Memorandum of Law in Opposition to Plaintiff's MSJ. Docket Doc 29

8/7/2019 Memorandum of Law in Opposition to Plaintiff's MSJ. Docket Doc 29

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Case 1:08-cv-10223-NRB Document 29 Filed 08/23/10 Page 1 of 19

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA,

Plaintiff,

- v . -

DANIEL B. KARRON,

Defendant.

08 Civ. 10223 (NRB) (DFE)

\

~

MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF'S MOTION FORSUMMARY JUDGEMENT

D B Karron

ProSe348 East Fulton StreetLong Beach, NY 11561Voice: 212 686 8748Cell: 9176740828Email: [email protected]

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Contents

I) Preliminary Statement 7

2) Background 11

3) Argument 12

Overview of Complaint Claims 12

1st Claim: FALSE CLAIMS ACT, 31 U.S.C. 3729(a)(l)[Pre-FERA False Claim] 12

2n d Claim: FALSE CLAIMS ACT, 31 U.S.C. 3729(a)(2)[Pre-FERA False Record] 12

3rd Claim: CONVERSION [o f misappropriated funds to personal gain] 12

4th Claim: UNJUST ENRICHMENT 12

5th Claim: FRAUD 12

6th Claim: PAYMENT MADE UNDER MISTAKE OF FACT 12

Overview of Opposing Points of Argument 13

Point I. Karron Overfunding and Cofounding render moot Plaintiff's claims. Dec!. a/Dunlevy Ex.1. In main part the governments underlying accounting is false; being copied from Hayes, and orbeing made up. Karron's bona fide tax paid salary and project funding vitiate the allegations offraud. 13

Point II. There exists no Common Law Fraud elements in the BEA conviction; The Plaintifffailsto aver the full particulars in the Complaint or Memorandum of Law 13

PointI I I .

Incongruent Mens Rea Elements of 666 BEA conviction and 3729 FCA precludes 3731 FCA Procedure for Statutory Collateral Estoppel. Summary Judgment by Res Judicata andCivil Collateral Estoppel are impossible. The single element of conviction, knowing misapplicationof grant funds, without a finding of fraud, for purposes otherwise benefiting the Plaintiffare not thesame issues, elements, allegations, or claims, or transactions required by the law 13

Point IV. Monstrous Civil Penalties and Damages demanded (as much as $5M+) are 42 X thecriminal restitution, significantly greater than the Campbell rule. The civil penalty is criminal. Thisis a constitutional challenge because it infringes on the Defendant 's rights under the 5 th DoubleJeopardy and Due Process (Summary Judgment short circuits Due Process), Eminent Domain(failure to Just Compensate Defendant for seized real and intellectual property), 8th Amendment(Cruel and unusual punishment s) 13

Point V. Other issues raised by Plaintiffand answered as space permits 13

Point VI. Non Movants evidence is admissible at trial, must be considered as true for decidingeligibility of summary judgment, and, interpretation oflaw must be considered in light mostbeneficial to non-moveant; there is no remaining basis for Summary Judgment. 13

Point I. Karron Funding of Project makes all fiscal reporting errors harmless to Plaintiff. 14

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a) Karron's Salary 14

b) Karron's contribution 14

c) Overfunding and FCA 14

Point II. No Common Law Fraud Basis 15

A.

i.

ii.

B.

i.

ii.

C.

1.

Elements of fraud 15

Definitions of Fraud 15

The particulars of Common Law fraud consist of nine elements 16

Plaintiff does no t specify required elements of fraud to allege Common Fraud 16

Common Law Estoppel cannot apply without full particulars 16

"Benefit of the Bargain" fraud damages 17

CUNYCISDD Subcontract: Option or Obligation? 19

CUNYCISDD NYUMC and KEYCASI TEAM MEMBERS 21

Point III. Incongruent Mens Rea Elements between Criminal and Civil Statutes Preclude CollateralEstoppel and Summary Judgment 21

a) Taking refuge in ALLISONWonderland 22

b) FERA Retroactively Amends FCA2009 23

c) FERA Retroactivity Unconstitutional 23

d) FERA retroactivity Applies to Claims, Not Cases 23

e) Retroactivity, Legally False from Kirk v. Schindler also false 24

f) FCA Claims Disputed 25

g) 31 USCS 3731 (e) FCA Statutory CE Procedure 25

h) The Mickman and Lamanna Limitation 26

i) Liability Does Not Equal Damages 27

j) The Defendant's Conviction under 18 U.S.c. 666(a)(1)(A) [BEA] 28

a) 2. Intent to Defraud Is Not An Element Of Section 666(a)(1)(A) 29

b) Section 666(a)(1)(A) prohibits embezzling, stealing, obtaining by fraud, converting, or

intentionally misapplying funds. The first four prohibitions cover any possible taking of money fo r

one's own use or benefit. Intentional misapplication, in order to avoid redundancy, must mean

intentional misapplication fo r otherwise legitimate purposes 30

Point IV. Monstrous Civil Penalties and Damages Unconstitutional.. 32

1. A 42 times damages and punitive ratio 32

2. Double Jeopardy and the BEA and the FCA 32

3. Forensic Accounting does no t support the Plaintiff's loss contention 34

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4. The TENNEN BAUM precedent 34

5. Large Punitive Damages an d Fines CASE LAW 34

Point V. Other Issues Raised and Answered 35

s) OMB Circulars advice to Agencies 35

t) Revision of budget and program plans: 15 CFR 14.25 35

u) A TP was tacitly or minimally responsive 36

I. Cooperative Agreement requires CASI Substantial Involvement.. 36

a) Kickoff Memo from Orthwein (Karron Declaration Exhibit 5) shows early significant

involvement 36

Point VI. No grounds for Summary Judgment 37

I) No Uncontested Material Issues for Partial Summary Judgment 38

The auditors conspired to make materially false audit in ignoring Karron's contribution 39

Inventory of Facts, Claims, Refutations of Facts, Arguments to Claims .4 0

4) Conclusion; No grounds for Civil or FCA Statutory Estoppel, Full or Part Summary Judgment. 40

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Table of Authorities

Cases

31 U.S.C. 3729 25

Allison Engine Co. v. U. S. Ex. reI. Sanders, No. 07-214, 553 U.S. (2008) 22Allison Engine Co. v. U. S. ex. reI. Sanders, No. 95-cv-970 6th Cir(2009 23

Allison Engine Co. v. U. S. ex. rel.Sander (No. 07-214) 471 F. 3d 610 38

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) 37

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986) 38

Barrett v. Holland & Hart (1993), 845 P.2d 714, 717 16

Batten v. Watts Cycle & Marine (1989), 783 P.2d 378, 381, cert. denied, 494 U.S. 1087, 110 S.Ct. 1826,

108 L.Ed.2d 955 (1990) 16

BM W of North America, Inc. v. Gore (1996) 33

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) 37

First National Bank of Arizona v. Cities Service Co.391 U. S. 253,391 U. S. 289(1968) 37Hopper v. Solvay Pharms, 588 F.3d 1318, 1327 n.3, 2009 cert. pet'n filed, 78 U.S.L.W. 3531 (U.S. Mar. 3,

2010) (No. 09-1065); 24

Lee v. Armstrong 798 P.2d 84, 87; Batten, 783 P.2d at 380-81. (1990) 16

Matsushita, 475 U.S. at 586, (1986) 37

Mikes v. Straus, 274 F. 3d 687 - Court of Appeals, 2nd Circuit 2001.. 24

Morlan v. Kelly, No. 2009-UP-002, SC Supreme Court, 2009 16

Schnellmann v. Roettger, 373 S.c. 379, 382, 645 S.E.2d 239, 241 (2007 16

Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal. 4th 111182 33

SIMON v. San Paolo, 35 Cal. 4th at 1182 10

SONY v. TENNENBAUM (2010), see Karron Declaration Exhibitl88 34

STATE FARM MUT. AUTOMOBILE INS. CO.V. CAMPBELL (01-1289) 538 U.S. 408 (2003)P.3d 33

Taylor v. State Compensation Insurance Fund, 175 Mont. 432,913 P.2d 1242 (1996) 16

TROP v DULLES356 U.S. 86 (1958) 34

US v Karron BRIEF FOR THE U. S. OF AMERICA July 21,2009 Karron's Declaration Exhibit 6 7

US v. Karron UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT08-5287-cr of October 7,

2009 7

US. v. Sazama,88 F. Supp.2d 1270 (D. Utah 2000) 26

U S.v. Kanelos, 1994 WL 148655 (N.D. III. April 20, 1994) 26

U. S. ex reI. Parato v. Unadilla Health Care, No. 5:07-CV-76(HL), 2010 WL 146877, at * 4 nA (M.D. Ga.),2010) 24

U. S. ex reI. ROGER L. SANDERS, et aI., -v- ALLISON ENGINECOMPANY, INC., et al." Case No. 1:95-cv-970(U. S. DISTRICTCOURT SOUTHERN DISTRICTOF OHIO WESTERN DIVISION AT DAYTONOctober 27,

