 478-506), and

reviewing the trial transcript and jury charge in the

criminal case (SPA 16), the district court granted theGovernments motion in part in a Memorandum and



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Order dated March 23, 2011 (SPA 1). Noting thatKarron had failed specifically or meaningfully to

controvert the facts asserted in the Governments Local

Rule 56.1 Statement, the district court first set forth

the background, purpose and terms of the cooperative

agreement, including the requirement that Karron

certify and file certain financial reports. (SPA 1-5). It

then summarized some of the extensive evidence

presented at the criminal trial showing that Karron

had misused CASI funds while falsely certifying

compliance with the terms and conditions of the

cooperative agreement. (SPA 6-7). The district courtexamined the jury charge, and noted that Karron had

been convicted and sentenced and that the conviction

was final. (SPA 7-9).

The district court held that Karrons criminal

conviction precluded her from denying liability under

both the FCAs estoppel provision, 31 U.S.C. 3731(e),

and common law collateral estoppel. (SPA 15). It

reasoned that Section 3731(e) applied because the

criminal conviction and this action plainly stem from

the same conduct, and thus Section 3731(e)s sametransaction requirement was satisfied. (SPA 15 & n.6);

see 31 U.S.C. 3731(e) (providing for estoppel in any

action which involves the same transaction as in the

criminal proceeding and which is brought under

subsection (a) or (b) of section 3730).

The district court explained that three of the

elements of former 3729(a)(1) were indisputably

satisfied by the uncontested evidence showing that

(I) Karron made multiple claims (ii) to the Government

(iii) seeking payment from the federal treasury. (SPA16); see 31 U.S.C. 3729(a)(1) (2000) (establishing civil



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liability for knowingly present[ing], or caus[ing] to bepresented, to an officer or employee of the United

States Government . . . a false or fraudulent claim for

payment or approval); Kirk, 601 F.3d at 113. The

district court concluded that the remaining elements of

the Governments claim under former 3729(a)(1) were

satisfied because the falsity of Karrons certifications

and her knowledge that they were false were effectively

determined by the jury in the criminal case. (SPA 16).

The district court also noted that Karron does not

dispute that her statements to the Government were

false. (SPA 17).

With respect to the Governments claim under

3729(a)(1)(B), the district court similarly held that

falsity and knowledge were established by the criminal

conviction, and that the materiality of the false

statements was established by the uncontested

evidence that the cooperative agreement was suspended

shortly after an audit revealed Karrons non-

compliance. (SPA 18). If Karron had been transparent

regarding how she was really spending the funds, the

district court reasoned, the ATP would have cut offfurther funding at that time. (SPA 18).

The district court also concluded that common law

principles of collateral estoppel applied to both FCA

claims because the same issuesKarrons misuse of

ATP funds and the falsity of her submissions to the

ATPwere present in both cases and had been litigated

and actually decided by the jury in the criminal case,

resulting in Karrons conviction, and Karron had a full

and fair opportunity to litigate them (including with the

assistance of counsel). (SPA 18-19).



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The district court also held that the jury verdict inthe criminal case disposed of several arguments raised

by Karron, including her claims that the certifications

were innocently erroneous, that the expenditures were

proper because they were all made from Karrons bona

fide salary, and that Karron allegedly could now show

that she properly used and accounted for every dollar

of ATP funds. (SPA 19-21).* The district court also

rejected Karrons arguments that intent to defraud was

not proved in the criminal case (because no such intent

is required under the FCA), and that ATPs removal of

the requirement of filing certain certified formsrendered the falsity of Karrons prior certifications

moot. (SPA 20-21).

