United States v. Howard John Aleff , 772 F.3d 508 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 14-1527
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Howard John Aleff, also known as “Jack”; Reena L. Slominski; L&J Wool & Fur
lllllllllllllllllllll Defendants - Appellants
____________
Appeal from United States District Court
for the District of South Dakota - Aberdeen
____________
Submitted: November 11, 2014
Filed: November 20, 2014
____________
Before MURPHY, MELLOY, and BENTON, Circuit Judges.
____________
BENTON, Circuit Judge.
Howard John Aleff and Reena L. Slominski pled guilty to conspiracy to defraud
the United States by submitting false applications for loan-deficiency payments in
violation of 18 U.S.C. § 286. They were ordered to pay $303,890 in restitution. The
United States then sued under the False Claims Act, 31 U.S.C. §§ 3729-33. The
district court1 granted summary judgment to the United States, ordering Aleff,
Slominski, and their business, L&J Fur & Wool, Inc., to pay a $1,376,670 penalty.
Aleff and Slominski appeal, arguing that (1) the district court erred in holding that
their guilty pleas resolved their FCA liability; (2) the $1.3 million penalty violates the
Double Jeopardy Clause; and (3) the $1.3 million penalty is grossly disproportional
under the Excessive Fines Clause. Having jurisdiction under 28 U.S.C. § 1291, this
court affirms.
I.
This court reviews de novo a grant of summary judgment. Torgerson v. City
of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). Summary judgment is
proper when there is no genuine issue of material fact and one party is entitled to
judgment as a matter of law. Id. The district court found that Aleff’s and Slominski’s
guilty pleas established the essential elements of an FCA claim. It also concluded that
its finding at sentencing that Slominski acted with “significantly reduced mental
capacity” did not negate the preclusive effect of her guilty plea.
Aleff and Slominski argue that their guilty pleas are not preclusive because no
issues were actually litigated in the criminal proceeding, citing Popp Telcom v.
American Sharecom, Inc., 210 F.3d 928, 939 (8th Cir. 2000) (noting collateral
estoppel applies when “the disputed issue has actually been litigated and decided”).
To the contrary, collateral estoppel “applies equally whether the previous criminal
conviction was based on a jury verdict or a plea of guilty.” Hernandez-Uribe v.
United States, 515 F.2d 20, 22 (8th Cir. 1975). See also 31 U.S.C. § 3731(e)
(providing that a final judgment in a criminal proceeding, “whether upon a verdict
after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from
1
The Honorable Charles B. Kornmann, United States District Judge for the
District of South Dakota.
-2-
denying the essential elements of the offense in any action which involves the same
transaction as in the criminal proceeding” (emphasis added)).
Slominski also claims that the sentencing finding of diminished capacity raises
an issue of material fact whether she “knowingly” presented a false claim. See 31
U.S.C. § 3729(a) (FCA prohibits “knowingly present[ing]” and conspiring to present
“a false or fraudulent claim for payment or approval”). Slominski cites no authority
that sentencing findings negate the preclusive effect of guilty pleas or admissions. Cf.
United States v. Villa-Madrigal, 683 F.3d 924, 926 (8th Cir. 2012) (“[A] defendant
who pleads guilty waives all nonjurisdictional defenses.”). Slominski had the
opportunity to litigate her knowledge during the criminal case. The district court
found her mentally competent to proceed. By pleading guilty, she admitted to
“conspiracy to defraud the United States . . . by obtaining or aiding to obtain the
payment or allowance of any false, fictitious or fraudulent claim.” 18 U.S.C. § 286.
See “Factual Basis Statement,” Doc. No. 35, United States v. Slominski, No.
1:11CR10036-2 (D.S.D. Dec. 30, 2013). See also Hernandez-Uribe, 515 F.2d at 21(holding defendant admits all essential elements of the offense by pleading guilty),
citing McCarthy v. United States, 394 U.S. 459, 466 (1969). Slominski necessarily
admitted knowledge of the conspiracy to defraud and of the falsity of the submitted
claims. See, e.g., United States v. Dedman, 527 F.3d 577, 593-94 (6th Cir. 2008)
(holding § 286 requires “the defendant knew or was deliberately ignorant of the
claim’s falsity, fictitiousness, or fraudulence”); United States v. Leahy, 82 F.3d 624,
633 (5th Cir. 1996) (holding § 286 requires knowledge of claim’s falsity,
fictitiousness, or fraudulence). See also United States v. Price, 542 F.3d 617, 620 (8th
Cir. 2008) (noting that knowing participation in the conspiracy is required under 18
U.S.C. § 371). Her plea and admissions establish that she conspired to “knowingly”
present a false claim under the FCA. See 31 U.S.C. § 3729(b)(1) (“knowingly”
includes actual knowledge, deliberate ignorance, or reckless disregard of the truth or
falsity of the information).
-3-
II.
This court reviews de novo a double jeopardy claim. Students for Sensible
Drug Policy Found. v. Spellings, 523 F.3d 896, 899 (8th Cir. 2008). The Double
Jeopardy Clause prohibits “‘multiple criminal punishments for the same offense.’”
United States v. Lippert, 148 F.3d 974, 976 (8th Cir. 1998) (emphasis in original),
quoting Hudson v. United States, 522 U.S. 93, 99 (1997). Determining whether a
punishment is civil or criminal is initially a question of statutory construction.
Students for Sensible Drug Policy Found., 523 F.3d at 899. The FCA is a civil
statute. United States v. Coop. Grain & Supply Co., 476 F.2d 47, 59-60 (8th Cir.
1973).