2009) 23

U. S. ex. reI. Kirk v. Schindler Elevator 601 F. 3d 94 (2d Cir. 2010) 24

U. S. v. Bajakajian, 524 U.S. 321 (1998) 10

U. S. v. Bajakajian, 524 U.S. 321 (1998), 34

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U. S. v. Halper, 490 U.S. 435, 448-49 (1989).143 33

U. S. v. Karron (2008) Amended Judgment in a Criminal Case. Karron Declaration Exhibit 65 40

U. S. v. KARRON Civil Complaint, 08 CV 10223 U. S. SDNY, November 24,2008 24

U. S. v. Karron, On Appeal, Brief for the United States(2009) at Point 1(B)(2) 38

U. S. v. Lamanna, 114 F. Supp. 2d 193 (E.D.N.Y. Sept. 26, 2000) 26

U. S. v. Mickman, 1993 WL 541683 (E.D. Pa. Dec. 22, 1993),52 F.3d 318 (1995) 26

U. S. v.Aguillon, 628 F.Supp.2d 542 Dist. Court, D. Delaware, June 24, 2009 24

U. S. v.Science Applications International Corp., 2009 WL 2929250, D.D.C. Sept. 14, 2009 24

U.S. Ex. reI. Longhi v. Lithium Power Techs. Inc.,513 F.Supp.2d 866 (S.D. Tex. 2007), 2008 WL 62207(S.D.

Tex. Jan. 3, 2008) 21

Statutes

15 278n 32

15 CFR 14.25 (4) 35

15 CFR 14.25(m) 36

18 U.S.C. 666 29

18 U.S.C. 666(a)(1)(A) 29

18 U.S.C. 666(a)(1)(A) 7

18 USC 666(a)(1)(A) 8

31 U.S.C 3729(a)(1) 8

31 U.S.C 3729(a)(2) 8

31 U.S.C 3731(e) 25

31 U.S.C. 3731(e) 22

31 U.S.C. 3729 et seq 23

31 USC 3731 (e) 9

31 USC 3731(e) 931 USCS 3729 As Amended 1986 8

31 USCS 3729(a)(2) 22

Other Authorities

ATP Proposal Ex. 14 Instructions, 2001.. 36

OMB Circular A-122 35

OMB Circulars A-21 35

Public Law No: 111-21 23

Public Law No: 111-21, Section 4(f)(2) 23

Treatises

Brody, Steven G. and Chow, Gary K., November 16, 2009 New York Law Journal. Unlikely Source May Be

Raising Summary Judgment Bar High Court's three pleadings rulings begin to impact.. 37

Cooper, Neal A. (1995-1996) Third Party Liability or th e False Claims Act: It Is Time fo r Consultants to

Pay th e Price fo r Their Bad Advice 29 J. Marshall L. Rev. 923 12

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Federal Summary Judgment Doctrine: A Critical Analysis; Louis, Martin B. 83 Yale LJ. 745 (1973-1974).16

Smith, lionel D.; (1997)The law oftracing CLARENDONPRESS OXFORD .4 0

1) Preliminary Statement

The Defendant opposes the Plaintiffs' motion for a summary judgment based on

significant issues of specific material fact in the Defendant's Opposing 56.1 Statement of

Material Fact and relevant statutes and case law.

The law of conviction here are not vague: a conviction under 18 U.S.C. 666(a)(l)(A)

(Bribery, Embezzlement Act or "BEA") does not require a finding of fraud as convincingly

argued by the Government in its opposing briefto Karron's Appeal l . The U. S. Court of Appeals

for the Second Circuit has spoken as well: The element of conviction under BEA is one of

"Knowing Misapplication of Funds outside of authority to do so". The Defendant is not claiming

innocence in this criminal matter, and has accepted the final Judgment of the Courts 2.

The total spending on the project, direct and indirect, federal and non-federal share, was

$1,700,000, of which the Defendant contributed $350,000. If the project is restarted tomorrow,

no budget changes would be required to complete the project. The Prosecution also could not

have said it better "Your Honor, because almost every single expenditure has some benefit to the

research .. . "3 , , . . . then there would be no loss at all, .. . " 4

The allegation of common law fraud because the Defendant did not subcontract in the

first year of the project with CUNY CISDD is preposterous; there was no contractual obligation

1 U Sv. Karron BRIEF FOR THE U. S. OF AMERICA July 21, 2009 Karron's Declaration Exhibit 62 U Sv. Karron U. S. COURT OF APPEALS FORTHE SECONDCIRCUIT 08-5287-cr of October 7,2009.3 Sentencing Transcript Page 22 Line 22.4 Sentencing Transcript Page 23, Line 10-22

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to do so. The cooperative agreement does not specify a subcontract start date, duration, or any

details that could be remotely make it an obligation: it is permission to do so, not a specification

to do so. When CASI won the award, to everyone's surprises, The CUNY faculty rejected

working through CUNY CISDD; there was no economic incentive. They would not have earned

an increment to work for CASI's ATP project. ATP frowns on excessive subcontracting. Karron

Declaration Exhibit 154, AT P Proposers Conference Video at time 2:28:27. Instead they

consulted directly with CASI, with full agreement of CUNY, and NIST, directly with CASI.

Karron Declaration Exhibit Group 4, Ex. 12 through 32.

A 18 USC 666(a)(l)(A) BEA misapplication offunds conviction is not a qualifying 31

V.S.C 3729(a)(I) and 31 V.S.C 3729(a)(2) False Claims Act [FCA] fraudulent false

transaction as defined by the version of the statute effective at the date of the alleged claims. A

"BEA" conviction does not, primafacie, guarantee that all, or any, of the requisite elements for

a FCA conviction are met 6 . In the Defendant's conviction, the Jury did not specify any particular

specific transactions on which to base its finding of a restitution amount; only ill-defined classes

of transactions taken from GX114 7, without specific reference back to a schedule revealing

individual transactions: therefore there are no transactions identified as requisite element for

FCA liability. GX114 has problems. The Criminal Court complained bitterly about the lack of

definition, precision, and accuracy of the numbers and their classification on GX114, including

and the lack of backup schedules showing specific transactions used for each class. That is

because there is no backup. There is no way to "reverse engineer" these numbers. There is no

5 Karron Declarotion Exhibit 4

6 31 uses 3729 As Amended 1986, Karron Declaration Exhibit 136,7 Karron Declaration Exhibit 33

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way to identify the transactions on which these sums are totaled. The Court could not have said

it better: "Look a t that [GX 114]. This is a mess"s.

31 USC 3731 (e)9 False Claims procedure for invoking the statutory bar o f Estoppel is

not automatically triggered because o f the lack o f any specific "transaction" element cited as

fraudulent in the criminal case. The Plaintiff here brings forward some " 'at least twenty'''IO, not

previously alleged as fraudulent in the criminal case I I . The Defendant disputes, as a matter of

fact, tha t t he S F 269A short form, o r SF270 submitted ar e knowingly false. The documents

are as fraught with uncaught technical errors, and other mistakes, despite being vetted, redacted

and initialed by 'HS' . Therefore, the documents, amongst other reasons, are meaningless. The

Defendant clearly did not know what he was doing, and HS, or whoever was reviewing the

forms, did not care enough to bounce them back for revision and correction. Indeed, there are

enough arithmetic and math errors on every step o f the procedure on both sides to obviate

anyone "knowing" anything at all. Clearly, ATP did not think these important enough to hold up

progress. Karron Declaration Exhibit 161, AT P Audit Reports Missing. The Defendant submits

"ground truth" verified figures prepared by the Defense forensic bookkeeper who has thoroughly

and completely analyzed CASI spending. The Defendant disavows the unauthorized revisions of

the SF269 Long Form made in good faith by her then business managers Bob Benedict andI

8 Sentencing Transcript Page 16 Line 14-15, Karron Declaration Exhibit 319 31 USC 3731 (el [Pre FERA] Notwithstanding any other provision of law, the Federal Rules of CriminalProcedure, or the Federal Rules of Evidence, a final judgment rendered in favor of th e U. S. in any crimina:proceeding charging fraud or false statements, whether upon a verdict after trial or upon a plea of guilty or nolocontendere, shall estop the defendant from denying th e essential elements of the offense in any action whichinvolves th e same transaction as in the criminal proceeding and which is brought under subsection (a) o r( b) o fsection 3730. (Emphasis Added)10 The SF272 forms were voided in Amendment 4, and 4 SF269. See Defendants 56.1 response to

P I ~ i n t i f f ' sParagraph #24 regarding counting unique and qualifying claim documents.11 Some 4 SF269 documents being unauthorized revisions of previous submitted SF269(a) forms by possibly wellmeaning CASI business staff while Karron was in Canada. See Karron Declaration Exhibit 128 and Trial TranscriptPages 1313 et seq. starting at line 8. '

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auditor Hayes12

, wh o made exculpatory affirmations about Karron as they submitted yet even

more erroneous an d a different replacement forms on Karron's behalf.