The district court next held that the proper treble

damages amount was $4,036,500 (i.e., three times the

total amount drawn down, $1,345,500). Finding no

Second Circuit precedent directly on point, the district

court looked to decisions from the Fifth, Seventh, Ninth

and D.C. Circuits that calculated damages based on the

full amount of government funding received where the

government had not received goods or services with anascertainable value. (SPA 22-25). The district court

concluded that this principle was applicable here

because Karrons uncompleted and non-conforming

project had not yielded any tangible, ascertainable

* As to this latter point, Karron proffered a

declaration of approximately 900 pages (including

exhibits) from Deborah A. Dunlevy (A 434), purporting

to account for [e]very penny spent on the project (A441). Dunlevy was not involved with the project while

it was ongoing. (A 435-36).



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benefit to the Government, and because the cooperativeagreement gave Karron the rights to any intellectual

property developed under the project. (SPA 25).

Finally, the district court held that the Government

was entitled to a statutory penalty with respect to one

false certification, specifically, the SF-272 (Federal

Cash Transactions Report) for November 2001, which

was certified by Karron on December 19, 2001. (SPA

26-28). The district court noted that Karrons

uncontroverted use of $75,000 of the November 2001

draw-down for unauthorized personal expensesrendered that certification false. (SPA 27 & n.13). The

district court concluded that although the Government

had proved that Karron made false statements as a

general matter and unquestionably [made] at least

one false statement, the Government had not yet

established that the remaining nineteen certifications

were indisputably false. (SPA 27-28). Thus, the district

court denied summary judgment with respect to

penalties for the remaining nineteen certifications, and

directed the Government to notify the court regarding

whether the Government would continue to pursuethese penalties. (SPA 28).*

The Government subsequently advised the district

court that it would not seek further penalties in light of

the district courts decision. The district court then

entered final judgment. (SPA 30).

* The district court also noted that the

Government at oral argument had agreed to withdraw

its common law claims in the event that the districtcourt concluded that Karron was liable under the FCA.

(SPA 28; see also A 479).



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Summary of Argument

The district courts judgment should be affirmed.

The jury in Karrons criminal case determined, beyond

a reasonable doubt, the key elements of the FCA claims

asserted here, namely, that Karron knowingly

submitted at least one false certification to the

Government. The remaining elements of the FCA

claims are not in genuine dispute, based on the

uncontroverted evidence from the criminal trial. Karron

is therefore estopped from challenging her liability

under the FCA. See Points I.A-B, infra. Even if estoppeldid not apply, the uncontroverted evidence shows that

at a minimum, Karrons certification of the Federal

Cash Transactions Report for the month of November

2001 was false, because Karron used $75,000 from that

first draw-down to pay for her own personal debts.

Karrons argument that the funds were a permissible

salary advance does not raise a genuine issue of fact,

because the terms and conditions of the cooperative

agreement plainly prohibit such salary advances. See

Point I.C, infra. The district court therefore properly

found Karron liable under the FCA.

The district court also properly awarded the

Government treble damages in the amount of three

times Karrons total draw-down, even though some of

her expenditures may have been authorized. This is

because Karron received ATP funding on the premise

that she would administer her research project

according to the terms and conditions of the cooperative

agreement, and the funding was designed to benefit the

public, and did not produce an ascertainable, tangible

benefit to the Government. Thus, unlike in casesinvolving a standard procurement contract, where the



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treble damages calculation may take into account thepartial value of non-conforming goods or services

received and retained by the Government, the draw-

downs in this case are considered to be a total loss. See

Point II, infra.

A R G U M E N T

STANDARDS OF REVIEW

This Court reviews de novo the district courts grant

of summary judgment to determine whether,construing the evidence in the light most favorable to

the non-moving party, there is no genuine dispute as to

any material fact and the movant is entitled to

judgment as a matter of law. Rojas v. Roman Catholic

Diocese of Rochester, 660 F.3d 98, 104 (2d Cir. 2011)

(internal quotation marks omitted); Fed R. Civ. P. 56(c).

A fact is material for these purposes

when it might affect the outcome of the

suit under the governing law. An issue

is genuine if the evidence is such thata reasonable jury could return a verdict

for the nonmoving party. The mere

existence of a scintilla of evidence in

support of the [non-movants] position

will be insufficient; there must be

evidence on which the jury could

reasonably find for the [non-movant].