Because the FCA is construed as intending a civil sanction, the court examines
whether there is “‘clearest proof’” that the statutory scheme is “‘so punitive either in
purpose or effect as to transform what was clearly intended as a civil remedy into a
criminal penalty.’” Lippert, 148 F.3d at 976, quoting Hudson, 522 U.S. at 99-100.
The court examines the statute on its face. Id.The district court awarded both treble damages and a fixed per-claim sum. In
United States v. Brekke, 97 F.3d 1043, 1048-49 (8th Cir. 1996), this court held that the
FCA is not punishment for double jeopardy purposes because FCA treble damages are
compensatory, not punitive. See also United States v. Peters, 110 F.3d 616, 617-18
(8th Cir. 1997) (determining that FCA treble damages and fixed penalties are not
punishment for double jeopardy purposes). True, this court relied in part on United
States v. Halper, 490 U.S. 435 (1989), which was abrogated by Hudson, 522 U.S. at
101-02. But Hudson’s rejection of Halper’s method of analysis does not affect this
court’s determination that FCA penalties are compensatory. See Hudson, 522 U.S.
-4-
at 99, citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 549-52 (1943)
(holding that the FCA is compensatory).2
The FCA statutory scheme is therefore not so punitive that it is a criminal
sanction. Accord, Sanders v. Allison Engine Co., 703 F.3d 930, 942-48 (6th Cir.
2012) (applying Hudson analysis in context of Ex Post Facto Clause to determine
FCA penalties are civil); United States ex rel. Miller v. Bill Harbert Int’l Constr.,
Inc., 608 F.3d 871, 878 (D.C. Cir. 2010) (“The FCA is not penal.”); United States v.
Rogan, 517 F.3d 449, 454 (7th Cir. 2008) (“[P]enalties under the False Claims Act are
not criminal punishment for the purpose of the Double Jeopardy Clause in the Fifth
Amendment.”).
The $1.3 million judgment is not punishment barred by the Double Jeopardy
Clause.
III.
Aleff and Slominski assert that the $1.3 million penalty violates the Excessive
Fines Clause. The district court did not address this claim, although it was raised
there. Typically, this court’s review of an excessive fines claim “must be based upon
the analysis and record finally developed by the district court.” United States v.
Dodge Caravan SE/Sport Van, Vin # 1B4GP44G2YB7884560, 387 F.3d 758, 761
(8th Cir. 2004). A remand is not required here, however, because there is no dispute
2
Although the Supreme Court once characterized the FCA penalty provisions
as “essentially punitive,” Vermont Agency of Natural Res. v. United States ex rel.
Stevens, 529 U.S. 765, 784 (2000), it later confirmed that FCA treble damages have
“a compensatory side,” Cook Cnty., Ill. v. United States ex rel. Chandler, 538 U.S.
119, 130 (2003). See generally PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401,
405-06 (2003) (acknowledging the spectrum between compensatory and punitive
statutory treble-damages provisions).
-5-
about the number of violations or the amount of actual damages. Further, the basis
for the judgment is clear: $911,670 (treble of actual damages suffered) added to
$660,000 (the undisputed number of false claims multiplied by a statutory penalty of
$5,000 per claim) less $195,000 (the amount of restitution paid). And this court
reviews de novo the constitutionality of an order under the Excessive Fines Clause.
United States v. Moyer, 313 F.3d 1082, 1086 (8th Cir. 2002).
The Excessive Fines Clause applies to civil penalties that are punitive in nature.
Lippert, 148 F.3d at 977. A punitive sanction violates the Excessive Fines Clause if
it is “‘grossly disproportional to the gravity of a defendant’s offense.’” Moyer, 313
F.3d at 1086, quoting United States v. Bajakajian, 524 U.S. 321, 334 (1998).
Proportionality is determined by a variety of factors, including the reprehensibility of
the defendant’s conduct; the relationship between the penalty and the harm to the
victim; and the sanctions in other cases for comparable misconduct. Cooper Indus.,
Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 435 (2001). Legislative intent is
also relevant, Qwest Corp. v. Minn. Pub. Util. Comm’n, 427 F.3d 1061, 1069 (8th Cir.
2005), as is the defendant’s ability to pay, Lippert, 148 F.3d at 978.
The FCA’s treble damages in combination with the per-claim penalties are
punitive for the purposes of the Excessive Fines Clause. Hays v. Hoffman, 325 F.3d
982, 992 (8th Cir. 2003), citing United States v. Mackby, 261 F.3d 821, 829-31 (9th
Cir. 2001). See also Lippert, 148 F.3d at 977-78 (holding penalty may be punitive
under Excessive Fines Clause but not punishment for double jeopardy purposes).
The monetary sanction here is not grossly disproportional. Aleff and Slominski
did cause only economic loss. See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 576
(1996) (noting harm that is purely economic is less reprehensible than violent crimes).
However, their scheme to defraud the government spanned two states and more than
six years. It is undisputed that they received $303,890 from the public fisc to which
-6-
they were not entitled. The United States also had to bear the cost of investigating the
fraud and suffered damage to the integrity of one of its programs. See Qwest Corp.,
427 F.3d at 1069 (acknowledging harm to state regulatory body and state’s
competitive environment in holding penalty was not excessive). While the judgment
is about 4.3 times the actual damages, it is within the FCA’s statutory limits. See id.(holding a penalty less than statutory maximum was not excessive). Compare Gore,
517 U.S. at 583, 585 (holding punitive damage award 500 times larger than actual
damages was grossly excessive), with Moyer, 313 F.3d at 1086 (holding forfeiture of
money double the amount of harm to the government was not grossly
disproportional).
The $1.3 million judgment is not an unconstitutionally excessive fine.
*******
The judgment is affirmed.
______________________________
-7-