Finally, the forms in question, SF 269A and SF27013

, are not unique qualifying fraud

claims, but rather quarterly financial forms an d requests for advances that are a cash machine

receipt, showing balances remaining and spent, rather than forged checks or fraudulent invoices

or reimbursement demands. The money was in the bank, it was already allocated, and it was

already sequestered for the project. There was no quid-pro-quo claim for payment, no sine-qua-

non signature for any particular cash advance or drawdownl4

Karron spent the money to the

best of her knowledge and ability, with the full knowledge, explicit and implicit and tacit

blessing of the AT P management. The Defendant's main evidence is forensic analysis o f hard

numbers taken from the criminal trial. The Plaintiff's exhibits are innumerate. The numbers do

not add up, are made up, and it took until no w to prove it.

Plaintiffseeks punitive damages that are so enormous being 42 times ratio o f punitive

fines to restitution, so clearly and significantly greater than the Campbell standard for "Single

Digits Ratio Rule th e Constitutional issues cannot be avoided by Summary Judgment. Karron

Declaration Exhibit .205 an d 211. U. S. v. Bajakajian, 524 U.S. 321 (1998), SIMON v. San

Paolo, 35 Cal. 4th at 1182 STATE FARM MUT. AUTOMOBILE INS. CO.V. CAMPBELL (01-

1289) 538 U.S. 408 (2003)P.3d

The Defendant has raised significant matters o f material fact in opposition to the

Plaintiffs' Statement of Material Facts. If the Plaintiffwishes to challenge these facts, then it is

12 Karron Declaration Exhibit 12813 Form SF272 was voided by Cooperative Agreement 4. Declaration o f Karron Exhibit 8.14 For a counter example, consider a construction loan payable, where a payment is contingent on submission ofinvoices and proof of work done.

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the jo b of the jury, as finders of fact. Without Mistake of Fact (obviated by correct fiscal facts),

and full allegation of Fraud, no remaining unchallenged matters that can be summarily judged

without trial.

2) Background

In May 18 200 I, the Defendant, then an adjunct faculty member at the City College of

the City University of New York (CCNY), and FounderlPresident of Computer Aided Surgery,

Inc. (CASI) attended a faculty solicitation for ATP proposals given my Marc Stanley, ATP

Program Director, at the CUNY Graduate Center on 34 th Street and 5 th Avenue. Karron Dec!.

Exhibits 152, 100, 9, 24. Stanley suggested to Karron that he attend the 2001 NIST ATP Annual

Meeting in Baltimore. He (then) actively participated in the June 3 rd convention and he had

extensive discussion with various ATP personnel about how to win and manage an ATP grant

for CASI. .

Karron wrote and submitted a winning four "Gate" proposal to ATP that resulted in the

October 1 2001 award of a cooperative agreement for 2 million dollars direct funding for

Karron's DMT image analysis algorithm. The novel concept was to do a definitive "map", much

like the Human Genome Project "map", of the Visible Human Project Data, and to develop the

idea of 'computer anatomy and surgery' a goal to which Karron is committed to even to this day.

The 9/11/2001 attacks here in NYC caused many people to rethink their lives. Longtime

Karron / CASI accountant Jill Feldman C.P.A. decided to retire from accountancy and sold her

practice to Joan Hayes C.P.A in the winter of2001. Hayes thought she had much experience

with audit, corporate accountancy, and the federal cost principles. Karron Declaration Exhibit

42, 111,112,113. As it turned out, Hayes was perhaps the worst accountant ever to meddle in a

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business and government project. Karron Declaration Exhibit 40,41,126, 127. She wore too

many hats; she lacked even a pretense of auditor independence. She gained the confidence of

Karron an d the Department of Commerce and then proceeded to make a train wreck of an

otherwise promising research project and career l5 . Hayes lied to Karron, lied in her audit of

CASI, lied to the ATP, OIG, and IRS Special Agents investigating ATP payroll taxes from

which all that remains are IRS tax liens on Karron. ibid

3) Argument

Overview of Complaint Claims

The central allegation of the government six claims made November 24,2009 16 are

founded in elements of common law Fraud and "Benefit of the Bargain" theory.

1st Claim: FALSE CLAIMS ACT, 31 U.S.C. 3729(a)(I)[Pre-FERA False Claim]2nd Claim: FALSE CLAIMS ACT, 31 U.S.c. 3729(a)(2)[Pre-FERA False Record]3rd Claim: CONVERSION [o f misappropriated funds to personal gain]4th Claim: UNJUST ENRICHMENT5th Claim: FRAUD

6th Claim: PAYMENT MADE UNDER MISTAKE OF FACT

The central element of fraud in First, Second and Fifth Claim above requires the Plaintiff

to aver full FRCP 9(b) particulars and all of the nine elements of each instance of alleged fraud.

Claims Fraud targeted by the False Claims Act (FCA) requires establishment of which version of

the statute the alleged claim violates. Karron Declaration Exhibits 136, 170, 207, 208, 209.

Conversion requires funds tracing ibid Ex. 215, as does Unjust Enrichment. ibid Ex. 214

Mistake of fact requires identification of the exact facts relied upon by ATP are actually proven

false. Ibid Ex. 210.

15 Cooper, Neal A. (1995-1996) Third Party Liability or th e False Claims Act: It Is Time fo r Consultants to Pay th e

Price fo r Their Bad Advice 29 J. Marshall L. Rev. 92316 Karron Declaration Exhibit 69

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Overview of Opposing Points of Argument

Point I. Karron Overfunding and Cofounding render moot Plaintiffs claims. Declaration

o f Dunlevy Exhibit 1. In main part the governments underlying accounting is false; being

copied from Hayes, and or being made up. Karron's bona fide tax paid salary and project

funding vitiate th e allegations of fraud.

Point II. There exists no Common Law Fraud elements in the BEA conviction; The

Plaintifffails to aver the full particulars in the Complaint or Memorandum of Law.

Point III. Incongruent Mens Rea Elements of 666 BEA conviction and 3729 FCA

precludes 3731 FCA Procedure for Statutory Collateral Estoppel. Summary Judgment by Res

Judicata and Civil Collateral Estoppel are impossible. The single element of conviction,

knowing misapplication of grant funds, without a finding of fraud, for purposes otherwise

benefiting the Plaintiff are not the same issues, elements, allegations, or claims, or transactions

required by the law.

Point IV. Monstrous Civil Penalties and Damages demanded (as much as $5M+) are 42 X

the criminal restitution, significantly greater than the Campbell rule. The civil penalty is

criminal. This is a constitutional challenge because it infringes on the Defendant's rights under

the 5 th Double Jeopardy and Due Process (Summary Judgment short circuits Due Process) ,

Eminent Domain (failure to Just Compensate Defendant for seized real and intellectual

property), 8 th Amendment (Cruel and unusual punishment s)

Point V. Other issues raised by Plaintiff and answered as space permits.

Point VI. Non Movants evidence is admissible at trial, must be considered as true for

deciding eligibility of summary judgment, and, interpretation of law must be considered in light

most beneficial to non-moveant; there is no remaining basis for Summary Judgment.

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Point I. Karron Funding of Project makes all fiscal reporting errors harmless to Plaintiff.

a) Karron's Salary

The ATP project was co-funded and over funded by the Defendant The total cost of the

project is $1,524,264, of which the Federal Share is $1,345,500 and the CAS] contribution was

$178,764. The Government cites salary figures ranging from a low of$ 35,293.58. 1718,

$175,000 (Hayes audit), $200,488(OIG), to $253,913 from the CASI Payroll Tax Returns

prepared by Hayes. Hayes prepared the Defendants 2002 Tax return, but abruptly quit and it was

completed by Solomon and Schwartz 19 Finally, completed forensic analysis shows Karron's

total Tax Paid salary for the entire project period of $334,004.12 in the Declaration o f Dunlevy

Ex. CAC 291, mid page right.

b) Karron's contribution

Karron has the right to fund her grant out of her tax paid salary. This is not 'double

dipping,2o. because it is bonafide after tax paid funds. Dunlevy Decl.

c) Overfunding and FCA

17 THE COURT: She[RILEY] has got a salary category. She shows it. Go on a couple of pages.Payroll, next page, $35,293.58.Sentencing Transcript Page 9 Line 18-19.18 MR. RUBINSTEIN: and you see his payroll checks which I put into evidence as P-l throughP-6, where his total amount for the year is about $35,000. Ask yourself, he gets $175,000, howdoes he only have $35,000?Trial Transcript Page 1293 Lines 20-2419 Hayes completed Karron's 2002 tax return in July 2003, but refused to file it; she returned it toKarron but signed the extension request and completed the W2 forms before she "submitted" theATP audit report in August 2003.Karron Declaration Exhibit 110.20 Trial Transcript Page 1066 Line 22 et seq. Benedict Cross, See Karron Declaration Exhibit57.