In weighing the evidence on a motion

for summary judgment, the judge must

ask not whether the evidence

unmistakably favors one side or theother but whether a fair-minded jury



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could return a verdict for the [non-movant] on the evidence presented.

Rojas, 660 F.3d at 104 (citations, internal quotation

marks and alterations omitted).

The burden of demonstrating that no material fact

exists lies with the moving party. Id. Once the moving

party discharges its burden of proof under Federal Rule

56(c), the party opposing summary judgment must set

forth specific facts indicating a genuine issue for trial

exists in order to avoid the granting of summary

judgment. Cifarelli v. Village of Babylon, 93 F.3d 47,51 (2d Cir. 1996); see alsoDuch v. Jakubek, 588 F.3d

757, 764 & n.2 (2d Cir. 2009) (same); Fed. R. Civ. P.

56(c).

A district courts treble damages determination

made on summary judgment is also subject to de novo

review. See United States ex rel. Longhi v. Lithium

Power Techs., Inc., 575 F.3d 458, 472 n.9 (5th Cir.

2009).

POINT I

THE DISTRICT COURT CORRECTLY HELD KARRONLIABLE FOR CIVIL DAMAGES AND PENALTIES

UNDER THE FCA

A. Legal Standards for Civil Liability Under theFCA

Former 3729(a)(1) subjects an individual to

liability if he or she

knowingly presents, or causes to bepresented, to an officer or employee of



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the United States Government or amember of the Armed Forces of the

United States a false or fraudulent

claim for payment or approval.

31 U.S.C. 3729(a)(1) (2000). This provision thus

requires the Government to demonstrate that the

defendant (1) made a claim, (2) to the United States

government, (3) that is false or fraudulent, (4) knowing

of its falsity, and (5) seeking payment from the federal

treasury. Kirk, 601 F.3d at 113 (quotingUnited States

ex rel. Mikes v. Straus, 274 F.3d 687, 695 (2d Cir.2001)).

Section 3729(a)(1)(B) subjects a person to civil

liability if he or she knowingly makes, uses, or causes

to be made or used, a false record or statement material

to a false or fraudulent claim. 31 U.S.C.

3729(a)(1)(B). The term material, in turn, is defined

as having a natural tendency to influence, or be

capable of influencing, the payment or receipt of money

or property. Id. 3729(b)(4).

Both the pre- and post-FERA versions of the FCAprovide that the knowledge requirement can be

satisfied in one of three alternative ways: where the

person (I) has actual knowledge of the information, (ii)

acts in deliberate ignorance of the truth or falsity of

the information, or (iii) acts in reckless disregard of

the truth or falsity of the information. 31 U.S.C.

3729(b)(1)(A)(i)-(iii); see also 31 U.S.C. 3729(b)(1)-(3)

(2000) (same). [N]o proof of specific intent to defraud

is required to establish liability under the FCA. 31

U.S.C. 3729(b)(1)(B); see also 31 U.S.C. 3729(b)

(2000) (same). This Court has interpreted these

standards to mean that [t]he requisite intent [for FCA



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liability] is the knowing presentation of what is knownto be false. United States ex rel. Kreindler & Kreindler

v. United Techs. Corp., 985 F.2d 1148, 1156 (2d Cir.

1993) (internal quotation marks omitted). Further,

[t]hat the relevant government officials know of the

falsity is not in itself a defense. Id.

B. The District Court Correctly Held That KarronIs Estopped From Challenging Her LiabilityUnder the FCA

As a general matter, [a] criminal conviction,

whether by jury verdict or guilty plea, constitutes

estoppel in favor of the United States in a subsequent

civil proceeding as to those matters determined by the

judgment in the criminal case. New York v. Julius

Nasso Concrete Corp., 202 F.3d 82, 86 (2d Cir. 2000).

