Opinion ID: 681322
Heading Depth: 2
Heading Rank: 3

Heading: grumman

Text: 11 Grumman is a Rice customer which manufactures military and civilian aircraft for the Navy and other customers. When Grumman learned of the criminal charges against Rice, it impounded its entire inventory of Rice-supplied fasteners. Since then, it has allegedly been unable to sort potentially fraudulent Rice-supplied fasteners from properly tested and authenticated ones. Because its clients, including the Navy, require all parts to be properly tested and authenticated, Grumman contends it cannot use any of its Rice-supplied fasteners. The district court found that Rice's conduct had tainted Grumman's entire inventory and awarded Grumman restitution based on the value of its entire Rice-supplied inventory. 3 12
13 Rice first argues that the restitution award to Grumman was illegal because Grumman's alleged losses were not related to Rice's offense of conviction. See Hughey v. United States, 495 U.S. 411, 413, 110 S.Ct. 1979, 1981, 109 L.Ed.2d 408 (1990) (Under the VWPA, restitution may be awarded only for losses caused by the specific conduct that is the basis of the offense of conviction.); United States v. McHenry, 974 F.2d 1031, 1033 (9th Cir.1992) (In conspiracy and fraud cases, restitution under the VWPA is available only for losses caused by the specific acts of which the defendants were convicted.); United States v. Sharp, 941 F.2d 811, 815 (9th Cir.1991). But see United States v. Hammer, 967 F.2d 339, 340 (9th Cir.1992) (upholding FPA restitution awarded to a fraud victim who did not receive the specific mailings which formed the basis of the defendant's guilty plea and noting that Hughey does not apply to restitution awarded under the FPA). 14 Specifically, Rice contends that it admitted sending false reports with reprocessed parts. However, the district court found Rice stopped sending reprocessed fasteners to Grumman in 1984. Grumman bought the impounded inventory after 1985 and thus, according to Rice, the impounded inventory does not contain any reprocessed fasteners. Rice contends that Grumman can recover restitution only for reprocessed fasteners, and not for its impounded inventory. 15 We disagree. Rice and Rice Aircraft pled guilty not only to reprocessing fasteners but also to sending false test reports. Both Rice and Rice Aircraft specifically admitted paying Hi-Shear employees for test reports during 1986 and 1987 and sending mismatched test reports beginning in 1985 and continuing until at least October 21, 1987 (Count II). In addition, both stated that they knowingly used these test reports to misrepresent to certain fastener purchasers that certain fasteners being sold were identified by, and traceable back to, a particular Hi-Shear manufacturing production lot number with the indicated test results. ER 71-72. These admissions are not limited to reprocessed parts. 16 Rice argues that Grumman cannot prove that any particular part in its inventory was accompanied by a false test report. This argument misstates the issue. Grumman alleges that it cannot use any fasteners without reliable documentation and test reports; a Navy employee confirmed that the Navy will not buy aircraft without such documentation and reports. Thus, the issue is not whether Grumman can prove that any particular documents are false, but whether it can prove to its customers' satisfaction that any particular test reports and documentation are valid. 17 According to Grumman, it attempted to obtain such proof: it contacted Hi-Shear and attempted to determine which parts were traceable. However, it found that, because of Rice's false documentation, Grumman could not accurately trace Rice's fasteners. In support of this argument, Grumman presented affidavits documenting various suspicious paperwork including mismatched numbering and purchase orders which did not correspond to actual inventory. See, e.g., Second Affidavit of Ernest Frank. Rice admits sending purchase orders which did not correspond to actual inventory. 18 The district court's finding that, because of Rice's fraudulent paperwork, Grumman cannot prove to its customers' satisfaction that its Rice-supplied parts meet industry standards was not clear error. To the extent that the victim is unable to determine which merchandise is safe and which is not because of the very fraudulent conduct of which the defendant was convicted, a district court acts well within its discretion in awarding restitution for the entire value of the contaminated merchandise which cannot be resold. Cf. United States v. Seligsohn, 981 F.2d 1418, 1421 (3rd Cir.1992) (upholding insurance fraud award for fraudulent claims even though some of the defendant's claims were legitimate where the defendant's own fraudulent conduct prevented the victim from distinguishing between legitimate and fraudulent payments). 19
20 Rice next contends that the restitution award was too speculative and remote, emphasizing that not all damages cognizable in a civil action can be awarded as restitution. See United States v. Salcedo-Lopez, 907 F.2d 97, 98 (9th Cir.1992) (disallowing restitution for the costs of investigation and prosecution); United States v. Kenney, 789 F.2d 783, 784 (9th Cir.) (no restitution for salaries of trial witnesses), cert. denied, 479 U.S. 990, 107 S.Ct. 586, 93 L.Ed.2d 588 (1986); United States v. Tyler, 767 F.2d 1350, 1351-52 (9th Cir.1985) (no restitution for the decline in the value of stolen timber where the decline was caused by market forces, not the defendant's conduct). 