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Because the project was overfunded, the government sponsor cannot be harmed. The

funding reports that contains harmless enors to NIST but could only "harm" Kanon by

understating Kanon's contribution. Clearly, if Kanon had not contributed to the project, then

the first dollar of indirect costs might be problematic. Dunlevy Dec/. Ex. RAe-30] shows Kanon

made significant contributions, out of after tax salary. By Karron' s turning back so much after

tax salary, there is no liability for NIST being harmed by understated total grant spending. There

is adequate 'slop' in the gears benefiting NIST, such that the errors in the 'false' statements do

not materially harm the government sponsor in any way. The alleged "56. I" claims o f Paragraph

#30 reflect GXl14. The issues raised are matters of fact and math, not law. GXl14 reclassified

rent as Salary by ATP.

Point II. No Common Law Fraud Basis

A. Elements of fraud

I. Definitions o f Fraud

Fraud 2 \ is"A knowing misrepresentation o f the truth or concealment of a material fact to

induce another to act to his or her detriment." 2223 Federal Rules of Civil Procedure, Rule 9(b)

states in relevant part: "In all averments of fraud or mistake, the circumstances constituting

fraud or mistake shall be stated with particularity". The rule states that to allege a fraud or

mistake, a party must state "with particularity" the circumstances which would constitute the

fraud or mistake, failure to do so explicitly is grounds for dismissal o f the charge despite

overwhelming evidence.

21 Black's Law Dictionary, 5th ed., by Henry Campbell Black, West Publishing Co., St. Paul, Minnesota, 1979.22 Black's Law Dictionary, 7th ed., by Bryan A. Garner, editor, West Group, 199923 Law.com Dictionary http://dictionary.law.com/Default.aspx?selected=785. Retrieved Aug 13, 2010

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Th . I f C L ~ d . f ' I 2425262728ii. e partlcu ars 0 ommon aw!rau consist 0 mne e ements

1. a representation of an existing fact;2. its materiality;3. its falsity;4. the speaker's knowledge of its falsity;5. the speaker's intent that it shall be acted upon by the plaintiff;6. plaintiffs ignorance of its falsity;7. plaintiffs reliance on the truth of the representation;8. plaintiffs right to rely upon it; and9. consequent damages suffered by plaintiff.

Fraud can never be presumed but must be proved by a preponderance ofthe evidence. 29

FRCP Rule 9(b) requires that each element be pled with particularity and be proved with clear,

cogent, and convincing, very probable evidence to establish a claim of fraud. This includes False

Claims Act (FCA) liability, as derived from common law fraud, as a specialized kind of fraud.

B. Plaintiff does not specify required elements of fraud to allege Common Fraud.

Fraud can never be blithely presumed; even in the shadow of the Defendant's criminal

conviction. Failure of the Plaintiffto meet their burden of proof in all particulars is grounds to

deny Summary Judgmeneo. The single element of the BEA conviction is not the same as

particular nine requisite elements required for civil fraudulent liability.

I. Common Law Estoppel cannot apply without full particulars.

24 http://en.wikipedia.org/wiki/Fraud

25 Morlan v. Kelly, No. 2009-UP-002, SC Supreme Court, 200926 Schnell mann v. Roettger, 373 S.c. 379, 382, 645 S.E.2d 239, 241 (2007)27 Taylor v. State Compensation Insurance Fund, 175 Mont. 432, 913 P.2d 1242 (1996)28 Lee v. Armstrong 798 P.2d 84, 87; Batten, 783 P.2d at 380-81. (1990),29 Barrett v. Holland & Hart (1993), 845 P.2d 714, 717 (citing Batten v. Watts Cycle & Marine (1989), 783 P.2d 378,381, cert. denied, 494 U.S. 1087, 110 S.Ct. 1826, 108 L.Ed.2d 955 (1990)).30 Federal Summary Judgment Doctrine: A Critical Analysis; Louis, Martin B. 83 Yale L.J. 745 (1973-1974)

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Without a complete allegation of the full nine particulars, enumerated for each claim of

fraud, Common Law Estoppel cannot be applied. Even if a allegation of full particulars been

provided in the preceding criminal case, any non-movant answer that raises substantive issues of

fact would be sufficient to overcome Estoppel.

The Third Circuit Court of Appeals has adopted the following test for civil collateral

estoppel from the first Restatement of Judgments:

(I ) the issue sought to be precluded must be the same as that involved in the prioraction;

(2) that issue must have been actually litigated;(3) it must have been determined by a valid and final judgment; and(4) the determination must have been essential to the prior judgment. 31 [emphasis

rearranged]

This standard fails in the Plaintiff's civil case here because it contradicts the Plaintiff's

own argument against the Defendants criminal appeal specifically that Fraud was not proved or a

required element for the Defendant's criminal BEA conviction. The Plaintiff cannot have it both

ways, especially now that the second circuit court of appeals have made a final ruling. If the

Plaintiff has argued, and the courts agreed and upheld the Defendants conviction without a

finding of Fraud, then the Plaintiff it themselves are estopped from referring to the criminal case

for elements of Fraud to estop. It was not an element in the criminal trial and, at the very least,

must be proven de novo, not by Summary Judgment

11. "Benefit of the Bargain" fraud damages.

The measure of damages in fraud can be computed by the "benefit of bargain" rule,

which is the difference between the value ofthe property had it been as represented, and its

31 Bower v. O'Hara, 759 F.2d 1117, 1125 (3d Cir. 1985)

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actual value. Karron Declaration Exhibit 213. The Plaintiffattempts to argues here that because

the defendant's acts had not resulted in a "tangible benefit to the government and the intangible

benefit is impossible to calculate." a full refund is due. Ibid Ex. 70, See Longhi below. This is not

true in this case because the Cooperative Agreement explicitly prices out incremental milestones.

Karron Declaration Exhibit 1. Because all of the milestones in progress were achieved prior to

funding suspension and beyond, the 5 th circuit argument o f 'intangible product' does not hold.

Six detailed quarterly technical reports were submitted and accepted. Karron Declaration Exhibit

Group 3, Ex. 15-20. The work product was a quarterly technical report and a tangible milestone,

achievement of which was never questioned, reported in the quarterly technical reports, and

make concrete the abstract nature of the research. Therefore for each milestone payment was

due and duly paid, as opposed to a grant activity with no deliverable product, for which only

costs are reimbursed. Additional benefit accrued to the government with each paper research

published. Karron Dec!. Statements. The state of the art was advanced, and other colleagues

around the world built on the research foundation laid here. Karron Declaration Exhibit Group

21, Ex. 201 in particular.

The Longh;32 District court identifying what it considered a "novel issue of law,"

addressed for the "proper way to calculate damages for a fraudulently induced research grant."

Only there is no fraud proven in the Defendant's case. Without a finding of fraud, the Longhi

analysis fails here, despite the Plaintiffs criminal conviction.

The FCA Relator, Alfred Longhi, left the company 2002 because of his observations

"pertaining to duplicative research and work, and the fraudulent billing related to that duplicative

32 U.S. ex. reI. Longhi v. Lithium Power Techs. Inc.,513 F.Supp.2d 866 (S.D. Tex. 2007), 2008 WL 62207 (S.D. Tex.Jan. 3, 2008), cert granted

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research and work." Ultimately, the u.s. Attorney's Office elected not to pursue criminal

charges against LPT or any of its employees. If the government wishes to pursue its theory of

damages, it must do so in a civil trial, and not attempt to make a cheap win of monumental

punitive damages by Summary Judgment. Implication of unlimited culpability for all the myriad

allegations is unwarranted and unfounded by the fact found at the criminal trial.

The Plaintiffalleges that because "agency anticipates substantial involvement, the agency

is to use a cooperative agreement". They imply Karron lied and hid substantial issues from ATP

management. Th e only issue that Karron hid was he r transsexuality, because it was no t an

appropriate matter for a research sponsor. However, ATP seemed interested in many matters

of CASI business that the PI felt were not its business. The evidentiary trail shows Karron

discussing each and every material issue with the ATP management team, starting with the Gate

III oral examination, Gate IV cooperative agreement vetting, the Kickoff Orthwein Agenda

memo, and the Gurfein conversion to contractor request denial being honored. Problems started

when Hayes started interfacing with ATP and meddling with both sides.