Criminal convictions may be given estoppel effect in

FCA cases under both the statutory estoppel provision

of the FCA, 31 U.S.C. 3731(e), as well as the common

law collateral estoppel doctrine. The district court

correctly determined that Karron was estopped from

contesting her civil liability under both statutory andcommon law estoppel.

In deciding whether and to what extent a conviction

will be given estoppel effect, courts look to the

indictment, the evidence, the charge, and [any]

affirming opinion of the conviction to ascertain what

the conviction necessarily determined. New York v.

Hendrickson Bros., Inc., 840 F.2d 1065, 1082 (2d Cir.

1988) (affirming district courts determination that mail

fraud convictions necessarily determined that

defendants had engaged in bid rigging); see alsoUnitedStates v. Podell, 572 F.2d 31, 36 (2d Cir. 1978) (to



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determine the estoppel effect of a criminal judgment,the court in a subsequent civil case should determine

precisely what was decided in the criminal case by

examining the record of the criminal trial, including the

pleadings, the evidence submitted, and any opinions of

the court (citing Emich Motors Corp. v. Gen. Motors

Corp., 340 U.S. 558, 569 (1951)).

1. Karron Is Estopped From Contesting FCALiability Under Section 3731(e)

The FCA provides that a criminal judgment shall

have estoppel effect in an FCA suit involving the same

transaction:

Notwithstanding any other provision of

law, the Federal Rules of Criminal

Procedure, or the Federal Rules of

Evidence, a final judgment rendered in

favor of the United States in any

criminal proceeding charging fraud or

false statements, whether upon a

verdict after trial or upon a plea of

guilty or nolo contendere, shall estop

the defendant from denying the

essential elements of the offense in any

action which involves the same

transaction as in the criminal

proceeding and which is brought under

subsection (a) or (b) of section 3730.

31 U.S.C. 3731(e). The undisputed record shows that

each requirement for the application of Section 3731(e)

has been met here.



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First, Karrons criminal conviction is undisputablyfinal. United States v. Karron, 348 F. Appx 632 (2d Cir.

2009).

Second, although the criminal indictment did not

explicitly charge fraud or false statements, the jurys

determination that Karron misapplied funds in

violation of Section 666 necessarily meant that Karrons

statements certifying compliance in order to draw down

ATP funds had to be knowingly false. (E.g., A 149-59,

246-47). As noted, under former 3729(a)(1), the

Government must show that Karron presented a claimto the Government that was false or fraudulent,

knowing of its falsity, and seeking payment from the

federal treasury. See Kirk, 601 F.3d at 113. As the

district court recognized (SPA 16), the only issues in

dispute in this case are whether the claims made to the

Government seeking payment were (i) false or

fraudulent, and (ii) knowingly so.The jurys verdict in

the criminal case necessarily resolved those issues

because, to convict Karron under Section 666, the jury

was required to find beyond a reasonable doubt that

Karron use[d] money under the control of CASIknowing that such use [was] unauthorized or

unjustifiable or wrongful. (A 253). The jury also had to

find that Karron intentionally applied CASI money in

a manner in which [Karron] knew was unauthorized

under the terms and conditions of the [cooperative

agreement]. (A 253). Having made these findings, the

jury necessarily determined that Karrons certifications

of compliance with the terms and conditions of the

cooperative agreement were knowingly false.

For the same reasons, Karron knowingly ma[de],use[d], or cause[d] to be made or used, a false record or



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statement material to a false or fraudulent claim, andthus her liability has been established under current 31

U.S.C. 3729(a)(1)(B). Karrons criminal conviction

establishes that Karron knowingly made at least one

false statement because Karron certified compliance

with the terms and conditions of the cooperative

agreement while knowing that project funds were being

used in an unauthorized or unjustifiable or wrongful

manner, and in a manner that Karron knew was

unauthorized under the terms and conditions of the

[cooperative agreement]. (A 253). This establishes all

of the elements necessary for a false or fraudulent claimunder current 3729(a)(1)(B), except for materiality.