21 These cases are inapposite. Causation is a question of fact, reviewed for clear error. Bunting v. United States, 884 F.2d 1143, 1145 (9th Cir.1989). Here, Rice sent false quality assurances, packed merchandise itself in violation of Grumman requirements, and sent packaging slips which did not correspond to actual merchandise. That such conduct will render one's inventory suspect and make tracing difficult is foreseeable. Grumman's loss is neither remote nor speculative. See, e.g., Kenney, 789 F.2d at 784 (upholding restitution awarded to a bank to cover the cost of removing surveillance film from the bank's security camera); United States v. Koenig, 952 F.2d 267, 274-75 (9th Cir.1991) (upholding restitution for the cost of reprogramming bank computers after defendants had electronically subverted the bank's automatic teller machine). Like the bank which had an obligation to reprogram its computers to protect its customers, Grumman had an obligation to protect its customers (and the public) by not using fasteners which did not comply with industry standards. The district court found that, in order to fulfill its obligation, Grumman had to impound or refuse to use its Rice-supplied inventory. This finding was not clearly erroneous. 22
23 Rice also argues that Grumman's own conduct impeded its efforts to sort potentially fraudulent fasteners from properly documented ones and contends and that, therefor, Rice's conduct did not proximately cause Grumman's loss. In support of this argument, Rice alleges that Grumman's impounded warehouse is poorly organized and notes that Grumman's practice of sending fasteners to another company for color coding impedes tracing. 24 However, whether or not Grumman might have been able to mitigate its damages by keeping better internal records once it received Rice's shipments affords the criminal perpetrator no excuse. A crime victim is not required to mitigate damages. United States v. Soderling, 970 F.2d 529, 534 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2446, 124 L.Ed.2d 663 (1993). The district court did not err in finding that Rice's fraud proximately caused Grumman's loss. Abundant evidence supports its finding. 25
26 Rice also contends that Grumman could have tested the fasteners and argues that Grumman has made no effort to recall aircraft previously built with Rice-supplied fasteners. In support of these arguments, Rice makes a number of inflammatory comments about Grumman's own misconduct, contending that Grumman has been involved in criminal conduct and has accepted fasteners from other companies which have falsified supporting documentation. 27 These arguments and attacks on Grumman's credibility are typical of Rice's effort to evade responsibility. They are also attempts to relitigate the factual issues underlying the restitution award. The district court evidently accepted Grumman's testimony that recalling aircraft with Rice fasteners was unnecessary because unsound fasteners would fail immediately during flight testing. It also accepted Grumman's argument that testing fasteners would be impossible (or prohibitively expensive) due to the mixing of various lots in its warehouses and Rice's own failure to adhere to Grumman's packaging requirements. These findings are not clearly erroneous. 28
29 Rice also argues that the district court improperly considered evidence that Rice sent false packaging slips. Rice contends that, since it pled guilty to falsifying test results, not packaging slips, this conduct was outside the offense of conviction and could not be considered. 30 We review for abuse of discretion a district court's decision regarding the relevancy of evidence. United States v. Schaff, 948 F.2d 501, 505 (9th Cir.1991). No such abuse of discretion occurred here: Grumman introduced the packaging slip issue to explain its inability to trace Rice-supplied fasteners. It submitted evidence that Hi-Shear packaging slips were found in the desk drawer of one of the bribed Hi-Shear employees, that the Hi-Shear employee in question sent Rice packaging slips to enable Rice to indicate that certain fasteners had been packaged by Hi-Shear, when in fact Rice packaged them itself, that Rice obtained a packaging machine in order to package fasteners itself, and that Rice bribed Hi-Shear employees to send fasteners in bulk, so that Rice could package them itself, contrary to Grumman quality control procedures. This evidence was relevant to explain why Grumman could not rely on Rice's packaging slips to determine the origin of its impounded inventory. 31 Rice did not (and does not) dispute the accuracy of this evidence. Rather, on appeal, Rice specifically admits that it sent Grumman packaging slips which did not correspond to any actual shipments and argues that Grumman is double-counting parts by relying on Rice's packing slips. This argument itself supports Grumman's claim that it cannot accurately trace fasteners, and amounts to a request that this court protect Rice from its own fraud. We decline to do so. A company which sends false paperwork in an effort to mislead its customers should not be surprised when it injures itself by its own mendacity. The district court did not abuse its discretion in considering the packaging slip issue as an explanation of Grumman's inability to trace its Rice-supplied inventory and any double-counting caused by Rice's misleading packaging slips is the result of Rice's own fraud. In any event, Rice has not shown that any double-counting occurred. 32
33 Finally, Rice objects that Grumman's impounded inventory includes fasteners purchased after the conspiracy allegedly ended on October 31, 1987. However, Count II, the mail fraud count, alleged that Rice's illegal conduct continued until at least October 31, 1987. The district court therefor did not abuse its discretion in awarding restitution for purchases made in 1988. Moreover, Grumman is apparently unable to sort fasteners by shipment due to the effect of Rice's false packaging slips on Grumman's internal procedures. 4 Given these facts, the district court did not abuse its discretion in calculating restitution based on Grumman's entire inventory.