C. CUNY CISDD Subcontract : Option or Obligation?

The Plaintiff seems imply that because the cover sheet 3 of the proposal Gate I cited

CUNY CISOD as subcontractor, CASI was obligated to subcontract with CUNY CISDD as a

material specification for the project. The justifications cited on the form are the Key Faculty

and mathematical and software talent that such a subcontract would bring to bear on the project,

to the benefit of the government. That CASI did not, in the first 18 months of the project,

execute a subcontract with CISDD might conceivably be taken as evidence of a material false

statement in its Gate 1 proposal. Further, conceivably it might be that the ATP SEB evaluators

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Case 1:08-cv-10223-NRB Document 29-1 Filed 08/23/10 Page 1 of 24

materially relied on CASI suggestion of a subcontract with CUNY to induce it to fund CASI. By

CASI not fulfilling its implied "promise of a CISDD subcontract", an observer ignorant of the

facts of the situation might conclude that CASI deprived the project of the mathematical and

software talent only available from CISDD as a sole source of this resource. Because of this, the

plaintiff argues that the entire funding for the ATP project would be better spent on a more

trustworthy steward, and that CASI, by its fraud, deprived a more worthy recipient from doing

the research on DMT ATP desired funded. Like Ex. rei Longi, the implication is 'you lie, you

lose- it all ' .

However, there was no lie; the proposal cover sheet was not a specification to CASI, it

was an option. ATP was apprised of the issue, and gave consent. CUNY CISDD was not sine

qui non to the project, the key people were. CISDD was immaterial to the project. The venue

was immaterial. It was the involvement of the key faculty and students who participated directly

with CAS1, some paid, many not. Karron was CUNY faculty and had full access to CUNY

without CISDD, and the CUNY faculty and students made use of ATP funding and computer

resources through CASI. The government got the better of the bargain for less cost as there was

no CISDD overhead to be paid.

The ATP proposal cover sheet page 3 calls out a subcontract with CISDD for $420,000.

It does not specify a start date or duration or other actionable details. I t does not say "not to

exceed $240,000", nor does it obligate that amount to CISDD in the approved budget(s). In the

Defendant's "56.1" response to Paragraph #31, it becomes clear from the primafacie facts that

there was no contractual obligation to engage CUNY CISDD at the onset of the project, and that

the key CUNY faculty did in fact replace CUNY CISDD by consulting directly for CASI.

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I. CUNY CISDD NYUMC and KEY CASI TEAM MEMBERS

. As soon as the project was funded, the CUNY and NYUMC faculty team members

clamored to contract directly with CASI. This issue was presented at the Kickoff meeting at

NIST in November. Karron Declaration Exhibit 5. All ofthe 'Key CASI Team Members' were

engaged directly to CASI, instead of as CUNY chattel. Both Cox and Wolberg obtained

requisite departmental and institutional permissions. Ibid Exhibit Group 4. There was no change

in the budget line item assignment, and key team members were unchanged except for the

mitigation of CUNY overhead. There was no need to remove the subcontractor proposal cover

page to limit future subcontract options, thought replacement pages were submitted Ibid Exibit

Group 4 Exh 22.

In U S Ex. rei. Longhi v. Lithium Power Techs. Inc.,513 FSupp.2d 866 (SD. Tex. 2007),

2008 WL 62207(SD. Tex. Jan. 3, 2008), ,Defendant had multiple simultaneous SBIR grants and

conducted billing fraud. It also misrepresented "cooperative arrangements" that it claimed to

have for lab space, a material misrepresentation. They were doing electrochemical research and

needed wet lab space. Their research could not be done in a home office. CASI's could. CUNY

CISDD was not material to the conduct of the research; it was not material in the cooperative

agreement award, it was not a secret, it was approved by ATP, and was not an inducement to

ATP to fund CASI. Karron Declaration Exhibit Group 4.

Point Ill. Incongruent Mens Rea Elements between Criminal and Civil StatutesPreclude Collateral Estoppel and Summary Judgment

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The underlying elements of the Defendant's criminal conviction under 18 U.S.c.

666(a)(l)(A) [BEA] for knowing misapplication of funds are different and distinct from the

31 USCS 3729(a)(2) [FCA] application standard for false claims, precluding 31 U.S.C.

3731 (e) statutory Collateral Estoppel (CE) for "same transactions".

The criminal conviction did not identify a required element of specific transactions, only a

derived category of spending 33 without explicit reference to specific identifiable candidate

'same transactions' 31 U.S.C. 3731 (e). Because no specific knowing fraudulent claim was

identified at least one material false claim would have to be proven in a trial. Finally the

court must examine the contradictions between the applicable FCA, BEA and ATP statutes

and their legislative intents.

a) Tak ing refuge in ALLISON Wonderland

The Allison Engine Co. v. U. S. Ex. reI. Sanders, No. 07-214, 553 U.S. (2008) by the

Supreme Court of the United States challenged previously accepted broad reach of the elements

of the FCA as unconstitutional. The Supreme Court held that plaintiffs under the ALLISON case

ruling of FCA must prove that the false claim made specifically "intended 't o defraud the

Government.' ". Additionally "a plaintiffmust prove that the defendant intended that the false

statement be material to the Government's decision to payor approve the false claim." a

defendant is not answerable for anything beyond the natural, ordinary, and reasonable

consequences of his conduct." ibid.

33 $120,000 was lost through inappropriate expenses, Sentencing Transcript Page 90 Line 13-14.

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b) FERA Retroactively Amends FCA 2009

Subsequent to the government's Complaint of November 24,2008, Congress enacted

Public Law No: 111-21 Fraud Enforcement and Recovery Act of 2009 (FERA) on March 23,

2009. Karron Declaration Exhibit 69, 12. In an unusual effort to re-broaden the reach of the

FCA, Congress attempted to make the FERA retroactive take effect as if enacted on June 7,

2008, and apply to all claims under the False Claims Act (31 U.S.C. 3729 et seq.) that are

pending on or after that date;. The stated legislative intention was to overturn the ALLISON

ruling of the Supreme Court. Public Law No: 111-21, Section 4(/)(2). Karron Declaration

Exhibit137

c) FERA Retroactivity Unconstitutional

The Supreme Court Decision remanded ALLISON 471 F. 3d.back to the District Court 34 ,

where Judge Rose 35 held that the retroactive application of amendments to the FCA set forth in

FERA with punitive damages violated the Ex. Post Facto Clause of the clause 3 of Article I,

section 9 of the U.S. Constitution. In this case the penalty sought at 42 X restitution is punitive

nature, is so sever, so Draconian, as to reach into the Constitutional realm.

d) FERA retroactivity Applies to Claims, Not Cases

The District Court on remand further found that FERA supported the its application to

pending "claims", not pending "cases". Because the ALLISON defendants did not have any

claims pending at the time of enactment into law or its retroactive effective date, the court

34 Allison Engine Co. v. u. S. ex. reI. Sanders, No. 95-cv-970 6 th Cir(2009)35 U. S. ex. reI. ROGER L. SANDERS, et aI., -v- ALLISON ENGINE COMPANY, INC., et al." Case No. I:95-cv970 (U. S. DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION AT DAYTON October27,2009).

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determined that the FERA amended version of 31 U.S.C did not apply. Us. v. Aguillon 36 , and

us. v. Science Applications International Corp3? Hopper v. Solvay Pharms 38 , (claims for

reimbursement pending on that date), Ex. reI. Parato v. Unadilla Health39

similarly found the

FERA retroactivity clause applies to pending claims, not cases.

The Plaintiff was served with the Civil Complaint on this action on November 24,2009,

and refers to allegedly false claims made in 2001-2002, some 9 years past. All references to 31

U.S.C. 3729 refer to the version of the FCA in force at the time of the putative false c1aim(s),

not this case. U. S. v. KARRON Civil Complaint, 08 CV 10223 U. S. SONY, November 24, 2008 ..

e) Retroactivity, Legally False from Kirk v. Schindler also false

One cannot automatically assume, even in the dim light of U S. ex. rei. Kirk v. Schindler

Elevator 601 F. 3d 94 (2d Cir. 2010) that the present case falls under the dark shadow ofFERA.

Using the second circuits' analysis of liability under Mikes v. Straus, 274 F. 3d 687-

Court of Appeals, 2nd Circuit 2001 the Kirk court found the Materiality element hinged on the

issues of FERA retroactivity

This case regards conduct from 1997 to 2004, and the government has not identified any

claims for payment pending in 2008. Alleged false claims must satisfy the Allison Engine

materiality standard which calls for non-statutory language finding of fraud. In any event, they

must satisfy FERA or ALLISON, but not both. Ifthe Plaintiff desires to argue its complaint

36 u. S. v. Aguillon, 628 F.Supp.2d 542 Dist. Court, D. Delaware, June 24, 2009.37 u. S. v. Science Applications International Corp., 2009 WL 2929250, D.D.C. Sept. 14,200938 Hopper v. Solvay Pharms, 588 F.3d 1318, 1327 n.3, 2009 cert. pet'n filed, 78 U.S.L.W. 3531 (U.S. Mar. 3,2010)(No. 09-1065);39 U. s. ex. reI. Parato v. Unadilla Health Care, No. 5:07-CV-76{HL), 2010 WL 146877, at *4 n.4 (M.D. Ga.), 2010)

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under FERA, it must restate its claims in a new complaint using the post FERA FCA statute

numbers explicitly, not en passant by footnote in the Plaintiffs Memorandum of Law.