(SPA 17-18).

And the district court correctly held that

3729(a)(1)(B)s materiality requirement was satisfied

by the undisputed evidence that ATP suspended further

funding immediately upon identifying Karrons misuse

of funds through a preliminary audit. (SPA 18; see also

A 144-48, 172). Had Karron not concealed her misuse of

funds, the project would have been shut down earlier.

Indeed, Karron does not challenge the materiality ofher certifications on appeal. See, e.g., OHara v. Natl

Union Fire Ins. Co., 642 F.3d 110, 118 n.1 (2d Cir.

2011) (argument not raised on appeal is waived).

Third, the criminal case concerned the same

transaction, i.e., Karrons draw-down of ATP funds

under the cooperative agreement. Finally, the civil case

was brought pursuant to 3730(a), which authorizes

the Attorney General to bring a civil action under the

FCA for violations of 3729. 31 U.S.C. 3730(a).



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Thus, Karron is estopped under Section 3731(e) fromcontesting the essential elements underlying her

criminal conviction:

(1) Karron was an agent of CASI; (2) in

a one-year period, CASI received a

federal grant in excess of $10,000; (3)

Karron without authority intentionally

misapplied the grant money; (4) the

misapplied grant money was under the

care, custody, or control of CASI; and

(5) the value of the money that Karronintentionally misapplied was at least

$5,000.

(SPA 13-14; see also A 252-54 (jury charge)). Karron

also is estopped from challenging the fact that her

misapplication of funds was the product of [her]

conscious objective to spend the money for an

unauthorized purpose, rather than the product of a

mistake or accident or some other innocent reason.

(SPA 14 (quoting jury charge)).

Karrons assertion that the district court erred inapplying statutory estoppel because the underlying

elements of her crime of conviction are different and

distinct from the elements needed to prove a violation

of the FCA, Br. 22, is mistaken. The statute does not

require that the same elements be present in both the

criminal and civil cases, see 31 U.S.C. 3731(e), and as

explained above, the jurys determination that Karron

misapplied CASI funds necessarily determined that her

certifications of compliance with the cooperative

agreement were false.



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To the extent that Karron argues, as she did indistrict court, that the draw-downs at issue here

constitute different transactions than the improper

expenditures underlying her criminal conviction, the

district court correctly dismissed that argument. Both

the criminal case and this case involve Karrons misuse

of funds provided under the cooperative agreement

between Karron and the ATP. That is the transaction

at issue. As the district court correctly concluded,

Karrons argument conflates the term transaction in

3731(e) with the definition of a claim in 3729(b)(2).

(SPA 15 n.6; A 506). Congress notably did not limitestoppel in 3731(e) to claims, as defined in

3729(b)(2), but rather applied it more broadly to any

action which involves the same transaction.

2. Karron Is Barred by Collateral EstoppelFrom Contesting Her FCA Liability

Similarly, under the common law, a criminal

conviction collaterally estops the defendant from

seeking to prove a fact [in a civil action] that is

contrary to any one of the elements of the crime forwhich that defendant was found guilty. Stichting Ter

Behartiging Van de Belangen Van Oudaandeelhouders

In Het Kapitaal Van Saybolt International B.V. v.

Schreiber, 327 F.3d 173, 180 (2d Cir. 2003). Collateral

estoppel applies where (1) the identical issue was

raised in a prior proceeding; (2) the issue was actually

litigated and decided; (3) the party had a full and fair

opportunity to litigate the issue; and (4) the resolution

of the issue was necessary to support a valid and final

judgment on the merits. Savage & Assocs., P.C. v. K &

L Gates LLP (In re Teligent, Inc.), 640 F.3d 53, 61 (2d

Cir. 2011).



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Each requirement for the application of collateralestoppel is met here. First, as noted, the criminal case

and this civil action raised identical issues: whether

Karron used CASI funds in a manner that was not

authorized under the cooperative agreement, and

whether she did so knowingly. See supra at 33-34.