Kirk also hinges on the issues of implied false certification is based on the express

clauses of the applicable statute to deny payment for vendors not in compliance. This stricture is

simply not in place with the ATP and other statutes. ATP simply does not cut off awardees for

technical issues of non-compliance, they work with awardees to bring them into compliance.

Karron Declaration Exhibit 161 They hate to say no, they are always willing to work with

awardees to fix problems, not impale them on it. That function seems to be for the OIG.

1) FCA Claims Disputed

The Plaintiffasserts that" ...there is no dispute that the FCA claims here meet the

threshold requirements of31 U.S.c. 3729." 40. This is incorrect. Additionally, there is no way

31 U.S.C 3731(e) FCA Procedure Collateral Estoppel can be applied to "Same Transactions" if

they are not identified in the criminal case. The Defendant's conviction was based on events that

occurred after the alleged claims were made and paid. The conviction was based on intentionally

misapplying amounts already received to categories of expenditure that were unallocable,

incorrect, or unauthorized, as discussed in detail below. See Plaintiffs Rule 56.1 Statement,

28-31.

g) 31 USCS 3731 (e) FCA Statutory CE Procedure

The CE bar issue arises when the government moves for summary judgment. The

statutory CE standard are typically more stringent than the application of civil CE without the

40 Memorandum of Law In Support Of Plaintiffs Motion fo r Summary Judgment at 13

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disability checks in addition to the check that served as the basis for the plea should be included

within the reach of the collateral estoppel bar. However, because the defendant was convicted of

making a false statement on only one compensation form, summary judgment could not be

granted as to the other 14 forms.

i) Liability Does Not Equal Damages

The False Claims Act Collateral Estoppel bar does not obviate the government obligation

to bring forward proof of damages in the FCA action.

"Thus, it is incumbent on the United States to come forward with evidence of theamount of damages to which it claims entitlement, and the fact that the issue of damageswas not before the jury in the criminal trial does not

~ r e c l u d ethe government from

introducing an affidavit in support of [its] motion." 1

Conversely, even should the criminal sentencing court order restitution, that does not as a

matter of law establish the extent of FCA damages that could be awarded in a later civil

proceeding. A finding of criminal restitution does not limit, cap, or set a floor for FCA damages.

This indicates that the two systems of calculation of damages are separate and

independent. Therefore, it is incumbent in a FCA trial to establish its own finding of damages,

and not rely exclusively, or independently on the criminal trial findings. This works against CE,

in that CE would have to automatically find maximal damages and run into the Double Jeopardy

Limit of damages. In U. S. v. Heart Trace a/Nashua,42 defense counsel successfully argued

that the government could not claim greater FCA single damages than it had admitted in

sentencing stipulations regarding the amount of loss occasioned by the offenses underlying the

conviction. The greater amount sought in the FCA case would have to be proved by the

41 U. S. v. Nardone, 782 F. Supp. 996, 998 (M.D. Pa. 1990)42 U. S. v. Heart Trace o f Nashua, Inc., 2001 WL 274804 (D.N.H. Jan. 10, 2001)

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government and could be contested by defendants. Only the facts absolutely "material and

necessary" to the criminal conviction are embraced within the FCA CE ban - all other facts have

to be proven by the government at trial.43

In U.S. v. Emergency & Patrol Air Services, the

defendant is estopped only from arguing facts related to the "same transaction" as was the basis

for the criminal conviction44

. That said, Seiffert v. Green found the purported criminal court

finding must be "directly at issue and essential to the criminaljudgment.,,45 Allegations to which

the government seeks to apply the CE bar must be part of "the same transaction" as that

recounted in the conviction46

. If the criminal conviction is for the general crime of conspiracy,

without a finding of specific actions taken in pursuance of the conspiracy, then CE can be

invoked only for specific acts of conspi racy 47

The Plaintiffcannot bring forward a schedule of individual criminal transactions

proffered and accepted by the court in the criminal trial. There are none. The only evidence as

to improper spending in project year 1 was OXI 14, and it does not point to any individual

transaction. The Plaintiff s "56. I" Statement, Paragraph 30 Response and the Declaration of

Dunlevy delve into a detailed analysis of OX I I4. From the analysis we must raise significant

questions as to the validity of the audit.

j) The Defendant 's Conviction under 18 U.S.c. 666(a)(1)(A) [BEA]

43 u. s. v. Boutte, 907 F. Supp. 239, 241 (E.D. Tex. 1995), affd, 108 F.3d 332 (5th Cir. 1997).44 u. S. v. Emergency & Patrol Air Services, Inc., 1988 Wl107576 (E.D. Pa. Oct. 13, 1988).45 Seiffert v. Green, 1987 Wl26670 (E.D. Pa. Dec. 8, 1987).46 u. S. v. Ford, 19 F.3d 20 (6th Cir. 1994).47 . U. S. ex. reI. Miller v. Bill Harbert International Construction, Inc., 2007 Wl851857 (D.D.C. March 14, 2007)

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While 18 666 [BEAl covers a wide swath of territory, the Defendant wa s convicted

specifically under subsection (a)(I)(A) above, and specifically the clause that prohibits

"intentional misappl[ication]" of funds 48.

Indeed, in its brief to the Second Circuit on the appeal from the criminal verdict 49 , the

Government specifically argued that fraud was no part of the elements o f 18 U.S.C. 666. The

only relevant point, according to the prosecution, was whether she knew that the monies were

applied incorrectly to categories of expenditure not authorized by the Government, even without

intent to defraud, an d even if used for otherwise legitimate purposes. Here is the pertinent

portion o f the argument on which the criminal prosecution was based:

a) 2. Intent t o D ef ra ud I s Not An Element Of Section 666(a)(1)(A) .. .

In contrast to the bank embezzlement statute, 18 U.S.C. 656, which requires theGovernment to prove the additional element that "the defendant intended to injure ordefraud the bank," see United States v. Docherty, 468 F.2d 989 (1972); Sand, Instr. 24-2,there is no legal authority of which the Government is aware - and none that Karron hascited - imposing an analogous specific intent-to-defraud element for Section666(a)(1 )(A).5o

Thus, in the above sect ion o f the U.S. Criminal Appeal Brief, the Government argues that

Karron's conviction under 18 U.S.C. 666(a)(1)(A) BEA do not have as an element any intent

to commit fraud. In addit ion, the Government also argued that Karron's convict ion does not

have as an element an improper purpose51

.

48 Government's Rule 56.1 Statement, 1.49 Karron Declaration Exhibit 68.t

so U.S. v. Karron, U. S. Court of Appeals For The Second Circuit, Brief for the U. S, No. 085287-Cr, "U.S. Criminal Appeal Brief (2009), Karron Declaration Ex 68, at 25.51 U. S. v. Urlacher, 979 F.2d at 938 "Otherwise Lawful purpose", Karron Declaration Exhibit172

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In U. S. v. Urlacher 52 the Court defined the term "intentional misapplication" to

encompass misuse of federal funds "for otherwise legitimate purposes". The Court explained its

reasoning as follows:

b) Section 666(a)(1)(A) prohibits embezzling, stealing, obtaining by fraud, converting,or intentionally misapplying funds. Th e first four prohibitions cover any possibletaking of money fo r one's own use or benefit. Intentional misapplication, in order toavoid redundancy, must mean intentional misapplication fo r otherwise legitimatepurposesS 3

Thus, the Government itself has acknowledged that Karron's conviction under 18

u.s.C. 666 was no t obtained on the basis of fraud or false statements, but rather

misapplication of funds received. The conviction does not mean that Karron made knowingly

false statements. Rather, the most that can be said is that after Karron received money from the

Government, she intentionally applied those funds to expenditures that she knew to be outside

the budget or that she intentionally categorized those funds incorrectly. While the Government

may attempt to prove that false statements were made, that proposition cannot be established by

means of collateral estoppel based on the conviction alone.

Unlike its previous argument in the criminal case, where the Government argued that the

only relevant question was whether funds were intentionally misapplied, the Government is now

arguing that the criminal conviction under 18 U.S.C. 666 included a scienter requirement with

regard to claims.

52 U. s. v. Urlacher, 979 F.2d at 93853 U.S. Criminal Appeal BriefKarron Declaration Ex 68 at 32

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The Government itselfcites in its brief a case which demonstrates that FCA claims must

demonstrate the element of scienter. 54.

There is an important distinction here between Karron's knowing that monies expended

involved goods and services that had been incorrectly categorized, and Karron's knowledge of

the falsity of her claims. The first, i.e., knowledge that monies were incorrectly categorized, was

a required element of the criminal offense under which Karron was convicted. The second, i.e.,

knowledge that a claim was false, was not an element of the BEA offense, but is an element of

an FCA suit. That difference creates a large gulfbetween the criminal verdict and the present

lawsuit.