Again, the fact that Karrons criminal charge did not

require a false certification does not defeat the

application of collateral estoppel. See, e.g., Falconer v.

Meehan, 804 F.2d 72, 76 (7th Cir. 1986) (Collateral

estoppel is proper . . . when facts giving rise to a later

cause of action were adversely decided against theplaintiff in a prior action . . . .). Because the jury

necessarily found that Karron used CASI funds in a

manner that was unauthorized and did not comport

with the cooperative agreement, her certifications of

compliance with the cooperative agreement were

necessarily false.

Second, as demonstrated by the jury charge (A 252-

54), these issues were actually litigated and decided in

the criminal action. As set forth supra at 14-15, the

Government presented substantial testimony anddocumentary evidence at the criminal trial

demonstrating the scope of Karrons misapplication of

funds. Based on that evidence, the jury convicted

Karron of violating Section 666, and thus established

that Karron use[d] money under the control of CASI

knowing that such use [was] unauthorized or

unjustifiable or wrongful, and in a manner that

Karron knew was unauthorized under the terms and

conditions of the [cooperative agreement]. (A 253).

Third, Karron had a full and fair opportunity tolitigate these facts at her criminal trial. Defense



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counsel strenuously cross-examined the Governmentswitnesses. (A 251 (noting counsels lengthy lengthy

cross-examination)). And Karron appealed her

conviction to this Court. United States v. Karron, 348 F.

Appx 632 (2d Cir. 2009).

Fourth, in light of the jury instructions in the

criminal case, it is plain that the jury actually decided

the issues essential to Karrons civil liability in order to

convict her on the Section 666 charge. The jury decided

that Karron knowingly applied funds in a manner not

permitted by the cooperative agreement (A 252-54), andthus her certifications that she had properly used the

funds were necessarily false (A 40-68 (certifying that

information on reports was correct, true in all

respects or correct and complete, and that payments

were made in accordance with, for the purpose and

conditions of or for the purposes set forth in the

cooperative agreement)). And, as noted, Karrons

conviction is now final. United States v. Karron, 348 F.

Appx 632 (2d Cir. 2009). The district court thus

properly applied collateral estoppel to bar Karron from

challenging her liability under the FCA.

C. The District Court Correctly Held, in theAlternative, That There Was No GenuineFactual Dispute That Karron Is Liable Underthe FCA Because She Falsely Certified theDecember 2001 Federal Cash TransactionReport

Even apart from the estoppel effect of Karrons

criminal conviction, the district court correctly held

that the Government had unquestionably establishedat least one false claim: Karrons false certification on



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the Federal Cash Transactions Report for the month ofNovember 2001. (SPA 27-28). Although the district

court declined to rule on the falsity of the other

nineteen certifications submitted by the Government,

this false statement alone is a sufficient basis to hold

Karron liable under the FCA. 31 U.S.C. 3729(a)(1).*

The Federal Cash Transactions Report required

Karron to provide certain financial information and to

certify its accuracy as follows:

I certify to the best of my knowledge

and belief that this report is true in allrespects and that all disbursements

have been made for the purpose and

conditions of the grant or agreement.

(A 58).

As noted in the Governments Local Rule 56.1

Statement (A 358), at Karrons criminal trial, Karron

admitted to Gurfein that, immediately upon receipt of

the initial $150,000 draw-down of ATP funds, Karron

used $75,000 of that amount to pay her personal debts:

[GURFEIN:] . . . . [Karron] told me one

morning when I arrived at his

apartment that the money came in, the

150,000 came in. And in the same

* Under the Governments theory of damages,

whether Karron is found to have submitted one or more

false certifications is not material to the calculation of

treble damages, which is properly based on the fullamount of ATP funds that Karron drew down. See Point

II, infra.



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sentence I recall he said, and Ivetransferred $75,000 out of the account.

Q. Did he say why he did that?

A. Yes. He said he had some personal

obligations to his family, money owed

to his family, and he said that he had

credit card payments to make.

(A 241).

Gurfein further testified that he immediately

cautioned Karron that such use of the ATP funding wasnot permitted, but Karron was not dissuaded:

Q. When you heard from the defendant

that he had transferred $75,000 out of

the $150,000, what, if anything, did

you say?

A. I told him he couldnt do that.

Q. And what was the defendants

response?

A. He said, I have to do it.

Q. Did he expand on that?

A. Well, he said he had no choice; he

had to get rid of those debts he had and

he was taking those funds at the get

initially, he had to just take those

funds immediately.

. . . .

So Dr. Karron said just, okay, make itthat it works; make sure that, you



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know, you dont raise any red flags andjust submit the numbers that will

make it work. And thats what we did.

(A 242, 247).

Karron failed to controvert this testimony with

admissible evidence. (A 387-92; SPA 2 n.1, 6). In fact,

Karron admitted in her Rule 56.1 Statement that the

first $150,000 of ATP funds was used for salary[,] used

for startup costs, computer hardware, bootstrap costs in

and out of the budget (by paying the PI). (A 386

(emphasis added)). Karron thus conceded that she usedATP funds to pay for out-of-budget costs, which violated

the terms and conditions of the cooperative agreement

and rendered false her certification to the contrary.

Karrons lawyer further conceded at sentencing that

Karron was clearly not entitled to use ATP payments

for rent (A 285), and yet rent undisputedly was paid

from the first $150,000 draw-down (A 180).

The uncontroverted evidence thus establishes that

Karrons December 19, 2001 certification (A 58) of the

expenditures for November 2001 was knowingly false.The Federal Cash Transactions Report for November

2001 was not true in all respects, but falsely reported

that all of the $150,000 had been used for the

purpose and conditions of the grant or agreement. (A

58). To the contrary, Karrons use of federal funds to

pay personal debts (or any other unapproved cost) was

prohibited by the terms and conditions of the

cooperative agreement: By signing this award the

Recipient agrees to ensure that only actual costs

incurred will be charged to the award and that all costs

will be reasonable, allocable, and allowable in

accordance with the applicable Federal Cost



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Principles. (A 74; see also A 180 (audit report notingthat [t]he use of federal funds as a personal loan

account is completely inappropriate)).

Karron does not deny that she spent $75,000 of the

initial draw-down on expenditures that were not in

furtherance of the project. Instead, Karron argues, as

she did in district court (A 390-92), that her November

2001 certification was true because this amount

purportedly was properly advanced to her as salary

i.e., funds that she could spend as she pleased. See

Appellant Daniel B. Karron Brief (Br.) 16-18 & nn.65-81.

This argument fails as a matter of law, as the terms

and conditions of the cooperative agreement prohibit

such advances of ATP funds. The agreement provides

that ATP funding shall be limited to the minimum

amounts necessary to meet immediate disbursement

needs . . . [and] shall be for periods not to exceed 30

days. (A 180; see also A 37). Thus, under the

cooperative agreement, Karron could take 1/12 of her

annual salary each month, or approximately $14,000a month gross, as Karrons counsel stated at her

criminal trial. Br. 17 n.78. Karrons purported

accounting adjustments in August 2002, Br. 16 n.65,

could not transform the $75,000 taken in November

2001 into an approved immediate disbursement

need[] (A 37, 180), as at that point it was unearned

and thus neither an actual cost[ ] incurred (A 74) nor

a minimum amount[] necessary for the project (A 37,

180). See also Br. 17 n.78 (quoting question by Karrons

counsel at trial regarding whether, by the end of

February [2002], [Karron] would have basically paidback the [$]75,000 taken in November (emphasis



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added)). Nor was such amount payable within thirtydays. (A 37, 180). Thus, whether or not Karron took a

lower salary at the close of the first year of the project

to pay back the loan, as Karron argues, is irrelevant

to whether she falsely certified compliance with the

terms and conditions of the cooperative agreement at

the time of her draw-down of ATP funds. See, e.g., Br.