The Government is required to prove the element of scienter as to the claims that were

not part of the criminal case. The Defendant disputes that the element of scienter as to the

claims exists in this case, and is entitled to bring evidence to demonstrate the non-existence of

that fact.

Significantly, in its Rule 56.1 Statement submitted in support o f this motion, the

Government nowhere makes specific reference to anything indicating that Karron did, in fact,

have knowledge o f the falsity of claims. Indeed, Benedict clearly knew what he meant by what

he wrote when he exonerated Karron in submitting restated SF270's. Karron Dec!. Exh. 128.

Rather, the Government's Rule 56.1 Statement states that expenditures are allegedly

"personal," "unallowable, unallocable or [in excess of] budget limitations," and "unauthorized."

Nowhere is there any statement that claims submitted by Karron to the Government for the

54 U.S. ex. reI. Mikes v. Straus, 84 F.Supp.2d 427, 433 (S.D.N.Y. 1999) (professional negligence does not meet the scienterrequirement, even though the Medicaid claims to the Government may have been medicallyunnecessary or improperlyperformed)

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purpose of drawing down funds were false and that Karron knew them to be false. With the

forensic proof that Karron had significant personal funding in play, Karron's funding of

overhead and otherwise necessary disallowed costs out of pocket does not imply

misappropriation, but responsible stewardship. Dunlevy Decl.

Point IV. Monstrous Civil Penalties and Damages Unconstitutional

Even assuming arguendo that Karron is liable for damages, the full amount CASI

received from the ATP under the Cooperative Agreement is not the appropriate basis

"The court ultimately arrived at the $120,000 amount by totaling categories ofexpenditures that did not appear on the approved budget, an alternative calculationproposed by the Government .. . " Prosecution Memorandum of Law at 9.

This implies that all other costs did appear on the 'budget'. How can the government be

damaged by its own court approved budget?

1. A 42 t imes damages an d punitive ratio

The summary judgment in this case, as demanded by the Plaintiff, would resultin

amonumental civil fine, which, if left uncontested by a trial, would amount as much as 5 million

dollars and 'go to the [defendant's] grave'. Given collapse of the Defendant's income earning

ability, this would amount would be uncollectable to the Government. This is especially cruel

and unusual punishment without a deten"ent effect; it has a chilling effect on creative researchers

seeking federal funding, the opposite of the intentions of the ATP statute. 15 278n .. A civil

punitive judgment of 5 million dollars on an already criminal judgment of 120 thousand dollars

restitution is a whopping 42 times increase.

2. Double Jeopardy and the BEA and the FCA

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U. S. v. Halper 55 raised the issue of Double Jeopardy in FCA collateral attacks after

criminal convictions. When does a monumental civil fine approach Constitutional borders of

cruel and unusual punishment?

The CAMPBELL Punitive The Single Digit Ratio Rule

In response to judges and juries which award high punitive damages verdicts, the

Supreme Court ofthe United States has made several decisions which limit awards of punitive

damages through the due process oflaw clauses of the Fifth and Fourteenth Amendments to the

United States Constitution. In a numberof

cases, the Court has indicated that a 4: 1 ratio between

criminal (punitive and) compensatory damages is broad enough to lead to a finding of

constitutional impropriety (The Single Digit Ratio Rule)and that any ratio of 10: 1 or higher is

almost certainly unconstitutional BM W v. Gore 56 the Court ruled that punitive damages must be

reasonable, as determined based on the degree of reprehensibility of the conduct, the ratio of

punitive damages to compensatory damages, and any criminal or civil penalties applicable to the

conduct. In CAMPBELL 57 , the Court held that punitive damages may only be based on the acts

of the defendants which harmed the plaintiffs. In Simon v. San Paolo 58 , the California Supreme

Court addressed Campbell "[T]hat "few awards" significantly exceeding a [A] single-digit ratio

will satisfy due process ."

55 U. S. v. Halper, 490 U.S. 435,448-49 (1989).143 Declaration of Karron Exhibit 189.56 BMW of North America, Inc. v. Gore (1996)57 STATE FARM MUT. AUTOMOBILE INS. CO.V. CAMPBELL (01-1289) 538 U.S. 408 (2003)P.3d58 Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal. 4th 111182

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3. Forensic Accounting does not support the Plaint i ffs loss content ion

What is the purpose of the Plaintiffs pursuit of this FCA collateral attack against the

plaintiff? I t is punitive or compensatory The defense never proffered forensic evidence to the

contrary in a form suitable for countering GX114.

4. The TENNENBAUM precedent

Most recently SONYv. TENNENBAUM (2010), see Karron Declaration Exhibit188. the

court accepted the Constitutional challenge to a monstrous jury award for the relatively minor

crime of downloading songs from the internet.

5. Large Punitive Damages and Fines CASE LAW

In U.S. v. Bajakajian 59 the Supreme Court ruled that it was unconstitutional to take

$357,144 from a person who failed to report his taking of more than $10,000 in U.S. currency

out of the U.S. In what was the first case in which the Supreme Court ruled a fine violated the

Excessive Fines Clause, the Court ruled that it was "grossly disproportional" to take all of the

money which Bajakajian attempted to take out of the U.S. without reporting trying to do so. In

describing what constituted "gross disproportionality," the Court could not find any guidance

from the history of the Excessive Fines Clause and so relied on Cruel and Unusual Punishment

Clause case law. The Supreme Court has used the "Evolving Standards of Decency" standard not

only to say what punishments are inherently cruel, but also to say what punishments that are not

inherently cruel are nevertheless cruelly disproportionate to the offense in question 60 The crime

is not reprehensible. The damages are Draconian and do not serve the purpose of deterrence;

that is the criminal courts job. Ibid

59 U. s. v. Bajakajian, 524 U.S. 321 (1998),60 TROP v. DULLES 35 6 U.S. 86 (1958)

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Perhaps had the ATP program had known that Karron was going to be convicted of a

felony, or that Karron was a Transsexual, perhaps they would have passed over her(then him) for

the award to a 'more responsible and eligible' recipient. However, the standards of the ATP

award not based on the awardee, but on the quality of the proposal. ibid Ex. Group 24, Ex. 151.

Karron did not lie during the awardee vetting process. Ibid Ex. 3; ATP knew who (but not what)

they were getting into bed with in this award.

Point V. Other Issues Raised and Answered

s) OMB Circulars advice to Agencies

OMB Circulars A-21 and OMB Circular A-122 intentions are" Federal Government

bear its fair share of total costs, determined in accordance with generally accepted

accounting principles, '" Agencies ar e no t expected to place additional restrictions on

individual items of cost . . . . . , such cost sharing or matching shall no t be accomplished

through arbitrary limitations on individual cost elements by Federal agencies."

t) Revision of budget and program plans: 15 CFR 14.25

Permission is not required for many budget and program plans: 15 CFR 14.25 (4) "the

prior approval requirements described in paragraph (e) of this section are automatically waived

(i.e., recipients need no t obtain such prior approvals)." "(t) The recipient may not transfer

funds among direct cost categories [ifthe] cumulative amount of such transfers exceeds or is

expected to exceed 10%

of the total Federal and non-Federal funds authorized .. This does

no t prohibit the recipient from requesting Grants Officer approval for revisions to the

budget... (g) ... do no t require prior approval." . . . . "revision is still under consideration

at the end of 30 calendar days, the Grants Officer shall inform the recipient in writing of

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the date when th e recipient ma y expect th e decision". ATP does not care about the budget

except to be assured that the public money it is entrusted with is spent wisely, not wasted, and

for the purpose intended, not slavish adherence to budgets just to expend money with no benefit

to anyone.

u) AT P wa s tacitly or minimally responsive.

The ATP project management were required to respond to budget amendment requests

in 30 days. Ifthe ATP representative was unable to respond in 30 days then it she was obligated

by under 15 CFR 14.25(m) to make written commitment for a definitive answer date. At no

point during the grant was a written response made on this topic. At all times, the ATP program

management, to their credit, was working toward find a way to say ' Yes'. Because of this lack of

an affirmative negative, and given Karron's overfunding of the project, Karron had in fact

justification to continue. The only risk would be that Karron would have to pay for some

activities instead of ATP; the justification was there from the program management proud of

how 'un bureaucratic' an agency it was. Karron Declaration Exhibit 141, 148.

1. Cooperative Agreement requires CASI Substantial Involvement

a) Kickoff Memo from Orthwein (Karron Declaration Exhibit 5) shows early significant

involvement.

Karron Declaration Exhibit 1-6 shows, quarterly technical reports were submitted and

accepted. These reports not only detail the technical progress and scientific difficulties, but also

the contractual and business issues faced by the CASI startup. Ex. 14 (ATP Proposal Ex. 14

Instructions, 2001), has a cover instruction page that contains this disclaimer:

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We recognize that unexpected events occur frequently in R&D projects, and thatbudgets may need to be changed as a project proceeds. Don't fear that by providing amulti-year budget beyond t he f ir st yea r, you will be locked in to those detai ls . A TPallows a certain amount of flexibi li ty in moving funds from one line item to another ascircumstances change . . . . [Emphasis Added]

Lide, in direct examination apparently incorrectly answers the question of which Rule

rules: A. "Regardless of whether they are allowable under the federal cost principles, the

following are unallowable under ATP:" Q. What does the first of that phrase mean, "Regardless

of whether they are allowable under the federal cost principles."? A. It means what's stated here

overrules any other federal cost principles. Trial Transcript Pages 232 et seq. Lines 16-et seq.

But the federal cost principles say that they cannot be arbitrarily overruled; they rule, not the

agencies. See above.

Point VI. No grounds for Summary Judgment 61

"[T]he mere existence of some alleged factual dispute between the parties will not defeat

an otherwise properly supported motion for summary judgment; the requirement is that there be

no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 Us. 242, 247-48 (1986)

[emphasis removed]. A dispute is considered to be genuine only if "the evidence is such that a

reasonable jury could return a verdict for the nonmoving party." Id. Celotex Corp. v. Catrett,

477 U.S. 317 (1986).First National Bank of Arizona v. Cities Service Co.391 U. S. 253,391 U. S.

289(1968)To avoid summary judgment, the nonmoving party "must do more than simply show

that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586,

(1986)

61 Brody, Steven G. and Chow, Gary K., November 16, 2009 New York Law Journal. Unlikely Source May Be RaisingSummary Judgment Bar High Court's three pleadings rulings begin to impact

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A District Court may not resolve disputed factual issues on Summary Judgment if the

nonmoving party presents more than a "Scintilla o f Evidence"._Anderson v. Liberly Lobby, Inc., 477

u.s. 242, 252 (1986). In this case, the pro se Defendant Karron has refuted or shown moot 31 of

31 of the movants "56.1" statements of material fact. The Defendant presents Table 1, and the

Dunlevy Declaration Exhibits provides comprehensive forensic analysis. The moving party

cannot now show conclusively that there is no genuine issue o f material fact; except by a finding

o f fact at trial.

The Plaintiff has failed to show an undisputed qualifying fraud transaction, the sine qua

non for a FCA conviction. There was no fraud transaction proven in the Defendant's BEA

criminal conviction. This lack o fa fraud requirement was sustained on appeal. U. S. v. Karron,

On Appeal, Brief for the United States(2009) at Point 1(B)(2). Summary Judgment cannot be

granted in this case because the Fraudulent Transaction standard required for a FCA summary

conviction is not established 62 Allison Engine Co. v. U. S. ex. rel.Sanders (No. 07-214) 471 F.

3d 61 O,(vacated and remanded) . . At the very least, a jury is required to establish knowing fraud

transaction de novo.

1) No Uncontested Material Issues for Partial Summary Judgment.

Should the Defendant's "56.1" Counterstatement and Opposing Memorandum of Law

leave any alleged genuine undisputed issues of material undisputed, the court may invoke FRCP

56(d) "Case Not Fully Adjudicated on the Motion", (1) "Establishing Facts" and (2)

"Establishing Liability". All 6 Claims are addressed above, and all 31 Items in the Movants

"56.1" statement are answered. Because the Defendant has presented full panoply o f counter

62 Small, Dan;( October 2009). Compliance & Ethics Professional. False Claims Act: Wave of th e Future.www.corporatecompliance.org, Page 30 ft.

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evidence, and argument, there do not exist gaps of agreed no material dispute, into which a

partial summary judgment may be driven.

(1) With respect to "Establishing Facts", The Defendant has rebutted, with copious

specific citation to evidence admissible at trial, each and every "material fact[s] [8'8 fist]

genuinely at issue" ofthose raised by the Movant. Rule 56(d)(1) advises "The court should so

determine by examining the pleadings and evidence and by interrogating th e attorneys. The

court "should then issue an order specifying what facts [ifany remain] - including items of

damages or other r e l i e f - are not genuinely at issue" The surviving facts so specified must be

treated as established in the action" [Emphasis and editorialization added]. Therefore, it is

extremely important that the Non Movant not leave any material facts at issue uncontested, and

those that are contested with references to evidence that would be admitted at trial. This

effectively means that the Non Movant case-in-chief must be successfully argued such that the

court is convinced that there exists a significant probability of success at a trial.

(2) With respect to "Establishing Liability", The Defendant is in a situation whereby they

are estopped from arguing no liability, yet in (1) above the Defendant will introduce convincing

material evidence, necessary for evaluating damages, yet also revealing Plain Error in the

Criminal Trial.

The auditors conspired to make materially false audit in ignoring Karron's contribution.

The government's audits were copied from the CASI hostile audit, ignoring basic

principles of Auditing: Completeness, Independence, and OMB Cost Principles. The

defendant's tax paid salary, turned back to the project, was willfully ignored, by refusing to trace

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funds 63 . The Defendant's criminal liability was for spending funds that were her property with

which to spend as she pleased, obviating alI of the testimony that the Defendant willfully ignored

ATP spending rules: because she was spending her own money to pay program and non-program

bilIs.

Inventory of Facts, Claims, Refutations of Facts, Arguments to Claims

The Movants complaint raised 6 claims in its initial complain. The Movant's "56.1"

statement raised 31 items with issues of alleged uncontested fact that the Defendant has

assiduously rebutted with references to evidence admissible at trial. Complaint 6 claims are

argued in 6 points of argument.

The Defendant has raised significant issue with the government's evidence used to

convict the Defendant in the Criminal Trial with prima facie evidence that the audit numbers

alleging misappropriation just don't add up, are made up, and otherwise just in themselves

mistakes of fact by the Plaintiff. Karron Declaration Exhibit 36. The only fact found by the jury

was some amount of funds greater than five thousand dollars, unspecified in detail, was

misapplied. U S. v. Karron (2008) AmendedJudgment in a Criminal Case. Karron Declaration

Exhibit 65

4) Conclusion; No grounds for Civil or FCA Statutory Estoppel, Full or PartSummary Judgment.

(1) No grounds for Common Law Estoppel;

(a) no elements of fraud to estop by resjudicata.

ii) There are no grounds for FCA Statutory ColIateral Estoppel;

63 Smith, lionel D.; (1997)The law of tracing CLARENDONPRESS OXFORDhttp://www.questia.com/read/55471201

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(1) no 'Same Transactions'

iii) Summary Judgment cannot be granted;

(1) no common elements from prior trial.

(2) all elements require findings o f fact and adjudication.

(a) No partial Summary Judgment;

iv) 42x penalty is second punishment;

(1) Is there a new crime from same events?

v) Ne w trial required to evaluate benefit of bargain losses and damages.

(1) Will prove they are negative.

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA,

Plaintiff,08 Civ. 10223 (NRB) (DFE)

- v . -AFFIRMATION OF SERVICE

DANIEL B. KARRON,

Defendant.

I, Deborah Anne Dunlevy, declare under penalty of perjury that I have served a

copy of the attached

1. MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF'SMOTION FOR SUMMARY JUDGEMENT

2. OPPOSING 56.1 STATEMENT OF MATERIAL FACTS3. Declaration of Deborah Anne Dunlevy4. Declaration ofD B Karron

upon

Michael J. Byars, Assistant United States Attorney,

whose address is

86 Chambers Street, 3 rd Floor

Ne w York, New York 10007

By Hand ont h i : : r ~ ~ ) U

Dated: New York, NY

Signed

Deborah Anne Dunlevy

31-18 Broadway, 2R

Long Island City, NY 11106

1


43/43


UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

MEMORANDUMPro Se Office

To : The Honorable Naomi Reice Buchwald, USDJ

From: K. Johnson, Pro Se Office, x0177

Date: August 25,2010"

Re: United States of America v. Karron, No. 08 Civ. 10223(NRB)

No original signature.

The request is in the form of a letter.

No affirmation of service/proof of service.

The attached document, which was received by this Office on August 23,2010 has been

submitted to the Court for filing. The document is deficient as ind icated below. Instead offorwarding the document to the docketing unit, I am forwarding itto you for your consideration. SeeFed. R. Civ. P. 5(d)(2)(B), (4). Please return this memorandum with the attached papers to thisOffice, indicating at the bottom what action should be taken.

(X )

( )

( )

( ) Other: _

(r-

~__

A_C_C_E_P_T_F_O_R_F_I_L_IN_G ...,

Comments: ..c;::;i~

/United States District Judge 0,2-6"( D

United States Magistrate Judge

Documents

Memorandum of Law in Opposition to Plaintiff's MSJ. Docket Doc 29