16 n.65, 17 nn.70, 72-73, 77, 78, 80, 81.

Karrons further assertion that she cannot be held

liable under the FCA because the certification in

question was made to the best of [her] knowledge andbelief, and she purportedly believed she could give

herself a salary advance, see Br. 19 & n.84, is

unavailing. Karron agreed to the terms and conditions

of the cooperative agreement (A 136, 355, 373, 379),

including its explicit provision that draw-downs be

limited to actual costs and immediate disbursement

needs. (A 37, 180). The uncontroverted testimony from

the criminal trial further shows that Gurfein told

Karron she could not use the $75,000 as a salary

advance in early October 2001 (A 242, 358, 387-89), and

Karron nevertheless instructed him to falsify thereports (A 247, 358, 383-84)all prior to Karrons

December 19, 2001 certification of the propriety of the

November 2001 expenditures (A 58).* The undisputed

* This case is thus distinct from United States v.

Ekelman & Associates, Inc., 532 F.2d 545, 549-50 (6th

Cir. 1976), where the Sixth Circuit noted that a

certification of truth to the best of my knowledge and

belief, did not, by itself, establish knowledge of thefalsity of the information contained in the certified

report. The Sixth Circuit further observed in Ekelman,



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record thus shows that Karrons December 19, 2001certification of the November 2001 expenditures was

knowingly false.

Contrary to Karrons argument, Br. 17 & n.74, the

fact that the cooperative agreement permitted Karron

to move 10% of the annual project budget among

approved budget categories (A 75) does not excuse her

improper use of the funds. Even if Karron had

unilaterally increased her salary by the maximum

amount permitted without authorization from ATP

i.e., by 10% of the first years $800,000 budget, from$175,000 to $255,000 per yearKarron still would have

been entitled to only 1/12 of that amount each month

under the terms and conditions of the cooperative

agreement. (A 74, 180). Thus, under this theory, Karron

at best would have been entitled to $21,250 of the first

$150,000 draw-down, and certainly not the $75,000

that she actually used to pay personal debts.

Nor can Karron avoid liability under the FCA by

asserting that ATP officials had contemporaneous

knowledge of the $75,000 salary advance and the

subsequent repayment of this advance. Br. 22; (see also

A 390-94 (claiming that Karron had tacit permission

from ATP and referencing trial testimony premised on

proper accounting of expenditures according to the

approved budget)). Karrons attempted government

moreover, that [w]here knowledge is possible, one who

represents a mere belief as knowledge misrepresents a

fact. Id. at 549. Here, is it beyond dispute that Karron

had knowledge of the falsity of the informationcontained on the Federal Cash Transactions Report

that she signed on December 19, 2001.



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knowledge defense, Br. 21 & n.107, fails as a matter oflaw. See Kreindler & Kreindler, 985 F.2d at 1156

([T]hat the relevant government officials know of the

falsity is not in itself a defense. (internal quotation

marks omitted)). Whether or not the ATP purportedly

was negotiating with CASI/Karron to grant the

allowances for utilities and power, Br. 21, which are

not even the expenditures at issue here, is thus

irrelevant.*

For these reasons, the district court correctly

concluded that there was no genuine factual disputethat Karrons December 19, 2001 certification was a

false statement under the FCA. (A 58; SPA 27). This

false statement renders Karron liable under the

FCA. See 31 U.S.C. 3729(a)(1) (2000); 31 U.S.C.

3729(a)(1)(B).

POINT II

THE DISTRICT COURT CORRECTLY AWARDED FCADAMAGES OF THREE TIMES THE TOTAL AMOUNT

DRAWN DOWN BY KARRONThe FCA requires those who obtain federal funds to

turn square corners when they deal with the

Government. Rock Island, Ark. & La. R.R. Co. v.

Documents

11-1924 2nd Circuit Govt Brief